Markets live chat transcript for the chat ending at 12:12 on 7 Oct 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
ha — Dow just plunged thru 9600 again
NH:
Surprise
NH:
We have started early today
PM:
hey Neil — must be serious
PM:
that top line from me about the Dow is from last night
PM:
Ignore it
NH:
it is Bobby Peston has wrecked the UK banking sector
NH:
all on his own
PM:
PM:
Welcome to Markets Live
PM:
This FT Alphaville’s daily markets chat.
NH:
We have some very distressing news to bring you this morning.
NH:
Well it’s not so much news.
NH:
We have the distressing image of John Varley – a good man and previously sane – saying to Robert Peston OBE…
NH:
“You are talking rubbish, sonny.”
PM:
Either that, or he is saying to Downing Street and HM Treasury – your briefing of the BBC’s economics correspondent this morning has diverged materially from the facts – causing a hugely false market in the process.
PM:
Here’s Varley:
PM:
Contrary to press rumours, Barclays has not requested capital from the government and has no reason to do so.
NH:
So, BARC to Pestowire.
Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.
NH:
Liar, liar, pants on fire!
PM:
What a carry on!!
PM:
Of course, the reality here is that everyone can be “right” on this – and everyone can be “wrong.”
PM:
Of course the banks discussed a government capital injection when they met up with the government on Monday!
NH:
How could they not discuss it? What else would they discuss???
NH:
(Pesto was at the FT way before we arrived. Our paths never crossed but he did once offer me a job when he was at the Sunday Telegraph)
PM:
he broke the story about the glistening bank — the EBRD — while here
PM:
Also did certain stories about sterling that he wil probably want to forget
PM:
But hey we hvae all got those
NH:
(Monkey – City reporter job. But I decided to stay at the Guardian with Paul)
NH:
right
NH:
Varley has been talking at a Merrill Lynch banking conference this morning
NH:
and we have a copy of it
NH:
just looking to see if there is anything interesting in it
NH:
Barclays PLC
Speaking Notes
John Varley – Group Chief Executive
Merrill Lynch Conference – “Growth Opportunities Post Crisis”
07 October 2008
Speaking Notes
John Varley – Group Chief Executive
Merrill Lynch Conference – “Growth Opportunities Post Crisis”
07 October 2008
PM:
Pull some more chunks out if u can
NH:
1. I must start by thanking our hosts, Merrill Lynch, for inviting me to speak.
2. With the events of the past few weeks, I suspect the planners of this event have
suffered much anxiety…
3. …about whether a focus on “Growth Opportunities Post Crisis” is at all appropriate
in the circumstances.
4. I think it’s a good topic.
2. With the events of the past few weeks, I suspect the planners of this event have
suffered much anxiety…
3. …about whether a focus on “Growth Opportunities Post Crisis” is at all appropriate
in the circumstances.
4. I think it’s a good topic.
NH:
Whilst every leader in the financial services industry is heavily focused on the shortterm……..
6. ……..managing the impact of the on-going dislocation…..
7. ..…..we must not lose sight of the growth which our shareholders expect of us
through time.
8. Our immediate objective at Barclays is very clear to us: we must manage the impact
of the credit crisis, whilst maintaining strategic momentum.
6. ……..managing the impact of the on-going dislocation…..
7. ..…..we must not lose sight of the growth which our shareholders expect of us
through time.
8. Our immediate objective at Barclays is very clear to us: we must manage the impact
of the credit crisis, whilst maintaining strategic momentum.
PM:
yes yes
NH:
So what I propose to talk about this morning is:-
• Our view on the environment
• What we have done, and are doing, to manage through it
• The growth opportunities we are pursuing, viewed through the lens of our four
strategic priorities
• Our view on the environment
• What we have done, and are doing, to manage through it
• The growth opportunities we are pursuing, viewed through the lens of our four
strategic priorities
NH:
• What you can expect from us over the coming months
• And some conclusions
• And some conclusions
NH:
You do not need me to tell you that the environment of the last twelve months,
particularly the last month, has been more difficult than anything we have ever
experienced.
particularly the last month, has been more difficult than anything we have ever
experienced.
NH:
The initial dislocation of just over a year ago was prompted by increased defaults on
U.S. sub-prime mortgages.
U.S. sub-prime mortgages.
NH:
But it has been exacerbated by an extreme, and on-going, lack of term liquidity in the
money markets.
money markets.
NH:
Until investors return to that market, and allow risk transfer to work again, the
demand for funding will outstrip the supply, and banks will not be able to return to
their normal lending activities.
demand for funding will outstrip the supply, and banks will not be able to return to
their normal lending activities.
NH:
That will in turn put pressure on the health of the global economy.
15. The thoughtful interventions of the Fed, the Bank of England, the European Central
Bank, and other central banks, have helped bridge the liquidity gap.
16. They brought significant liquidity to the market after the collapse of Bear Stearns in
March, and again after the events surrounding Lehman Brothers and AIG in
September.
17. For a while they brought some confidence back to the money markets through their
concerted actions.
15. The thoughtful interventions of the Fed, the Bank of England, the European Central
Bank, and other central banks, have helped bridge the liquidity gap.
16. They brought significant liquidity to the market after the collapse of Bear Stearns in
March, and again after the events surrounding Lehman Brothers and AIG in
September.
17. For a while they brought some confidence back to the money markets through their
concerted actions.
NH:
But the events of the past month highlight just how fragile that confidence is – and
how quickly it can evaporate.
19. The major economies of the world are confronting a marked slowdown in growth.
how quickly it can evaporate.
19. The major economies of the world are confronting a marked slowdown in growth.
NH:
some stuff on the TARP from Varley
NH:
While the US Troubled Asset Relief Programme, in and of itself, cannot correct this,
we believe it can help avert the most pessimistic scenarios, by helping banks to take
the first steps on the slow journey towards resuming normal lending activities.
we believe it can help avert the most pessimistic scenarios, by helping banks to take
the first steps on the slow journey towards resuming normal lending activities.
NH:
further consolidation
NH:
We recognise, of course, that our ability to take advantage of some of the
opportunities being generated by the market dislocation – and I’m about to come on
to that subject in just a moment – is wholly dependent on having a licence from our
owners to do this.
opportunities being generated by the market dislocation – and I’m about to come on
to that subject in just a moment – is wholly dependent on having a licence from our
owners to do this.
NH:
liquidity
NH:
We have our feet on the ground. We understand very clearly that the environment is
difficult, and that it’s quite likely to get more difficult as economies in the world
decelerate.
difficult, and that it’s quite likely to get more difficult as economies in the world
decelerate.
