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Markets live transcript 12 May 2008

Markets live chat transcript for the chat ending at 12:08 on 12 May 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH) Tom Braithwaite (TB)

PM:

Welcome to Markets Live.

PM:

This is FT Alphaville’s daily markets discussion.

PM:

Neil Hume is with me.

PM:

I’m quietly fuming here.

PM:

Neil wandered over earlier and casually said—“Well, you look at HSBC and I will look at some other stuff.”

PM:

Obviously, when we are preparing ML each day we divi up the subject matter.

PM:

But I wasn’t paying attention at the time. Having a million and one other things to do – and so I just said “yeah.”

PM:

And Im angry at myself really – cos I knew very well that any financial statement coming out of HSBC is going to be about 3 miles long.

NH:

Yes, I noticed you’d already landed that one on Helen — got her to look at the Q1s.

PM:

Exactly. Except that Helen was in a rush before running off to some design meeting for our new forum thingy.

PM:

So I end up holding however many hundreds of pages of HSBC Q1s.

PM:

How am I suppose to read all this and say something vaguely intelligent.?

NH:

Well consider it payback for trying to offload a nasty bid of work on Helen.

NH:

Was this because she’s a woman?

PM:

PM:

OH DON’T GO THERE.

NH:

Ok. Sorry.

PM:

PM:

Sigh……

PM:

Now you have said that I will have to explain.

PM:

There was a critical piece on the FT in this mornings media guardian supplement, which is a thing you read when you are at college and trying to get a job.

PM:

Anyway, suggested that sexism was rampant here. Which is neither fair nor accurate.

NH:

utter rubbish

PM:

Anyway –we are moving on.

NH:

a quick glance round the newsroom would tell u that

PM:

Can assure you brothers and sisters are united here on FT Alphaville.

PM:

NH:

Right, VP wants to look at Kingfisher

TB:

Can I get in on this?

PM:

Hellow TB

PM:

Tom Braithwaite is joining us

PM:

Unannounced !

PM:

Tom is the FT’s retail guru

TB:

Very well placed analyst, says: “I don’t think there’s anyway in which a private equity bid can work around £2 - not even close”

PM:

hang on Tom — quick bit of background here

NH:

been rising volume in the DIY retailer over the past couple of the sessions

NH:

and this morning it exploded out of the traps

NH:

been as high as 160.9p - at which point it was suspended

PM:

Some mvoe

PM:

Or put in the auction — rather than pure suspension

NH:

but now 8.7p higher at 155p – a rise of 6%

PM:

So what do we think is happening here?

TB:

Others close to company waving vaguely at DSG’s rise, positive note from Lehman, even sunshine

PM:

Neil?

PM:

?

NH:

not sure

NH:

volume 47m on Friday

PM:

Tom?

NH:

and 30m this morning

NH:

avg daily vol is 35m

NH:

some shrewdish people reckon a bid is being worked on

PM:

But who would bid?

PM:

a struggling company in a very tough market

NH:

I know

NH:

I think we can rule out the most obvious trade buyer

TB:

One possibility is Blackstone, which hired Gerry Murphy, Kingfisher’s ex ceo a few weeks ago

PM:

What Home Depot?

NH:

yep, they have huge problems over their own. As such I can’t see them shelling out the thick end of £4bn for Kingfisher

NH:

the only angle I can see is a break up

NH:

perhaps involving private equity, as Tom mentions above

NH:

although Gerry Murphy has only just turned up

NH:

and was not brought on board to work on a bid for an ailing DIY retailer

PM:

Too cute for Blackstone to hire g Murphy and to turn round straight away and go for a break up bid

PM:

Too cute by half

NH:

but it is worth examining the idea of a break-up, nonetheless

TB:

Balance sheet is in bad shape, we’re entering a downturn, there’s no obvious way to improve margins, little freehold property…

NH:

presumably, one would look to either sell the UK business

NH:

and keep the French operations – Castorama and Brico Depot

NH:

or vice versa

PM:

and would that work? — I note Tom was saying above that there is no one a PE bid could work at anything like two quid

NH:

dunno

NH:

I think the French operations are propping up the UK business at the moment

NH:

selling it would obviously be a pretty dangerous step

NH:

actually, at the back end of last week, Lehman Brothers put out a note on Kingfisher

NH:

and guess what it focused on its French operations and the contribution they make to group profits

PM:

hae u got it?

NH:

I have

NH:

here it is

NH:

also worth saying that this note might have helped the Kingfisher share price as week

NH:

Kingfisher’s French business accounts for around half of the group’s profits, and
Poland is likely to eclipse B&Q in the current year. Castorama has been radically
refocused and is now gaining share, while profits at Brico Depot have doubled.

With the remaining Castorama estate to be revamped or relocated, and scope to
double the Brico Depot store count in the medium term, we believe the business
can justify a reasonable multiple.

NH:

Although our current-year forecasts remain below
consensus and are supported by recent weakening in market data, we do not
believe France will see the precipitous decline seen in the UK.

NH:

While the travails of B&Q and the UK home-improvement market have preoccupied the market in recent years, Kingfisher has been diligently building a successful French operation.

In FY08, the group generated retail profits of £237m in France, some 48% of
the total compared with a contribution of just £153m in the UK. French local currency profits have grown at a compound annual rate of 12% since Kingfisher took control in
2002/03.

NH:

While the travails of B&Q and the UK home-improvement market have preoccupied the market in recent years, Kingfisher has been diligently building a successful French operation.

In FY08, the group generated retail profits of £237m in France, some 48% of
the total compared with a contribution of just £153m in the UK. French local currency profits have grown at a compound annual rate of 12% since Kingfisher took control in
2002/03.

TB:

French freehold property yes. Sell it, add even more debt, little obvious advantage.

NH:

All this suggests a business in much better shape than when Kingfisher acquired control in 2002. Perhaps more encouragingly, there is a route to substantial further growth through proven store revamps and relocations at Castorama and a potential doubling (our estimates) of the store base at Brico Depot. Although we assume profit growth is limited in the current year, we believe that growth is likely to resume at a reasonable pace in 2009/10.

Since 22 January, when we reduced estimates across all stocks in the retail sector in all countries regardless of current trading conditions but upgraded our sector view to positive, we have held below-consensus forecasts for Kingfisher’s French business.

We continue to believe that the market may slow over the course of the summer as a result of weaker consumer confidence across Europe. Our forecast remains -1% FY LFL sales.

NH:

However, our recent trip to Castorama France and to Brico Depot has convinced us that the group’s French operations are unlikely to see lower gross margins in the current year as further ownbrand sales growth and direct sourcing initiatives support the margin even if conditions become a little more competitive. Two new Castorama stores should also support our
forecasts.

The access we have had to the French business gives us greater confidence in the quality of earnings and the valuation of the business. We have updated our SOTP valuation to incorporate the latest results.

