Markets live chat transcript for the chat ending at 12:11 on 17 Jul 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Hello – welcome to Markets Live
PM:
This is FT Alphaville’s daily markets chat.
PM:
Was just having a laugh about Sam’s piece on the Karachi market.
PM:
Price down 15 days in a row there. So investors started stoning the exchange.
NH:
Wouldn’t it be fun if we did that here.
PM:
As Worzel suggests below
NH:
Congregate at Paternoster Square and stone the place.
PM:
Try and break the window at the top – the one for Clara Furse’s private gym.
PM:
Yeah, I’m pretty sure it’s her private gym.
PM:
Well that’s according to friends at Merrill Lynch.
PM:
They say she’s the only one that uses it.
NH:
What, leering out the window, across the road????
NH:
I think we should move on.
PM:
Albert Edwards has surpassed himself this morning.
NH:
We’re all going to die, are we?
PM:
Specifically, he suggesting we should be jailing central bankers on both sides of the pond for running the Ponzi scheme that’s got us in this mess.
NH:
Yes, saw he was referring to the Koreans jailing their central bank governor.
NH:
Did happen – back in 97 though
NH:
The 1997 Asian currency crisis also led to the arrest of Korea’s central bank governor at the time, Kang Kyong Shik, for “gross economic negligence.” He was imprisoned for three months in 1998, while awaiting trail. Prosecutors made Kang appear in court in prison garb, handcuffed and in ropes, adding to his humiliation.
NH:
That’s from a Barron’s writer
NH:
But what’s Edwards actually saying?
PM:
Well, basically that we are just at the beginning. We are looking at a prolonged slump – like Japan, except worse.
PM:
Yeh, worse. No one over here has the savings to act as a cushion – keeping consumption up
PM:
So its going to be much worse.
NH:
interesting flash just come up on the wires
NH:
the leading market maker
NH:
RNS Number : 2829Z Close Brothers Group PLC 17 July 2008 ? 17 July 2008 CLOSE BROTHERS GROUP PLC ANNOUNCEMENT REGARDING WINTERFLOOD SECURITIES LIMITED
NH:
Close Brothers Group plc (“Close Brothers”) announces that its subsidiary Winterflood Securities Limited (“Winterflood”) has today referred to the Financial Services and Markets Tribunal (“FSMT”) a decision made by the Financial Services Authority (“FSA”) to impose a financial penalty of GBP4 million on Winterflood in respect of dealings which occurred on the AIM market in 2004.
NH:
The allegation against Winterflood stems from trading by third parties in 2004 in shares of Fundamental E Investments plc (“FEI”), an AIM listed stock. Winterflood was a market-maker in FEI at the time and executed a majority of the relevant trades. The FSA allege that Winterflood failed to have appropriate regard to warning signs and failed to ask questions about the propriety of the third party trades in FEI executed by Winterflood, and thereby committed market abuse.
NH:
It is not alleged that Winterflood or its traders deliberately committed market abuse. With the support of Close Brothers, Winterflood has vigorously contested the FSA’s allegations and, after careful consideration and on legal advice, has today exercised its right to refer the FSA decision to the FSMT.
NH:
The amount of the financial penalty together with the costs of the referral have been fully provided by Winterflood. Accordingly, the penalty is not expected to have any negative impact on the financial results of Winterflood or Close Brothers. As this matter is now subject to a formal referral process, neither Winterflood nor Close Brothers expect to make any further comment on this matter until that process is complete.
PM:
4m is a big big big fine
NH:
Brian Winterflood vs Hector Sands
PM:
Well, Brian’s quasi retired of course
PM:
You’d think anyone dealing in a company Fundamental E would be expected to take their own precautions
NH:
now as it happens I know a bit about this case
NH:
I have been chasing this story
NH:
but Close Bros, in typical style, refused to comment
NH:
as I understand the FSA was looking in to Fundamental E because of cash and new trades
PM:
Way of trading without ever actually paying for the stock
PM:
Pay a penalty spread tho
NH:
as I understand two Wins traders have received large fines as well
NH:
here’s a bit of background to this fights
NH:
the case has been rumbling on for years
NH:
this was in the Indy two years back
NH:
Small Talk
Top small cap market-making firm Winterflood Securities has agreed to a multi-million-pound out-of-court settlement with Pershing Securities, Small Talk can reveal. The dispute between the two City firms was part of the scandal surrounding the collapsed stockbroker SP Bell and its chief executive, Simon Eagle.
The case had been expected to come to trial this month but was abandoned by Pershing after Winterflood, owned by the merchant bank Close Brothers, agreed to pay for a settlement. SP Bell fell into administration in 2004 after it emerged that dozens of its customers’ accounts had been used to buy about £10m worth of shares in the AIM computer company Fundamental-e. As well as heading up the stockbroker, Mr Eagle was also chairman of Fundamental-e.
Pershing helped settled the share buying by SP Bell but was left out of pocket when it became clear that the trades were unauthorised and customers refused to pay for the stock acquired in their names. Winterflood is believed to have helped SP Bell execute the trades and was held responsible by Pershing for failing to check they had been correctly authorised.
