Markets live chat transcript for the chat ending at 12:12 on 18 Dec 2008. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
Hello!
PM:
Thought we’d start early today –catch everyone on the hop — 11.01
PM:
Welcome to Markets Live
PM:
This is FT Alphaville’s daily market chat
NH:
Morning all
PM:
If you get bored with us this morning, here’s a little game for people to play
PM:
Christmas snowball game
PM:
I offered that to Tracy to put behind here advent tree – but she rejected it
PM:
11:04AM
NH:
right, we are giving up on the equity market today
NH:
nobody seems to be interested
NH:
volumes are so, so low
PM:
Neil is not completely serious — we will come back to some stocks — including cattles!
NH:
but as for the index
PM:
just rubbish — innit?
NH:
FTSE 100 is down 4.5 points at 4,319
PM:
Pre-Xmas
PM:
Amateur lunchers vacate their desks
NH:
of course, there some action out there this morning
NH:
especially in the currency market
NH:
were sterling is taking another pounding
PM:
Sterling is currently 1.059
NH:
wow
NH:
parity is almost upon us
PM:
Other way round?
NH:
0.945p
PM:
Unfair to call it the Krona
NH:
it really does feel as if we are going the way of Iceland
NH:
did you see this?
NH:
The U.K. public sector borrowed a net GBP16.0 billion in November, marking the biggest deficit for a single month since records began in 1993, the Office for National Statistics said Thursday.
NH:
The figure was much higher than net borrowing of GBP10.7 billion in the same month a year ago, as well as expectations of economists surveyed by Dow Jones Newswires, who had tipped net borrowing of GBP13.5 billion.
The increase “was the result of a sharp slowdown in receipts growth, but little movement in spending growth,” said George Buckley, U.K. economist at Deutsche Bank, noting that a deficit of 8% of gross domestic product was forecast for the coming financial year.
The increase “was the result of a sharp slowdown in receipts growth, but little movement in spending growth,” said George Buckley, U.K. economist at Deutsche Bank, noting that a deficit of 8% of gross domestic product was forecast for the coming financial year.
NH:
In the fiscal year to date, net public sector borrowing stood at GBP56.1 billion – also the highest figure since records began. That compares with just GBP29.2 billion in the same period last year and with a full-year government target of GBP78 billion
NH:
The rise in public debt is set to accelerate further after the Treasury announced in November a GBP20 billion stimulus package in an attempt to kickstart the ailing U.K. economy. Activity data, due next week, are expected to confirm that the economy entered a recession in the second half of this year.
PM:
I did — but it is comments in the FT from this interview with Charlie Bean that UK rates could go v close to zero
PM:
Q — that sounds a v interesting NYT piece on cross border trade Irish style
NH:
here’s the link
NH:
lots of people loading up at the local supermarket
NH:
NEWRY, Northern Ireland — During the decades of the “Troubles” here, long lines of traffic at the Irish border usually were a sign that the British military was searching vehicles on the road ahead. But these days the lines of traffic leading off the main highway north to this city just inside Northern Ireland are not about guns as much as butter: shoppers from the south are heading north to spend their euros in the malls and supermarkets here.
NH:
Since the onset of the financial crisis, the euro has surged in value against the British pound, which circulates in Northern Ireland, making prices in northern stores so irresistible that southerners are flocking over the border in record numbers. So popular has this picturesque city 65 miles north of Dublin become that it has lent its name to the phenomenon, the Newry effect.
NH:
Newry has always been a commercial center, but since the Good Friday peace accords of 1998, which ended most of the violence, the city has cashed in on its location, building a bevy of shopping malls. And as sterling has slid, Newry has become the hottest shopping spot within the European Union’s open borders, a place where consumers armed with euros enjoy a currency discount averaging 30 percent or more.
NH:
It seems the only ones complaining about the cross-border trade are senior political officials in the economically strapped south, who are bemoaning the loss of sales tax revenues and questioning the “patriotism” of the bargain hunters. Ireland’s finance minister, Brian Lenihan, said in a recent interview on Irish television that by shopping in Northern Ireland, southerners were “paying Her Majesty’s taxes” and not “paying the taxes to the state that you live in.”
PM:
That’s very funny — and very sad
NH:
very worrying
NH:
good piece I recommend reading that
PM:
Notice retail sales mentioned below
PM:
We were not going to discuss those — cos we dont believe em
PM:
But maybe…
NH:
yeah, they were up in Nov
NH:
which just can’t be right, can it?
NH:
UK retail sales came in once again better than expected, rising 0.3% m-o-m in November, while the previous number was revised marginally down (to -0.3% from -0.1% previously reported). Both food and non-food stores sales were marginally stronger than in the previous month – household goods in particular rose strongly (3.9% m-o-m).
PM:
Could this be people clearing out the shelves of Woolies?
PM:
Discounting helping a bit of early Xmas shopping?
NH:
you have to think that discounting is playing a big part – M&S 20% off everything days/ that sort of thing
NH:
here’s a quick note from Unicredit
NH:
The high volatility of monthly data makes difficult to judge the underlying trend in retail spending, however, unless we see a sharp contraction in December (which is unlikely as in December the VAT cut will be implemented), quarterly growth of retail sales will not be much worse than in Q3. Still, the evidence of early discounts this year might have played a role in boosting retail sales growth in November, biasing today’s outcome.
NH:
Overall, today’s relatively benign report does not change too much our bleak assessment of the growth outlook: consumption fundamentals are indeed weakening by the day, with the labor market deteriorating rapidly, a negative wealth effect from equities and house prices and constrained lending availability. We are therefore skeptical that the resilience in retail spending could last long. The BoE is well aware of the downside risks to growth and has always paid little attention to volatile retail sales data and focused more on the indications coming from surveys of retail sector – which has depicted a much gloomier scenario so far. We continue therefore to expect the BoE to cut the repo rate in January by at least 50 bp to 1.5% and the bottom at 0.5% by Q2 09.