Based on an un-geared forward P/E of 13.5x, supported by
£1.33bn (market value) of freehold property this suggests an EV of £2.24bn. The
implication for investors is that we estimate they are paying c.£3.1m for the rest of the
Kingfisher group at current prices for £6.1bn of sales and £357m of EBITDA on our cyclically low FY January 2009 estimates.

PM:

the rest of Kingfisher – the UK – is in the share price of £3m !?!?

PM:

and — as SR notes below — there’s some property

NH:

of course it is possible that the UK biz is actually worth nothing

PM:

NH:

in fact it could actually be a liability

NH:

but worth noting that all of the retail sector is up this morning

Home Retail Group (HOME:LSE): Last: 274.00, up 8.5 (+3.20%), High: 277.00, Low: 264.75, Volume: 2.22m

DSG International (DSGI:LSE): Last: 76.25, up 5.75 (+8.16%), High: 78.00, Low: 70.75, Volume: 28.10m

NH:

seems like the sector really is in focus following last week’s Carphone/Best Buy deal

PM:

Tom — you still on line?

PM:

Any further thoughts?

PM:

And anything on DSG??

TB:

Best Buy move on Comet perfectly plausible - quick way to ramp up

PM:

he seems to have sloped off

TB:

Plus Kesa would happily be French only. Don’t see it for DSG though.

NH:

So, Tom, you reckon this PE story is non starter.

TB:

Far more problems. Best Buy could happily buy the PC World estate only - but is John Browett going to give a leg up to his new competitor

PM:

cheers for that

PM:

Let’s mvoe on

PM:

PM:

Wider market?

NH:

heading higher this morning

NH:

FTSE 100 up 34 points at 6,238.7

NH:

helped by strength in HSBC

NH:

shares up 17p at 882p

NH:

been as high as 889p in the wake of the Q1 figures

NH:

So what did you learn in HSBC’s numbers?

PM:

Well the actual headline numbers had been well rehearsed.

PM:

HSBC has used the opportunity to remind everyone that – against its peers – it is rather well capitalised.

PM:

No need for fresh capital – unless of course it was to buy something.

NH:

hmmm

PM:

Generally – people are seeing this statement as reassuring – but the point about the size of the HSBC report is real

PM:

There is so much to go through – particularly on the US Household side – that people are wary of reaching conclusions before they have actually had time to digest the stuff.

PM:

And the conference call is not until this afternoon – so as to take in US analysts.

PM:

PTL jsut arrived here at AV HQ

PM:

Peter Thai Larsen — banking exitor

PM:

editor even

PM:

Peter?

PM:

PTL : Just off the call with MIke G — HSBC chief executive

PM:

Dont expect a recovery in US housing til 2009

PM:

All pretty cause — but for HSBC is is looking ok

PM:

Asia doing well

PM:

IB up in first quarter

PM:

Despite the fresh write downs

PM:

But pretty cautious on the US

PM:

That is all from PTL

NH:

anyway got so much research on this now

NH:

here’s Cazenove’s first take.

NH:

Paul Measday

NH:

HSBC - Reassuring IMS
[HSBA LN HSBA.L], 866p, Outperform, sector - Neutral
HSBC has published its Interim Management Statement. Overall, the statement is reassuring. The US consumer finance impairment charge is in line with our expectations and although credit market write-downs are higher than we have in our estimate for the full year, recent trends in asset prices suggest some of these charges could reverse before the year end. Our initial view is to leave our estimates broadly unchanged.

NH:

Key points:
US consumer finance
US consumer finance impairment charge in line with management expectations at US$3.2bn (Q407: US$4.6bn). This is consistent with our full year estimate of US$13.5bn.
Mortgage delinquencies increased in Q1, although in-line with management’s expectations. Consumer Finance delinquencies increased to 5.0% (Dec07: 4.2%) and Mortgage Services deliquencies increased to 12.5% (Dec07: 11.2%). Management expects the trend of rising delinquencies to continue.
Card delinquencies also increased but only modestly versus the year end: by 10bp to 5.9% on credit cards and by 20bp to 3.6% on private label cards.
Management comments that “it seems likely the deterioration in the US housing market will extend into 2009″.

NH:

Credit quality in Personal Financial Services outside the US was “generally stable”, with the exception of Mexico.
Commercial Banking
Q1 was a record quarter for profits.
Revenues increased significantly, despite lower deposit earnings as a consequence of lower US interest rates.
Asset quality is described as “sound”, and during the quarter HSBC “continued to restrict” its real estate exposure, particularly in UK and North America.

NH:

Global Banking & Markets
GBM was more profitable in Q108 than either of the two preceding quarters, after write-downs of US$2.6bn (2007: US$2.1bn, Caz 08e estimate US$1.3bn).
Strong revenue growth in FX, interest rates, securities services and payments/cash management.
Higher trading volumes in Q1 arose in part through institutions reducing their risk positions; hence management believes dealing volumes will decline in future quarters.
HSBC has provided additional disclosure on its GBM write-downs. Based on March 2008 values, in Q1 the group wrote down 13.5% of its sub-prime mortgage-related assets (to US$3.2bn), 8% of its non sub-prime credit assets (to US$12.5bn) and 33% of its monoline exposure (to US$1.4bn). Additionally, it wrote down a further US$300m of its leveraged loans in Q1 to leave exposure of US$8.6bn.

As in 2007, at the group level Q1 write-downs were exceeded by movements in the fair value of the group’s own debt at US$2.7bn (Caz 08e estimate US$1.5bn). In April, most of the fair value gains reversed. These are reported in “other income” rather than being allocated to operating divisions.

NH:

Geographically, Asia and Latin America continue to drive profit growth. Hong Kong, where profits increased 42% in 2007, had a “strong” performance in Q1 as a result of growth in deposits and deposit margins, and loan growth in Commercial Banking. Income from stakes in Chinese financial institutions “increased significantly”; the comparative period included US$0.7bn dilution gain from Ping An. For 2008e, we expect 40% growth in Associate/JV income in Asia.
No significant comment on the outlook: “We remain alert to the risks but also see opportunity ahead”.

Geographically, Asia and Latin America continue to drive profit growth. Hong Kong, where profits increased 42% in 2007, had a “strong” performance in Q1 as a result of growth in deposits and deposit margins, and loan growth in Commercial Banking. Income from stakes in Chinese financial institutions “increased significantly”; the comparative period included US$0.7bn dilution gain from Ping An. For 2008e, we expect 40% growth in Associate/JV income in Asia.
No significant comment on the outlook: “We remain alert to the risks but also see opportunity ahead”.

Geographically, Asia and Latin America continue to drive profit growth. Hong Kong, where profits increased 42% in 2007, had a “strong” performance in Q1 as a result of growth in deposits and deposit margins, and loan growth in Commercial Banking. Income from stakes in Chinese financial institutions “increased significantly”; the comparative period included US$0.7bn dilution gain from Ping An. For 2008e, we expect 40% growth in Associate/JV income in Asia.
No significant comment on the outlook: “We remain alert to the risks but also see opportunity ahead”.