NH:
that’s it
NH:
rest of it is fairly dull
PM:
We should put some prices up
Royal Bank of Scotland Group (RBS:LSE): Last: 107.50, down 40.6 (-27.41%), High: 153.90, Low: 90.00, Volume: 181.37m
NH:
off its lows
HBOS (HBOS:LSE): Last: 139.50, down 21.3 (-13.25%), High: 176.00, Low: 131.20, Volume: 19.73m
NH:
traded as low as 90p!
Lloyds TSB Group (LLOY:LSE): Last: 232.00, down 27 (-10.42%), High: 273.75, Low: 200.00, Volume: 28.11m
Barclays (BARC:LSE): Last: 296.50, down 17.5 (-5.57%), High: 327.00, Low: 261.00, Volume: 46.56m
PM:
Look, here’s what we think has happened
NH:
HBOS HASNT ASKED FOR ANY CAPITAL – SKY NEWS
PM:
Of course it hasnt
PM:
Dear Robert has awarded himself a guess-scoop – Suggested at the weekend that the government might look at a capital injection for the banks.
PM:
Then claimed a WORLD EXCLUSIVE when someone from the Treasury said “yes, the banks want billions”
PM:
Banks subsequently go into meltdown on the market.
PM:
You’ve got someone from the Treasury thinking they are really smart showing the government is in control on this one – big enough to bail everyone out
PM:
Playing politics
PM:
Hadn’t thought that the market would just say: “Fine — bail em out then”
PM:
“What price you gonig to pay”
NH:
we don’t want them
NH:
so this is more of cock-up by the Treasury then?
PM:
yes — one or two idiots there who clearly dont understand how markets operate
NH:
careless talk can cost banks in this environment
NH:
but Sterling makes a good point below
NH:
RBS are not saying anything
NH:
they have stayed MUM this morning
NH:
it does look as if they need more capital
NH:
or that’s what the market is saying
NH:
presumably they could not tap shareholders for cash
NH:
so it would have to come from the govt
NH:
anyway, wider market
NH:
NH:
we had the dead cat bounce
PM:
Up over a ton first thing
PM:
Footsie wise
PM:
Index now trading 4.9 points lower at 4585
PM:
Also been as low as 4517
PM:
ie prices are all over the shop
NH:
they are
NH:
but Lex is looking/expecting a big rally
NH:
During the past two weeks, equity markets have suffered some of their largest falls – the other 10 biggest one-day drops all took place during the Great Depression or the October 1987 crash. What is certain is that there will soon be a tremendous rally – just as there was during the Great Depression. The 1930s saw nine of the 10 best days for US stocks ever recorded. None of those rallies, however, was sustained.
PM:
Hmmm
PM:
Sam’s says David Buik at BGC is on the box — BBC
PM:
Saying Peso’s rumour mongering is a scandal etc
NH:
the Beeb reporter looks very nervous
PM:
So we’re going to stnad behind Robert on this one, arent we Neil
NH:
we are
NH:
he has had a good story and put out there
NH:
if someone is dumb enough to leak it
PM:
yeah, he might have over-egged it a tad
NH:
that’s there problem
PM:
But still his story, probably, just
NH:
but a good idea from VP below
NH:
Ban Pesto, Bring back shorting
NH:
of course there is another wild story doing the rounds about RBS
NH:
actually could be old
NH:
and this did not come from the Treasury
PM:
NH:
bu the market place
NH:
so it’s extremely RAW
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
and it goes like this
NH:
HBSC is being lined up as a buyer of last resort for RBS
NH:
in fact it has an all share offer ready and waiting
NH:
of course this extremely RAW
NH:
but it came from some very experienced market players
NH:
who remember the stock market crash of 1987 only too well
PM:
Hmm — taht would be quite a deal — if it happeened
NH:
and GH we have disagree here. Pesto is not spreading rumours
NH:
clearly this was discussed at the Treasury
NH:
he would not make it up
NH:
as for the FSA going after him
NH:
Freedom of the Press anyone
NH:
anyway some analysis on this plan
PM:
ok
NH:
a few brokers have been looking at the theoretical earnings dilution
NH:
Assuming the capital is provided by the government at a 30% discount to the current share price – and that’s a pretty big IF – the 2009 EPS dilution for Barc, Lloyds TSB/HBOS and RBS is 27%, 25% and 29%.
NH:
If the share prices hold at current levels this would place the three stocks on 7.2x, 7.3x and 5.2x respectively.
NH:
here’s some more work
NH:
by Deutsche Bank
NH:
25-29% EPS dilution, pro-forma core tier 1 of 7-9%
Assuming the government were to take straight equity stakes of £7.5bn in
each bank at a 30% discount to last night’s closing price, the 2009 EPS
dilution for Barclays, Lloyds TSB/HBOS combined and RBS would be 27%,
25% and 29% respectively, on our estimates. Pro-forma 1H08 core tier 1
ratios for the three would rise to 9.0%, 7.1% and 7.1% including the July
rights issues and an additional £7.5bn of government capital.
Assuming the government were to take straight equity stakes of £7.5bn in
each bank at a 30% discount to last night’s closing price, the 2009 EPS
dilution for Barclays, Lloyds TSB/HBOS combined and RBS would be 27%,
25% and 29% respectively, on our estimates. Pro-forma 1H08 core tier 1
ratios for the three would rise to 9.0%, 7.1% and 7.1% including the July
rights issues and an additional £7.5bn of government capital.
NH:
Credit cycle loan losses to come
Whilst the shares would then be trading at 7x for Barclays and Lloyds TSB/
HBOS and 5x for RBS including this dilution, we see considerable risks to
earnings – whatever rate cuts and investment we see in the short term -
from rising loan losses. Substituting 1992-level loan writeoffs in our 2009
UK banking forecasts and allowing for government capital dilution would
reduce 2009 EPS forecasts by 54% at Barclays, 76% at Lloyds TSB/HBOS
and 91% at RBS, placing the shares on 11.4x, 22.9x and 41.9x trough earnings,
respectively. We retain our preference for Barclays over Lloyds TSB/
Whilst the shares would then be trading at 7x for Barclays and Lloyds TSB/
HBOS and 5x for RBS including this dilution, we see considerable risks to
earnings – whatever rate cuts and investment we see in the short term -
from rising loan losses. Substituting 1992-level loan writeoffs in our 2009
UK banking forecasts and allowing for government capital dilution would
reduce 2009 EPS forecasts by 54% at Barclays, 76% at Lloyds TSB/HBOS
and 91% at RBS, placing the shares on 11.4x, 22.9x and 41.9x trough earnings,
respectively. We retain our preference for Barclays over Lloyds TSB/
NH:
HBOS and RBS given lower credit risks and stronger balance sheet.
NH:
and this recently in from Cazenove
NH:
some of which we have put up in the site already
NH:
The government appears to be planning a capital injection to parts of the UK banking system. In the House of Commons yesterday afternoon, the Chancellor announced no new measures but did leave open the possibility of returning with a detailed plan; the opposition parties have expressed their support for recapitalisation. The Financial Times reports recapitalisation is still a contingency
plan with talks between banks and Treasury to continue through the rest of this week.
plan with talks between banks and Treasury to continue through the rest of this week.
