Markets live chat transcript for the chat ending at 12:09 on 9 Mar 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
hi
PM:
markets live
PM:
welcome
PM:
first
PM:
?
NH:
Murphy, you should tell people that you’ll be leaving early today.
PM:
hmm
NH:
He doesn’t want to tell people, but he’s booked himself into an anger management class a lunchtime
PM:
NH:
And the reason he’s not typing much is because he’s sitting here with his right hand clasped around his left wrist.
NH:
Apparently it’s some sort of control technique.
NH:
For controlling his temper.
NH:
But one of the side-effects is that he can only type with his left hand.
NH:
In fact, one finger on his left hand. – so Murphy is going to be a bit stilted today.
PM:
NO WAY, sod the temper control malarkey.
PM:
I’ll rant if I want to. Martin Wolf’s allowed to – why not me?
PM:
See his piece last Friday. On the money, in my humble calm considered view.
PM:
The UK government looks increasingly like a python that has swallowed a hippopotamus. In acting as insurer of last resort to the British-based banking system, it is taking on huge risks on behalf of taxpayers. If this turned out to be a global depression, with huge losses for British-based banks, fiscal solvency might even come into question. Can this make sense? I doubt it.
PM:
Here’s his conclusion
PM:
The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both. The UK cannot afford it.
NH:
Well, you can certainly argue that the thoughts there have been amplified by events over the weekend
PM:
Yes, we are straight into the UK banks.
PM:
PM:
Prices?
NH:
here we go
NH:
Barclays down 6.7p at 58.1p
NH:
ouch!
NH:
HSBC off 34.75p at 326p
NH:
double ouch
NH:
RBS off 1.6p at 18.2p
NH:
ouch again
NH:
Standard Chartered down 57p at 695p
PM:
enough!
NH:
but there’s one more
NH:
your favourite
NH:
Lloyds
NH:
down 3.7p at 38.3p
NH:
Mr Blank Cheque you have blown up my bank
PM:
I’m actually quite surprised – this bank is having billions of cheap capital pumped into it at the tax payers expense. The stock is more valuable than it was last week. In my view.
NH:
Quick backstory – Gov is converting its £4bn of prefs into stock at 38p. Meanwhile it will provide £15.6bn for Lloyds to put a big portion of HBOS into its detoxification chamber.
PM:
Yeah, good metaphor. Taken all the stinking poisonous loans racked up by Sir James Crosby, Peter Cummings – wrapping them in some tin foil and then burying them in Middle England.
PM:
Won’t have to worry for a few years – but then the wrapping will disintegrate and the land will be poisoned and the water table infected.
NH:
And we’ll all die, eh?
PM:
Yup.
NH:
Chill Murphy.
NH:
What has got Murphy so wound up is the equity maths surrounding Lloyds APS participation
NH:
been pounding his calculator all morning
PM:
NH:
and swearing
NH:
loudly
NH:
Basically converting the prefs takes the gov from 43% to 65%
NH:
And future conversion of the B shares takes the gov to 77%
NH:
And Murphy is furious because £15.6bn of new money is worth WAY more than an extra 12 per cent stake.
PM:
Well it is.
NH:
But here’s the maths.
NH:
Current shares in issue – 16.3bn
NH:
Convert £4bn of prefs at 38.4p — 10.4bn shares
NH:
So, now you’ve got 26.7bn in issue
NH:
Next you’ve got 15.6bn worth of B shares at 42p
PM:
YEAH, 15.6BN DIVIDED BY 0.42 = 37.14 BILLION SHARES — VERSUS 26.7BN IN ISSUE NOW.
PM:
THAT MEANS WIPE
NH:
No it doesn’t
NH:
the government want us to value these B shares at the future conversion price – namely 115p
PM:
That is such a slight of hand. It is providing equity at 42p.
NH:
So 15.6bn produces 13.6bn new shares.
PM:
Add those to the 26.7bn in issue and you’ve got 40.3bn in issue.
PM:
So 13.6bn out of 40.3 equals…
PM:
oh…
PM:
33.7 per cent 
NH:
No no – govt got 7bn currently – 10.5bn from the prefs and then 13.6 bn from the
NH:
Equals about 31.