NH:

And here’s the first take from Bruce Packard at Pali:

NH:

HSBA “strong start to the year” and ahead of Q1 last year. First glance that is surprisingly good, particularly as in 2007 there was a $0.7bn gain on Ping An stake. Commercial Banking (30% of PBT FY 07) and Private Banking (15% of PBT FY 07) both had record quarters.
Writedowns were $2.6bn, higher than the $2.1bn FY (only 3% of trading assets were “level 3 assets” ie mark to model at the time of the FY results) and include subprime, CDOs, LBOs and monoline exposure. Basel II tier 1 in line with the ratio at the FY (9.0%) which is well above UK based peers.

NH:

Loan impairment charges in the US consumer finance business were down to US$3.2 billion in Q1; (v US$4.6 bn in Q4 2007) in part this reflects seasonal trends with Q4 tending to be higher in previous years as well. BUT still a little bit odd, as HSBC is still seeing rising delinquencies, which should be the lead indicator of impairments (5.0% of US branch-based loans overdue v 4.2% December 2007. Mortgage services business delinquencies were 12.5 per cent and 11.2 per cent respectively). HSBC expect delinquencies to keep rising, and they are also saying US housing market will deteriorate into 2009. This is important because North America Personal Financial Services was $11.9bn 74% of group impairments last year.

NH:

Global Banking and Markets (25% of PBT FY 07) PBT down v Q1 2007 but higher than in the third and fourth quarters of 2007, despite write-downs of US$2.6 billion. Very interesting comment on Forex and interest rate trading, which was strong in Q1, but “Much of this activity appeared to be designed to reduce the institutions’ risk positions and the risks perceived to exist from their exposure to counterparty balance sheets. As a consequence, it is possible that dealing volumes will be lower in subsequent quarters in 2008 and will remain so until risk appetite recovers in the future.” I would see this as a negative for BARC and RBS, who have pointed to Forex and interest rate trading holding up well, as a reason to be optimistic on the outlook for investment bank revenues. Statement from HSBC appears to suggest this is less sustainable into the rest of 2008 than implied by the other two banks.

NH:

Outlook statement highlights “While illiquidity in financial markets remains of continuing concern, the major economic risks facing the global economy now include inflationary pressures, particularly from rises in food and energy prices.” STAN also mentioned inflation in their statement, which would be negative for banks (but good for insurance companies?)
Conclusion: Statement looks a little ahead of expectations, particularly positive as revenues are continuing to hold up in Asian markets. Huge amounts of detail in the Household quarterly releases still to look through. Last 3M HSBC has outperformed UK banks by 10%, but is flat against HK banks. Stock is trading on 10.2x 2009 consensus, which is a similar level to RBS post rights issue, but has much stronger capital ratios (core tier 1 7.8% 2007A). Our REC is Neutral, TP 835p, but would expect the shares to go up today.

NH:

And finally here is Merrill Lynch on the matter:

NH:

HSBC have just released their interim trading statement and 10Q for HSBC USA.
Overall the statement offers some comfort on heightened expectation of large impairments and possible associated earnings downgrades from the US.Expect it to trade up out-perform until we hear more.

The key number in release is for the US / Household = $3.2bn Q1
impairment charge. This compares to $4.6bn in the final quarter of last year. We currently forecast US PFS impairment of $14.5bn in 2008 (vs. $12bn in 07) falling to US$11.9bn in 2009. We had been anticipating the charge to be more heavily loaded to the first half of the year but the company indicate the charge in Q1 has been +vely impacted by seasonal influences (unclear what this means). We have,
as yet, not looked at the trends between impairments and write-offs.

NH:

The deterioration in US consumer finance expected to continue in to 2009 - experiencing higher delinquencies across all portfolios (mortgages and cards) but in line with expectations at end of 07. Furthermore, rate of deterioration for delinquencies appears to be slowing vs. final quarter. 2 month mortgage arrears Q3 2.92%, Q4 3.74% and Q1 4.5% and mortgage servicing 2 month arrears Q3 11.2%, Q4 15.4% and Q1 16.9%. In US operating expenses falling as infrastructure re-aligned to diminished appetite for lending

NH:

The deterioration in US consumer finance expected to continue in to 2009 - experiencing higher delinquencies across all portfolios (mortgages and cards) but in line with expectations at end of 07. Furthermore, rate of deterioration for delinquencies appears to be slowing vs. final quarter. 2 month mortgage arrears Q3 2.92%, Q4 3.74% and Q1 4.5% and mortgage servicing 2 month arrears Q3 11.2%, Q4 15.4% and Q1 16.9%. In US operating expenses falling as infrastructure re-aligned to diminished appetite for lending

NH:

Commercial banking delivered record profits in Q1 - income increased
significantly from emerging markets compensating for pressure associated with lower US interest rates / deposits (ML estimating 08 profit growth in commercial +16%). Private banking delivered record quarterly profits – strong inflows and performance fees (ML estimating 08 +15% in profits). UK retail business increased pre-tax profit (lower costs absence of over-draught charges).

Sale of French branches (~$2bn capital gain) and purchase of KEB (from Lone Star) said to be on track.

Outlook as ever bearish - remains “unusually” difficult and increasingly likely that the US will enter a recession with recovery in the US housing market “unclear”, inflation also a major risk. Our current EPS forecasts for 08 and 09 (ex disposal gains) are $1.12 and $1.64 respectively.

PM:

Thanks for all that

PM:

reasearch on HSBC is now pouring in — might try and do a round up later

PM:

or get Helen to do it

PM:

While I make the tea, etc

PM:

NH:

there is one stock that is not going up in the banking sector this morning

PM:

???

NH:

barclays

NH:

off 8.5p at 443p at the moment

PM:

Why’s that — thought Barclays as sound as a rock. — so Diamante Bob says

NH:

well, that has not stopped Citi speculating about a £6-£12bn rights issue

PM:

What are they saying? have they downgraded?

NH:

Assuming £2.3bn of credit write-downs in 2008, they estimate Barclays would need to raise c£6bn to take its 2008 Equity Tier 1 ratio from 5.1% to 6.5%, fast becoming the accepted norm

NH:

they have not downgraded

NH:

Tom Rayner has been a seller for a while and remains so

NH:

he has cut his target price to 350p though

NH:

I’ll just paste some of his thoughts and then we will try and catch up with the readers

PM:

NH:

We believe consensus earnings estimates are much too high — We expect
Barclays’ 1Q 2008 Interim Management Statement on 15th May 2008 to provide
the catalyst for a wave of earnings downgrades. Our new EPS estimates (53.1p
2008E, 48.6p 2009E) are 17% and 33% below consensus, respectively. The
key drivers of our downgrades are weaker revenue trends in Barclays Capital
and rising loan impairment losses across the group.