PM:
Hmmm
PM:
lets mvoe on
11:12AM
PM:
OK, let’s turn to some stock specific stuff
PM:
Neil?
NH:
well, it is all about HSBC this morning
PM:
Smug Bank
NH:
former Smug Bank
NH:
share price is having chunks taken out of it
NH:
every day
NH:
off 7% yesterday
NH:
as investors realised investment returns on $131bn surplus deposits would be hit hard by the Fed’s ZIRP
NH:
and this morning
NH:
shares down another 31p to 641p
NH:
that’s 4.6%
PM:
jeepers
PM:
Why?
NH:
broker comment
NH:
negative broker comment
NH:
and lots of it
NH:
Cazenove
NH:
Merrill Lynch
NH:
and something from MF Global
NH:
which has just met the company
NH:
and reads to me anyway, as if the dividend could be in trouble
NH:
if it is not cut then it will be held
NH:
and a large chunk could be paid in scrip
PM:
can you give us a flavour of what the scribblers are saying
NH:
Of course
NH:
here’s Simon Pilkington at Cazenove
NH:
he is worried about capital adequacy
NH:
he says it is now the same as its peers
NH:
and loan impairments are rising
NH:
he reckons a £8.6bn capital raise should sort things out
PM:
interesting
PM:
that analysts are openly talking about the prospect of a rights issue at HSBC
PM:
Despite HSBC desperately trying to quash this talk
PM:
Even resorted to using CityAm to get the msg across
PM:
Splash this morning was that HSBC would only have a rights if they were going to buy a rival
PM:
NH:
yeah, well no one appears to be listening
NH:
the message is not getting through
PM:
Point is — why believe a bank that says it is certain it wont have to raise capital
PM:
Examples are too many to mention
NH:
here’s Pilkington’s note
NH:
The perception of HSBC as a safe haven has been predicated in part on higher and more resilient regulatory capital ratios compared with peers. In our view, this status is at risk:
NH:
Relative capital strength has weakened
NH:
As others raise equity in a period of increased economic uncertainty, HSBC’s equity tier 1 ratio is now in line with the peer group average, whereas previously it was towards the top end of the range.
Uniquely within the peer group, both equity and total tier 1 ratios will decline at HSBC this year.
Excluding one-off items, we estimate HSBC’s equity tier 1 ratio will fall c.50bp in H2 2008.
NH:
Loan impairment is rising
HSBC is particularly exposed to economies that we expect to endure a more severe recession: 74% of its customer loans are in Europe and North America.
HSBC is particularly exposed to economies that we expect to endure a more severe recession: 74% of its customer loans are in Europe and North America.
If group impairment is 10% higher than our estimates in each of the next three years, this will reduce equity tier 1 by 45bp.
NH:
Currency headwind
The group’s regulatory capital is not perfectly hedged for currency movements. We estimate the strong US dollar has reduced equity tier 1 by 5bp in H2 2008.
NH:
Currency headwind
The group’s regulatory capital is not perfectly hedged for currency movements. We estimate the strong US dollar has reduced equity tier 1 by 5bp in H2 2008.
NH:
HSBC’s P/NTAV premium to the peer group has increased over the past month, from 33% to 45%. With a heightened risk of equity issuance to raise capital ratios, we expect the premium to narrow and retain an UNDERPERFORM recommendation.
NH:
And here’s what came out of Merrill Lynch this morning
NH:
We have cut our EPS estimates for HSBC in 2009E and 2010E by 17% and 16%
respectively, with the majority of the hits coming through on the revenue line and
to a lesser extent provisions. From a business division perspective, the largest
hits to our revenue forecasts were in the GBM division, as we believe that the
combination of a deteriorating global economic outlook and sharp cuts to interest
rates will negatively impact revenue momentum. We have also lowered our
wealth mgt. forecasts, particularly in HK which will hit PFS revenues. From a
geographic perspective, we have adopted a more cautious stance on LatAm
respectively, with the majority of the hits coming through on the revenue line and
to a lesser extent provisions. From a business division perspective, the largest
hits to our revenue forecasts were in the GBM division, as we believe that the
combination of a deteriorating global economic outlook and sharp cuts to interest
rates will negatively impact revenue momentum. We have also lowered our
wealth mgt. forecasts, particularly in HK which will hit PFS revenues. From a
geographic perspective, we have adopted a more cautious stance on LatAm
NH:
Cutting PO by 16% to HK$73/share
NH:
We have cut our SOTP derived PO by 16% to HK$73/share. In addition to the
impact of our lower earnings forecasts and US$ appreciation on HSBC’s
valuation, we have also tweaked the way in which we allocate capital across the
group’s businesses in our valuation model. As with StanChart, we have also
applied a 15% discount to our PO to reflect poor earnings visibility.
impact of our lower earnings forecasts and US$ appreciation on HSBC’s
valuation, we have also tweaked the way in which we allocate capital across the
group’s businesses in our valuation model. As with StanChart, we have also
applied a 15% discount to our PO to reflect poor earnings visibility.
NH:
Erosion of key ‘pillars of support’ – Reiterate Underperform
NH:
Several pillars underpinning HSBC’s share price over the past year, specifically its
comparatively higher capital and liquidity position, and earnings diversification
afforded by Asia are waning in our opinion. While we understand HSBC’s appeal
in volatile markets, trading at 1.6x our 2008E NAV and 12.2x our 2009E EPS
estimates, valuation is not sufficiently compelling for us to adopt a more positive rating on the stock at this stage.
comparatively higher capital and liquidity position, and earnings diversification
afforded by Asia are waning in our opinion. While we understand HSBC’s appeal
in volatile markets, trading at 1.6x our 2008E NAV and 12.2x our 2009E EPS
estimates, valuation is not sufficiently compelling for us to adopt a more positive rating on the stock at this stage.
PM:
and you mentioned something by MF Global
PM:
chat with management??