NH:
The BBC reports that the four UK banks are open to the proposal.
In our view if it happens, the scale of investment will lead to material dilution while the on-going uncertainty is corrosive to share prices. We see the plan applying to the four domestic banks of Barclays (BARC.L BARC LN IN-LINE 314p), Lloyds TSB (LLOY.L LLOY LN IN-LINE 260p), Royal Bank of Scotland (RBS.L RBS LN UNDERPERFORM 148p) and HBOS (HBOS.L HBOS LN IN-LINE
161p).
In our view if it happens, the scale of investment will lead to material dilution while the on-going uncertainty is corrosive to share prices. We see the plan applying to the four domestic banks of Barclays (BARC.L BARC LN IN-LINE 314p), Lloyds TSB (LLOY.L LLOY LN IN-LINE 260p), Royal Bank of Scotland (RBS.L RBS LN UNDERPERFORM 148p) and HBOS (HBOS.L HBOS LN IN-LINE
161p).
NH:
There is a wide range of potential outcomes, some of which are attractive given current valuations. For example £26bn lifts core tier 1 to 7.5% and dilutes Barclays’ shareholders by around 22% and Lloyds/HBOS and RBS by around one third. The key is to restore confidence to debt investors.
If it should happen, the nature and terms of any such recapitalisation are also unclear. We consider below the sensitivity of the domestic banks to a government investment though we stress that a plan may not materialise or even in the event, that not all banks will be expected or required to participate.
NH:
The primary risk is that any action is seen as insufficient by the debt markets. Therefore the government may also have to provide a guarantee beyond first loss on certain high-risk assets.
NH:
and amid all the excitement about RBS
PM:
(Maximus — index linked gilts — thats what you should buy, in my view)
NH:
we have forgotten about HBOS
NH:
obviously the spread has moved wider this morning
NH:
but there has been some good news from down under
NH:
HBOS are in talks to sell their Aussie division to CBA
NH:
looks as if they will get significantly less than the market was expecting
NH:
but every little helps at the moment
NH:
here’s quick note on the topic from Alex Potter at Collins Stewart
NH:
BUY | Target: 375p | Price: 161p | UK | Banks | 7 October 2008
BankWest talks confirmed. Funding benefits of disposal are key positive
BankWest talks confirmed. Funding benefits of disposal are key positive
NH:
CBA confirm exclusive talks on BankWest
Australian press is reporting the price to be c.AUD2bn and the UK press describes this as being “around book value”. This price is significantly less than the GBP3bn we had initially hoped for (HBoS – “Self-help options”, 10 July 2008) but we would still take the sale positively. WestPac is currently acquiring St George Bank for c.3x tangible book value
Australian press is reporting the price to be c.AUD2bn and the UK press describes this as being “around book value”. This price is significantly less than the GBP3bn we had initially hoped for (HBoS – “Self-help options”, 10 July 2008) but we would still take the sale positively. WestPac is currently acquiring St George Bank for c.3x tangible book value
NH:
Capital benefit smaller due to lower price… but still a positive
Total capital invested in HBoS Australia (of which BankWest is a subset) was £2,023m, so a sale for just under £1bn and being circa book value would imply little impact on Tier 1 capital levels. However, the Tier 1 capital ratio would improve by 30-40bp, we estimate – to around 6.5-6.6%, which would be one of the stronger levels visible in the UK. The lower sale price does mean that our initial hopes for 94bp of Tier 1 ratio improvement (to near-7.5%) are disappointed somewhat.
Total capital invested in HBoS Australia (of which BankWest is a subset) was £2,023m, so a sale for just under £1bn and being circa book value would imply little impact on Tier 1 capital levels. However, the Tier 1 capital ratio would improve by 30-40bp, we estimate – to around 6.5-6.6%, which would be one of the stronger levels visible in the UK. The lower sale price does mean that our initial hopes for 94bp of Tier 1 ratio improvement (to near-7.5%) are disappointed somewhat.
NH:
Funding benefits remain and are the main positive
In a banking market where short-term funding is absolutely critical, the short-term funding benefit of this deal should be highly-valued and gives a hint as to why HBoS are reportedly negotiating at such a depressed price level. The improvement in group loan-deposit ratio is a modest 2pp (to 175%). However, the increase in the “funding gap”, i.e. excluding securitisations, is 15% or £16bn, we estimate. This would leave HBoS’s funding gap at £89bn and, importantly, improves the short-term pool of liquidity within the bank, we believe. Liquidity concerns are key to bank performance at the moment.
In a banking market where short-term funding is absolutely critical, the short-term funding benefit of this deal should be highly-valued and gives a hint as to why HBoS are reportedly negotiating at such a depressed price level. The improvement in group loan-deposit ratio is a modest 2pp (to 175%). However, the increase in the “funding gap”, i.e. excluding securitisations, is 15% or £16bn, we estimate. This would leave HBoS’s funding gap at £89bn and, importantly, improves the short-term pool of liquidity within the bank, we believe. Liquidity concerns are key to bank performance at the moment.
NH:
HBoS is a cheap way into the UK’s main retail bank
We have to assume that the UK financial system will not melt down and that a recovery will emerge in due course. In this instance, HBoS is moving to improve its lot and the better funding and short-term liquidity position this deal would bring are key in this volatile market. HBoS is at a 25% discount to the Lloyds TSB bid, in large part due to the absence of merger arbitrage activity, we feel. The “newco” is also now trading at just 0.92x tangible book value even after our “big bath” style acquisition write-downs. We view this as an opportunity and reiterate our BUY call on HBoS.
We have to assume that the UK financial system will not melt down and that a recovery will emerge in due course. In this instance, HBoS is moving to improve its lot and the better funding and short-term liquidity position this deal would bring are key in this volatile market. HBoS is at a 25% discount to the Lloyds TSB bid, in large part due to the absence of merger arbitrage activity, we feel. The “newco” is also now trading at just 0.92x tangible book value even after our “big bath” style acquisition write-downs. We view this as an opportunity and reiterate our BUY call on HBoS.
