Markets live chat transcript for the chat ending at 12:11 on 4 Dec 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Welcome to Markets Live
PM:
This is FT Alphaville’s daily market chat
PM:
It’s ZIRPDAY
NH:
Chop, chop.
NH:
Sweden went early – setting the tone, cutting 175bp – to 2%
PM:
We are sitting here waiting for a King cut – think the consensus is for 100bp.
PM:
or at least that’s Robert Peston’s number
NH:
and Pestowire would know
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.
PM:
Take us down to 2 per cent also.
PM:
Help all those people on year-end mortgage re-sets.
PM:
So not worth holding off until the New Year.
NH:
Anyone fancy more than 100bp.
NH:
rumours in the City this morning of 150bps
PM:
Could of course accept that traditional monetary policy has largely stopped working – cut to nought and then get on with money printing, toxic asset purchases, etc – as in the US.
NH:
(no Lemmy, he is everywhere. Solid gold contacts book according to Richard Lambert)
PM:
(Note taxloss snowed in up north)
PM:
And the reaction to all this?
NH:
well, the GBK is taking a real pasting
PM:
oh — no it look s abotu to go thr 1.45
NH:
that’s against the dollar
NH:
and against the Euro it is now EUR1.15
PM:
Goodness me – just looking at that chart versus the euro – another six weeks like the last six weeks and we will be at parity.
PM:
One blinkin euro – we’re not going to be able to leave the country.
PM:
And if we do it will be to get a job somewhere else and send some money home each month to find the kids and stuff.
PM:
Become economic migrants
NH:
uh, oh. another profit warning from Nokia
NH:
*NOKIA NOT TO GIVE OPERATING MARGIN TARGETS FOR BEYOND 2009
*NOKIA SAYS DEVICE MARKET SLOWDOWN CONTINUED MORE RAPIDLY
NOKIA: Nokia Capital Markets Day 2008
*NOKIA LOWERS INDUSTRY OUTLOOK FOR Q4
*NOKIA SAYS DEVICE MARKET SLOWDOWN CONTINUED MORE RAPIDLY
NOKIA: Nokia Capital Markets Day 2008
*NOKIA LOWERS INDUSTRY OUTLOOK FOR Q4
NH:
*NOKIA CUTS MOBILE DEVICE INDUSTRY OUTLOOK FOR Q4
NH:
*NOKIA LOWERED FORECAST FOR MOBILE DEVICE IND VOLUMES FOR 4Q
NH:
*NOKIA LOWERS INDUSTRY OUTLOOK
PM:
Sterling at 1.4504 moment ago
PM:
We’re jumping around a bit this end
PM:
Toomuch to watch simultaneously
PM:
Just looking at some of these other currency movements
PM:
Dollar / yen has dropped straight through 93
NH:
If that goes through 90 there will be trouble.
PM:
Oh, those power reversal thingies that Peter Garnham was going on about.
NH:
power reverse dual currency bonds
PM:
Those are the ones.
PM:
I think
NH:
They are structured such that banks who have issued them are forced to buy large amounts of yen to hedge their positions are the currency goes through key levels.
PM:
NH:
Aside from the expected rate cut we’ve also got the latest Halifax survey
PM:
Yeah, apparently that’s rather upbeat – is that right?
NH:
Well it is upbeat in the sense that they are saying the housing market may have stabilised – but I don’t see how they can actually say that.
PM:
Go on.
NH:
Well, prices fell another 2.6% in November – takes the annual rate to 14.9 per cent.
NH:
That’s the headline figure.
NH:
But you know that is massaged?
PM:
No 
NH:
Well the Halifax do a three month smoothing exercise – average over the period and compare that with the average of the same period last year.
PM:
And how about if you take the smoothing off?
NH:
Well, you get a bigger drop of course – just over 16%
PM:
Marvellous
NH:
here’s some comment on the Halifax numbers from Howard Archer at IHS Global Insight
NH:
The latest Halifax house price data are a real shocker, even by the recent very low standards of the housing market. The Halifax reported that house prices plunged by 2.6% month-on-month in November.
NH:
his followed a similarly sharp drop of 2.4% in October. Consequently, house prices were down by 14.9% year-on-year in the three months to November. Furthermore, house prices were down 16.1% year-on-year in November itself, which is a sharper drop than was seen in the early-1990′s housing downturn. Indeed, it was the sharpest drop since the series began in 1983.
NH:
The very sharp fall in house prices reported by the Halifax adds extra late pressure on the Bank of England to deliver a very large interest rate cut today.
NH:
The Halifax data also contrast markedly with the surprisingly small 0.4% month-on-month drop in house prices reported by the Nationwide in November and reinforces belief that the housing market remains under substantial pressure. Indeed, housing market fundamentals remain largely unfavorable. Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth and widespread expectations that house prices form a powerful set of negative factors weighing down on the housing market.
PM:
ta for that
PM:
PM:
We must try and cheer up — wider equity makret?