NH:
yes
NH:
here it is
NH:
HSBC: update on strategy & dividend
A chat with HSBC’s IR confirmed the strategy towards acquisition:
- 2009 will be tougher than 2008
- HSBC tends to buy coming out of a downturn, not going in
- Madoff shows there could well be more bad news lurking in weak markets
- Opportunities to take organic market share remain manifold
A chat with HSBC’s IR confirmed the strategy towards acquisition:
- 2009 will be tougher than 2008
- HSBC tends to buy coming out of a downturn, not going in
- Madoff shows there could well be more bad news lurking in weak markets
- Opportunities to take organic market share remain manifold
NH:
Management has talked of potentially acquiring 20-30 branches in the Southern US with links to its Mexican and South American franchises However, it has not been invited and does not expect to be asked into state sponsored rescues of large deposit taking franchises and hence is unlikely to participate in consolidation in the US
NH:
Questions have been raised on dividend and capital:
Earnings are under pressure from three areas
1) Hong Kong (and other) interest rates at 0.5% could squeeze margins, albeit
HSBC’s HK prime rate is unchanged at 5% (STAN unchanged 5.25%)
2) $1bn exposure to Madoff via lending to clients
3) Rising provisions seemingly everywhere
We still expect HSBC could make $1 of earnings in 2009, 10% RoE
- A flat dividend would be 91 cents or a 91% payout
- If paid in cash core capital would slip to 6.8%
- We would expect this to be adequate given the increasing likelihood of
regulatory forbearance in 2009 if authorities want banks to lend
Earnings are under pressure from three areas
1) Hong Kong (and other) interest rates at 0.5% could squeeze margins, albeit
HSBC’s HK prime rate is unchanged at 5% (STAN unchanged 5.25%)
2) $1bn exposure to Madoff via lending to clients
3) Rising provisions seemingly everywhere
We still expect HSBC could make $1 of earnings in 2009, 10% RoE
- A flat dividend would be 91 cents or a 91% payout
- If paid in cash core capital would slip to 6.8%
- We would expect this to be adequate given the increasing likelihood of
regulatory forbearance in 2009 if authorities want banks to lend
NH:
- With 30% scrip take-up core capital would be 7%
Scrip take-up of HSBC’s dividend averages just under 30% and ranges from 6% to 45%. HSBC has paid out 85% of earnings in previous hard times and is proud of its record of progressive dividends. We are assuming no growth.
Scrip take-up of HSBC’s dividend averages just under 30% and ranges from 6% to 45%. HSBC has paid out 85% of earnings in previous hard times and is proud of its record of progressive dividends. We are assuming no growth.
NH:
Given Q4 guidance for four more quarters of elevated provisions in the US, dividend payout would fall to 62% in 2010 as US sub prime provisions fell As long as HSBC believes this guidance it should maintain the payout
HSBC trades at 1x book
HSBC (HSBA LN) rated Buy, target 840p
HSBC trades at 1x book
HSBC (HSBA LN) rated Buy, target 840p
PM:
thanks for that
NH:
staying with the banks for the moment
NH:
did you see the RBS note?
PM:
No
NH:
Sam would have loved it
NH:
on the threat of monolines
PM:
Send it to Stacy
NH:
specifically monoline hedged exposure
NH:
now this is all somewhat rich coming from RBS
NH:
which has pretty big monoline exposure
NH:
along with Barclays and Deutsche
NH:
here’s a quick taste of the note
NH:
Although the worst may be behind us, we see material markdown risks notably from monoline-hedged exposure where contagion risks will also play a role. Deutsche Bank and Barclays remain most at risk while UBS remains our preferred wholesale bank.
NH:
Markdown cycle cannot be ignored
NH:
Despite recent guidance allowing reclassification of ‘risky’ assets, we believe that the market will remain focused on mark-to-market disclosures. We expect future potential marks for 13 major UK/European banks of US$95bn pretax, or over 10% of core T1 capital.
However, because monoline exposures are derivatives-based risk, they will remain in the trading book. Monolines risks at the forefront.
NH:
Recently, significant rating downgrades and CDS spread widening suggest further increases of cumulative valuation adjustments (CVA) or reserves against monolines. At the same time, a sharp sell-off in risk assets suggests further significant markdowns of underlying assets and a rise in
monoline exposures
monoline exposures
NH:
Increasingly, we expect a contagion from US RMBS-hedged risks (one-third or US$120bn notional) to other hedged risks (two-thirds or US$230bn notional).
Indeed, we believe CMBS (commercial mortgage-backed securities), CLOs (collateralised loan obligations) and corporate CDOs remain exposed to sharply rising corporate default rates. …driving potentially US$50bn in additional markdowns
Indeed, we believe CMBS (commercial mortgage-backed securities), CLOs (collateralised loan obligations) and corporate CDOs remain exposed to sharply rising corporate default rates. …driving potentially US$50bn in additional markdowns
NH:
All in all, we expect over US$50bn pretax in further monoline-related markdowns, including US$32bn from UK & European banks. From here, we expect more of the markdowns to come from other hedged risks (US$32bn) even though US RMBS-related charges (US$20bn) remain important.
NH:
At most risk for potential markdowns, in our view, are Deutsche Bank, Barclays and the major French banks.
NH:
Capital-raising risks
Based on potential monoline-related markdowns, Deutsche Bank’s core T1 ratio would go down to under 6%, highlighting material dilution risks. Such risks cannot be ruled out at Barclays, BNP Paribas and some of the other major French banks, which underpins our cautious approach to these stocks. On a mark-to-market basis, we believe HSBC stands most at risk and we see a real
possibility of a ‘forced’ scrip dividend. UBS remains our preferred wholesale bank as we believe it to be ahead of the curve on de-risking, deleveraging and downsizing.
PM:
That deserves a bickie — but we dont have bickies any more
Reminder to readers – you can scroll up to read earlier parts of the chat and the window will stop scrolling automatically. When you’re ready to continue, scroll back down to the bottom or click resume.
PM:
Ah — but the system msg is still there
PM:
Willl fiix later
PM:
Any way — tehre are some big numbers in that report
PM:
And they dont seem to like HSBC!