NH:

Further dilution possible on the back of £6bn-£12bn rights issue — Assuming
£2.3bn of credit write-downs in 2008, we estimate Barclays would need to
raise c£6bn to take its 2008 Equity Tier 1 ratio from 5.1% to 6.5%, fast
becoming the accepted norm. If Barclays decides to have a rights issue, this is
likely to coincide with a more aggressive approach to asset valuation.
Mechanically applying RBS marks to Barclays’ exposure would generate an
additional £8bn of pre-tax write-downs and require it to raise c£12bn to reach
an Equity Tier 1 ratio of 6.5%. We recognise that accurately estimating writedowns
is virtually impossible with externally available data.

NH:

We retain a Sell (3M) recommendation. TP cut to 350p (from 400p) — We
estimate a £6bn rights issue would dilute 2009E EPS by a further 10% on top
of our 26% underlying downgrade. This would result in underlying EPS of
43.6p, putting Barclays on a 2009E P/E of 10.6x, a premium of 38% to RBS
(RBS.L; £3.65; 2M) and 22% to the European sector average. With uncertainty
remaining over financial exposures and the group’s balance sheet strength, we
expect the shares to remain under pressure.

PM:

jsut looking at that note

PM:

Hopefully this figs will be readable…

PM:

Figure 8. Rights Issue Required to Reach 6.5% Equity Tier 1 Ratio, £m unless stated

Required Equity Tier 1 Ratio 6.5%
RWAs (£m) 389,536
Required Equity Tier 1 25,320
Existing Equity Tier 1 Capital 19,393
Required rights issue (£m) 5,927
Current share price (p) 463
Discount 0%
Rights price per share (p) 463
Rights 1 for 5.1
New shares issued (m) 1,280

PM:

But the rights could be as big as 12bn

according to Citi

PM:

Figure 10 shows that assuming Barclays was to mark its credit exposures down
to a level consistent with that taken by RBS would generate an additional £8bn
of pre-tax write-downs. This would take the total for 2008 to c£11bn, requiring
a £12bn rights issue to achieve the desired capital level.
Figure 10. Reduction to equity of writing down to RBS level
£m, unless stated Write Down
2008 write down reflecting RBS level 10,927
Current 2008 forecast 2,304
Difference to current forecast 8,622
Post tax reduction to equity 6,036

PM:

Ballsy stuff, given that Barclays is talking on Thursday.

PM:

PM:

SuperSWF mentions an old friend below

NH:

and we weren’t going to forget it

NH:

trading statement from Northern Crock

Readers may also know this former bank as Northern Rock.

PM:

Crock’s an ex-bank – AND – its an ex-listed ex-bank.

NH:

Ah, but shouldn’t we be signing up to the “framework document” whereby Crock was taken into temporary public ownership?

NH:

Under this Ron Sandler is playing a game of Virtual Bank, whereby Crock releases all the statements it would otherwise have done as a listed entity.

PM:

Which is why we have got a statement out today.

PM:

What does it tell us?

NH:

Well not much that we don’t already know – the former bank is shrinking and staff are being cut.

NH:

But the big stat that everyone has jumped on is the fact that arrears have jumped.

NH:

More difficult economic and market conditions, combined with a shrinking mortgage book have contributed to increased arrears levels; mortgages 3 months and over in arrears were 0.95% at the end of April, (31 December 2007: 0.57%). However, the overall credit quality of the loan book remains at a level assumed in the Plan.

NH:

But what I am not sure is whether this jump is related to this:

NH:

Under its Plan, Northern Rock has undertaken to strengthen its risk and control environment, and has announced a review of its risk management policies. As an early output of this review, the Company has strengthened its procedures regarding mortgage
arrears capitalisation

NH:

The Company’s general policy to capitalise any outstanding amounts in arrears following receipt of three consecutive full monthly payments remains unchanged. However, the Company has concluded that the controls over its policy to
permit discretion in certain circumstances to capitalise amounts in arrears when the borrower has paid less than three monthly payments have been inadequate.

NH:

Under revised procedures, any such discretion has now been removed. This change will result in
higher reported arrears in coming months, with Northern Rock’s performance here expected to move much closer to the industry average.

NH:

This change, however, does not reflect any change in the underlying quality of Northern Rock’s mortgage portfolio, as demonstrated by the low level of realised losses which the Company has experienced on its mortgage portfolio over many years. This change also does not alter the adequacy of Northern Rock’s provisions for loans and advances as reported in its Annual Report and Accounts for the year ended 31 December 2007.

PM:

Instinct is to say it is not related to the jump in arrears just reported – otherwise Sandler would have blamed it directly on changes to risk management. But im not sure – and we shouldn’t guess.

NH:

Interesting, if anyone has any thoughts on what this Capitalisation means can they get in touch

PM:

Or comment here of course

NH:

meredith whitney giving Citi a real kicking on BBG tv

NH:

NH:

BSB we were just discussing the HBOS piece that appeared in the Sindie

NH:

Financial Services Authority chiefs are believed to have found the “smoking gun” in the recent share-shorting incident that caused the value of HBOS to slump by a fifth in one day.

The regulator is set to go public on its findings by the end of the month, with a source close to the body saying: “It’s now known what happened. It will surprise people what’s been found.”

The FSA is believed to have pulled more than a day’s worth of emails sent by City dealers on the Bloomberg trading platform, when rumours sent the shares into a tailspin on 19 March.

Meanwhile, the regulator’s clampdown on insider trading will be demonstrated when a second criminal prosecution is launched before the summer, after one earlier in the year over insider dealing linked to shares in Motorola.

NH:

The FSA recently revealed that it had doubled its roster of criminal prosecutors for pursuing insider dealing cases, following last year’s introduction of a computer system called Sabre, which attempts to identify abnormal share-trading patterns.

The FSA is also set to publish new guidelines for mergers and acquisitions, with a so-called “principles of good execution” likely to be issued in early June.

Last year the regulator investigated a number of high-profile deals, including the purchase of Associated British Ports by a private equity consortium led by Goldman Sachs.

PM:

So — smoking gun dropped by the backrobber as he fled to his Mayfair drinking hole

PM:

They’ve got modern CSI skills they can apply to that gun

NH:

finger printing, DNA etc

PM:

Oh yes.