NH:
right, FTSE 100 up 57 points at 4,227
PM:
NH:
as everyone waits for the rate cut
PM:
So , toxic pub cos up
PM:
retailers up
PM:
Housebuilders up
PM:
But why???
NH:
dunno. rate cut hopes i suppose
Barratt Developments (BDEV:LSE): Last: 60.75, up 7.25 (+13.55%), High: 61.00, Low: 55.50, Volume: 1.77m
PM:
Why is that up 16%??????
Persimmon (PSN:LSE): Last: 202.25, up 18.5 (+10.07%), High: 206.00, Low: 180.00, Volume: 1.80m
NH:
and look at TW:LSE
Taylor Wimpey (TW:LSE): Last: 10.75, up 0.88 (+8.92%), High: 11.00, Low: 9.50, Volume: 6.16m
PM:
Why is that up 10%????????
NH:
and what about
PM:
“Rate cut hopes”
Enterprise Inns (ETI:LSE): Last: 64.50, up 5 (+8.40%), High: 67.00, Low: 58.25, Volume: 1.40m
NH:
why is that, will a rate cut see us all dash out to the pub and spend more
NH:
actually, one man is telling it like it is this morning
NH:
the boss of Bellway
NH:
now this guy seems like the sort of man that should be running a housebuilder
PM:
From Maggie Urry
NH:
no nonsense
PM:
ohn Watson, chief executive of the group, said the government move was “a brick in the wall trying to rebuild sentiment”.
PM:
Alistair Leitch, finance director, said “I got excited when I saw the headline last night,” but once he looked at the details he realised the move would have “absolutely zero effect on new housing. It will not entice Joe Public to buy a new property.”
As for interest rate cuts, Mr Leitch said the 1½ percentage point fall last month had not increased visitors to its building sites, and even with another large cut on Thursday, “I’m not expecting queues outside our show homes on Friday morning,” he said.
PM:
Lower interest rates were a minor concern to buyers compared to worries over unemployment. “Job security is the biggest thing,” Mr Leitch said, “If you feel any insecurity in your job you are not going to go out and buy a house.”
PM:
Still Taylor Wipeup is back above 10p
PM:
PM:
So what else is going on this morning??
NH:
well, the reporting season for the investment banking industry has started
NH:
: it pretty dismal style it must be said
NH:
profits warning from Credit Suisse
NH:
lost a net SFr3bn (US$2.5bn) in the two months to the end of November
NH:
taking a chf900m charge for restructuring
NH:
which of course means sackings
NH:
P45′s
NH:
black bin liners on the desk
NH:
CS now targeting IB headcount of 17500 by end 09e vs 21300 in end Q308
NH:
actually it has been a bloody day on the jobs front already
PM:
Notice the WSJ has set up a blog for sacked bankers
PM:
Rather timely
NH:
did you see the news from Nomura
PM:
Hmm
NH:
Nomura plans to cut as many as 1,000 jobs in its London operations, about one-fifth of its local workforce, as costs from acquiring parts of Lehman Brothers set the brokerage on course for its biggest annual loss. Nomura will shed staff in front and back offices including former Lehman employees and its own bankers, said a spokesman. The decision followed an internal review after the acquisition of Lehman’s equities and investment banking operations in October, Nomura said in a statement.
NH:
that was from the 6am Cut
NH:
oh and it looks like there is going to be an absolute bloodbath at Dresdner
NH:
as it is “integrated” into Commerzbank
PM:
NH:
Commerzbank, which agreed to buy Dresdner three months ago, will cut about 1,200 of 3,300 employees in London in coming months and will trim 150 more in Frankfurt and farther afield
NH:
and that’s not all
NH:
because it looks as if the equity trading and research function at Dresdner is going to be closed
NH:
which is a pitty
NH:
here’s more from our piece this morning
PM:
OH NO
NH:
by our new investment banking correspondent
NH:
Adrian Cox
NH:
Commerzbank’s investment-banking chief on Wednesday laid out his plans for the integration of Dresdner Kleinwort, including closing the UK mergers and acquisitions business and abolishing trading with the bank’s own capital.
NH:
Commerzbank’s investment-banking chief on Wednesday laid out his plans for the integration of Dresdner Kleinwort, including closing the UK mergers and acquisitions business and abolishing trading with the bank’s own capital.
NH:
Commerzbank, which agreed to buy Dresdner three months ago, will cut about 1,200 of 3,300 employees in London over the coming months. It will trim 150 more in Frankfurt and farther afield.
“The biggest challenge is to do this in the present financial storm, to create a team culture between two banks, to swiftly reduce risk positions in a dedicated way, and to focus on increasing our sales capabilities with the institutional clients that we have,” Mr Reuther said in an interview on Wednesday.
“The biggest challenge is to do this in the present financial storm, to create a team culture between two banks, to swiftly reduce risk positions in a dedicated way, and to focus on increasing our sales capabilities with the institutional clients that we have,” Mr Reuther said in an interview on Wednesday.