NH:
no one seems to like Smug Bank any more
NH:
everyone is sharpening the knives
PM:
Former smug bank!
PM:
FSB for short
NH:
some share prices in the banking
HBOS (HBOS:LSE): Last: 68.90, up 1.1 (+1.62%), High: 70.10, Low: 66.60, Volume: 9.69m
Barclays PLC (BARC:LSE): Last: 145.80, up 0.8 (+0.55%), High: 149.20, Low: 140.50, Volume: 11.53m
Lloyds TSB Group (LLOY:LSE): Last: 128.50, up 3.3 (+2.64%), High: 130.50, Low: 124.60, Volume: 5.55m
Barclays PLC (BARC:LSE): Last: 145.80, up 0.8 (+0.55%), High: 149.20, Low: 140.50, Volume: 11.53m
Standard Chartered (STAN:LSE): Last: 787.00, up 26 (+3.42%), High: 796.00, Low: 740.00, Volume: 1.91m
NH:
and finally the former Smug Bank
HSBC Holdings plc (HSBA:LSE): Last: 637.50, down 34.5 (-5.13%), High: 678.25, Low: 628.00, Volume: 24.91m
11:27AM
PM:
Before we move on from the banks…
PM:
how abotu US financials — seen this Goldman 2009 out look jsut sent over by that brilliant broker
PM:
friend
NH:
(Sam is on hols everyone. In Eastern Europe somewhere.)
PM:
Hang on — Goldman are saying total credit losses are going to balloon to $1.8 trillion
NH:
OK, and we have recognised what? $1trn?
PM:
Well, jsut about yes
NH:
half way there then.
PM:
Let me chuck some of this note up
PM:
Remain Cautious: Only half way through
We remain cautious across financials heading
into 2009 as we are only halfway through the
asset deflation issue, only halfway through the
loss recognition process, and we expect financial
market activity to moderate impacting asset
managers and market structure names.
We estimate US credit losses will total $1.8
trillion, with half of these losses recognized to
date. However, 2009 is expected to see a shift in
losses away from residential housing towards
consumer and corporate loan books.
We remain cautious across financials heading
into 2009 as we are only halfway through the
asset deflation issue, only halfway through the
loss recognition process, and we expect financial
market activity to moderate impacting asset
managers and market structure names.
We estimate US credit losses will total $1.8
trillion, with half of these losses recognized to
date. However, 2009 is expected to see a shift in
losses away from residential housing towards
consumer and corporate loan books.
PM:
Specifically, we are only half-way through home price declines and we are less than half way through commercial real estate price
declines. Moreover, we estimate that this cycle will ultimately produce $1.8 trillion of losses, and only half of these losses have
been recognized to date. We expect that the pace of loss recognition will increase from the $150-$200 billion per quarter over the
past year to $300 billion in 4Q2008. An optimistic read would be this will bring us to more than half-way through. However, we
frankly seem more risk that our $1.8 trillion estimate will continue to increase as the economy deteriorates – as recently as
September we were estimating $1.2 trillion in global losses arising from the US credit cycle. See Exhibit 4.
declines. Moreover, we estimate that this cycle will ultimately produce $1.8 trillion of losses, and only half of these losses have
been recognized to date. We expect that the pace of loss recognition will increase from the $150-$200 billion per quarter over the
past year to $300 billion in 4Q2008. An optimistic read would be this will bring us to more than half-way through. However, we
frankly seem more risk that our $1.8 trillion estimate will continue to increase as the economy deteriorates – as recently as
September we were estimating $1.2 trillion in global losses arising from the US credit cycle. See Exhibit 4.
PM:
As we are only half-way through loss recognition it is fairly uncontroversial to say fundamentals, in general, remain poor. Against
that backdrop dispersion between sectors has collapsed (or said another way, correlations have gone to 1) and valuations have
collapsed relative to long term averages as well. See Exhibit 5-6.
that backdrop dispersion between sectors has collapsed (or said another way, correlations have gone to 1) and valuations have
collapsed relative to long term averages as well. See Exhibit 5-6.
PM:
While government intervention is a risk (and the size of government intervention via Treasury’s purchase of preferred equity and
the increase in the Fed’s balance sheet already exceeds $2 trillion; see Exhibit 7), our basic conclusion is that this intervention has
been good for debt and neutral to positive for preferreds, but it has not stopped equity values from falling (see Exhibit 8). This
makes sense because the government is coming in at the preferred level in the capital structure.
Loan mods and 4% mortgages also present a risk, but in general we see the situation shaping up as potentially negative for whole
loans on banks balance sheets which are carried at 70-100 cents on the dollar at most banks, with an average of the low 90s. If
principal is right-sized as parts of loan mod programs, this could be positive for securities which trade at 30-50 cents but the value
of whole loans may need to come down further still. See Exhibit 9.
There is also growing risk of directed lending as politicians become increasingly vocal about “banks not lending”. This statement
misses two fundamental points: demand for new loans is near all time lows – we are, after all, in the middle of a recession, and
banks were given $250 billion of equity, in order to lend it with 10:1 leverage they need to borrow $2.25 trillion against that, which is
simply not possible in the current environment.
the increase in the Fed’s balance sheet already exceeds $2 trillion; see Exhibit 7), our basic conclusion is that this intervention has
been good for debt and neutral to positive for preferreds, but it has not stopped equity values from falling (see Exhibit 8). This
makes sense because the government is coming in at the preferred level in the capital structure.
Loan mods and 4% mortgages also present a risk, but in general we see the situation shaping up as potentially negative for whole
loans on banks balance sheets which are carried at 70-100 cents on the dollar at most banks, with an average of the low 90s. If
principal is right-sized as parts of loan mod programs, this could be positive for securities which trade at 30-50 cents but the value
of whole loans may need to come down further still. See Exhibit 9.