NH:
31 divided by 40 equals 77 or so.
PM:
NH:
Voltaire maths
PM:
PM:
TM – Neil hume
PM:
Alls for the best in the best of all possible words, banking wise
NH:
but one question springs to mind
NH:
why are they doing this?
NH:
why the pretence, LBG is nationalised
NH:
which ever way one cuts it
PM:
It wasnt to avoid nationalisation at all costs
PM:
For the explanation for that i think we need to look at the insurance sector
PM:
its all about the dangers of Teir 1 getting wiped out — and what that means for certain insurnannce companies, who hoovered up all the teir one paper
NH:
you are thinking of L&G i presume
PM:
I am — that’s heading towards penny dreadful territory
PM:
at some speed
NH:
race to the bottom against RBS
NH:
down 0.7p at 24p
NH:
L&G has used up all its dead bounce lives
NH:
nine times it attempted to pick itself off the floor
NH:
and each time it has failed
PM:
Paul J Davies has tackled this issue.
PM:
teir one
PM:
Here’s one backgrounder
11:16AM
PM:
Thanks for that gaijinronin — below
PM:
Sound s like a good one for the Wall of Worry table
PM:
But Neil can put a bit up here now
NH:
there a couple of good notes around on the insurance sector this morning
NH:
one from Andrew Huges at JP Morgan
NH:
The market has derated the UK life insurance sector (>40% in two days)
based on the low level of tangible net assets/capital on the balance sheet
and concerns over the future solvency. Our view is that fear is a bigger
driver than valuation in the current markets.
• Aviva’s results presentation was likely a catalyst for this, by
announcing a high dividend (12% yield) and reporting lower net
tangible assets down 110p. Concerns over Aviva’s ability to withstand
further losses then saw the share price fall significantly and credit
protection costs increase as investors focus on capital preservation
over long-term valuations. In particular, the value of the on-balancesheet
intangibles of £8bn, the £10bn UK commercial property portfolio
marked at 97% of par value (ex £670m provision), and £24bn of Level 2
shareholder assets compared to a solvency buffer of £2bn.
based on the low level of tangible net assets/capital on the balance sheet
and concerns over the future solvency. Our view is that fear is a bigger
driver than valuation in the current markets.
• Aviva’s results presentation was likely a catalyst for this, by
announcing a high dividend (12% yield) and reporting lower net
tangible assets down 110p. Concerns over Aviva’s ability to withstand
further losses then saw the share price fall significantly and credit
protection costs increase as investors focus on capital preservation
over long-term valuations. In particular, the value of the on-balancesheet
intangibles of £8bn, the £10bn UK commercial property portfolio
marked at 97% of par value (ex £670m provision), and £24bn of Level 2
shareholder assets compared to a solvency buffer of £2bn.
NH:
However, in Aviva’s case we see lots of value even on a tangible book
basis when we adjust the non life reserves from 75% to best estimate
(56p est), market value of debt (128p est), and credit (-50p est), the stock
looks cheap at 60% of adjusted TNAV.
• We believe managements will in future focus on capital preservation
and upside will come from improving the reported TNAV / reducing
risks rather than goodwill/EV, at the expense of growth. This should be
positive for industry profitability
basis when we adjust the non life reserves from 75% to best estimate
(56p est), market value of debt (128p est), and credit (-50p est), the stock
looks cheap at 60% of adjusted TNAV.
• We believe managements will in future focus on capital preservation
and upside will come from improving the reported TNAV / reducing
risks rather than goodwill/EV, at the expense of growth. This should be
positive for industry profitability
NH:
Prudential looks expensive with TNAV at 87p, but this reflects the
Asia Franchise value. Prudential’s management have we expect
withdrawn from the bidding for AIG Asia as reported in the Independent.
Prudential’s action on capital (£2.5bn buffer) should we expect be more
than enough to withstand adverse market conditions, absent any deal.
Prudential we believe has the greatest upside in more normal market
conditions.
• We see big differences between Banking and Insurance sectors
Insurance can repair damage on the balance sheet from cash flows from
non-life, and from maturing with-profit contracts, new spread business
will we expect be very profitable. The sector can therefore grow out of a
problem, whereas new banking business is much less profitable. We look
at the things net tangible assets misses and analyse what this means
for valuations.