NH:
Investment banks are turning to fee-generating business on behalf of clients after being stung by multibillion-dollar losses and writedowns in the financial turmoil of the past year. Commerzbank has spent the past three years cutting back on risky trading at its own investment banking operation in London.
NH:
and one last thing on the topic of employment
NH:
or lack of
NH:
Michael Page, upmarket recruitment consultant
NH:
profits warning this morning
NH:
stock down 20, or 11%, at 173p
NH:
here’s a few lowlights from its statement
NH:
This loss of confidence is now more marked and has spread rapidly in November to virtually every industry sector and geographic market in which the Group operates. Consequently, the cautionary behaviour of clients and candidates has increased further, significantly reducing activity levels and shortening the Group’s earnings visibility.
NH:
With weak market conditions and slowing activity, the Group’s cost base and headcount continue to be managed down. Year end headcount is now likely to be around 5,100. The Group now estimates that its full year profits before tax will be around the bottom of the range of current analyst forecasts (Source: Bloomberg £136m) for 2008.
NH:
The Group will issue its fourth quarter and 2008 full year trading update on 8 January 2009.
PM:
thanks for that
PM:
back to Credit Suisse
PM:
this obviously does not bode well for Goldman and Morgan Stanley which are both reporting soon
NH:
yup
NH:
and analysts have been slashing forecasts for both of them
NH:
clearly there has been some industry wide pain in the past month or so
PM:
Any idea what caused the losses??
NH:
no
NH:
they are saying very little
NH:
this is from FT.com
NH:
The bank said its SFr3bn loss to the end of November had partially reflected measures taken to reduce its risk profile, but did not elaborate. Inflows and profitability in private banking had remained good, it said.
NH:
Given the poor profits outlook, Credit Suisse – which in October announced a surprise SFr10bn capital injection from Middle East investors – said its chairman, chief executive and head of investment banking would be paid no bonuses this year. While no commitment was made for other top employees, officials recognised variable compensation in 2008 was likely to be meagre.
NH:
The moves involve a sharp shrinkage of the group’s investment bank – notably the former First Boston business in the US – with a much reduced balance sheet and a withdrawal from some areas of proprietary trading, particularly for complex products.
Credit Suisse said it had already taken steps to reduce operations in volatile markets, with the amount of money it was willing to risk on any given day – known as value at risk – slashed by 34 per cent at the end of November, compared with the beginning of the quarter, and by 60 per cent compared with January 1. Risk weighted assets at the end of September had dropped to $193bn, compared with $236bn in January. The plan was for further reductions to $170bn by year-end, and to $136bn by the end of next year.
Credit Suisse said it had already taken steps to reduce operations in volatile markets, with the amount of money it was willing to risk on any given day – known as value at risk – slashed by 34 per cent at the end of November, compared with the beginning of the quarter, and by 60 per cent compared with January 1. Risk weighted assets at the end of September had dropped to $193bn, compared with $236bn in January. The plan was for further reductions to $170bn by year-end, and to $136bn by the end of next year.
PM:
And Credit Suisse stock???
NH:
up around 7% I think
NH:
trading around CHf30
NH:
mind you they were down 10% yesterday
NH:
PM:
Hmmm
PM:
PM:
Notice there was a mention of cost cutting at the FT below
PM:
From readers of the Telegraph, which ran a big piece about drastic cost cutting at the FT this morning
PM:
And failed to mention that it is cutting something like 50 or 60 journalists
PM:
We will see what happens here. There’s a voluntary redundancy programme
PM:
And people who want to go to shorter weeks can do so
NH:
3 days
PM:
For 3/5th salary of course 
PM:
i should report that as we type here the whole desk/editorial floor is shaking
PM:
Seriously
NH:
this is very weird
PM:
E Leoni-Smith — roughly a third each
NH:
anyway, doom and gloom and everywhere
PM:
PM:
Here’s some depressing stuff.
PM:
Given that the ECB is due to cut 75bp a bit later
PM:
Bank of America saying GDP to contract by 1.5 per cent in 2009p.
PM:
Saying ECB will cut to 1.5% — although holding back from forecasting deflation tho
PM:
Rarely have the storm clouds gathered so fast across the skies of Europe. Although Europe apparently avoided a full financial meltdown, thanks largely to generous taxpayer support for the financial system, the post-Lehman rout in financial markets has pushed the Eurozone headlong from stagnation into the worst recession in more than 3 decades. The economy has taken four major hits. First, the credit crunch has finally come to the continent. Since September, banks are safeguarding their balance sheets to such an extent that they are reluctant to lend just when households and enterprises need credit to tide them over some rough times. Second, those trading partners of the Eurozone such as the US and the UK that had already teetered on the brink of recession are now contracting sharply. Third, as many emerging markets are suffering severe outflows of capital and a concurrent drop in confidence, the last major pillar of demand for Eurozone exports is crumbling fast. Fourth, the first reaction of businesses across the world in times of crisis and uncertainty is to postpone or shelve investment plans. This hurts Europe’s exporters of investment goods disproportionately.
