Markets live chat transcript for the chat ending at 12:10 on 3 Apr 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM: Hello!
PM: Welcome to Markets Live.
PM: This is FT Alphaville’s daily markets discussion.
PM: Bit late this morning
PM: Apols
PM: Neil jsut on the phone
PM: Big catch up by me this am
PM: helen and Sam have been holding the fort – very competently
PM: You can ask me any tricky question you like
PM: And i wont be able to answer it
NH: off now
NH: Murphy is all over the place this morning. Has no idea what’s going on.
NH: He’s been busy with some sort of leak inquiry.
PM: Serious matter – and its true, I don’t know what’s going on. Only just got to look at the screens.
PM: Serious leak.
NH: Who is the enquiry from – the FSA?
NH: Or is it a bank.
PM: Wot?
NH: What’s the leak about? What stock?
PM: No, its nothing to do with stocks.
PM: It’s a radiator.
PM: I bought these two old chrome radiators that had come out of the Savoy.
PM: We had one put in the study on Tuesday – and it turns out its been leaking – and its all flooded down the wall in the kitchen – which is below.
NH: Oh.
NH: I thought you had some sort of market abuse enquiry and were stuck in with the lawyer.
PM: No, stuck waiting for Richard the Plumber.
PM: Who is a nice guy. It wasn’t his fault. He said its not a problem to fix.
NH: An honest plumber – how rare
PM: Yeah seriously
NH: and not Polish
NH: rarer still
NH: Anyway – what’s this about the Savoy?
PM: Ah, well they are ripping all the fixtures out of the Savoy – and I happened across some dodgy salvage place in Lewisham that has all the gear.
PM: Bought a load of chrome towel racks. And also one of those lite mirrors for getting your spots.
PM: And we’re getting an art deco showerhead that is the size of a dustbin lid.
NH: Er, right.
NH: Sounds like Steptoe & Son
PM: I tell you – its great stuff. And cheap as chips. I don’t think the guy at the salvage place quite realises what he’s got.
PM: Anyway, if anyone wants the details, drop me a line.
PM: Wot id really like is the trolley from the Grill room — imagine getting your hands on that!
NH: cheap as chips. Haven’t I heard that somewhere before?
PM: Oh yeah, guy with perma tan
NH: David Dickinson
NH: Shall we maybe – if you fancy it – discuss the market?
NH: Only if you’ve time, obviously? Don’t want to interfere with you shopping and sourcing.
PM: Oh yeah, ok 
PM: For blackheath golddigger — place on Loampit Hill — in lewisham/deptford
NH: any other questions before we get going??
PM: Lemmy — well that’s wot the guy told me 
PM: And the leak has been fixed now
PM: 
PM: right!
PM: to the wider market
PM: How’s it looking
NH: pretty quiet to be honest
NH: think we are seeing a pause for breath after the recent strong run
NH: FTSE 100 down 15.7 points at 5,901.8
NH: miners and oils supporting the index
PM: Not the banks then?
NH: that trade seems to be being unwound
NH: and the pick of that bunch is BG
PM: (Salvage — that’s the one, near the top on the right)
NH: shares up 47p at £11.72 – that’s a rise of 4.2%
PM: oil price driving it higher??
NH: nope
NH: think crude is down a bit this morning
NH: nope the reason for the move is big industry piece from UBS
NH: and it should interest those readers who moan that we do not do enough stuff on commods
PM: Go for it!
NH: well, UBS reckons gas prices in Europe is set to rise very sharply
PM: Why’s that??
NH: higher coal prices is one reason
NH: and the other is the tighter terms of the ETS3
PM: er that’s a big jargony
PM: can you explain in plain English
NH: I will try
NH: Phase Three of the EU Emissions Trading Scheme (ETS)
NH: runs from 2013-2020
NH: and under ETS3 the power sector will have to pay fully for carbon credits
PM: I see
NH: the upshot is that UBS sees a significant shift from coal to gas demand for power generation.
NH: and it reckons this could have far reaching implications for European gas markets.