PM:
Whenwereyoung — look forward to that
NH:
of course the other thing we have forgotten to mention was the overnight performance of the Dow
NH:
closed down 360 points
NH:
after being off 800 points at worst
NH:
the market pulled back from the nadir in the last hour of trading
NH:
Vix declined too
PM:
Quite a bounce — i told you to watch the last half hour
NH:
true
NH:
butt he Dow Jones Industrial Average, still back below 10,000
NH:
nine years ago if first hit 10,000
PM:
yep — there are a lot of people out there brainwashed into thinking that you should “buy on the dips” — the bigger the dip the bigger the opportunity
NH:
hmmm
NH:
but did you see the news that came out of Bank of America after hours
PM:
Saw the snaps
NH:
BoA brought forward Q3 results last night
NH:
and unleashed a profit warning, dividend cut and then the icing on the cake
NH:
a $10bn capital raise
PM:
(negative alphaa — we will see about that)
PM:
Nice
NH:
capital is needed to keep the bank’s Tier 1 capital ratio near 8% and cover the higher credit losses than are expected, apparently
PM:
i see — any more detail
NH:
yup
NH:
net income in the quarter fell to $1.18 billion, down 68 percent from the same period a year earlier when the bank posed a profit of $3.7 billion.
NH:
results were worse than expected.
NH:
Credit losses on mortgages and credit cards dragged down the results.
NH:
Provision for credit losses was $6.45 billion, up from $5.83 billion in the second quarter.
NH:
Net charges were $4.36 billion, as compared to $3.62 billion in the second quarter.
NH:
Nonperforming assets were $13.3 billion, or 1.42 percent of total loans, leases and foreclosed properties
NH:
and Ken Lewis is not longer bullish about the economic outlook in the US
NH:
“These are the most difficult times for financial institutions that I have experienced in my 39 years in banking.”
PM:
Hmm. can see his point
PM:
any analyst comment on this??
NH:
plenty
NH:
this is from HSBC
NH:
Perfect storm” produces a capitulation
NH:
In sharp reversal, management acknowledges need to build
capital strength after significantly lower than expected Q3
earnings stemming from asset quality deterioration
capital strength after significantly lower than expected Q3
earnings stemming from asset quality deterioration
Outlook is gloomy—“the most difficult times for financial
institutions” in the CEO’s 39 years in banking, and the “risk
for a prolonged recession has increased”
NH:
Countrywide debt will be assumed; we guess today’s broadbased
settlement with states’ Attorneys General played a role
settlement with states’ Attorneys General played a role
Safe haven status not likely to be jeopardized by
announcement, but the negative surprise nature of this
release coupled with the complexities introduced by the
pending Merrill Lynch deal are likely to keep the name back
of best-in-class names J.P. Morgan Chase, Wells Fargo;
reiterate Neutral recommendation
NH:
this is from Goldman Sachs
NH:
What’s changed?
NH:
Bank of America is ratcheting down earnings expectations for the
remainder of 2008 and into 2009 as well as raising capital to fortify the
balance sheet. Specifically, credit trends in the quarter indicate credit
deterioration did not decelerate– consistent with what we saw at C and
likely what we will see across the sector. Prime mortgage, consumer and
small business continue to deteriorate at a rapid pace akin to last quarter
while commercial and commercial real estate are accelerating. The
announced capital raise and dividend cut bring capital ratios toward peer
averages (3%+ tangible common, 8%+ Tier 1).
remainder of 2008 and into 2009 as well as raising capital to fortify the
balance sheet. Specifically, credit trends in the quarter indicate credit
deterioration did not decelerate– consistent with what we saw at C and
likely what we will see across the sector. Prime mortgage, consumer and
small business continue to deteriorate at a rapid pace akin to last quarter
while commercial and commercial real estate are accelerating. The
announced capital raise and dividend cut bring capital ratios toward peer
averages (3%+ tangible common, 8%+ Tier 1).
NH:
Implications
NH:
Bank of America is inexpensive on normalized earnings at about 6.5X but
the message from today’s results is clearly that we are unlikely to see
anything approaching normalized earnings this year or next. We peg
normalized earnings at about $4.50 per share using the pre-provision, prewrite-
down earnings run rate from the past three quarters, a 10 year avg
provision rate, and 8% dilution from the expected $10bn capital raise. We
are lowering our estimates for 2008-2010 to $1.60, $2.15 and $4.00
reflecting the deteriorating outlook for credit. Our 12-month DCF-derived
price target is $40.
the message from today’s results is clearly that we are unlikely to see
anything approaching normalized earnings this year or next. We peg
normalized earnings at about $4.50 per share using the pre-provision, prewrite-
down earnings run rate from the past three quarters, a 10 year avg
provision rate, and 8% dilution from the expected $10bn capital raise. We
are lowering our estimates for 2008-2010 to $1.60, $2.15 and $4.00
reflecting the deteriorating outlook for credit. Our 12-month DCF-derived
price target is $40.
NH:
Valuation
NH:
We see one of two outcomes from here: 1) BAC continues through this
cycle without further dilution and thus is inexpensive on normalized
earnings, or 2) the environment continues to deteriorate forcing more
capital raises. Even in this scenario BAC has other capital options outside
of common equity issuance, eg. monetizing part of the CCB stake (~$5bn)
and issuing preferreds (BAC could probably do ~$3bn in the current
market). BAC currently trades at 14X our 2009E and 3X tangible book.
cycle without further dilution and thus is inexpensive on normalized
earnings, or 2) the environment continues to deteriorate forcing more
capital raises. Even in this scenario BAC has other capital options outside
of common equity issuance, eg. monetizing part of the CCB stake (~$5bn)
and issuing preferreds (BAC could probably do ~$3bn in the current
market). BAC currently trades at 14X our 2009E and 3X tangible book.
NH:
and this is from UBS
NH:
Good Decision to Raise Capital & Cut Div,
but Rising Credit Concerns in C&I/CRE
but Rising Credit Concerns in C&I/CRE
NH:
$10b capital raise, 50% dividend cut, and 3Q EPS (two weeks early)
After the close, BAC made several announcements—releasing 3Q results (two
weeks early), announcing its intention to raise $10b-plus in common equity, and
reducing its dividend by 50% (saving another $5b-plus in capital annually). 3Q
EPS of $0.15 included $2.2b of market related hits (net of a gain) vs. our estimate
of $1b and higher provision expense (of $6.5b, including $2b of reserve build).
After the close, BAC made several announcements—releasing 3Q results (two
weeks early), announcing its intention to raise $10b-plus in common equity, and
reducing its dividend by 50% (saving another $5b-plus in capital annually). 3Q
EPS of $0.15 included $2.2b of market related hits (net of a gain) vs. our estimate
of $1b and higher provision expense (of $6.5b, including $2b of reserve build).
NH:
Timing of capital raise a bit disappointing, but may prove a smart move
In our view, it’s a bit disappointing BAC waited so long to raise common equity
(vs. cutting its dividend or raising stock earlier—potentially at a higher level). But
we may look back in a month and realize BAC was earlier than many other banks
(and got ahead of a large raise by WFC/C related to the WB deal and a possible
return of shorting bank stocks). We estimate the capital raise will be ~ $0.20
dilutive to EPS (or ~ 5% on normalized EPS). Pro forma Tier 1 goes to 8.3% &
tangible common to 3.2%.