NH:

pulled a day’s worth of emails

PM:

That robber’s game is up

PM:

Pulled a day’s emails? Wot from Alphaville taht day

NH:

we put most of them up for the readers

PM:

NH:

personally I can’t believe they are still pursuing this case

NH:

the company have just asked shareholders for £4bn

NH:

having said a month before that there balance sheet was strong

NH:

who exactly has spread false info

NH:

most of it seemed quite accurate

PM:

Look Neil - you are getting in the way of a Hollywood blockbuster here

PM:

HBOS 2 and half

PM:

Leslie Nielsen to play Hector Sants

PM:

http://www.imdb.com/media/rm1004642048/nm0000558

PM:

but lets mvoe on

PM:

NH:

right, got some more on this Whitney comments on City

NH:

*OPPENHEIMER’S WHITNEY PUBLISHES NOTE AFTER CITI INVESTOR DAY
*CITI RESTRUCTURING TO BE `PROHIBITIVELY EXPENSIVE’: WHITNEY
*CITIGROUP’S INVESTOR DAY `LIGHT’ ON SPECIFICS, SAYS WHITNEY
*WHITNEY SEES CITIGROUP SELLING A BUSINESS SUCH AS BANAMEX
*WHITNEY EXPECTS CITI TO SELL MAJOR BUSINESSES NEAR END OF YEAR
*WHITNEY MAKES COMMENTS IN BLOOMBERG TV INTERVIEW :C US
*WHITNEY SAYS CITIGROUP TO TAKE `SEISMIC’ RESTRUCTURING COSTS
*OPPENHEIMER’S WHITNEY SAYS CITIGROUP IS 10 YRS BEHIND ON PLAN

PM:

Very interesting

PM:

Kows how to grab a headline — that analyst

NH:

so is also married to WWF wrestler

PM:

PM:

Just going to PC’s comments about BIFFEX below….

PM:

I’m no expert, but I know a man who is

PM:

Robert Wright — our transport/shipping corr has lots of thoughts on BIFFEX charts etc

PM:

Complains that amateurs such as myself have a tendency to mis-read them

PM:

So any questions you have I am happy to forward to RW

PM:

Here’s a post he did some time ago:

PM:

http://ftalphaville.ft.com/blog/2008/01/24/10430/what-happened-to-the-baltic-drys-15-minutes-of-fame/

PM:

PM:

Neil — any more RAW for the readers?

NH:

Yep

NH:

Although this is not fresh

NH:

it has been lying around the kitchen for a few days

NH:

and in this heat

NH:

it is starting to smell

PM:

Go on

NH:

Xstrata

PM:

who is it bidding for this week?

NH:

Alcoa

PM:

PM:

aluminium company

NH:

yep

NH:

story was around at the back end of last week

NH:

Xstrata said to be preparing a $47 a share offer

PM:

shares closed around $39 on Friday

PM:

Xstrata seems to be linked with a different company each day of the week

PM:

is there any reason to think this story is different?

NH:

well, on the face of it, no

NH:

when Xstrata acquired Falconbridge last year, one of the first things it did was to sell that company’s aluminium assets

NH:

that said

NH:

the justification give for selling was as broadly as follows

NH:

it did not give it the scale or upstream exposure to give them a world class aluminium business

PM:

i see

PM:

and buying Alcoa would give them a world class business

NH:

yep

NH:

In 2007, Alcoa produced 3.7 million tonnes of aluminium (100% basis) and is the largest and lowest cost producer of alumina with 15.08 million tonnes (100% basis)

PM:

what’s Aloca valued at?

NH:

a touch over $31bn

NH:

and Xstrata – its share recently hit a record high – is worth $80bn

PM:

so it’s a deal they could do

NH:

I think so, particularly if their biggest shareholder Glencore was on board

NH:

actually, Credit Suisse have published a note on this speculation

NH:

makes interesting reading

NH:

there is also a note out from Citi on aluminium

NH:

which could become the next hot market

NH:

here they are

NH:

here’s Credit Suisse

NH:

What if Xstrata were to bid for Alcoa?
With some of Xstrata’s peers deep in M&A situations of their own, this could
represent an ideal opportunity for Xstrata to buy what we see as an out-of-favour
stock in a commodity that has still yet to show its true potential.

The key catalyst to make such a deal work could be China, in our view. If China
continues to ramp-up production, then such a deal may not be accretive to
earnings near term. However, power shortages in China could be a big
roadblock in bringing all the planned capacity into production.

NH:

Were we to assume Xstrata pays 100% cash at $51.50 per share, assuming
30% premium over today’s price, a possible acquisition would be 8% accretive to
2009E earnings assuming an aluminium price of $2,755 per tonne ($1.25/lb)
compared to today’s spot price of $2,882 per tonne. If aluminium were to rally to
$3,500 per tonne next year, we estimate the accretion could be as much as 17%.

Our scenario analysis suggests that a 50/50 cash and equity deal would be 8%
dilutive under $2,755/t price scenario and 1% accretive under $3,500/t price
scenario. We are bullish aluminium and we think a potential deal with Alcoa
would make long-term strategic sense for Xstrata’s shareholders, although they
may suffer some near term earnings dilution at current aluminium prices.

NH:

Xstrata appears to have a habit of buying out-of-favour companies that produce out-of favour metals. This was the case when it acquired MIM in 2003 and Falconbridge in 2007 when copper and nickel were at much lower levels than today. The market’s embrace of an M&A deal seems to us to be almost entirely dependent on how the commodity prices move during and after a deal is complete because that is what determines the extent of earnings accretion.

When Xstrata acquired Falconbridge, the embrace from the market
was universal because nickel prices promptly rallied from $25,000 to over $50,000 per tonne. However for aluminium, it may take longer for the market to fully appreciate a deal such as a potential Xstrata/Alcoa tie-up if aluminium prices continue to be range bound between $2,800 - $3,000 per tonne.

NH:

Timing is everything. Generally the market does not like strategic longer-term deals, where even if aluminium is $5,000 per tonne in 3 years time, most investors tend to have a shorter-term focus, concentrating on how accretive a deal will be on 2008 and 2009 earnings. This is the dilemma any CEO and board in the mining sector would have in attempting to grow a business for the long term, whilst satisfying shareholders’ typically more short term focus.

On paper, we think Alcoa would make a lot of long term sense for many acquisitive mining companies, but the hurdle appears to be the near term dilution that would comes with such a deal. With credit markets still in a state of flux, raising an all cash offer (which we believe would be accretive to Xstrata shareholders) would be very difficult.

NH:

Were Xstrata to bid for Alcoa, the only option we see near term would be a part shares and cash offer. Such a deal would also likely preclude Xstrata from doing some of the smaller deals that have been mooted in the press.

If Alcoa were to be acquired by Xstrata, then it would send a clear signal that its
management and Glencore are growing increasingly bullish on the prospects of
aluminium. The increasing awareness of the growing power shortages globally and the impact that could have on future aluminium production is key. Although aluminium has rallied 20% from its December lows, we believe it has never shown the promise that it should, given demand has consistently grown 7-8% per annum over the last three years.

NH:

The bottleneck has been China which has grown aluminium production from 3 million tonnes in 2001 to over 12 million tonnes in 2007. Can this rapid growth continue or will the growing power shortages stall its ambitious plan to get to 16 million tonnes by 2010?

If coal prices continue to push high, then it would seem a matter of time before aluminium capacity may be forced to come offline in both China and elsewhere in our view, although timing is everything. So far the Chinese have shown little restraint and yesterday Antaike forecasted that China could add as much as 3.8 million tonnes of new capacity in 2008, 73% more than the market consensus’ expected capacity addition. If this is the case, then that buying Alcoa today may not turn out to be as profitable for Xstrata as their previous acquisitions.