NH: If no action is taken by the EU authorities we estimate some 75 bcm pa of additional gas would be required in Europe. This is 12% above our
current forecast for European gas demand in 2013, equivalent to that for a country the size of Italy.
NH: LNG the most likely source for most of the volumes – but at a cost
Europe’s indigenous resources, which are declining, could only supply a small part of the shortfall, while Russia’s new volumes will only allow limited growth in exports.
New pipelines from new supply areas, such as the Caspian/Middle East are also unlikely to be able to meet the gap in the time available.
NH: We believe the only viable solution would be for Europe to raise
prices substantially in order to bid LNG volumes away from the traded market, particularly from t.he US, but this may require prices over 50% higher than our current forecasts.
Company impacts – BG the winner
The upside for global traded gas prices if this scenario evolves positions BG (Buy, PT 1340p) as the key beneficiary, as it has a c. 40% share of the current traded LNG market.
Of the European
majors BP (Buy, PT 710p), TOTAL (Buy, PT €70) and Royal Dutch Shell (Buy PT 2300p) are the key plays. Statoil (Buy, PT NKr 185) will also benefit from its increasing share of the UK spot market.
PM: So gas prices to rise by over 50% !?!?!?!?
PM: From here!?!?!?!
PM: 
PM: that’s pretty bold call
PM: and seriously inflationary
NH: indeed
NH: here’s a bit more of the note
NH: We have published a report today on the impact on the European gas market following the recent rise in coal prices and the accompanying tightening of the carbon market via ETS phase
3 in 2013.
The conclusion is unless the EU’s carbon policy is modified we expect a dramatic rise
i.n gas demand and prices in Europe as generators switch out of coal as a baseload fuel.
NH: BG the most geared of the European integrateds
BG has a global LNG business which is comparable in scale to some of the major companies. It sells over 80% of its LNG to the highest bidder, rather than on long-term contracts, and has c40% of the global traded LNG market at present. We estimate there could be an 11% uplift to our BG NAV if gas prices rose by 50%.
NH: Other shorter-term triggers for BG
These include further Brazilian drilling during 2008 and the continued strength of the global LNG market, which should boost 1Q and FY 2008 earnings above recent consensus forecasts.
Valuation: maintaining Buy rating and 1340p price target
We are already positive on BG due to its sector-leading growth, its highly profitable LNG business and its exposure to Brazil. The additional potential from the potential gas squeeze positions BG as one of the most attractive plays in the global sector, with the potential to continue its record of adding 20% to its NAV on an annual basis since demerger.
We are maintaining our Buy rating on BG, with an unchanged price target of 1340p, based on our normal 20% premium to NAV.
PM: hmm — that’s v interesting
NH: BG biggest riser in the FTSE 100 at the moment
PM: Price — up 49p at 11.74 currently
PM: Top of the leaderboard
PM: Thanks for that
PM:
PM: let’s go to some questions….
NH: Nothing more to report on Renovo. We heard the chatter yesterday and brokers reckon the company has got 50p in cash.
NH: however,
NH: had a really odd cal from the 
NH: they seemed genuinely worried by the speculation
PM: Felt collar
NH: asking loads of questions
PM: Felt — is a PR
NH: where did the story come from
NH: who was your source
NH: what type of source was it
PM: So you told them, obviously
NH: Well, I was quite restrained given the indidivual in question has rarely assisted us with anything
NH: still interesting to have them on the phone and worried
NH: company clear feel vulnerable
PM:
PM: GOT TO INTERUPT
PM: Bit of timely breaking news
NH: on Friends Prov
PM: For Gen below
NH: 03 April 2008
2008/14
Friends provident plc
(“Friends provident”)
J.C. FLOWERS & CO. LLC
(“J.C. FLOWERS”)
Following recent representations made by the advisers for Friends Provident, the
Panel Executive has been considering the application of Rule 2.4(b) of the Code
to the approach by J.C. Flowers to Friends Provident. Following discussions
with both partiesʼ advisers, the Panel Executive has ruled that, unless the
Panel Executive consents otherwise, J.C. Flowers must, by 5.00pm on 30 April
2008, either announce a firm intention to make an offer for Friends Provident
under Rule 2.5 of the Code or announce that it does not intend to make an offer
for Friends Provident. In the event that J.C. Flowers announces that it does
not intend to make an offer for Friends Provident, J.C. Flowers and any
person(s) acting in concert with it will, except with the consent of the Panel
Executive, be bound by the restrictions contained in Rule 2.8 of the Code for
six months from the date of such announcement.