PM:
After a recession in 4Q 2008 and 1H 2009, we expect a subdued recovery from the autumn onward. GDP growth in the Eurozone will not return to its trend before 2010, in our view.
After a recession in 4Q 2008 and 1H 2009, we expect a subdued recovery from the autumn onward. GDP growth in the Eurozone will not return to its trend before 2010, in our view.
PM:
Since our last quarterly update in early September, we have substantially revised our key Eurozone forecasts in response to the worsening financial turmoil and lower oil prices.
We slashed our growth calls from 1.6% to 0.9% for 2008, and from 1.1% to -1.5% for 2009.
We cut our inflation calls from 3.7% to 3.3% for 2008, and from 2.5% to 0.9% for 2009.
Instead of stable ECB rates at 4.25% after the controversial hike in July 2008, we now look for a steep monetary policy loosening. We expect a refi rate of 2.50% at the end of 2008 and a 1.5% trough by March 2009.
We slashed our growth calls from 1.6% to 0.9% for 2008, and from 1.1% to -1.5% for 2009.
We cut our inflation calls from 3.7% to 3.3% for 2008, and from 2.5% to 0.9% for 2009.
Instead of stable ECB rates at 4.25% after the controversial hike in July 2008, we now look for a steep monetary policy loosening. We expect a refi rate of 2.50% at the end of 2008 and a 1.5% trough by March 2009.
PM:
So how are the UK banks doing amongst all this?
PM:
Sure they are not up like the housebuilders etc?
PM:
(Carlo — eurozone)
NH:
They are actually. going up.
PM:
Oh, we’re not having that.
PM:
This is juvenile. The massive rate cuts are because the whole systems going down. This is not a reason to be buying bank shares.
NH:
Well, it’s that debate again about whether there is deep value here if you are buying for the long term.
PM:
We’re not having that. Yet.
NH:
Tell yo what, there’s a very good note out of JPMorgan this morning
NH:
Amit Goel.
NH:
Basically it’s a backgrounder on debt side of the banks capital structures – aimed at equity investors.
NH:
It’s an explainer – goes through all the different types of instruments that makes up Tier 1 and Tier 2. And also explains all the different aspects to take into account and then goes through the various metrics.
PM:
So it’s like – really useful for people like us who stuggle with credit.
NH:
Yep!
PM:
But what’s the point – why have they done it?
NH:
Well, JPM have a similar approach to the UK banks as us – underweight – still see a real risk of nationalisation.
NH:
And I think their core point is that lots of debt and hybrid instruments has gone into bank capital over recent years – and you’ve got to watch for this being replaced by pure equity.
NH:
Here’s the summary:
NH:
Debate in credit markets over the calling of hybrid debt – in this note we aim to give equity investors a better understanding of the different instruments, and their potential returns and risks, at different levels of the
capital structure. Several of the items being discussed at this stage are of direct relevance to equity holders, such as concern over whether or not hybrid debt will be called at the first call date. This is extremely relevant to equity investors, as if it is it called and the banks find it difficult to issue new hybrid capital, there could be further equity issuance/dilution.
capital structure. Several of the items being discussed at this stage are of direct relevance to equity holders, such as concern over whether or not hybrid debt will be called at the first call date. This is extremely relevant to equity investors, as if it is it called and the banks find it difficult to issue new hybrid capital, there could be further equity issuance/dilution.
NH:
Risks continue to grow for equity holders – in our base case, we do not see fundamental upside for equity holders, especially versus other asset classes. From a yield perspective we expect no cash dividends on equity for the foreseeable future. In a more bearish scenario, such as full nationalization of the banks (could be triggered by significant further unexpected losses) we would expect equity holders to be left empty-handed.
There could be risk to subordinated debt holders in this case, but any losses are likely to be more limited in our view.
There could be risk to subordinated debt holders in this case, but any losses are likely to be more limited in our view.
NH:
Equity has become a much smaller part of the capital structure over the past few years as there has been significant issuance of non equity instruments. This has been driven by a focus on regulatory capital requirements and pressure to grow returns on equity. Going forward, we expect this trend to slow, as there is greater emphasis on the ‘quality’ of capital, with regulators focusing on loss absorption properties and investors
concentrating on the levels of core equity.
concentrating on the levels of core equity.
NH:
We remain UW the UK Banking sector and each of the UK Banks – We expect profitability to remain under pressure for some time, and believe there will likely be better returns available on other capital instruments. For more details on our equity views please refer to UK Banks: Where we go
from here, 19 Nov 2008.
from here, 19 Nov 2008.