In our view, it’s a bit disappointing BAC waited so long to raise common equity
(vs. cutting its dividend or raising stock earlier—potentially at a higher level). But
we may look back in a month and realize BAC was earlier than many other banks
(and got ahead of a large raise by WFC/C related to the WB deal and a possible
return of shorting bank stocks). We estimate the capital raise will be ~ $0.20
dilutive to EPS (or ~ 5% on normalized EPS). Pro forma Tier 1 goes to 8.3% &
tangible common to 3.2%.
NH:
Biggest concern going forward is C&I/CRE credit, in our view
Much of the focus for BAC has been on consumer credit—which showed more
deterioration in 3Q (and there’s more to come). But our biggest concern from here
relates to C&I/CRE—where reserve levels seem low. C&I/CRE nonperformers &
charge-offs have both risen 70%+ since 1Q, but related reserves are up just 6%.
Much of the focus for BAC has been on consumer credit—which showed more
deterioration in 3Q (and there’s more to come). But our biggest concern from here
relates to C&I/CRE—where reserve levels seem low. C&I/CRE nonperformers &
charge-offs have both risen 70%+ since 1Q, but related reserves are up just 6%.
NH:
NH:
Monty is right
NH:
volume in London yesterday was not heavy
NH:
in fact it was average, very average
PM:
What is the vol in London today??
NH:
stripping out RBS, which has traded 225m shares, it is not heavy again
NH:
and most traders I have been speaking to would like to see a massive fall in volume to get the whole thing done. and then we can go again fro mthe lower levels.
NH:
RBS rallying now
NH:
off only 16%
PM:
PM:
Quick bit of news passed on by Bryce
PM:
THE CLOSE MAN HEDGE FUND LIMITED (the ‘Company’)
PROPOSALS FOR WINDING UP THE COMPANY AND SUSPENSION OF REDEMPTIONS
PM:
The Company was established in April 2004 and offered shares for subscription in May 2004. The Company raised £70,013,200 by subscriptions for shares and shareholders were given the facility to offer all or part of their shares for redemption each calendar quarter.
Upon the issue of shares in June 2004 the Company invested the total monies raised in the acquisition of £70,013,200 nominal of The Royal Bank of Scotland plc Structured Notes 2012 (the ‘Notes’), the returns on which were designed to enable the Company to meet its investment objective.
The Notes are due to mature in December 2012. The Notes offer a final redemption amount equal to the nominal amount of the Notes, plus a performance return determined by reference to the cumulative net gains or losses (if any) arising from an investment in Man MS Sterling Limited (‘Man MS’).
As a result of the redemptions of shares to date, the costs of operating the Company and Man MS have increased considerably as a percentage of the value of Man MS and hence in the cost per share in the Company. As at 26 September 2008 the estimated net asset value of Man MS was approximately £2,954,059. As set out in the Company’s prospectus, Man MS may discontinue all investments if its net asset value falls below £4 million and, upon becoming aware of a discontinuance of investment by Man MS, the Company’s directors will be obliged to convene an extraordinary general meeting of the Company for the purpose of considering an ordinary resolution as to whether all shares should be compulsorily redeemed before their scheduled maturity date of 31 December 2012.
The Company has been advised by Man MS that its directors have determined to discontinue its investment and to redeem compulsorily all shares in Man MS as of 3 November 2008. In accordance with the Company’s prospectus, the Board of the Company will therefore shortly be convening an extraordinary general meeting for the purpose set out above; namely to propose a vote on a resolution that all shares be compulsorily redeemed following the realisation for cash of the Company’s investments.
PM:
We are going to look into this later
PM:
note that lots and lots of hedge funds have capital protection wrappers
PM:
There are complex provisoins in these, whereby if the udnerlying fund fails to perform the bank providing the guarantee can order that the money is transferred to fixed income holdings
PM:
We need to see whether this is happening else wehre
PM:
Because we could see HUGE unwinds here
NH:
As a result of the redemptions of shares to date, the costs of operating the Company and Man MS have increased considerably as a percentage of the value of Man MS and hence in the cost per share in the Company. As at 26 September 2008 the estimated net asset value of Man MS was approximately £2,954,059
NH:
As set out in the Company’s prospectus, Man MS may discontinue all investments if its net asset value falls below £4 million and, upon becoming aware of a discontinuance of investment by Man MS, the Company’s directors will be obliged to convene an extraordinary general meeting of the Company for the purpose of considering an ordinary resolution as to whether all shares should be compulsorily redeemed before their scheduled maturity date of 31 December 2012.
NH:
The Company has been advised by Man MS that its directors have determined to discontinue its investment and to redeem compulsorily all shares in Man MS as of 3 November 2008. In accordance with the Company’s prospectus, the Board of the Company will therefore shortly be convening an extraordinary general meeting for the purpose set out above; namely to propose a vote on a resolution that all shares be compulsorily redeemed following the realisation for cash of the Company’s investments.
NH:
looks the like the fund put all its cash into these
NH:
Royal Bank of Scotland plc Structured Notes 2012
NH:
made its investment in 2004
PM:
(Note to Derek below….
Know you are frustrated and angry, but please mind yer language. had to delete one of your comments earlier)
NH:
NH:
OK, we have a copy of Fred the Shred’s speech at the Merrill banking conference
PM:
great
NH:
The outlook is subdued
•
Economic forecasts uncertain
•
There will continue to be economic activity even though growth prospects are dampened
•
Opportunities will be spread unevenly by geography
•
Strong franchises and diversification of income streams will remain important . . .
•
As will operational effectiveness
•
Economic forecasts uncertain
•
There will continue to be economic activity even though growth prospects are dampened
•
Opportunities will be spread unevenly by geography
•
Strong franchises and diversification of income streams will remain important . . .
•
As will operational effectiveness
NH:
slide 15 says – Well matched balance sheet structure
NH:
Target capital ratios remain >6% core and 7.5%-8.5% tier 1
PM:
NH:
ABN
NH:
Integration remains on track to deliver £1.2bn benefits in 2009 and £1.7bn by 2010
NH:
Delivery of benefits remains ahead of plan
•
Accelerated delivery of GBM headcount reductions and increased purchasing savings
•
Scaling of GBM IT systems complete, client cut-over and novation underway
•
Accelerated delivery of GBM headcount reductions and increased purchasing savings
•
Scaling of GBM IT systems complete, client cut-over and novation underway
NH:
Significant scope for further efficiency gains
NH:
Roll out of UK model globally
•
Beyond integration, scope for significant additional efficiency improvements from
–
Global hubs
–
IT platform consolidation
–
Property consolidation
•
Reduction of cost:income ratio by 5 percentage points would increase profit before tax by £1.7bn
•
Beyond integration, scope for significant additional efficiency improvements from
–
Global hubs
–
IT platform consolidation
–
Property consolidation
•
Reduction of cost:income ratio by 5 percentage points would increase profit before tax by £1.7bn
NH:
Summary
NH:
The outlook for 2009 is challenging and presents a changing competitive landscape
•
We have franchise and operational strength to meet these challenges
•
We are delivering against our plans and targets
•
We have the flexibility to respond to organic opportunities as they emerge
•
We have franchise and operational strength to meet these challenges
•
We are delivering against our plans and targets
•
We have the flexibility to respond to organic opportunities as they emerge
NH:
right, just getting some more feedback from the conference
NH:
it seems Fred and the FSA have cancelled all 1-to-1 meetings after the presentations
NH:
seems they have all got to head back to the office
PM:
PM:
just fishing around trying to get this GM news
PM:
can hardly believe it — 40k euro jobs at risk
NH:
got it
PM:
Complete closedown?