There is also growing risk of directed lending as politicians become increasingly vocal about “banks not lending”. This statement
misses two fundamental points: demand for new loans is near all time lows – we are, after all, in the middle of a recession, and
banks were given $250 billion of equity, in order to lend it with 10:1 leverage they need to borrow $2.25 trillion against that, which is
simply not possible in the current environment.
PM:
I’ll do a separate post on that a bit later
PM:
For out Outlook series
11:31AM
11:31AM
NH:
Right questions below about Imperial Energy
NH:
Reports this morning that 60% of shareholders have tendered for the offer are wide of the market I am assured
NH:
however, the trackers funds have tendered
NH:
Legal & General
NH:
BGI
NH:
it is also possible to trade tendered stock
NH:
apparently this could happen in any takeover in the UK but rarely does
NH:
basically it means, that instead of tendering and waiting there with your fingers crossed hoping the deal goes through
NH:
you could trade out of it, if you were worried the deal could fall apart
NH:
assuming a buyer could be found and this is a matched bargain facility
NH:
anyway
NH:
it does seems as acceptances are moving higher
NH:
the biggest threat to this deal is from borrowed stock i guess
NH:
if some could borrow, keep the rights and then sell the underlying
NH:
perhaps they could scupper the deal
NH:
Polygon have done this before, in Telent
NH:
but the borrow in IEC does not look that high at the moment
NH:
and most of it is probably a hedge for convertible bond positions
NH:
so the recent increase in borrow
NH:
could be done to delta hedging by CB
NH:
other things to mention on this
NH:
given Xmas etc
NH:
the soft closing date on this deal is really Dec 19
NH:
if there is no early statement by ONGC after the weekend that it has already received the 90% acceptance level, things could get interesting
Imperial Energy Corp (IEC:LSE): Last: 974.50, up 13.5 (+1.40%), High: 987.50, Low: 960.00, Volume: 318.52k
PM:
hmmm
PM:
Fascinating situation that
PM:
Closing tomorrow
PM:
effecitvely
NH:
yep
NH:
and if the 90% level is not met, the Indian’s will prolly walk
11:38AM
NH:
(Daddy that is a fascinating idea on IEC. ONGC raid the market for 10%, paying £12.50, and then vote down the deal. Sit on 10% for a while, then come back and bif at a lower price. Wonder if that’s poss).
PM:
I’ll just share another 2009 Outlook — this one from Jonathan Wilmot and team at Credit Suisse
PM:
Since Lehman Brothers’ demise on the altar of moral hazard, de-leveraging
has become an overwhelming force, destroying trillions of dollars of asset
value, freezing credit markets as usable collateral and counterparty
confidence evaporates, and sparking a near vertical drop in new orders,
production and business confidence.
• Were this a standard panic, we should paradoxically be very bullish for both
equities and credit. Not just tactically, but in the sense that we might just be
renewing the secular bull market for another 10 to 15 years. Investor risk
appetite has only been this deep into the panic zone twice before in 30 years:
in August 1982 and October 2002, both of which proved to be major buying
opportunities.
• Valuations range from attractive to compelling. Equities in Europe and the US
are one standard deviation below their long-term real return trend and over
five standard deviations cheap versus bonds. Credit is arguably discounting a
depression already. Buying cheap assets in a panic is what value investing is
all about.
• Obviously, however, this is no ordinary crisis: it has all the hallmarks of an
“extreme event” of the type that could end up transforming the whole political,
economic and financial landscape for decades to come.
has become an overwhelming force, destroying trillions of dollars of asset
value, freezing credit markets as usable collateral and counterparty
confidence evaporates, and sparking a near vertical drop in new orders,
production and business confidence.
• Were this a standard panic, we should paradoxically be very bullish for both
equities and credit. Not just tactically, but in the sense that we might just be
renewing the secular bull market for another 10 to 15 years. Investor risk
appetite has only been this deep into the panic zone twice before in 30 years:
in August 1982 and October 2002, both of which proved to be major buying
opportunities.
• Valuations range from attractive to compelling. Equities in Europe and the US
are one standard deviation below their long-term real return trend and over
five standard deviations cheap versus bonds. Credit is arguably discounting a
depression already. Buying cheap assets in a panic is what value investing is
all about.
• Obviously, however, this is no ordinary crisis: it has all the hallmarks of an
“extreme event” of the type that could end up transforming the whole political,
economic and financial landscape for decades to come.
PM:
Investors are understandably paralysed by the possible parallels with the
1930s and the risk of sliding into a latter day depression that could lead to
untold human misery, renewed protectionism and ultimately the end of
globalization, frustrating the aspirations of billions of citizens of the emerging
world and sparking extreme political instability.
• There is, in other words, now everything to fear from fear itself. For Presidentelect
Obama and the Chinese government, in particular, the stakes could not
be higher, which fully justifies the increasingly overwhelming policy response
from governments, the Federal Reserve and other central banks.
• For policy to work, however, it must first stop the spiral of de-leveraging. Once
the circuit of value destruction has been broken, it should be possible to set
up the conditions for a healing equilibrium that gradually restores the system
of collateralized lending and borrowing within the financial system, in turn
reopening the channels of private lending to firm and households. And it
needs to be done soon: our global Taylor Rule already suggests that G3 short
rates should be zero – and that’s LIBOR, not policy rates – because we
already face the biggest global output gap in the post-WW II period.
• In our view, 2009 will be an ongoing contest between the massively
destructive power of systemic de-leveraging and massive government action
to nudge the credit system towards a healing equilibrium. We think policy
should win the next round, but ultimately we are more bullish than that. There
is still time to convert an incipient depression into something like a classic 19th
century panic, and thereby allow the world a chance to achieve its full
potential in the coming decade. To borrow a phrase, “yes we can.”
1930s and the risk of sliding into a latter day depression that could lead to
untold human misery, renewed protectionism and ultimately the end of
globalization, frustrating the aspirations of billions of citizens of the emerging
world and sparking extreme political instability.
• There is, in other words, now everything to fear from fear itself. For Presidentelect
Obama and the Chinese government, in particular, the stakes could not
be higher, which fully justifies the increasingly overwhelming policy response
from governments, the Federal Reserve and other central banks.