PM:
PM:
any RAW market info
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:
well, not sure we have much more to say on Nexen
NH:
Total may or may not bid
NH:
all we know is they have done all the work, lined up everything and could move if they so choose
PM:
Point on this — people can go and read what we have printed over the past few days — use the search function
PM:
And read the comments
PM:
We believe there has been some sort of disagreement within Total about it — and in anycase the plan has been undermined by the price of crude
PM:
Not to mention the leaks
PM:
But then the market seems to understand that Total are telling analysts that it is all “jsut a rumour”
PM:
Hello?
NH:
but are NOT denying it
PM:
We know they have been working on a deal — full stop
NH:
there is some much contradictory stuff coming out of “people close to Total” that everyone is confused now
NH:
look at this from Dow Jones thismorning
NH:
LONDON (Dow Jones)–Total SA (TOT) has no plan for an “imminent” bid for Nexen
Inc. (NXY) but hasn’t made any decision in favor or against a deal, a person
familiar with the situation said Thursday.
Inc. (NXY) but hasn’t made any decision in favor or against a deal, a person
familiar with the situation said Thursday.
NH:
“It’s no more imminent than six years ago” when first contacts were made
between the Total and the Canadian independent company Nexen, the person said.
between the Total and the Canadian independent company Nexen, the person said.
Total’s prudent approach underscores how oil majors are still reacting
cautiously to acquisitions, despite a $100 drop in the oil price making them
less pricey.
PM:
So who knows
NH:
People familiar with the matter said Total had looked at Nexen’s acquisition
as one of many potential targets. “There has been permanent contacts for six
years… But we are not going there straight-away,” he said.
as one of many potential targets. “There has been permanent contacts for six
years… But we are not going there straight-away,” he said.
Another person said “high level talks” for an acquisition had taken place
recently.
But the people familiar with the matter said Total was concerned about the
risk of a bidding war for Nexen.
“Total would want exclusive discussions,” the other person said.
NH:
Nexen, which was spun-off from Occidental Petroleum Corp. (OXY) in 2000, is
focused on Canada’s oil sands but also has assets in Europe’s North Sea and
Yemen – three areas where Total also operates.
focused on Canada’s oil sands but also has assets in Europe’s North Sea and
Yemen – three areas where Total also operates.
Total has in particular shown an appetite for Canada’s oil sands, through its
Synenco Energy Inc. (SYN.T) and Deer Creek Energy Ltd.
PM:
We are going to leave the matter well alone — unless we get some major new information
PM:
And will now draw a line
NH:
here you go
NH:
PM:
reader beware
NH:
some market RAW
NH:
and this one is closer to home
NH:
some interesting rumours swirling around Aberdeen Asset Management
NH:
speculation of a transformational deal
NH:
one that would be immediately earnings enhancing
NH:
shares currently up 9.757p at 98.75p
PM:
Whoa
PM:
Martin Gilbert is certainly acquisitive
PM:
so it can’t be ruled out
PM:
an idea what they might be looking at??
NH:
not really
NH:
but there are theories
NH:
one rumour is that the deal involves assets under management worth £50bn
PM:
(politiko — usual place a bit later)
NH:
and the deal would give Aberdeen a greater distribution platform in North America
NH:
another rumour is that they could be interested in Credit Suisse’s Global Investors business
NH:
now this is up for sale
NH:
but it is big
NH:
really big
NH:
manages SFr255bn ($212.6bn) in traditional long-only funds
NH:
and as far as we know
NH:
Credit Suisse is not set to sell the business any time soon
NH:
and it is also not clear whether they have gone exclusive with anyone
NH:
actually we did a story on this Credit Suisse business a while back
NH:
here it is
NH:
By Kate Burgess and Chris Hughes in London
Published: November 13 2008 18:07 | Last updated: November 13 2008 18:07
Credit Suisse is in talks over a possible joint venture for its traditional asset management business following the latest in a series of strategic reviews of the unit.
Published: November 13 2008 18:07 | Last updated: November 13 2008 18:07
Credit Suisse is in talks over a possible joint venture for its traditional asset management business following the latest in a series of strategic reviews of the unit.
NH:
The Swiss bank has concluded that one of the three sub-divisions of its asset management franchise, Global Investors, is sub-scale and that being part of a larger unit would better serve clients and create a more efficient operation.
Global Investors manages SFr255bn ($212.6bn) in traditional long-only funds. The review does not affect Credit Suisse’s alternative investments or multi-asset class high-net worth unit.
Global Investors manages SFr255bn ($212.6bn) in traditional long-only funds. The review does not affect Credit Suisse’s alternative investments or multi-asset class high-net worth unit.
NH:
One person close to the bank said that Global Investors was at a critical juncture.
“It is now time to bulk up or get out,” the person said.
Credit Suisse is looking for ways to boost profitability and improve the performance of the investment products sold to its private banking clients. One possible outcome would be a full sale of the asset management business, with Credit Suisse maintaining a distribution contract.