NH:
coming from the Labour unions
PM:
In euorpe
NH:
everything in Europe shut
NH:
apart from Russelsheim
NH:
FRANKFURT (Dow Jones)–The labor representatives of General Motors Corp.’s
(GM) European Opel brand said Tuesday that they weren’t informed about the
company’s plan to halt production at all European plants apart from the
Russelsheim site.
(GM) European Opel brand said Tuesday that they weren’t informed about the
company’s plan to halt production at all European plants apart from the
Russelsheim site.
In a statement, the labor representatives said production will be cut by
40,000 cars in Europe this year. This is in line with statements made by the
company earlier Tuesday.
GM Europe’s labor representatives have initiated legal steps against the
company for not being informed about the planned measures, according to the
statement.
NH:
wow, that’s huge news
NH:
the crunch is starting to hit the real economy in a big way
PM:
oh, 40k cars
NH:
will be lots of unhappy people in Luton today
PM:
i’ll say
PM:
That said — I drove to Oxford in an Astra yesterday — and it was just rubbish
NH:
must have been better than your Jag though
PM:
My Jag is gorgeous
NH:
it is an environmental hazard
PM:
It’s green
NH:
the paint is
PM:
Racing green
PM:
It does at least 12 miles to the gallon
PM:
I dont use it often
NH:
and that petrol is not unleaded
NH:
by the real pollutant stuff
PM:
it is unleaned — just the 97 variety
NH:
do they still have that on forecourts??
NH:
just on hedge fund withdrawls
NH:
we should mention James Macintosh’s excellent Tosca story this morning
NH:
helps clear up a few myths
NH:
although the main Tosca fund has taken a real hit
NH:
Toscafund Asset Management is asking investors if it should restructure its largest hedge fund, after the $3.5bn (£2bn) Tosca Fund fell almost 35 per cent in September to leave it down 52 per cent this year.
The discussions with clients come as many are pulling money from hedge funds following a dismal year, adding to pressures piled on to the industry by banks withdrawing leverage.
Tosca, founded eight years ago by Tiger Management alumnus Martin Hughes, asked investors in a letter yesterday to indicate whether they wanted to withdraw cash.
NH:
It is drawing up plans to split the shares into a continuing and a redeeming class, assuming many want to leave.
However, executives believe the fund will retain more than half of its assets and say the company – which operates several other funds – will not be forced to sell any of its public stakes in companies. These include Aberdeen Asset Management, Redrow, Playtech and Taylor Wimpey in the UK, and Sovereign Bancorp, the US bank.
Tosca’s main fund was among the hardest hit in September, one of the worst months on record for hedge funds, after Mr Hughes in the spring concluded that banks represented good fundamental value. The collapse of Washington Mutual, the Seattle bank in which Tosca was the second-biggest shareholder, played a big part in last month’s performance.
PM:
goo story
NH:
Mehmet Dalman, the former head of Commerzbank’s investment bank appointed as vice-chairman of Tosca in June, said the company had already adjusted the size of its stakes, and that redemption requests, which had not been big so far, had all been met.
“It is not necessary to dispose of core holdings,” he said. “The fund believes that the core retained holdings offer excellent value.”
Mr Hughes had presented a rescue plan for WaMu, which was rejected by federal watchdogs in favour of seizing the bank and selling most of its assets to JPMorgan Chase for $1.9bn.
Mr Dalman said Tosca had “an alternative value-enhancing solution to the evident short-term concerns” at WaMu, and it was “disappointing that it appears the regulators did not have the time to consider alternative solutions”.
PM:
good as well
NH:
Mr Hughes often puts behind the scenes pressure on management to change strategy, although he dislikes being labelled an activist. He took a rare public stance last year on ABN Amro, calling for the sale of the bank, where he was joined by Chris Hohn of The Children’s Investment Fund, a London activist.
Tosca has a total of about $6bn under management across a series of funds. These include Tosca Metrics, which is up about 8 per cent, and a smaller companies fund which ended September down 6 per cent for the year, after being up 9.2 per cent at the end of August.
PM:
PM:
We shoudl do iceland — but i suspect we are not to popular there
PM:
NH:
I guess we aren’t
NH:
but then nor is Tom Braithwaite, our retail correspondent
NH:
and he has flown out to Iceland
NH:
and he is a marked man
NH:
anyway
NH:
lots of news this morning
NH:
Landsbanki gone under, according to Icelandic radio
NH:
Russians giving Iceland a EUR4bn loan
NH:
which has raised a few eyebrows given their historic connections
NH:
and the Icelandic government is giving Kaupthing a loan of EUR500m
NH:
which should last all of what, 48 hours
NH:
of course what is more interesting from a markets view
NH:
is that the great Icelandic unwind is beginning
NH:
First up, Icelandic food manufacturer Bakkavör has sold its 10.9 per cent stake in Ireland’s Greencore.
NH:
Also Exista is trying to sell it near 20 per cent holding in Finnish insurer Sampo.
The holding has a current market value of $2.2bn, although what that might be after an accelerated bookbuild by Citigroup is anyone’s guess.
The holding has a current market value of $2.2bn, although what that might be after an accelerated bookbuild by Citigroup is anyone’s guess.
PM:
what about the Tchenguiz stakes???????
PM:
any sign those positions, which are all backed by Kaupthing, are being unwound??
NH:
not yet
NH:
but there are plenty of rumours
NH:
on Sainsbury, Mr T and Kaupthing own 10% of the company
NH:
now some people think that stake is going to be placed in the market
NH:
others think Mr T has called on some friends who are going to help finance the stake
PM:
and they are??
NH:
one is a US hedge fund apparently
NH:
and the other is Philip Green
PM:
PM:
PG tipped to bail Mr T
PM:
the St Tropez safety net!!!
PM:
Believe it when i see it
NH:
must admit I am sceptical
NH:
P Green does not buy shares in quoted companies
NH:
as he tells anyone who will listen
PM:
£$%%$££! *&!?”(*
NH:
so the idea that he would take a slug of Sainsbury seems odd
NH:
that said
NH:
he was on the radio this morning
PM:
Who, PG??