However, both sides now insist the matter is closed. A statement from Winterflood Securities said: “The parties, Pershing Securities Limited and Winterflood Securities Limited, confirm that all claims have been settled and withdrawn and that both sides are now looking forward to developing their business relationship”
NH:
this is in the mail in 2004
NH:
OP City firm Winterflood Securities has been drawn into a scandal surrounding stockbroker SP Bell.
Winterflood is being sued by broker Pershing Securities, which claims it has been left out of pocket by the scandal at Bell.
Pershing is also taking action against Bell’s former chief executive Simon Eagle and two British Virgin Islands companies linked to Eagle.
Bell collapsed into administration after it emerged in July that the accounts of 75 customers had been used to buy about £10 million worth of shares in computer components company Fundamental-e.
Eagle was also chairman of Fundamental-e and his father is a leading shareholder.
Pershing executed the share buying on behalf of Bell, but once it emerged the trades were unauthorised and customers refused to pay for the shares bought in their names, Pershing was left holding the shares
Its claim against Winterflood, owned by merchant bank Close Brothers, is understood to be that the market maker acted as a go-between in the share deals and is partly responsible for checking whether the trades were authorised.
Winterflood confirmed it was in a ‘trading dispute’ with Pershing.
PM:
Okay — thanks for that
PM:
(Careful down below please)
NH:
in the wake of Wall Street’s powerful overnight move
NH:
up 72 points at 5,221.7
NH:
150 points would have been a good bounce in the wake of the recent carnage
NH:
this all feels distinctly
PM:
So not the start of the big switchback
NH:
banks have rallied but
NH:
but it’s all a bit, well,
NH:
compared to what happened in the US
NH:
check some of these moves overnight
NH:
Wells Fargo up almost 33%, whilst Freddie & Fannie gained about 30% apiece and Lehman was up 26%.
NH:
Bank of America add 22.4%, while J.P. Morgan Chase leapt 15.9%
NH:
Merrill Lynch advanced 12% and Morgan Stanley rallied 11.7%.
NH:
. National City jumped 22%, Zions Bancorp gained 22% and SunTrust Banks rallied 18%.
NH:
S& P 500 banks sector was up 12.5%
PM:
Hmm — thsoe were big moves
NH:
of course most of that was a purely technical reaction to the ridiculous new shorting rules from the SEC
PM:
And the Wells Fargo numbers — and divi
NH:
seems there was a huge scramble to buy back the sector shorts
NH:
now given all of that
NH:
one would have expected to see the UK banks sector flying
NH:
Barclays is up 17p at 284p
NH:
Royal Bank of Scotland up 11p at 176p
NH:
Lloyds has added 8.25p to 282p
PM:
And what about HBOS??
NH:
now this is really pathetic
NH:
and it has not risen further because everyone knows the underwriters are going to be left holding a serious amount of stock
NH:
but good point from Driss below – from yesterday’s lows the sector had enjoyed a big bounce
NH:
the deadline might be tomorrow for its £4bn cash call
NH:
most big institutions would have made up their mind by now
PM:
Just looking at the nil paids — great price this morning
NH:
anyway there seems to be a feeling out there
NH:
that the likes of RBS and Barclays have rallied so hard
NH:
because the underwriters to the HBOS cash call, Dresdner and Morgan Stanley, have been shorting them as a proxy
NH:
now, I am not sure this is something they would do
NH:
but a lot of the broking community think they have been
NH:
look at his from MF Global
NH:
RBS to benefit from HBOS rights closing
- RBS has fallen 10% more than HBOS in the last month
- Underwriters likely to be placing HBOS shares from late tomorrow
- Should also close short RBS position at the same time
* HBOS trades at 0.6x book (0.65x tangible) post rights
* RBS trades 0.4x book (0.8x tangible)
NH:
While the book value is clearly questioned by the market, we note at HBOS:
- Book includes £1.8bn write downs not taken through P&L or against Tier 1
- SEB Q2 write downs a fraction of Q1 yesterday; a reasonable marker
- Goodwill on old deals is unlikely to be written down
- Rising bad debts may temporarily mean RoE below cost of capital, but HBOS is unlikely to lose money
on its core business
NH:
We expect investors can pick up HBOS shares at market clearing levels from underwriters in the next few days
A more immediate trade is to buy RBS for a likely short squeeze
Meanwhile, Barclays share issue should close without incident today Chinese bank CDB is committed to underwrite and is reported to have transferred funds to a Hong Kong bank already CDB is only underwriting 3% of the Barclays placing
* Barclays is trading at 0.7x book (1.0x tangible)
PM:
But i suspect it is just a theory
PM:
not sure it stacks up
PM:
if it did then the RBS move would have been a lot more powerful than it is
NH:
it is another big day for the banking sector in the US
NH:
and here’s a preview note on Merrill from Bank of America
NH:
Merrill Lynch (MER)
Q2’08 Estimates: BofA = ($1.00) vs. Consensus = ($1.91)
This entry was posted by Paul Murphy on Thursday, July 17th, 2008 at 11:02 and is filed under Uncategorised.
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