The bank is in discussions with at least one potential partner who could plug gaps in its range of funds and help the bank reduce its costs, although no decision has been made yet.
Credit Suisse declined to comment last night.
“It is now time to bulk up or get out,” the person said.
Credit Suisse is looking for ways to boost profitability and improve the performance of the investment products sold to its private banking clients. One possible outcome would be a full sale of the asset management business, with Credit Suisse maintaining a distribution contract.
The bank is in discussions with at least one potential partner who could plug gaps in its range of funds and help the bank reduce its costs, although no decision has been made yet.
Credit Suisse declined to comment last night.
NH:
anyway, I can well believe Abderdeen is up to something
NH:
and the very latest talk is that the deal will be all stock
NH:
although Aberdeen has a powerful backer
NH:
Mitsubishi UFJ Trust, Japan’s largest financial group
NH:
they took a 10% holding a while back and
NH:
increased that holding to 11% yesterday
NH:
through its relationship with MUFJ, Abderdeen is hoping to crack the market there
PM:
Hmm — thanks for all that
NH:
PM:
let’s return to a subject we covered extensively yesterday
PM:
Sibir Energy
PM:
Company took a real battering in the press this morning
PM:
and the shares??
NH:
well, they have stabilised
NH:
in fact they are up now
NH:
6p higher at 49p
PM:
How odd
NH:
a rise of almost 14%
NH:
perhaps people have digested the news and decided that buying property portfolio from one of its largest shareholders for $340m (£221m) to help relieve his financial difficulties is not such a bad thing after all
PM:
NH:
actually, the reason the stock has rallied is that some people think it could now be a takeover target
PM:
really?
PM:
how would that work?
PM:
who would want a load of unfinished developments in Moscow and St Petersburg?
NH:
well, Sibir’s oil business is actually not that bad, amazingly
NH:
and Gazprom and Shell could be interested in buying
PM:
assuming the guy who control this company want to sell
NH:
that’s true
PM:
mr T-ski
NH:
I agree this is a long shot
NH:
and the other odd thing is
NH:
the analysts which this oil/property company
NH:
remain positive
NH:
this is Unicredit
NH:
We cut our 12-month TP for Sibir Energy by 50% to $2.73 following
management’s decision to take over real estate assets from the
company’s Russian shareholders. We have revised our beta to 2.0 to
reflect the increased risk of value-destructive corporate governance and
raised the forecast 2008F net debt. The company retains high-quality
core assets, and even on conservative assumptions its fundamentals
merit a Buy recommendation.
management’s decision to take over real estate assets from the
company’s Russian shareholders. We have revised our beta to 2.0 to
reflect the increased risk of value-destructive corporate governance and
raised the forecast 2008F net debt. The company retains high-quality
core assets, and even on conservative assumptions its fundamentals
merit a Buy recommendation.
NH:
However, the risk of further injections of
questionable assets remains, and short of a takeover offer, we see little
chance of a near-term change in shareholders’ structure. We believe
investors seeking exposure to Russian integrated independent oils
would be best served elsewhere, such as at West Siberian Resources
questionable assets remains, and short of a takeover offer, we see little
chance of a near-term change in shareholders’ structure. We believe
investors seeking exposure to Russian integrated independent oils
would be best served elsewhere, such as at West Siberian Resources
NH:
The only turn-around catalyst we envision for Sibir Energy would
be a takeover offer from a large company with direct synergies.
We see Gazprom Neft as the leading candidate, and Shell as another
possibility, given the current distressed valuation but the unchanged
quality of assets and joint interests between the companies
be a takeover offer from a large company with direct synergies.
We see Gazprom Neft as the leading candidate, and Shell as another
possibility, given the current distressed valuation but the unchanged
quality of assets and joint interests between the companies
NH:
We believe the Russian-dominated shareholders structure has
turned being from a major strength to a major flaw. Sibir’s core
Russian shareholders were crucial to the company’s past successes at
the Moscow Refinery and Salym, yet they have become a liability in the
current environment. However attractive the company may remain on
fundamentals, we believe that a turnaround in its share price performance
is improbable given the corporate governance risks associated
with Bennfield’s stake in the company. Despite our fundamental valuation
calling for a Buy recommendation, we believe investors should
seek value elsewhere.
turned being from a major strength to a major flaw. Sibir’s core
Russian shareholders were crucial to the company’s past successes at
the Moscow Refinery and Salym, yet they have become a liability in the
current environment. However attractive the company may remain on
fundamentals, we believe that a turnaround in its share price performance
is improbable given the corporate governance risks associated
with Bennfield’s stake in the company. Despite our fundamental valuation
calling for a Buy recommendation, we believe investors should
seek value elsewhere.
NH:
and this is Deutsche Bank
NH:
TP cut on increased risks; Buy maintained
We cut our TP for Sibir by 29% to GBp370 on new financial assumptions and
increased RROE, which we adjust by raising the value transfer risk premium from
3.5% to 5% and corporate governance risk premium from 0.5% to 1.5%.