NH:
yup
NH:
telling the listeners of Radio 4’s today programme
NH:
that it is not that gloomy out there
NH:
people needed to be a bit more confident, apparently
PM:
And PG should know — he’s married to that retailing billionnaire — Tina
NH:
anyway
NH:
there has been no movement on Sainsbury yet
NH:
or on Mitchells & Butlers
NH:
where Mr T owns 27%
NH:
and another stock that could be hit is JJB Sports
NH:
Exista owns 15% of the company
NH:
Chris Ronnie another 15%
NH:
both are financed by Kaupthing
NH:
and they must be facing huge margin calls
NH:
since the profits warning a couple of weeks ago the price has gone down in a straight line
NH:
from 100p to
NH:
22p this morning
NH:
and here for anyone who is interested are some more Icelandic holdings
NH:
that could get unwound soon
NH:
* Sampo (SAMAS FH) is 19.98% owned by Exista (EXISTA IR) – BEING SOLD
* Storebrand (STB NO) is 4.7% owned by Exista (EXISTA IR)
* Storebrand (STB NO) is 15.47% (9.98+5.49) owned by Kaupthing (KAUP IR)
* Kaupthing (KAUP IR) is 24.71% owned by Exista (EXISTA IR)
* Storebrand (STB NO) is 4.7% owned by Exista (EXISTA IR)
* Storebrand (STB NO) is 15.47% (9.98+5.49) owned by Kaupthing (KAUP IR)
* Kaupthing (KAUP IR) is 24.71% owned by Exista (EXISTA IR)
BAUGUR has holdings in:
* Debenhams (DEB LN, 6.7% and indirectly owns 6.8% via Unity
Investments)
NH:
* Moss Bros (MOSB LN, 28.29%)
* Saks (SKS US, 8.6%)
* French Connection (FCCN LN, 20.9% via Unity Investments)
* Woolworths (WLW LN, 12.4%)
* Saks (SKS US, 8.6%)
* French Connection (FCCN LN, 20.9% via Unity Investments)
* Woolworths (WLW LN, 12.4%)
NH:
PM:
PM:
ta for that neil
PM:
Got to break to LIBOR
PM:
*THREE-MONTH DOLLAR LIBOR 4.32% VERSUS 4.29%, BBA SAYS
*THREE-MONTH STERLING LIBOR 6.28% VS 6.27%, BBA SAYS
*ONE-MONTH LIBOR FOR EURO 5.12% VS 5.11%, BBA SAYS
*ONE MONTH STERLING LIBOR 6.08% VS 6.07%, BBA SAYS
*OVERNIGHT DOLLAR LIBOR 3.94% VERSUS 2.37%, BBA SAYS
*THREE-MONBTH LIBOR FOR EURO 5.34% VS 5.33%, BBA SAYS
*OVERNIGHT STERLING LIBOR 5.84% VS 5.08%, BBA SAYS
*OVERNIGHT LIBOR FOR EURO 4.27% VS 4.11%. BBA SAYS
*THREE-MONTH STERLING LIBOR 6.28% VS 6.27%, BBA SAYS
*ONE-MONTH LIBOR FOR EURO 5.12% VS 5.11%, BBA SAYS
*ONE MONTH STERLING LIBOR 6.08% VS 6.07%, BBA SAYS
*OVERNIGHT DOLLAR LIBOR 3.94% VERSUS 2.37%, BBA SAYS
*THREE-MONBTH LIBOR FOR EURO 5.34% VS 5.33%, BBA SAYS
*OVERNIGHT STERLING LIBOR 5.84% VS 5.08%, BBA SAYS
*OVERNIGHT LIBOR FOR EURO 4.27% VS 4.11%. BBA SAYS
NH:
what is the OIS spread??
PM:
Overnight libor blows to 4%
NH:
not there yet
NH:
was getting close to 300 yesterday
NH:
actually did you see our piece today
NH:
about the US govt getting involved in unsecured term lending
PM:
i did — from Krishna
NH:
a new LIBOR player
NH:
now his sources are immaculate
PM:
he has good sources
NH:
so its worth repeating some of his story
NH:
interesting development this
NH:
The Federal Reserve is working with the US Treasury on plans for a move into unsecured lending in the hope that this extreme step could help revive credit markets. As well as unsecured lending to banks, the plan could see the Fed directly purchasing commercial paper or funding a special purpose vehicle set up to do this
NH:
Any unsecured lending would be a radical departure for the Fed, which has never made unsecured loans. The step would enable the Fed to address directly two key financial system problems: the freezing of the term interbank money market, which covers all but overnight borrowing, and the rapid contraction of the commercial paper market
NH:
As the Fed doubts it has the legal mandate to make unsecured loans on which there is a likelihood of some loss, it needs the Treasury to guarantee losses on the loans, probably under new powers granted by Congress last week with the passage of the $700bn Paulson plan. However, it is awkward for the Treasury to support a big unsecured lending programme when the core of its pitch to Congress was the plan to purchase troubled mortgage-related assets. It is possible that the US authorities will be unable to reach agreement. But the urgency of the situation – and the fact that the Fed referred to unsecured lending in a Monday press release – suggests it will happen.
PM:
Such a mangling of the system
NH:
that’s how serious things are
NH:
Fed getting involved in unsecured lending
PM:
(Ghost — AE on honeymoon)
NH:
NH:
A top Russian official denied Tuesday that Moscow had granted Iceland a EUR4 billion loan, saying discussions on the matter hadn’t begun, RIA Novosti news agency said.
“There has been no official request from Iceland for a Russian loan, negotiations have not started and no credit decision has been taken,” RIA Novosti quoted Deputy Finance Minister Dmitry Pankin as saying.
“There has been no official request from Iceland for a Russian loan, negotiations have not started and no credit decision has been taken,” RIA Novosti quoted Deputy Finance Minister Dmitry Pankin as saying.
NH:
just popped up on the wires
PM:
PM:
So iceland not being bailed by oligarchs???
PM:
PM:
Anything before we wind this up??
NH:
one thing
NH:
over the last couple of days brokers and traders been trying to identiy which companies have short financing risk
NH:
the feeling being with money markets still gummed up
NH:
these companies could be in trouble
NH:
deep trouble
NH:
especially if they cannot draw down on their bank lines
PM:
yes agree
NH:
anyway
NH:
a really good piece of research has come out of Citi today
NH:
looking at this topic
PM:
Who is vulnerable??