PM: 30th April put up or shut up deadline
NH: shares off 0.7p at 133.8p
PM: Quicker than Reuters on that
PM:
PM: Peter thai Larsen our banking editor has just wandered by
PM: Apparently the Coop has lost 30m on three different SIVs
PM: Ethical MBS
PM: Should got to the mentions below of Tim Price’s stuff
PM: price of everything
PM: Highly recommended — Mr Price
PM: He’s a nice writer — and very perceptive — in my view
PM: Someone raised the issue below about the banks planning to put all their dodgy mortgage backed securities on the back book.
PM: On the back, back book – as I think someone said this morning.
PM: Just goes to prove that there is nothing new under the sun — even in synthetic finance
PM: What does make me smile are the references to the idea that the banks hope that if they put all their junk in one basket the Fed and other central banks will come along and buy it
PM: Maybe all the people who were sold properties at the wrong price and with the wrong mortgage terms should come up with a similar plan
PM:
PM: Sorry — we’ve been distracted by a bit of internal gossip
PM:
PM: just on a staff appointment
NH: just had an amusing email through
NH: from TD Waterhouse
NH: gues what stock has been most popular with retail punters in the last week??
PM: er…… dunno
NH: Debenehams
PM: Oh dear me.
PM: masocistic punters
NH: London 3 April 2008: This week TD Waterhouse investors were out on the high street in search of a bargain and there was only one place to go – British department store chain Debenhams.
Confidence in Debenhams was dented last week when major shareholder Merrill Lynch unexpectedly sold its 6.2% stake in the chain. The news saw the share price fall 17% to 59.25p against the 195p flotation price when the retailer was relisted in May 2006. Around one-in-ten (9.5%) TD Waterhouse investors saw the opportunity to bag a bargain, placing the retailer into our top ten buys for this week.
Angus Rigby, Chief Executive, TD Waterhouse, comments: “Retail stocks are not usually a regular play for our investors, but it’s obvious from this week’s table that they have more of an interest than just trends in fashion. Debenhams is an institution on the British high street and our investors were quick to respond to an early spring sale.
“Further afield, being sent to the Siberian front was often seen as a one way ticket for Russian soldiers, but Victoria Oil & Gas will be looking for more of a return with its West Medvezhye gas project in Siberia. Shares in the AIM listed exploration company have risen in the last week on speculation that the project is due to go into production. The Company was the third most popular buy this week, accounting for 11.5% of buys and was the sixth most popular sell by our investors.”
PM:
PM: lets get back on track
PM: What else is moving Neil?
NH: Rank
NH: shares have had a good run this week on takeover speculation
NH: but have run into sellers this morning
NH: currently off 6.75p at 93p
PM: why?
NH: number of factors
NH: first, this story is running on Reuters
NH: KUALA LUMPUR, April 3 (Reuters) – Malaysian gaming and leisure group Genting has not made a bid approach to British casino operator Rank Group and is unlikely to be preparing one, a source close to the situation said on Thursday. “That’s wholly inaccurate,” the source said when asked if Genting had made an approach.
NH: Genting said in an email it did comment on media speculation.
Rank shares have jumped 13 percent since Monday’s close, after the Daily Mail reported that Genting, already an 11 percent shareholder, was strongly rumoured to have approached Rank with a cash offer of 124 pence per share.
PM: But we never thought Genting was the bidder anyway
NH: Nope
NH: we always reckoned Gucco was the more likely buyer of Rank
NH: and that Genting had built a stake to either block their advances
NH: or so that they could get a seat at the table
NH: and just for reference, Gucco owns the Clermont Club in the UK and the Thistle Hotel Chain
NH: which was the former employer of Rank boss Ian Burke
NH: anyway, fading bid hopes aren’t the only reason for the weakness in Rank shares this morning
PM: so what else is?