We cut our TP for Sibir by 29% to GBp370 on new financial assumptions and
increased RROE, which we adjust by raising the value transfer risk premium from
3.5% to 5% and corporate governance risk premium from 0.5% to 1.5%.
After
today’s 60% share price collapse (as of 5pm Moscow time and 2pm London
time), we believe the new risks are already priced in and we maintain Buy.
Downside risks to our valuation are: (a) further value detractive related party
transactions, (b) new disagreements with Gazprom Neft over the MOR, (c)
exploration risk, and (d) commodity price risk.
PM:
the risk priced in
PM:
what’s to say more property is not injected
PM:
or that the major shareholder does not face further margin calls on its loans???
NH:
Our discussion with the company suggests that the deals are very likely to be approved at the EGM. Under the company’s charter, deals need to win 50% of votes for approval.
NH:
In the case of real estate assets, this is 38.25% of the charter (a related party, Shalva Tchigirinsky will not take part in the voting). Together, Igor Kesaev (a non-related party in real estate deals and 23.5% owner via Bennfield of Sibir) and the Moscow city government (via CFC) control 41.5% of Sibir’s shares; hence, they have the necessary votes to get real estate deals
approved.
approved.
NH:
We expect a similar voting mechanism for other deals.
As such, we revise our financial forecasts, DCF technical parameters and target price for Sibir as if the deals have already been approved. The only principal adjustment to our financial forecasts is a cash outflow of USD657m (the aggregated compensation in the deals in question) in 2008E. We have decided not to attach any value to the assets to be acquired, as practically all projects are in the very early stage of development and are unlikely to be realised anytime soon. For changes in our DCF technical assumptions and new TP, please
refer to the Valuation section.
As such, we revise our financial forecasts, DCF technical parameters and target price for Sibir as if the deals have already been approved. The only principal adjustment to our financial forecasts is a cash outflow of USD657m (the aggregated compensation in the deals in question) in 2008E. We have decided not to attach any value to the assets to be acquired, as practically all projects are in the very early stage of development and are unlikely to be realised anytime soon. For changes in our DCF technical assumptions and new TP, please
refer to the Valuation section.
PM:
PM:
and now we turn to a real penny dreadful
PM:
New Star Asset Management
PM:
not sure how Betaville below got the idea we were fans
NH:
think he was referring to that award we won
NH:
which was all very tongue in cheek
PM:
you won — and was joking — John Jay of NSAM one of the judges
NH:
anyway, the stock is rank penny dreadful now
PM:
announced late last night the company announced the details of a debt for equity swap
PM:
which could see its lenders end up with 95% of the company if convertible preference shares are exercised
PM:
presumably the stock has not been suspended this morning
PM:
and is still trading
NH:
it is , Death Star Asset Management
NH:
hit a h’ppeny in early trading
NH:
has rallied since
NH:
down 2.7p at 2.05p
NH:
a drop of 60%
NH:
and there is not really much else to say
NH:
other than the fact that anyone left with the shares should probably sell them and take something off the table
NH:
because the company is going to be spend the next 4.5 yeas paying off the prefs and the associated diviendeds
NH:
think the coupon is something like 10% over LIBOR
NH:
here’s a quick recap on the details of the debt for equity swap for those of you who missed it
NH:
it’s from Citigroup
NH:
£240m of gross debt to be converted into equity and prefs — As at Nov 08 New
Star has £260m gross debt and £30m cash. It is proposed that £240m of the
debt will be converted into ~780m ordinary shares (75% of the enlarged total)
and £94m of convertible redeemable preference shares. The prefs will accrue
an annual dividend of Libor +10%, repayable in one bullet payment with the
principal in June 2013. At that time New Star may elect instead to convert the
prefs into ordinary shares, taking the banks’ holdings up to a max of 95%.
Star has £260m gross debt and £30m cash. It is proposed that £240m of the
debt will be converted into ~780m ordinary shares (75% of the enlarged total)
and £94m of convertible redeemable preference shares. The prefs will accrue
an annual dividend of Libor +10%, repayable in one bullet payment with the
principal in June 2013. At that time New Star may elect instead to convert the
prefs into ordinary shares, taking the banks’ holdings up to a max of 95%.
NH:
Proposed de-listing of current ordinary shares by early Jan 09 – Existing
ordinary shareholders are to be asked to approve this debt restructuring and
management aims to complete the process by early in the New Year.
ordinary shareholders are to be asked to approve this debt restructuring and
management aims to complete the process by early in the New Year.
NH:
Cashflow 09-2013 to be used to pay back prefs and associated dividend — We
estimate that at current Libor rates, ~£50m of pref dividends are likely to
accrue and require repayment along with the £94m principal in June 2013.