NH:

and here’s the Citi note on aluminium

NH:

Shifting Competitive Landscape — An emerging power crunch and a shortage of high quality bauxite will cause a shift in the competitive landscape in the
aluminium industry, and drive aluminium and alumina prices higher.

Aluminium prices above US$2/lb — Aluminium prices are expected to average
US$2/lb in 2009, and rise further in 2010.

NH:

Higher long term prices — We have also increased our long term price to US$1.30
in real terms, and the aluminium:alumina long term contract rate to 13.5%.

Electricity Supply Security — Electricity capacity reserve margins are falling in
many countries with large smelting industries putting security of supply at risk.
Most vulnerable are smelters in China, South Africa, Brazil, and the USA.

Electricity Prices — Electricity prices are increasing at 10%/yr on a production
weighted basis. In China, the electricity supply balance is expected to tighten
further and tariff discounts to smelters are being removed.

NH:

Bauxite Supply Tightening — Alumina producers will be affected by rising power
costs and shortages of high quality bauxite.

Winners and Losers — There will be clear winners and losers as the scenario unfolds.
Winners are companies with captive hydro power and high quality bauxite.

NH:

Electricity – Rising Prices and Reduced Security
Rising electricity prices and security of supply will present huge industry
challenges.
Security of electricity supply is an increasing challenge in many countries with
significant aluminium production: South Africa, China, USA, and Brazil in
particular. Indeed as much as 80% of global capacity is located in countries
where the reserve margin is already below comfort levels or is heading that way.
Power costs are rising at 10%/year on a production weighted basis.

NH:

In China, electricity costs are more than double the rest of the industry. The
electricity market is expected to tighten further, but the government is resisting
increasing general tariffs because of the inflationary consequences. Tariff
discounts to smelters are being removed, and smelters are likely to be
squeezed.
Appreciating currencies is also pushing costs higher. This is particularly
significant in two major producing countries Australia and China.
The cost of carbon emissions will be an increasingly important source of
electricity cost inflation.

NH:

Smelting capacity is migrating to regions where there is stranded power and
40% of new capacity will be built in the Middle-East, Iceland, Russia,
Indonesia and Africa. Even in these regions however, improving distribution
networks mean stranded power is becoming rarer. Planned capacity increases
in China and India may not eventuate.
Alumina – also highly power sensitive
The upward pressure on power costs is also pushing alumina production costs
higher. But potentially even more important is likely to be reduced availability
of high quality bauxite. Most vulnerable are those Chinese refineries dependent
on imported tri-hydrate bauxite.
The aluminium:alumina price linkage rate is increasing and we have moved our
assumed long term rate from 12.5% to 13.5%.

NH:

Competitive advantage
There will be clear winners and losers among aluminium companies as these
scenarios unfold. Winners will be those companies with captive, low cost hydro
power and backward integrated into high quality bauxite.

Supply and Demand Balances
Aluminium to Tighten

We expect the aluminium market to be in deficit in 2008, moving into deeper
deficits in 2009 and 2010. Supply surpluses loom further out, but inventories
will remain low relative to history. The main drivers of the deficit are supply
curtailments induced by high power costs and shortages, and continued robust
demand growth (8%/yr)

This outlook will support prices above US$2/lb for the next 5 years.
However, in the short term some weakness is expected following a reversal of
recent dramatic inflow of investment funds.

NH:

Alumina – bauxite shortage looming

Bauxite supply growth is expected to slow. The third party traded market is
increasing in importance, and access to high quality bauxite will be a key
source of competitive advantage.

The alumina market has seen some relief from spot rising prices recently, but
over supply is expected until 2010. In subsequent years however a tight market
looms.

NH:

PM:

i should mention that while Neil was putting all that up we had an actual visitation from Robert Wright re The Baltic Dry etc.

PM:

He’s promised a piece on the subject — wants to clarify a number of matters — so we will put that up as soon as it arrives

NH:

NH:

Flash

NH:

Emerson the bidder for Chloride

PM:

Official

NH:

approached the company on March 18

PM:

Think we can claim that as a direct hit

NH:

only taken two months for Chloride to tell the world about the approach

PM:

And only two weeks or so since we ran the story here on ML

NH:

FIRST

PM:

Well, guess the Sunday Tel actually forced the issue

NH:

just reading the statement

NH:

looks as if Emerson will return with another offer

NH:

first one was at 255p

NH:

stock up 53p at 261p

PM:

I think there was some RINGA in circulation here

PM:

NH:

indeed

NH:

RNS Number : 1853U
Emerson Electric Co
12 May 2008



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

12 May 2008

Emerson Electric Co. (’Emerson’) - Statement re possible offer

for Chloride Group plc (’Chloride’)

Emerson notes the recent movement in the share price of Chloride and the speculation concerning a possible offer for Chloride. Emerson confirms that on 18 March it made its first approach to the Board of Chloride with a proposal to make a cash offer for Chloride. There can be no certainty that an offer for Chloride will be forthcoming. A further announcement will be made in due course if appropriate.

This announcement does not constitute an announcement of a firm intention to make an offer under Rule 2.5 of The City Code on Takeovers and Mergers (the ‘Code’).

Enquiries: Tulchan Communications

Andrew Grant +44 (0) 20 7353 4200

James Bradley +44 (0) 20 7353 4200

NH:

NH:

right loads of stuff to get through before we go

NH:

Paul J Davies on the cap markets desk says Kingfisher bid rumours not moved the CDS

NH:

Kingfisher CDS 12points or about 3.8 pre xcent lower - signals debt market does not beleive the rumours, quite the opposite in fact…

PM:

We could have a new slot now — 11.59 — call it the Debbie Harry slot

PM:

A piece of RAW, just before noon

PM:

What have you got?

NH:

it’s another old bit

NH:

Genus

PM:

Ah the bull semen company

NH:

yep

PM:

Dunno how we dare write about this here

NH:

stock just keeps rising

NH:

Hit 900p earlier this morning

NH:

now up 28.5p at 893.5p

NH:

this is extremely RAW

PM:

(tears for tier 1 — China — earlier today)

NH:

but the story seems to be that the company is being touted around

PM:

By who?

NH:

dunno, as I said this is extremely RAW

NH:

seems that a group of Irish investors have been approach as have Monsanto

NH:

if you believe the rumours

NH:

apparently a tie up with Monsanto would generate some large cash savings

NH:

and Monsanto has plenty of cash and is on the acquisition trial

NH:

although Genus would be something of a departure for them as there are larges a seed gentics business as opposed to an animal one

PM:

Okay — but

PM:

ie — v v RAW

PM:

(tears for tier 1 — are you a student? )

NH:

We have the latest Draaisma - just landed

PM:

A special for Monday — from Neil…

NH:

Today we reiterate why we think the bear market rally is over, while we also specify at what point we would turn outright sellers of equities as opposed to our current defensive positioning of OW cash, Neutral equities, UW bonds position. In addition, we make two European Model Portfolio changes: buying Veolia & Deutsche Post, selling A2A & Burberry. More details if you click on Keep Selling Into Strength to access our publication.