• For policy to work, however, it must first stop the spiral of de-leveraging. Once
the circuit of value destruction has been broken, it should be possible to set
up the conditions for a healing equilibrium that gradually restores the system
of collateralized lending and borrowing within the financial system, in turn
reopening the channels of private lending to firm and households. And it
needs to be done soon: our global Taylor Rule already suggests that G3 short
rates should be zero – and that’s LIBOR, not policy rates – because we
already face the biggest global output gap in the post-WW II period.
• In our view, 2009 will be an ongoing contest between the massively
destructive power of systemic de-leveraging and massive government action
to nudge the credit system towards a healing equilibrium. We think policy
should win the next round, but ultimately we are more bullish than that. There
is still time to convert an incipient depression into something like a classic 19th
century panic, and thereby allow the world a chance to achieve its full
potential in the coming decade. To borrow a phrase, “yes we can.”
PM:
I find the language being employed in these outlook notes fascinating
PM:
Anyway…
11:40AM
PM:
Now
PM:
I noticed that when I was off last week – cos of that close shave with death
NH:
(DLC, I was thinking they return in a year)
PM:
You launched a campaign to save Blue Oar Securities.
NH:
We did – noble cause, don’t you think.
PM:
I do, I do.
PM:
And it is important during takeover battles that we come down on one side or the other – people want a view, not just some bland balanced report.
NH:
We don’t do balance here.
PM:
But we’re fair.
PM:
NH:
Most of the time.
PM:
if it suits
PM:
Anyway, Blue Oar have come out with their defence document – and its hilarious. I must put it up in the Long Room
PM:
EVOLVE’S OFFER IS
DERISORY AND WHOLLY
INADEQUATE.
IGNORE THE OFFER!
DERISORY AND WHOLLY
INADEQUATE.
IGNORE THE OFFER!
PM:
Shame I can’t do BIG BLOCK 50 POINT HEADLINES ON HERE
PM:
Backstory here is that an operation called Evolve put in a hostile all paper offer for Blue Oar.
PM:
The offer is from a former Blue Oar chief executive who has got into bed with another recently deprted chairman.
PM:
This one’s a real muddle. It’s a really personal fight.
PM:
Basically, Evolve want to take Blue Oar private and then spin out its Rowan Darlington private client operation and list it on Plus.
NH:
Plus??? Oh great.
PM:
The main guy at Evolve is one Edward Vandyk.
NH:
Dr Death
NH:
that’s what a few people in the market call him
NH:
although the company’s PR dispute that
PM:
Fine but look at this from the defence doc
PM:
Certain Evolve Directors have been involved in a number of companies which have ceased to exist. Edward Vandyk and Oliver Vaughan have been directors of an aggregate of 28 companies which have entered administrative receivership or which have been subject to insolvency proceedings. We would draw your attention to Appendix 2 for further information.
NH:
So what’s in Appendix 2??
PM:
Hang on
PM:
Edward Vandyk
Edward Vandyk was a director of Leisure Investments PLC which went into administrative receivership in
April 1990. Subsequently the following subsidiaries of Leisure Investments PLC were placed into
administrative receivership:
•LandLeisure Limited
•Lingfield Park Limited
•Theme Holdings Limited
•Leisure Casinos Limited
•Leisure Restaurants Limited
•Leisure Catering Limited
•Alfred Walker Limited
•Alfred Walker Investments Limited
•Alfred Walker Estates Limited
•Bartlett Gilbert Developments Limited
•Neilson Travel Limited
•Modern Mobile Homes Limited
•Aspinall Health Hydros Limited
•Aspinall Curzon Limited
•Ragdale Health Clubs Limited
•The Ritz Snooker Clubs Limited
•Albindene Limited
•Bartlett Gilbert & Co Limited
•Locks Heath Development Limited
•The West Wellow Development Company Limited
•Ragdale Hall Limited.
In addition, Edward Vandyk resigned as a director of MDA Group PLC in January 2002. MDA Group PLC
went into administrative receivership in August 2002.
Edward Vandyk was a director of Leisure Investments PLC which went into administrative receivership in
April 1990. Subsequently the following subsidiaries of Leisure Investments PLC were placed into
administrative receivership:
•LandLeisure Limited
•Lingfield Park Limited
•Theme Holdings Limited
•Leisure Casinos Limited
•Leisure Restaurants Limited
•Leisure Catering Limited
•Alfred Walker Limited
•Alfred Walker Investments Limited
•Alfred Walker Estates Limited
•Bartlett Gilbert Developments Limited
•Neilson Travel Limited
•Modern Mobile Homes Limited
•Aspinall Health Hydros Limited
•Aspinall Curzon Limited
•Ragdale Health Clubs Limited
•The Ritz Snooker Clubs Limited
•Albindene Limited
•Bartlett Gilbert & Co Limited
•Locks Heath Development Limited
•The West Wellow Development Company Limited
•Ragdale Hall Limited.
In addition, Edward Vandyk resigned as a director of MDA Group PLC in January 2002. MDA Group PLC
went into administrative receivership in August 2002.
NH:
Ouch
NH:
That’s not comprehensive tho, is it.
PM:
That’s not comprehensive tho, is it.
PM:
Sorry — we are repeating each other
PM:
tech prob
PM:
there is no mention of Izodia.
NH:
Oh, yes, poor Mr Vandyk was mixed up in that fraud case.
PM:
Yes – he was not at fault, hasten to add, but Izodia was a very very messy fraud in Jersey – finally picked apart by the SFO. A guy called Gerald Smith went down for it.
PM:
Mr Vandyk briefly caught up in it – but there was no suggestion of any wrongdoing.
PM:
You can read the history here
PM:
and here
PM:
Anyway, we should move on.
NH:
Before we do – this Blue Oar defence doc also has about four pages of “opinions form employees”
NH:
“I joined Blue Oar because I could see that it had an extremely competent and experienced management team which I believe have the right strategy to succeed in today’s markets.”