Asia Franchise value. Prudential’s management have we expect
withdrawn from the bidding for AIG Asia as reported in the Independent.
Prudential’s action on capital (£2.5bn buffer) should we expect be more
than enough to withstand adverse market conditions, absent any deal.
Prudential we believe has the greatest upside in more normal market
conditions.
• We see big differences between Banking and Insurance sectors
Insurance can repair damage on the balance sheet from cash flows from
non-life, and from maturing with-profit contracts, new spread business
will we expect be very profitable. The sector can therefore grow out of a
problem, whereas new banking business is much less profitable. We look
at the things net tangible assets misses and analyse what this means
for valuations.
NH:
and here is the stuff from Andrew Crean at Citi
NH:
We have spent much time looking at asset-side risks
to the amount capital insurers have (‘Asset Attack’). This week, we look at the
risks of downward credit migration to the amount of capital European insurers
need. Riskier assets generally require greater levels of risk capital, hence the risk
that downward credit migration increases capital requirements pro-cyclically.
to the amount capital insurers have (‘Asset Attack’). This week, we look at the
risks of downward credit migration to the amount of capital European insurers
need. Riskier assets generally require greater levels of risk capital, hence the risk
that downward credit migration increases capital requirements pro-cyclically.
NH:
Corporate credit migration — Using S&P migration data, we calibrate a stress test
using the highest level of annual downgrade recorded in each category. Downward
corporate credit migration as a driver of additional capital is a limited risk: most
credits remain investment grade & absolute levels of associated risk charges are
comparatively low. However, below investment grade, capital costs rise materially
using the highest level of annual downgrade recorded in each category. Downward
corporate credit migration as a driver of additional capital is a limited risk: most
credits remain investment grade & absolute levels of associated risk charges are
comparatively low. However, below investment grade, capital costs rise materially
NH:
Cramdown & structured credit — Downward structured credit migrations can be
much more dramatic. Proposed US cramdown legislation by triggering bankruptcy
clauses for some prime & ALT A structures could allocate losses pro-rata across
all tranches, triggering losses irrespective of credit enhancement levels. Our credit
analysts suggest this raises significant downgrade risks.
much more dramatic. Proposed US cramdown legislation by triggering bankruptcy
clauses for some prime & ALT A structures could allocate losses pro-rata across
all tranches, triggering losses irrespective of credit enhancement levels. Our credit
analysts suggest this raises significant downgrade risks.
NH:
Impairment not downgrade risk — Given limited structured credit exposure sector
wide, this does not look a big risk for the European insurers overall. Predictably
the most exposed are ING & AEGON, but the implied increased capital required is
not that great. More serious is the extent to which downgrades relate to
impairment charges where capital positions have excluded negative revaluations
wide, this does not look a big risk for the European insurers overall. Predictably
the most exposed are ING & AEGON, but the implied increased capital required is
not that great. More serious is the extent to which downgrades relate to
impairment charges where capital positions have excluded negative revaluations
PM:
hmmm
PM:
tanks for that
PM:
thanks also
11:19AM
PM:
OK, time to turn to the wider market
NH:
and before we look at eqities
NH:
some ineteresting movements in the currency markets
NH:
he USD is climbing across the board Monday as risk aversion builds and the greenback gains on its safe haven status. USD/JPY has pushed back above 99.00 for a 100 sen gain on the day, while GBP/USD is down over 2 cents to 1.39. EUR/USD just printed the day’s low of 1.2574 from 1.2728 while the commodity currencies – AUD, NZD and CAD – are all at the day’s lows against the USD.
NH:
also strong again the GBK
NH:
cable rate is $1.3876
PM:
Dollar also notably strong against the Yen
PM:
99
NH:
and in other news, the yield on the 10-year gilt was below 3% earlier this morning
NH:
QE in action
11:21AM
PM:
And back in stock land — things not too cheery either
PM:
we are in the red
NH:
hmmm, it has fallen back
NH:
FTSE 100 now down 65 popints at 3,465
NH:
getting closer to the March 2003 lows
NH:
that said
NH:
it did rally earlier this morning
PM:
yes, what caused that??