NH:

MSCI Europe was up 14% between its trough on March 17 and its recent peak on May7.As usual, bear market rallies are painful and catch many people off guard. The things you do not want to own during the bear market go up most during the bear market rally. Also as usual, towards the end of the bear market rally there is a plausible scenario that it is more than a bear market rally, that maybe it is the beginning of the new bull market. That is the way it is supposed to feel; otherwise, bear market rallies don’t happen at all. Bulls will now say that valuations appear cheap and investors are underinvested, and that with the Fed at the end of the rate cutting cycle the outlook for equities is bullish.

NH:

Sentiment has turned more bullish with rising markets. We called for the end of the bear market rally on April 21 after an 11% bounce from the trough. When we first called for the beginning of the bear market rally at the end of January everyone was very sceptical because fundamentals were so bad. Now, when we say the bear market rally is over (see The Bear Market Rally Over, April 21, 2008) people say that this may last a bit longer as the momentum is so strong and the slowdown maybe not that bad. It is amazing how market sentiment changes quickly. Indeed, AAII net bullishness is now the highest since Oct at +28 netbulls; the EUREX put-call ratio has collapsed to 0.75;the VIX is below 20% for the first time this year, and Morgan Stanley’s Global Risk Demand Indicator (GRDI) is more than 2 standard deviations high.

NH:

Our view is unchanged: this is strength to sell into. We think we are very early in the downgrade cycle. It’s all about margins. ROE is still close to its all-time high reached last year, while ROE for the market ex financials still is at its all-time high. The European slowdown is only just starting, judged by the recent business surveys, and the reporting season gave early signs of the financials trouble spreading with disappointing numbers and/or guidance from the likes of Nokia, Michelin and SAP. Valuations are getting expensive now, with our CVI at +0.3. Our range of indicators suggested an 80% chance of rising markets before the bear market rally started. Now we are getting a 50/50 chance of up markets on a 6-month view, based on a history of our indicators during normal, average times - but we believe these are worse than normal times.

NH:

Could we squeeze even higher? Quite possibly. Remember, in the bear market of 01 and 02 there was a predictable pattern to the market: during result season markets went down and during the silence period in between they went up. Therefore conceivably in the next two months equities could edge higher still. We are currently neutral equities. Our range of indicators, including our CVI breaching 1, would suggest a 60-80% chance of down markets on a 6-month view if we were to go 5%higher from here. We would seriously consider going underweight equities if the CVI breached 1 . The track record of CVI sell signals is good: the last three times the CVI gave a sell signal of above 1 were Dec-07, 1H 2007, and in 2000.

NH:

Recommendations: stay defensive; patience is key. Sector-wise, we are OW Defensives (Energy, Pharma, Utilities), UW Cyclicals (Industrials) and Financials. We are OW cash, neutral equities, UW bonds. We think the bear market rally is at or near its end, and that is why we took profits in our overweight equities. We do not recommend investors to be short yet, and our index target implies 0%downside on a 12-month view. If we were to go 5%higher from here, the risk-reward to short/UW equities would be good. But, with VIX and the skew as low as it is, we think it makes a lot of sense to buy protection already.

NH:

done

PM:

So Draaisma says: stay defensive; patience is key.

NH:

wise words

PM:

And just on the earthquake…

PM:

Think point is that it has not hit famous centres — but is very large…

PM:

here’s a bit of analysis from John Kemp at Sempra

PM:

An earthquake at 7.8 on the Richter scale is large enough to cause very severe damage over a wide area (and this one has been felt as far away as Beijing and Shanghai). It is in the very top class of earthquakes. This earthquake is comparable to the Tangshan quake in 1976 and not mush smaller than the 1906 San Francisco one.
But the earthquake near Chengdu has hit a heavily populated but most rural-agricultural part of China. Sichuan is one of the country’s principal food-producing areas but has a relatively modest share of industry and very little export industry.
The massive city-province of Chongqing (China’s fourth-largest city with a population of 31 million) is close by to the east and is likely to have sustained significant damage. The massive Three Gorges dam is further east along the Changjiang (Yangtze) at Sandouping but should have been designed to withstand geotechnic activity at this level and is unlikely to have been damaged.
Damage is likely to be to the agricultural system and heartland cities rather than metal producing or exporting industries. Damage to local cities is likely to be extensive but the impact on the wider economy should be modest

NH:

very good from WWWY

PM:

Right — we are done

PM:

Thanks for joining

PM:

We are off to sunbath

PM:

Be back tomorrow at 11am

PM:

Seeya

NH:

see you tomorrow

NH:

and thanks Tom

NH:

always nice to have a guest

PM:

Come back later for R Wrights stuff

This entry was posted by Paul Murphy on Monday, May 12th, 2008 at 11:02 and is filed under Uncategorised. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

1. May 12   12:10 Posted by tears for tier 1 [report]

   am i a student?
   nah - I just find i need more sleep now since signing up for the bull seamon company.

2. May 12   12:06 Posted by wheniwereyoung [report]

   Cant believe I’m writing this…. there is (ahem) relief available for that sort of thing in Ireland…. Its been done for years with horses - might be true of bulls too, dont know.

   Still the story is firming up (titter, titter)

3. May 12   12:04 Posted by maximus [report]

   According to Bloomberg quake hit Chengdu and Petrochina oilfileds are v close, no damage reports yet

4. May 12   12:03 Posted by PC [report]

   thanks on BIFFEX

5. May 12   12:02 Posted by hedgehog [report]

   report I saw on Chinese earthquake said it was minor

6. May 12   12:01 Posted by tears for tier 1 [report]

   I supose i should get up earlier

7. May 12   12:00 Posted by tears for tier 1 [report]

   major earthquake (7.8) in china being reported

8. May 12   11:59 Posted by VP [report]

   Con city - so the approach was back in March, CHLD kept quiet, then let their shareprice rise 26% this morning before bothering to RNS it?

   Should have been pre-market, after the Sunday press.

9. May 12   11:59 Posted by tears for tier 1 [report]

   major eartquake (7.8) being reported

10. May 12   11:58 Posted by wheniwereyoung [report]

    @monkey - excellent find compadre!

    That article is from 2003 - I’m pretty sure theres some legislation being enacted somewhere since then, though…. I’m on the case with an email to a shipping person….

11. May 12   11:55 Posted by t2k [report]

    food is up 22% in china too.

12. May 12   11:54 Posted by Monkey [report]

    wheniwereyoung - this article suggests 2015. And also that the dealine is far from fixed

    http://www.commondreams.org/headlines03/0505-07.htm

13. May 12   11:50 Posted by Baz [report]

    libor gbp 5.76063

14. May 12   11:48 Posted by wheniwereyoung [report]

    Tenously on BIFFEX - Did I read some time ago that all liquid bulk carriers have to be double-hulled before 2012 for either Euro or US waters? That would mean a huge and costly refit/refurb of current shipping, surely?
    Anyone know anything about this?