NH: the finance director has gone
NH: Peter Gill and has been at the company since July 2004
NH: in fact he played a large part in streamlining the company
NH: Since he joined Rank has disposed of Deluxe Film, Deluxe Media, US Holidays, Hard Rock, and most recently the ension fund.
NH: he is being replaced by Paddy Gallagher, currently CFO at Quadriga Worldwide Limited, a privately owned provider of in-room high-speed and wireless internet access and on-demand entertainment to hotels
PM: Hmmmm
PM: I guess the fact the FD has gone suggests the company is not in takeover talks with anyone
NH: I would imagine so
NH: also weighing on Rank this morning is that story we carried this morning about rival Gala Coral
PM: Go on
NH: well, its private equity owners (Candover, Cinven and Permira) are providing a cash injection of £125m in return for a relaxation of its covenants “because of investor concerns that the company was heading for default”.
PM: er, that does not sound good
NH: nope
NH: and it demonstrates just how tough the bingo industry is at the moment
PM: but Gala is not just a bingo operator though
NH: nope
NH: operates 1,600 betting shops, 165 bingo clubs and 29 casinos.
NH: but if you look at our story this morning, the Gala casino and bingo businesses have come under severe strain because of the impact of the smoking ban, the loss of lucrative gaming machines and a rise in tax on casinos in the 2007 Budget.
PM: Ok — this is rather serious
PM: Any analysts comment??
NH: yep
NH: this is from Cazenove
NH: Rank’s statement suggests that Peter Gill is leaving Rank following the completion of its restructuring into a focused gaming operator. Given the recent takeover speculation in Rank, which we believe has dominated recent share price performance, we believe that his departure could be seen as making this a more likely outcome.
PM: So Caz reckons his departure makes a bid more likely !
NH: well, eventually
NH: but surely not at the moment
NH: The Gala Coral debt restructuring is not unsurprising in our view, given that it has faced the same trading difficulties in its Bingo and Casino divisions that Rank has suffered in recent months. Top Ten Holdings [TTHU.L 8p N/R], the third largest bingo operator, has also been restructured with banks being issued warrants to subscribe for up to 10% fo the equity.
NH: Overall, therefore, we believe that the valuation of Rank continues to be subject to a two way pull between speculative interest and the lack of visibility on operational performance.
We believe that the 2008E PER of 21x is indicative of speculative interest continuing to dominate share price performance: there are now a number of large stakeholders: Genting (11%), who acquired Stanley Leisure in October 2006; Guoco Group (6%), who purchased the Clermont Club in London’s Berkeley Square from Rank in 2006 for £31m; and the Richardson family (9% – CFDs). In addition, a 9.1% holding (held by Goldman Sachs as custodian) was announced on 1 April 2008.
NH: We note that Reuters reports this morning that Genting has not made a bid approch to Rank Group; however, we believe that effectively a Rank – Stanley combination is unlikely to be approved by the Competition Commission. There are currently c. 141 casinos in the UK and 38 non-operating licences. This combination would lead to over 50% of the UK casinos currently operating (Rank 33, Stanley 46).
On fundamentals, Rank’s valuation looks very stretched in our view.
PM: I agree with that
PM: Rank, trading on 21 times prospective earnings. Hello!
NH: just because the stock is 90p does not mean it is cheap
PM: Any more comment?
NH: and this is from Kaupthing
NH: Rank Group – resignation of FD and Reuters story on Genting denying that it has approached Rank
Firstly, Rank’s FD Peter Gill has resigned and will be replaced by Paddy Gallagher (currently CFO of Quadriga Worldwide Ltd) in June. Peter had only been with Rank for a few years (joined July’05) and so slightly surprised by this move.
Secondly a Reuters story suggesting that Genting HAS NOT made an offer for Rank and is unlikely to be preparing one. This may remove some of the recent bid spec in the stock – although most people believe that the main front runner to make an offer is Guoco rather than Genting. However, if Genting is not interested in acquiring Rank then it removes some of the potential ‘bid-tension’ in the stock.