NH:
How cringing is that!
PM:
PM:
Actually – just looking through some other stuff – this is very confusing.
PM:
William Vandyk – son of Edward – works for Blue Oar in London
PM:
And Oliver Vaughan’s son, Jamie Vaughn – works for Blue Oar in Oz.
NH:
all very odd
PM:
Hmmm
PM:
let’s move on
11:48AM
NH:
Paul Davies from the Capital Markets desk has been in touch to provide an update on his Glencore call
NH:
namely that its CDS price will plunge
NH:
Notice this am that Xstrata stock rising in a bad market – +16p @729.5p, while FTSE350mining index down 117.09 @10666.71
Meanwhile, Glencore CDS yesterday dropped another 187bp to 2607.7bp – so that’s down by roughly 500bp in as many days…
Seems maybe there is a combined shorting trade that is now being unwound. I’m getting overexcited here, how about Glencore CDS below 1,000 before Christmas?
11:49AM
NH:
quick correction, the Caz note on HSBC was not penned by Pilko
NH:
but Paul Meadsley. apologies
11:50AM
NH:
what is going on at Investec Securities this morning
NH:
Investec cease coverage of Latchways today. Their last published forecasts are attached.
NH:
Investec cease coverage of Hargreaves Lansdown today. Their latest published forecasts are attached.
NH:
Brewin Dolphin – Cessation of coverage (Not Rated)[Brewin Dolphin[BRW.L] ]
NH:
Investec today cease coverage of Charles Stanley. Their last published forecasts are attached.
NH:
Superglass Holdings – Cessation of coverage (Not Rated)[Superglass Holdings[SPGH.L] ]
PM:
Looks like the black binliners have been out in gresham Street this morning
PM:
11:51AM
NH:
Right, before we finish, should look at SVG Capital
NH:
shocking statement this morning
PM:
This is the quoted vehicle that gives access to Permira — if youd want it
NH:
£100m rights issue – 1 for 1 at 100p
NH:
and a massive portfolio right down
NH:
capping futures contributions to Permira funds
NH:
actually read this
NH:
*
In light of the current market environment, SVG Capital is taking a provision of 40 per cent. against the valuation of its investment portfolio at 30 June 2008 which would result in an adjusted NAV per Ordinary Share at 30 November 2008 of 431 pence (including an unaudited Directors’ valuation of 37 pence per Ordinary Share for SVG Advisers)
PM:
oh dear
PM:
Stock has fallen 23% on the back of that
PM:
139 currently, off 43p
PM:
A little pointer toward what is going on in the PE world
NH:
and this has hit the share prices of other listed private equity companies
Electra Private Equity (ELTA:LSE): Last: 665.50, down 41 (-5.80%), High: 680.00, Low: 661.00, Volume: 15.87k
PM:
Puts 3i’s recent falls in context
Candover Investments (CDI:LSE): Last: 868.00, down 55.5 (-6.01%), High: 908.00, Low: 868.00, Volume: 25.46k
NH:
GSDOx:LSE
NH:
sorry that was some Goldman fund – down 5%
NH:
actually, 3i must be pretty worried by this news
NH:
especially given their debt levels
NH:
at least SVG have got in their first
NH:
and raised cash before Xmas
NH:
mind you it seems a chunk of it will be immediately repaid to its lenders
NH:
The Company has also amended some of its debt facilities. Following the amendments to the loan to value financial covenant in the Revolving Credit Facility, the total commitments of the Revolving Credit Facility were reduced to €550 million with immediate effect. In addition, pursuant to the amendments made to the loan to value covenants in both of the NPAs, the Company agreed to prepay at par (such prepayment to be made without any make-whole or modified make-whole amount, but with accrued interest up to the date of prepayment), on a pro rata basis, 26.7 per cent. of the sum of the aggregate outstanding principal amount of the Notes on or before 6 January 2009. The Company has also amended the loan to value financial covenants in its Revolving Credit Facility and in each of the NPAs, giving the Company greater borrowing headroom.
PM:
So basically — writedowns of the portfolio have triggered a covenant
NH:
yep
PM:
This musst be happening all over the PE world?
NH:
and just think about 3i
NH:
net debt of £1.8bn vs market cap of £980m
NH:
what happens if they take a huge portfolio write down
NH:
will covs be breached
NH:
will they need to raise cash
PM:
yeah, but how about TPG, Blackstone, KKR, everyone else???
PM:
Think we need to make some calls on this
PM:
Could be very very widespread
11:59AM
PM:
We had promised to look at Cattles
NH:
laugh at Cattles, the doorstep lender
NH:
sorry consumer financial services company
NH:
we don’t want them complaining
PM:
It’s only off a tad actually — down 0.25p at 17p
PM:
Canceled its final divi — and next year’s interim payout — needs the cash
PM:
Did have a funny note from Citi on this
PM:
Let me just dig it out
PM:
Alive and Kicking
2008 in line — Cattles expects to deliver trading results in line with
expectations in 2008 (Citi forecast £173m PBT, consensus £170m) despite
challenging conditions in 2008. 2009 “will present greater challenges” but
Cattles is “developing plans to maintain the stability and financial robustness of
the business under a variety of potential outcomes.”
Doing the right thing — Cattles is paying neither a final dividend for 2008 (Citi
forecast 12p) nor an interim dividend H1 2009 (Citi forecast 6p). This is the
right thing to do, in our view. We estimate that not paying the final dividend will
benefit reserves by around £60m, helping the group’s funding headroom
(£129m at end November, and we estimate £100m after the repayment of
$40m US private placements). More capital should also help Cattles’ position
in its debt renegotiations and banking licence application.
2008 in line — Cattles expects to deliver trading results in line with
expectations in 2008 (Citi forecast £173m PBT, consensus £170m) despite
challenging conditions in 2008. 2009 “will present greater challenges” but
Cattles is “developing plans to maintain the stability and financial robustness of
the business under a variety of potential outcomes.”