Ordinary dividends are to be suspended until the prefs are fully repaid. All
cashflows generated from the £13.9bn of AUM (end Nov) are likely to be used
to service this pref. dividend and principal, leaving little if any left over.
estimate that at current Libor rates, ~£50m of pref dividends are likely to
accrue and require repayment along with the £94m principal in June 2013.
Ordinary dividends are to be suspended until the prefs are fully repaid. All
cashflows generated from the £13.9bn of AUM (end Nov) are likely to be used
to service this pref. dividend and principal, leaving little if any left over.
NH:
Substantial dilution only option — Existing shareholders are being diluted
down to a 25% interest in a company, which for the next 4½ years is likely to
use all of its cashflow to repay prefs and their associated dividends. Assuming
this is possible, shareholders will at the end of the process hold a 25% interest
in an asset manager which can then be sold or relist in some form. Chairman,
Duffield, acknowledges the substantial dilution is regrettable but states it is the
only option to ensure the stability of the business.
down to a 25% interest in a company, which for the next 4½ years is likely to
use all of its cashflow to repay prefs and their associated dividends. Assuming
this is possible, shareholders will at the end of the process hold a 25% interest
in an asset manager which can then be sold or relist in some form. Chairman,
Duffield, acknowledges the substantial dilution is regrettable but states it is the
only option to ensure the stability of the business.
PM:
Cheers for that
PM:
PM:
Right — just wating for the rate mvoe
PM:
I should tell people that tomorrow we will be on the new ML format in Alphaville V2
PM:
Lots of the glitches have been sorted
PM:
There will be a refreshed design of ML in a little while
PM:
And yes, I will have a zapper for problem commenters
PM:
PM:
Sure i wont have to use it
NH:
so watch out Betaville. our patience is wearing thin with your dull little comments
PM:
Often
PM:
Neil!
PM:
Dont abuse readers
NH:
he is first for the chop
PM:
No! leave B alone
PM:
We probably were too soft on NSAM last month
PM:
rate cut????????????
NH:
I wasn’t.
PM:
100
NH:
it’s 100bps
NH:
market going crazy
NH:
red and blue flashing lights everywhere
PM:
Sterling rallying on that
PM:
?????
PM:
Equities falling a little
NH:
searchng for the statement
NH:
nothing on site yet
NH:
market does not like it
NH:
only up 9 points now
NH:
in fact we are now down on the day
NH:
onbviously the market expected and wanted more
NH:
The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 1.0 percentage points to 2.0%.
NH:
In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace. Consumer spending and business investment have stalled, while residential investment has continued to fall. Activity indicators in the rest of the world have also weakened, though the further depreciation in sterling should moderate the impact of weaker global growth on the United Kingdom. And a number of fiscal measures to boost near-term demand are in train, both in the United Kingdom and overseas. Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult. The Committee noted that it was unlikely that a normal volume of lending would be restored without further measures.
NH:
CPI inflation decreased to 4.5% in October. Cost pressures have also eased. Commodity prices continued to fall back. Pay growth remained subdued. And measures of inflation expectations fell back sharply. CPI inflation is likely to continue to drop back as the contributions from retail energy and food prices decline. The direct effect of the temporary reduction in Value Added Tax will also lower CPI inflation through much of next year, with a corresponding increase in inflation in 2010.
NH:
In the November Inflation Report, the Committee’s projection for inflation showed a substantial risk of undershooting the 2% CPI inflation target in the medium term. The subsequent decline in market interest rates and the further depreciation in sterling have raised the profile for inflation since then. But the weaker outlook for activity in the near term and the further falls in commodity prices have lowered that profile. Although the temporary reduction in Value Added Tax will lead to some volatility in inflation over the next two years, the new fiscal plans are unlikely to have a significant effect on inflation beyond that horizon.
NH:
At its December meeting, the Committee judged that, at the existing level of Bank Rate and looking through the volatility in inflation associated with the movements in Value Added Tax, there remained a substantial risk of undershooting the 2% CPI inflation target in the medium term. Accordingly, the Committee determined that a further reduction in Bank Rate of 1.0 percentage points to 2.0% was necessary in order to meet the target in the medium term.
The minutes of the meeting will be published at 9.30am on Wednesday 17 December.
NH:
GBK??
PM:
Its actually rallied a tad
PM:
1.4629
PM:
1.1579
NH:
FTSE back up
NH:
16 point stronger
NH:
right is that it??
PM:
Okay — we done?
NH:
oh look, HBOS up 6% following the BoE cut
PM:
Just a mail going round…
PM:
Let’s hear it for Ghana.
Let’s hear it for Ghana.
The Ghanaian stock exchange is the planet’s top performer this year – up
a cool 60% to be exact. And in sterling terms it’s up by two-thirds.
NH:
about Ghana
PM:
yes — time for lunch
PM:
In the canteen, as londonbus guessed correctly
PM:
PM:
Thank you for all the comments today
PM:
Sorry we lost it with betaville
NH:
cya
PM:
PM:
We will be back tomorrow at 11am in our new kit