NH: and this is from Landsbanki
NH: We note this morning the surprise resignation of Rank’s Finance Director, Peter Gill, who had only joined the group in July 2005. There is no mention as to the reason for his departure or whether he has another job to go to.
While not wanting to speculate as to the exact reasons why, the announcement does not give any encouragement as to current trading, nor does it add weight to the speculation that the group is about to receive a bid, for which he would presumably get a payoff if it was successful.
Reinforcing the ongoing challenges facing Rank in its Bingo and Casino businesses, we note yesterday that its smaller bingo peer Top Ten Holdings had issued a modest profit warning and its larger peer Gala Coral, has received a cash injection from its private equity backers, to avoid the risk of breaching banking covenants, in the more challenging environment.
NH: While we recognise the three significant stakeholders in the group, we do note only one (Hong Leong Company) has been raising its stake in recent weeks, and typically at lower levels. We can not rule out a bid, although we do question why anyone would want to pay a premium for Casino and Bingo assets. We have a SOTP valuation of 92p. With the share price at 100p, we reiterate our Reduce recommendation.
PM: thanks for all of that
PM:
PM: And thanks to the Boss for the gag below
PM: How about doing the banks???
NH: good idea, sector giving up some of its recent gains this morning
Lloyds TSB Group (LLOY:LSE): Last: 465.75, down 17.5 (-3.62%), High: 477.75, Low: 465.50, Volume: 10.02m
Royal Bank of Scotland Group (RBS:LSE): Last: 371.25, down 10.25 (-2.69%), High: 383.75, Low: 369.25, Volume: 19.88m
Barclays (BARC:LSE): Last: 490.50, down 13.5 (-2.68%), High: 512.50, Low: 489.00, Volume: 18.61m
NH: Alliance & Leciester off 23p at 534p
PM: So why are all these taking a hit when there is so much bad news around?
NH: think it is down to a note from Goldman Sachs
NH: which has injected a bit of reality
NH: a much needed dose of reality
NH: basically it takes a stab at the question we all want answering at the moment
PM: Which is????
NH: are UK Banks cheap?
NH: or are they a value trap?
PM: Ah, a value trap!
NH: and Goldman says they are
NH: given the awful outlook for earnings
NH: here’s the note
NH: We remain cautious on UK banks
UK banks continue to face two major issues – one
structural, the other cyclical. We do not believe
that current prices reflect both of these as banks
begin to adjust to a new operating environment
and face a sharp rise in impairments. While UK
banks appear cheap relative to recent history,
they are yet to reach floor valuations both in
relative and absolute terms in our view.
NH: Structural issues set to affect profitability
We believe that as the originate/distribute
business model unwinds and both capital and
funding leverage falls, peak cycle ROEs will fall to
below 15%; in our negative scenario analysis
ROEs would fall to 8%.
NH: Impairments could impact earnings by 30%
We currently forecast impairments to rise by 20%
on average in each of the next three years driven
mainly by our concerns regarding corporate
credit and commercial property in particular.
However, in a negative scenario, we estimate this
could hit earnings by a further 30%.
Estimates cut by 8%, earnings fall forecast
We have cut our estimates by 8% on average in
2008 and 14% in 2009 for the domestic UK banks
and now forecast earnings to fall by 5% pa on
average over the next three years, driven by our
bearish view on impairments.
NH: Barclays off Conviction List, remains a Sell
We remove Barclays from our Conviction List but
it remains a Sell as we continue to believe that
current prices do not reflect declining profitability
and likely further earnings downgrades.
Lloyds TSB downgraded to Sell from Neutral
We downgrade Lloyds TSB to Sell as we believe
that following recent outperformance (16%),
current prices more than reflect its perceived
defensiveness.
HBOS upgraded to Buy from Neutral
We are upgrading HBOS to Buy as we believe that
liquidity concerns have been overdone and more
than just the structural changes the domestic UK
banks are facing are priced in.