NH:
well
NH:
Small/mid-caps with potential refinancing risk are
NH:
Cattles,
Independent News & Media, JD Wetherspoon, Ladbrokes, Punch Taverns, Rank,
Taylor Wimpey, Yell, and William Hill
Independent News & Media, JD Wetherspoon, Ladbrokes, Punch Taverns, Rank,
Taylor Wimpey, Yell, and William Hill
NH:
here’s the note
PM:
Obvious names
NH:
UK Plc
Assessing Refinancing Risk for UK Companies
Assessing Refinancing Risk for UK Companies
NH:
Not the complete picture — We poll the analysts to identify stocks where there
could be possible refinancing risks. We also screen for those companies where
short-term debt accounts for at least 10% of total assets and total debt is
greater than 10% of market cap. We then rank the companies by short-term
debt as a proportion of total debt.
could be possible refinancing risks. We also screen for those companies where
short-term debt accounts for at least 10% of total assets and total debt is
greater than 10% of market cap. We then rank the companies by short-term
debt as a proportion of total debt.
NH:
Publicly traded debt maturing pre-2011 — We show companies with publicly
traded debt which matures before the end of 2010 in chronological order. An
offsetting negative entry is shown for companies where re-financing has
already been secured (e.g. ITV).
traded debt which matures before the end of 2010 in chronological order. An
offsetting negative entry is shown for companies where re-financing has
already been secured (e.g. ITV).
NH:
Small/mid-caps with maturing publicly traded debt — ITV, Rentokil and SEGRO all have publicly traded debt maturing before 2010. However, we do not believe any of these are a particular risk. ITV has already secured financing, Rentokil
has extended its banking facilities to cover the pending refinancing and SEGRO
has net cash on its balance sheet and can easily refinance with its existing
facilities.
has extended its banking facilities to cover the pending refinancing and SEGRO
has net cash on its balance sheet and can easily refinance with its existing
facilities.
NH:
Health warning — As with all screens, this analysis carries a health warning
and is a first attempt at identifying companies which may have financing issues
at some point. Further forensic analysis on an individual stock basis is required
from here.
and is a first attempt at identifying companies which may have financing issues
at some point. Further forensic analysis on an individual stock basis is required
from here.
PM:
Thanks for that
PM:
NH:
any OIS spread yet??
PM:
no — not that i can see
PM:
Nice lunchtime rally gonig on
PM:
Footsie up 50 points — seemingly on the back of Dow futures
PM:
But v v volatile
PM:
Dow future thr 10k
NH:
right just had an interesting mail arrive
NH:
it’s from the credit guy at RBS
NH:
who is very high rated
PM:
is this from the RBS guy — Bob Janjuah????
PM:
highly regarded
NH:
and guess what, he likes big equity markets right now and is buying them
NH:
we have found a bull
NH:
NH:
Wow! When I wrote my cmmt below yest, and when early this yr I suggested a very
significant sell off in risk assets would reach a crescendo selling spike in
Sept/Oct, with S&P down at 1050 +/-50, even I did not think we would see both
sides of the 1050 +/-50 range ALL IN ONE DAY! We traded 1097, 1007 and closed
pretty much in the middle, at 1057…
significant sell off in risk assets would reach a crescendo selling spike in
Sept/Oct, with S&P down at 1050 +/-50, even I did not think we would see both
sides of the 1050 +/-50 range ALL IN ONE DAY! We traded 1097, 1007 and closed
pretty much in the middle, at 1057…
NH:
There is too much going on to talk abt every event, but what is clear is that
all assets classes, globally, are now realising what many of us buried deep in
credit mrkts have known for months, qtrs & years in some cases.
all assets classes, globally, are now realising what many of us buried deep in
credit mrkts have known for months, qtrs & years in some cases.
NH:
I have now taught my 6-yr old that when asked at school what Daddy does, he
should not answer the question and instead chant the following mantra:
should not answer the question and instead chant the following mantra:
NH:
1 – Dear central bankers, please cut rates as close to ZERO as quickly as is
possible,
1 – Dear central bankers, please cut rates as close to ZERO as quickly as is
possible,
NH:
2 – Dear central bankers, please put in place secured AND unsecured term (multi-
mth) funding for all the big survivor banks, also ASAP,
mth) funding for all the big survivor banks, also ASAP,
NH:
3 – Dear politicians, please realise that you are all going to need to go on a
fiscal spending binge to avert deep deep global recession,
fiscal spending binge to avert deep deep global recession,
NH:
4 – Dear politicians, please put in place a system of global sovereign cross
guarantees for each other and each other’s banking systems,
guarantees for each other and each other’s banking systems,
NH:
5 – Dear politicians, please realise that at least partial nationalisation of
many/most/all big survivor banks is needed – the system needs a scale of equity
infusion beyond the scope of the private sector to (a) absorb losses, and (b)
kick-start lending, and
many/most/all big survivor banks is needed – the system needs a scale of equity
infusion beyond the scope of the private sector to (a) absorb losses, and (b)
kick-start lending, and
NH:
6 – Dear Leaders – please get in a room and come out with a Global & Co-
ordinated plan ASAP..individual piecemeal action only invites trouble
ordinated plan ASAP..individual piecemeal action only invites trouble
PM:
NH:
As I have said below, I think we are at that watershed moment, and today and
over the next few days I think we will see significant progress on the above
points. The giant sized fly in the ointment is the US election, but even here
the polls are beginning to show a clearer picture so hopefully the negatives of
the election timing will fade away.
over the next few days I think we will see significant progress on the above
points. The giant sized fly in the ointment is the US election, but even here
the polls are beginning to show a clearer picture so hopefully the negatives of
the election timing will fade away.
NH:
In terms of mrkts therefore, and accepting that the next few days may be a
teeny bit choppy, I now want to go TACTICALLY LONG RISK ASSETS, for a 2 mth
rally into year-end. I want to focus my LONG RISK view on liquid mrkts and
liquid product:
teeny bit choppy, I now want to go TACTICALLY LONG RISK ASSETS, for a 2 mth
rally into year-end. I want to focus my LONG RISK view on liquid mrkts and
liquid product:
NH:
1 – I like the big global equity index mrkts…from 1050 I think S&P can bounce
20% into y/e.YES, 20%!!!!! I think Dec 1300 S&P Calls @ abt 6 are a raging
buy!!!!
20% into y/e.YES, 20%!!!!! I think Dec 1300 S&P Calls @ abt 6 are a raging
buy!!!!
PM:
excellent! — the Santa rally — and its only October 7
NH:
Bob the bear turns bullish
PM:
What crisp note to end on Neil!
PM:
We are finished for now
PM:
One point — Paul Davies was over earlier
PM:
he’s doing the CDS report,w hich should be up on the AV home page
PM:
Notes that RBS CDS shot out 44 bp to circa 330 — only bank to behave in this fashion
PM:
V odd — when the gov is supposed to be recapitalising…
PM:
Anyway — unless the world explodes when Wall St opens — our next session will be at 11am tomorrow
PM:
Thanks for joining — and thanks for all the comments
PM:
Seeya