15. May 12   11:43 Posted by PC [report]

    Having just read the article about BIFFEX charter rates going through the roof, does anyone have a link to a chart showing whats been going on in that market in the last year or so? Thanks
    I can only find sub only sites.

16. May 12   11:43 Posted by hedgehog [report]

    F if the FSA get this elusive fugitive style bandit “stocks going up in London ” may take on a whole new meaning

17. May 12   11:43 Posted by VP [report]

    NH - couldn’t agree more.

18. May 12   11:42 Posted by Monkey [report]

    So they have a new system called sabre to help put insiders to the sword! Nice - sounds suitably threatening as operating system names go.

19. May 12   11:41 Posted by Study War No More [report]

    Probably will only ammount to a “damp squib”….

20. May 12   11:41 Posted by ss [report]

    ah - a good execution!

21. May 12   11:41 Posted by bsb [report]

    wow they have found an actual smoking gun? still smoking after all these months?

22. May 12   11:39 Posted by hedgehog [report]

    re the statement from NRK …”the low level of realised losses which the Company has experienced on its mortgage portfolio over many years.”

    the huge growth in their business came in the last two years - these mortgages have hardly had a chance to default yet

23. May 12   11:38 Posted by ss [report]

    It would have to be a double sided letter?

24. May 12   11:37 Posted by VP [report]

    PPI figs made tomorrow’s CPI more interesting - some suggestions CPI could go to 4% later in year (vs 2% target and 3% letter level).

25. May 12   11:36 Posted by bsb [report]

    so do you guys have any news on what the FSA have “discovered” about the HBOS shorting “scandal”???

26. May 12   11:36 Posted by clutchingatstraws [report]

    ss - pretty grim PPI - pound up - reduced chance of rate cuts I suppose..

27. May 12   11:34 Posted by t2k [report]

    smart money (hedgies) have been shorting barclays for quite a while.

28. May 12   11:33 Posted by fxtrader [report]

    re casinos, there’s the small matter of online gambling - and most Vegas operators dont have an online business, understandable given the US laws…

29. May 12   11:32 Posted by Monkey [report]

    rhodeb - thanks. There does seem to have been an explosion is large destination casinos trying to capitalise on Vegas style tourism. Perhaps supply-demand dynamics have created a bubble and Vegas is the obvious loser in increased global competition for casino tourism - having had a virtual monopoly on it

30. May 12   11:31 Posted by SuperSWF [report]

    NRK statement out today too!

31. May 12   11:31 Posted by maximus [report]

    Rock not a good simile PM I think

32. May 12   11:30 Posted by Weimar Tin Hat Company [report]

    Noise coming out of China that investments of foreign mining companies may be restricted:

    http://money.ninemsn.com.au/article.aspx?id=560965

33. May 12   11:30 Posted by fxtrader [report]

    DS, thanks to you, alphaville will prob be being the great firewall of China now! either that or it’ll be inundated by thousands of posts…

34. May 12   11:29 Posted by bsb [report]

    ds YOU WIN THE PRIZE

35. May 12   11:29 Posted by VP [report]

    Lol ds

36. May 12   11:28 Posted by ds [report]

    I didn’t think there were any casinos in China? Don’t the Chinese hate tibet?

37. May 12   11:28 Posted by foley_a [report]

    If HSBC purchase of KEB was on track it would have gone through on 30 April with regulatory approval. Delay is just to make HSBC sweat though, not to scupper the deal.

38. May 12   11:27 Posted by rahodeb [report]

    Monkey - I think that casinos are a real victim of the current economic situation. If you look at the shares of Las Vegas Sands or Wynn they’re off about 40% or so from their highs as discretionary spending dips in the US, far fewer boys weekend trips to Vegas, and a fair few of them have taken on a lot of debt to increase presence in Macau. We’ve seen what’s happend to the Chinese stock market this year and one can only assume that volumes in Macau are well off their highs too. Also look at the spread on Penn Gaming, supposedly being taken over - trading at a 60% discount …

39. May 12   11:25 Posted by ss [report]

    Producer prices pretty grim this morning. Output seasonably adjusted 1% last month. Mostly fuel, food of course but output of “secondary recovered raw materials” 53% yoy caught my eye. what are they?

40. May 12   11:25 Posted by Monkey [report]

    wheniwereyoung - I agree seems obvious. But apparently gaming has been traditionally quite recession resilient.

41. May 12   11:24 Posted by Monkey [report]

    bsb - I know, quite scary - Helen wrote a piece summarising this - 18bn defaulted vs 8bn for all of 2007. Tropicana was over 2bn on its own. If you assume US is a indication of where UK could be headed Rank and particualrly Gala don’t look too hot on the back of this news

42. May 12   11:24 Posted by wheniwereyoung [report]

    @Monkey - risking stating the obvious here but casinos rely on disposable, even excess, income. Same with bingo, lotto etc… Surely, at all levels, they would be the first to suffer in a squeeze?

43. May 12   11:21 Posted by bsb [report]

    Monkey - apparently in 2007 there were 22 corporate defaults in total. So far in 2008 there have already been 28, and we’re not even half way through the year….

44. May 12   11:19 Posted by Monkey [report]

    Anyone got any good business comment as to why Tropicana Casinos went into default. I note they had a lot of debt follwoing the buying of 5 casinos a few years ago but what fundamentally went wrong. Too much leverage, reduced trading, bad debts? Combination of the above? There are 3 casinos companies that have defaulted from the 28 names so far this year and I am trying to fgure out if this is indiosycratic or more systemic failings. The debt now represents around 17% of total defaulted debt this year.

45. May 12   11:16 Posted by hedgehog [report]

    Notice old tech warrior David Potter of Psion seemed bullish about their prospects at AGM using what for him is ncharacteristic terms such as “buoyant” to describe wide area mobile markets
    They never seem to get any coverage since switching a few years ago to the corporate markets - any analyst comment ?

46. May 12   11:16 Posted by SR [report]

    TB - check out the last results pres - freehold property in UK, France, Europe, roughly 1/3-1/3-1/3

47. May 12   11:14 Posted by SR [report]

    KGF has loads of freehold property…

48. May 12   11:11 Posted by VP [report]

    Thanks KGF; what about DSGI/KESA, & BestBuy?

49. May 12   11:06 Posted by Monkey [report]

    Can’t rely on Helen for much longer PM! you need a replacement and FAST

50. May 12   11:05 Posted by Justin [report]

    Happy Monday- so happy to be at work 200 feet of concrete and steel away from a beautiful day

51. May 12   11:04 Posted by VP [report]

    BestBuy really going to buy up half the High St? What about p/e for KGF?

    Seems like the squeezes are on…