PM: How interesting
PM: at least they are being nice to HBOS
NH: you have to be nice to HBOS
PM: Otherwise you will end up in the clink
NH: otherwise Sheriff Darlin’ will be after you
PM: But i dont really udnerstand the HBOS upgrade
PM: this is the UK’s biggest mortgage lender
PM: and Goldman is worried about rising impairment charges
PM: yet it reckons the stock is a buy
NH: here is the breakout from the note on HBOS
NH: HBOS continues to fund but its profile is becoming more short term
While Bradford & Bingley and Alliance and Leicester are smaller and have put in place funding vehicles to enable them to fund during 2008, HBOS needs to fund £164.1bn of maturing wholesale funding in 2008. This has been an area of concern for the stock especially with the term markets (securitisation, covered bond and EMTN) effectively being shut.
NH: We continue to believe that HBOS is able to readily secure funding as it has access not only to many funding sources across many geographies but also has access to
the US Federal Reserve, ECB and Australian Central bank windows, however the shares are likely to remain susceptible to liquidity
concerns.
NH: This concern is likely to ease if the BOE puts in place a liquidity environment more closely comparable to both the ECB and US Fed. Recent commentary suggests that the BOE is giving this more consideration than previously but nothing has yet been
finalized. We note the following regarding HBOS’ current funding:
PM: So their “buy” is predicated on BofE support!?!?!?
PM: How does that work?
NH: I seem to remeber the FSA thinking the same thing about Northern Rock
PM: OBviously HBOS is NOT Crock
Readers may also know this former bank as Northern Rock.
NH: • HBOS has £25.8 bn of term funding due to mature in 2008 – splitting out the wholesale funding due to mature in 2008, we
estimate that £25.8 bn is term funding, which is slightly tilted towards 4Q in terms of maturity but overall is fairly even.
NH: • HBOS has raised £5.6 bn of public funding during 1Q08 – we estimate that HBOS has raised £5.6 bn public funding in 2008 so
far. Excluding the £750 mn of non-equity Tier 1 raised, 80% of the funding raised has a term longer than 12 months and over
85% is LIBOR linked. This total funding raised broadly replaces the £5.4 bn that we estimate was due to mature in 1Q08.
NH: • Bank deposits (£31.6 bn) and non-retail deposits (£26.7 bn) account for nearly 40% of funding – we do not believe that
HBOS should have any trouble rolling either of these. The first is obviously dependent on LIBOR, while the second is likely to
be higher cost as banks compete for the excess liquidity in the system from non-retail customers.
NH: • Certificates of deposit (£63.1 bn) and commercial paper (£16.9 bn) account for nearly 50% of funding – the areas of
greatest dependence for HBOS in terms of wholesale funding over the next 12 months are actually commercial paper and in
particular certificates of deposit. Both of these are likely to remain dependent on sentiment but in view of HBOS’ diverse
funding platform we do not believe it should have trouble rolling either of these. Pricing of both of these is linked to LIBOR.
NH: • Funding is all LIBOR linked and costs are increasing – while we believe HBOS is able to roll its funding, the cost continues to
increase as it is all linked to LIBOR and spreads have begun to widen: HBOS’ new funding is being replaced on average at a
20 bp spread to LIBOR. We estimate that HBOS is likely to be hit by costs of at least £140 mn during 2008.
PM: You got any more from that — i think the readers will be v interested
NH: well that’s most of it on HBOS
PM: ok
NH: got some stuff on impairment charges
NH: This perhaps remains the area of greatest uncertainty for the UK banks, despite the additional disclosure with FY07 results. While
UK banks feel they have been reasonably open in their disclosure, when compared to their peers their disclosure looks poor. As the
market’s perception of risk currently appears greater than the banks’ own, any apparently poor disclosure will be seen as a
weakness. The second factor is that comparing write-downs and fair value adjustments with other banks, UK banks appear to have
taken lower adjustments than peers. We see three main conclusions (see Appendix for full calculations):
NH: P&L write-downs/fair value adjustments – RBS and Barclays are the main banks affected by this due to the size of their
trading businesses. RBS is holding all its positions in its trading books, while 82% of Barclays ABS CDO and a significant part of
its leverage loan exposures are held in loan books. We estimate further write-downs of £843 mn and £1,070 mn for Barclays
and RBS respectively.