NH:
this
NH:
Merck & Co Inc said on Monday that it would
acquire Schering-Plough Corp for $41.1 billion, uniting the makers of
cholesterol drugs Zetia and Vytorin, in the second megadeal for Big Pharma in
weeks.
acquire Schering-Plough Corp for $41.1 billion, uniting the makers of
cholesterol drugs Zetia and Vytorin, in the second megadeal for Big Pharma in
weeks.
The two New Jersey-based drugmakers, which announced significant job cuts
last fall, have been striving to become more efficient amid setbacks to Vytorin
and Zetia, whose combined fourth-quarter sales slumped 26 percent.
Under the agreement, Schering-Plough shareholders will receive 0.5767
shares of Merck and $10.50 in cash for each of their shares. Each Merck share
will automatically become a share of the combined company.
PM:
whoa
PM:
another big pharma deal
NH:
yep
NH:
and here’s the breakdown of the deal
NH:
h/t friendly broker
NH:
MRK and SGP have unanimously approved a definitive stock and cash
merger agreement.
* 1 SGP = 0.5767 MRK shares and USD10.50 in cash. Each MRK share will
automatically become a share of the newco.
merger agreement.
* 1 SGP = 0.5767 MRK shares and USD10.50 in cash. Each MRK share will
automatically become a share of the newco.
NH:
Upon closing of the transaction, MRK shareholders are expected to own
c. 68% of the combined company, and SGP shareholders 32%.
* MRK believes it will maintain its current credit ratings.
* MRK’s Board is committed to maintaining the dividend at the current
level following the closing of the transaction. MRK currently pays an
annual dividend of USD1.52.
c. 68% of the combined company, and SGP shareholders 32%.
* MRK believes it will maintain its current credit ratings.
* MRK’s Board is committed to maintaining the dividend at the current
level following the closing of the transaction. MRK currently pays an
annual dividend of USD1.52.
NH:
* In addition, the newco will continue MRK’s share repurchase program
after the closing of the transaction.
* Cost savings of c. USD3.5bn annually beyond 2011.
* The aggregate consideration will be comprised of a combination of c.
44% cash and 56% stock. The cash portion will be financed with a
combination of USD9.8bn from existing cash balances and USD8.5bn from
committed financing to be provided by J.P. Morgan.
after the closing of the transaction.
* Cost savings of c. USD3.5bn annually beyond 2011.
* The aggregate consideration will be comprised of a combination of c.
44% cash and 56% stock. The cash portion will be financed with a
combination of USD9.8bn from existing cash balances and USD8.5bn from
committed financing to be provided by J.P. Morgan.
NH:
* The transaction will be structured as a “reverse merger” in which SGP,
renamed Merck, will continue as the surviving public corporation.
* The transaction is subject to approval by both sets of shareholders
and the satisfaction of customary closing conditions and regulatory
approvals, including expiration or termination of the applicable waiting
period under HSR, EC clearance and certain other foreign
renamed Merck, will continue as the surviving public corporation.
* The transaction is subject to approval by both sets of shareholders
and the satisfaction of customary closing conditions and regulatory
approvals, including expiration or termination of the applicable waiting
period under HSR, EC clearance and certain other foreign
NH:
now, that gave a bit of boost to the index
NH:
and the likes of AstraZeneca
NH:
up 74p at £22.21
NH:
which must surely be vulnerable in a consolidating sector
NH:
as it does not have much in the way of a drug pipeline
PM:
Previously led by Sir Tom McKilllopp of course
PM:
PM:
of course, we also got news late on Friday that Roche had increased its offer for Genentech to $93
NH:
they did
NH:
after concluding that there bizarre low ball offer, they made by way of a tender offer, was bound to fail
NH:
that said, they did at least time the bump well
NH:
DNA got down to $81 a one point on Friday
PM:
and do we think $93 will be enough
PM:
??
PM:
Must say it is nice to see them paying something in the region of the figure we said they were prepared to pay
NH:
indeed, I think we said $95
NH:
and have taken plenty stick for it
PM:
Yes, well…
PM:
Goes with the job Neil
PM:
NH:
it does
PM:
Anyway — 93 enough?