Doing the right thing — Cattles is paying neither a final dividend for 2008 (Citi
forecast 12p) nor an interim dividend H1 2009 (Citi forecast 6p). This is the
right thing to do, in our view. We estimate that not paying the final dividend will
benefit reserves by around £60m, helping the group’s funding headroom
(£129m at end November, and we estimate £100m after the repayment of
$40m US private placements). More capital should also help Cattles’ position
in its debt renegotiations and banking licence application.
PM:
Business as Usual — At 17.5p, Cattles is priced at less than 2008E EPS (25p)
and at 0.1 x book. At these levels market fears look overdone. The funding
situation remains tight, but not insurmountable. Potential near-term short-falls
in requirements could be met by further slowing new lending. Arrears are
rising, but the measured increase in impaired arrears continues to track well
below increases in past due but not impaired. Management does not see risk of
breach of either gearing or interest cover debt covenants.
and at 0.1 x book. At these levels market fears look overdone. The funding
situation remains tight, but not insurmountable. Potential near-term short-falls
in requirements could be met by further slowing new lending. Arrears are
rising, but the measured increase in impaired arrears continues to track well
below increases in past due but not impaired. Management does not see risk of
breach of either gearing or interest cover debt covenants.
NH:
market fears look overdone?
NH:
didn’t Citi help with Cattles recent fund raising
PM:
12:03PM
NH:
right must dash
NH:
Xmas lunch with some contacts
NH:
annual affair
PM:
Where you going?
NH:
here
NH:
Monsters of Mayfair lunch here I am told
PM:
Ah, ive been there — its nice and relaxed
NH:
on Arsenal
NH:
the boardroom news is not good
PM:
2002 Saint-Joseph “Les Reflets”, Domaine F. Villard £86.00
1997 Aglianico “Radici”, Mastroberardino, Taurasi Riserva, Italy £69.00
2005 Chianti Classico, Castello di Fonterutoli, Italy
1997 Aglianico “Radici”, Mastroberardino, Taurasi Riserva, Italy £69.00
2005 Chianti Classico, Castello di Fonterutoli, Italy
NH:
and I always think the performance of the pitch what goes on behind the scences
NH:
this is clearly not good
PM:
2004 Riesling Grand Cru Vorbourg, Clos St Landelin, Domaine Muré £54.00
2007 Mas de Daumas Gassac “Grande Cuvée”, Vin de Pays de l’Hérault £62.00
2007 Sauvignon Blanc, Matakana Estate, Marlborough New Zealand £28.00
2006 Cervaro, Castello Della Sala, Marchesi Antinori, Umbria Italy
2007 Mas de Daumas Gassac “Grande Cuvée”, Vin de Pays de l’Hérault £62.00
2007 Sauvignon Blanc, Matakana Estate, Marlborough New Zealand £28.00
2006 Cervaro, Castello Della Sala, Marchesi Antinori, Umbria Italy
NH:
but I can’t see how are Uzbek friend can afford to buy her shares and make an offer for the club
PM:
Bannow bay oysters served with a red wine and shallot vinegar £7.50
Chalosse foie gras and “Deglet Nour” dates terrine £12.50
Burgundy Snails with garlic and parsley butter £6.95
Home cured Scottish salmon with dill, mixed leaves salad £6.90
Wild Mushrooms and truffle cream risotto with parmesan shavings £9.50
Winter smoked duck ham salad with pomegranate and walnuts £7.95
Mussels with white wine, shallots and parsley £8.90
Swordfish and beetroot carpaccio served with lemon confit and coriander leaves
Chalosse foie gras and “Deglet Nour” dates terrine £12.50
Burgundy Snails with garlic and parsley butter £6.95
Home cured Scottish salmon with dill, mixed leaves salad £6.90
Wild Mushrooms and truffle cream risotto with parmesan shavings £9.50
Winter smoked duck ham salad with pomegranate and walnuts £7.95
Mussels with white wine, shallots and parsley £8.90
Swordfish and beetroot carpaccio served with lemon confit and coriander leaves
NH:
perhaps Stan the Man will step in. creeping takeover.
PM:
Traditional raw beef tartare, served with French fries £16.95
Braised Lamb shank served with puree mousseline and rosemary jus £16.90
Scottish Rib eye steak served with red wine or green peppercorn sauce £16.95
Corn fed Chicken supreme served with potato gnocchi and wild mushrooms £15.50
Confit leg of duck with Puy lentils and basil pistou £14.95
Grilled Veal Cutlet served with winter vegetables cooked in snails butter and tarragon jus £19.50
Slow Braised Sucling Pig served with green chard and a sage jus £16.90
Scotish fillet of beef served béarnaise or roquefort sauce
Braised Lamb shank served with puree mousseline and rosemary jus £16.90
Scottish Rib eye steak served with red wine or green peppercorn sauce £16.95
Corn fed Chicken supreme served with potato gnocchi and wild mushrooms £15.50
Confit leg of duck with Puy lentils and basil pistou £14.95
Grilled Veal Cutlet served with winter vegetables cooked in snails butter and tarragon jus £19.50
Slow Braised Sucling Pig served with green chard and a sage jus £16.90
Scotish fillet of beef served béarnaise or roquefort sauce
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:
of course, lady nina might have been frustrated at out managers reluctance to buy any new players
PM:
Sorry — couldnt block that for some reason
NH:
think we are having the Xmas menu
PM:
Londonbus — wine inflation? I was hoping the price of claret would be coming down
PM:
GQ photo shoot — out in the new year
NH:
reserve your copy now
12:10PM
PM:
Right — that’s it for today
PM:
Thanks for joining
PM:
reminder of our Xmas hours…
PM:
AV and ML will be up and running next Monday and Tuesday — sort of
PM:
And then closed till January 5
PM:
That sounds like we are taking a huge break — but it is actually just two working days
PM:
or so 
PM:
Thanks for joining us today
PM:
And thanks for the comments — no one got zapped — but we dont need testing!
NH:
cya
PM:
Throg
PM:
Seeya