NH: AFS adjustments – A&L (£150 mn), B&B (£66 mn), Lloyds TSB (£580 mn) and HBOS (£791 mn) are the main UK banks affected.
While banks insist they will be holding their liquidity portfolios to maturity so no losses are crystallised and the AFS reserve
does not affect the regulatory capital, it does impact our estimates of book value (witness B&B and its decline in BV to 196p at
end 2007). We also believe that spreads are unlikely to return to previous levels and, as these are meant to be liquidity
portfolios, there is a significant risk these losses are crystallized if current liquidity conditions persist.
NH: We believe the market is trying to price in two disparate situations for UK banks: the first is structural (discussed above) and the
second is cyclical, the effects of which are likely to have been exacerbated by the increased leverage and higher growth of the last
five years. Bar the change in loss severity in unsecured lending, the last four years have been the most benign since the early 1990s
regarding credit losses for UK banks. We do not believe that current valuations fully reflect our negative scenario for impairments
for all the banks.
NH: there’s load more but I think that is enough for now
PM: ok
PM: al.:lse
NH: it does not work Ticker Man
PM: Just disappears into the ether
PM:
PM: What’s the price of Regal Petroleum?
NH: LIBOR flash
PM: 6.00188 £3m
PM: versus 6.00375 yesterday
PM: So it is slowly coming back to earth
NH: AL.L;LSE
PM: Anyway — price of Regal please
NH: er, up 3.25p at 133.25p
NH: why do you ask?
PM: Well I’ve only just caught up on this interview in the Times – on Saturday.
PM: With David Greer, the chairman and chief executive. Its very funny.
PM: Look at this:
PM: Frank Timis is not a director. He has no influence over the company. It’s a nonissue and a figment of the imagination of a bitter and twisted few.
NH: 
PM: Actually, there’s more. Look at this:
PM: Mr Greer – who says that he left Shell last June because he was turning 50 and, fed up with constant travelling, wanted to spend more time with his family
NH: That’s not why he left Shell – is it????
PM: This is why he left Shell – from Ed Crooks, our energy guy:
PM: COMPANIES UK: Shell man’s motivation memo is straight from the Patton script
By Ed Crooks, Financial Times
Published: Jun 07, 2007
“Talent borrows, genius steals”, the saying goes,but the leaked motivational e-mail sent to staff atthe Sakhalin 2 gas and oil project is a salutarywarning of the perils of appropriation.
Trying to stir up his managers and engineers, some of whom he suspected of “running the risk of becoming a team that doesn’t want to fight and lacks confidence in its own ability”, David Greer, deputy chief executive of Royal Dutch Shell’s Sakhalin Energy Investment Company, borrowed heavily from the words of General George Patton.
PM: In particular, he drew on the speech to the US 3rd Army, dramatised in a bowdlerised form in the film Patton: Lust for Glory, that was given by the general on the morning of the day before D-Day, June 5 1944.
General Patton delivered his words without noteson an English hillsideto men about to risk their lives in the liberation of Europe.
Mr Greer used them in an e-mail about hitting targets for building a pipeline,albeit in the challengingconditions of Sakhalin Island off the eastern coast ofRussia.
PM: But look – this thing about whether Frank Timis has influence over Regal – its absurd, surely, to claim that he doesn’t.
PM: He organised the coup a little while back that put Greer in the job.
NH: And which also unwound the deal that was being done between Regal and Shell at the time.
PM: Yes, Regal was almost looking like a real company – and then Timis overturned the board.
PM: How can he not have influence.????
PM: There’s more to this you know.
PM: Greer is alsochief executive of something called Eastern Petroleum.
PM: And the chairman is….
NH: One Frank Timis, perhaps?
PM: In one
PM: In fact there are other directors in common.
PM: What is this eastern petroleum thing????