NH:
well
NH:
given the dismal backdrop
NH:
it could be
NH:
actually here’s a quick note from Citi
NH:
they reckon $93 will be enough to win the day
NH:
Roche Ups Its Bid & Extends The Offer — Roche announced it would offer $93/sh for the minority shares of DNA. The tender offer is now extended until midnight EST March 20. Currently only 500k shares have been tendered.
NH:
Genentech Investor Survey Suggests $97 But $93 May Be Enough —We previously conducted a survey of Genentech investors (https://geo.ny.ssmb.com/pdf/SNA30103.pdf) which cited a price of $97 as being
acceptable before the Avastin adjuvant C-08 data is released. Taking account of the
fact that this has some inherent bias and the deterioration in equity markets we
believe a $93 offer is likely to be successful in obtaining >50% of the minority
shares.
acceptable before the Avastin adjuvant C-08 data is released. Taking account of the
fact that this has some inherent bias and the deterioration in equity markets we
believe a $93 offer is likely to be successful in obtaining >50% of the minority
shares.
NH:
Financing Highly Attractive EPS Accretion Good— From the $36bn already raised
the weighted average cost of debt is 4.9%, we expect this to be at least constant,
with incremental debt raised likely to be at similar rates. At a price of $93 the deal
is 3.5-4% accretive to earnings in the 12-months immediately following the
completion date. This assumes Roche uses all of its own and DNA’s cash. If Roche
uses all debt then this decreases by 3% to EPS netural. In the second 12 months,
the accretion would likely be 7-10%, depending on the final mix of cash and debt.
See Figures 1 & 2 for more details.
the weighted average cost of debt is 4.9%, we expect this to be at least constant,
with incremental debt raised likely to be at similar rates. At a price of $93 the deal
is 3.5-4% accretive to earnings in the 12-months immediately following the
completion date. This assumes Roche uses all of its own and DNA’s cash. If Roche
uses all debt then this decreases by 3% to EPS netural. In the second 12 months,
the accretion would likely be 7-10%, depending on the final mix of cash and debt.
See Figures 1 & 2 for more details.
NH:
Remain Neutral — We still have caution over Avastin in the adjuvant setting,
although we acknowledge that some of the near term concerns over the DNA deal
are lifting. Our 07-11E CGAR is 7%, in line with the sector but for a higher 2009E
P/E multiple of 11.5x vs the sector’s 9x, as such we remain neutral
although we acknowledge that some of the near term concerns over the DNA deal
are lifting. Our 07-11E CGAR is 7%, in line with the sector but for a higher 2009E
P/E multiple of 11.5x vs the sector’s 9x, as such we remain neutral
PM:
thanks for that
11:28AM
NH:
right a few bits of breaking news
NH:
Aviva has rallied this morning
NH:
after havling in two sessions
NH:
up 6.7p ay 170p
NH:
but for how long??
NH:
this has just flashed up
NH:
March 9 (Bloomberg) — Aviva Plc’s credit ratings were put on review for possible downgrade by Moody’s Investors Service, the rating company said today in a statement.
Aviva’s capital position remains exposed to further deterioration through asset writedowns, Moody’s said.
Aviva’s capital position remains exposed to further deterioration through asset writedowns, Moody’s said.
PM:
Another piece of news
PM:
The FSA is beefing up its insider dealing team
PM:
The Financial Services Authority (FSA) has today announced the appointment of David Kirk as Chief Criminal Counsel. David is currently the Director of the Fraud Prosecution Service (FPS), a specialist unit of the Crown Prosecution Service.
As part of its strategy of credible deterrence the FSA has placed great emphasis on bringing criminal actions for cases of insider dealing and market abuse. David will join the enforcement division’s specialist lawyers who focus on criminal prosecutions. He has extensive experience of this work following a career as a partner of city law firms, at the Director of Public Prosecutions and most recently as the founding director of the FPS.
As part of its strategy of credible deterrence the FSA has placed great emphasis on bringing criminal actions for cases of insider dealing and market abuse. David will join the enforcement division’s specialist lawyers who focus on criminal prosecutions. He has extensive experience of this work following a career as a partner of city law firms, at the Director of Public Prosecutions and most recently as the founding director of the FPS.
NH:
hmmm, interesting
PM:
His friends know him as Captain, i think
NH:
boom, boom
PM:
There’s also this guy
PM:
The FSA has also appointed Keith Foggon to the enforcement division as manager of the Digital Evidence Unit. Keith was formerly head of the Digital Forensics Unit at the Serious Fraud Office and has developed wide-ranging expertise in an area that is important for the FSA’s enforcement case work.
PM:
They are going to clean things up
NH:
just going back to Aviva, big move in the CDS’s
NH:
Contracts on the senior debt of London-based Aviva, the U.K.’s biggest insurer, climbed 97 basis points to a record 525, according to CMA Datavision prices
PM:
hmmm — done themselves no favours, Aviva
NH:
One Aviva, half the value.
NH:
that’s may take on their new corporate moto
NH:
which seems to be getting a lot of air time
NH:
I wonder how much that it costing
NH:
I think the ad I saw featured Beck for some bizzare reason
NH:
what a waste of cash
11:33AM
NH:
right, back to the banks I am afraid
PM:
Let me guess — HSBC
NH:
yes, we have to tackle it.
PM:
We forgot about that
NH:
just trying to get hold of some short interest data
NH:
in the meantime
NH:
shares have been hit hard this morning
NH:
down 36.25p at 324.5p
NH:
a drop of 10%
PM:
that’s is a huge fall for HSBC
PM:
remember this isnt RBS or something
PM:
yet
NH:
and it is worth pointing out straight away
NH:
that the UK line of HSBC is just following the HK line
NH:
which got smashed last night/this morning
NH:
hammered into the ground
NH:
shares fell 24% to HK$33 – lowest level in nearly 14 years
NH:
as a result the Hang Seng plunged almost 600 points
PM:
what the hell happened ??
NH:
well, it looks as those evil short seller have been up to their usual tricks
NH:
that’s if you believe the wires
NH:
dumping stock in anticipation of buying back in the rights issue, apparently
NH:
also there seems to be some concerted effort to push the share price down to the subscription price
NH:
again according to the wires
PM:
which is?
PM:
can you remind me?
NH:
5 for 12 Rights Issue of 5,060,239,065 New Ordinary Shares at 254 pence each
NH:
to be precise
NH:
now Reuters are reporting that a fund sold 11.9 million shares in the closing auction
NH:
they quote two dealers
NH:
but whether this is true we don’t know
NH:
One broker I talked to
NH:
reporting back from his HK branch
NH:
said they had not seen any massive selling
NH:
and I not sure of the mechanics of shorting now and buying back in the placing
NH:
but what we do know is that since this cash was announced and the dividend was chopped the HSBC share price has fallen 42%
NH:
which has sliced $37 billion off its market
NH:
now, on top of these short selling rumours
NH:
there are a couple of other explanations for the fall
NH:
A lot of long funds in HK are saying they unlikely to take up their rights and buy the nil-paid line, which usually trades at a discount
NH:
there was a rebalancing of the Hang Seng on Friday, which may have sucked all of the excess buying out of the market
NH:
but this assumes all the buying was done on Friday
NH:
which looks unlikely
NH:
check these figures I got from a local broker
NH:
The Q1 reshuffling of HSI will be effective after market close
tomorrow. We foresee massive buying in HSBC (5.HK), as its
weighting will increase by 5.83%pt to 15% from currently 9.2%!
Tracker Fund (2800.HK) alone will have to buy about HK$1.56bn
worth or 35mn shares of HSBC (69.9mn shares traded yesterday),
and we estimate all HSI tracking funds will buy HK$9.33bn worth
HSBC. CCB (939.HK) and BOC (3988.HK) will also see weighting
increase by 2.00%pt and 1.97%pt respectively
tomorrow. We foresee massive buying in HSBC (5.HK), as its
weighting will increase by 5.83%pt to 15% from currently 9.2%!