PM: We’re not sure — there are too many american eastern patroleum things
PM: Will investigate and return to this matter — i think
NH: Good idea
PM:
PM: Right we are almost done
PM: But first we have a piece of research — taht basically says why you should not be reading Markets Live
NH: very interesting this
PM: This from Smithers & Co
PM: The Case Against Holding Equities Today.
PM: Summary.
1. The US stock market is obviously over-priced and has, equally obviously, a much greater chance of suffering a large fall than benefitting from a large rise.
2. According to one survey at least, fund managers are more heavily invested in stocks than they have been, on average, over the past two decades. At first sight this suggests that fund mangers do not know that the US market is overvalued and that it is extremely risky. The same survey source shows, however, that fund managers are exceptionally pessimistic.
3. We have drawn attention, in the past, to a conflict that exists between the business interests of fund managers’ and the interests of their clients. The divergence between fund managers’ actions and sentiment, is a fairly recent development and probably reflects the damage done to those fund management businesses which took a correctly negative view of the market during its bubble of the last years of the 20th Century.
4. It seems likely that the risks of acting in the interest of clients has become so well appreciated by fund managers that they have become even less willing than before to increase the liquidity of their portfolios when the outlook for stock is bad.
6. This both increases the need for long-term investors to make their own decisions about investment strategy, rather than delegate them to fund managers, and increases the likelihood that those fund managers who take business risks today in their clients’ interest, will be rewarded by good relative performance.
7. The historic PE on the US market is 40% above its long-term and mean reverting average. This could be justified if profit margins were heavily depressed, but they are above average.
8. There is a strong consensus than US growth will be below trend in 2008 and 2009, with a significant minority of forecasters expecting the outturn to be much worse. Contrary to analysts’ forecasts, the probability is therefore that profits will fall this year and next. This view is reinforced by the past behaviour of profit margins.
9. Analysts’ forecasts have, in the past, been persistently over-optimistic and this is no doubt understood by investors. What may be less well known is that the forecast bias appears to have been three times worse when profits fall than it has been on average.
NH: this lot are ultra bears though
NH: 
PM: true!
PM: There are some good charts in the full research.
PM: Will do a separate post on the Alphaville home page a bit later
PM: Well spotted ds!
PM: There is not five !
PM: In the full report, this is the top of “no 5″:
PM: Financial and Non-financial Profit Margins.
As Chart 7 below shows, the profit margins of non-financial corporations are at their average post-war level, while those of financials are well above average. While we think it very likely that financial profit margins are more vulnerable than non-financial ones, we should emphasise that, while theory and experience point to aggregate margins being mean reverting, the margins of different sectors of the corporate sector are not.6
Alliance and Leicester (AL:LSE): Last: 536.00, down 22 (-3.94%), High: 559.00, Low: 534.00, Volume: 1.11m
NH: it works!
PM: da da!!!!!!!!!
NH: at last
Alliance and Leicester (AL:LSE): Last: 535.50, down 22.5 (-4.03%), High: 559.00, Low: 534.00, Volume: 1.12m
PM: that’s cap a cap b colon cap l cap s cap e
PM:
NH: FTSE 100 heading lower – now down 34.2 points at 5,881.7
NH: banks being hit by profit taking
PM: Ok — we are done
PM: Thanks for joining — and thanks for all the comments
NH: and I did not even get a chance to complain about the blatant penalty decision that Arsenal did not get last night
NH: FYI – the ref was born 5 miles from Kuyt
PM: Oh you’ll be fine at Anfield (not)
NH: not with that ref
PM: Maximus and others….
PM: But she promises to “Maybe do it one day next week”
PM: So fingers crossed, eh?
PM: You lot will have to behave tho
NH: Helen won’t do ML on Friday’s
PM: We need to maintain a professional air on here
NH: end of the week
NH: she’s too tired
NH: ah
NH: I can’t talk because I am never here on Friday’s
NH: and I am actually off tomorrow
PM: TheWord — that is a good idea
NH: around 11.30am
NH: we will pop outside for a coffee and Helen can blog away
PM: okay — we’re off
PM: seeya
NH: bye