Tracker Fund (2800.HK) alone will have to buy about HK$1.56bn
worth or 35mn shares of HSBC (69.9mn shares traded yesterday),
and we estimate all HSI tracking funds will buy HK$9.33bn worth
HSBC. CCB (939.HK) and BOC (3988.HK) will also see weighting
increase by 2.00%pt and 1.97%pt respectively
NH:
there is also talk of a few hedge funds who are underwriting the cash call, hedging thensekves
NH:
now, as far as I know there is no clause in the sub-underwriting agreement that prevents hedging of positions
NH:
unlike the recent cash calls from Xstrata and Cooksoon
NH:
equally it could be that no one is interested in the banks
PM:
interesting
11:39AM
PM:
Just to pick up a point by Dinker below.
PM:
Im not anti spread better – most cost effective way to deal in equities, so long as you know what you are doing.
PM:
Winnings are tax free
PM:
And so are the losses.
PM:
My issue is over low margin FX punting.
PM:
People on 200x leverage.
PM:
They put up a few grand – get a $1m dealing line and bet away.
PM:
But they are betting against house
PM:
And the house has deeper pockets
NH:
and then getting stopped out before the can react
PM:
The punters get varied out by volatility — even if they are right directionally
NH:
and what makes it worst, is that the House thinks this is funny
NH:
openly acknowledge the fact that they are fleecing their customers
11:42AM
NH:
anyway, more on the banks
NH:
thoughts on Barclays??
PM:
No — not joined up thoughts
PM:
Was thinking this lLloyds deal was terrible news for them
NH:
in what way?
PM:
Put them at a huge competitive disadvantage — meaning pressure to participate in the GAP thingy
NH:
but they can’t afford to use the scheme, can they?
PM:
Well they could if they sold BGI…
PM:
NH:
of course, what a good idea
PM:
But I have an update
PM:
Think this is all very changeable — in fact it is changing by the day
PM:
But as i understand it, Barc are NOT in talks with the government over the GAPS
PM:
Its run away
PM:
Terms are too stringent – even if you do get to stay as a hyrbid public/private entitty
NH:
DLC Expert, we can think of a few people who might be BGI, esp if barc is prepared to lend them some of the cash to buy the division
PM:
Also, we cant jsut jump to the conclusion that Barclays loan book is anything like as comic as that of HBOS
PM:
But for the moment at least, i think Barc will continue to avoid any gov support
PM:
If they GAPS had been cheaper we suspect they would have considered selling BGI
PM:
Talks were certainly underway
PM:
This is one to watch, clearly
PM:
Unless you are bored of banks
NH:
just going back to HSBC for a moment. Some short interest data for those of you who are interested
NH:
2.88 percent of HSBC’s shares are short. This is an increase of 2.4 percentover the previous week.5.48 days are required to cover this short position.
NH:
that’s the London line of course
PM:
hmm
11:47AM
PM:
OK, moving on from the banks
PM:
but keeping things Financial
PM:
we should have a look at the Resolution share price
NH:
good idea
NH:
shares, which were listed at 100p just before Xmas
NH:
are currently down 12.5p at 95.25p
NH:
a fall of 11.6%
NH:
and that of course follows the following
NH:
FSA launches probe into Resolution’s Cowdery
NH:
Resolution, the company formed last October to acquire financial services businesses, said on Monday that Clive Cowdery, the chairman of its predecessor company, and the executive directors at the time, were being investigated by the Financial Services Authority.
Neither Resolution nor the FSA would comment on the nature of the investigation. Resolution said it hoped the investigation could be completed quickly. Until it is, it will not make any acquisitions.
NH:
Resolution, the company formed last October to acquire financial services businesses, said on Monday that Clive Cowdery, the chairman of its predecessor company, and the executive directors at the time, were being investigated by the Financial Services Authority.
Neither Resolution nor the FSA would comment on the nature of the investigation. Resolution said it hoped the investigation could be completed quickly. Until it is, it will not make any acquisitions.
NH:
now, we should quickly say
NH:
that we have no idea what the investigation related to
NH:
or what “certain actions” the FSA is looking at
NH:
all we do know is that the investigation is at an early stage
NH:
and the six month period referred to
NH:
was a busy one for Resolution
NH:
a very busy one
NH:
announced a merger with Friends Provident
NH:
that was £5bn
NH:
then Hugh Osmond’s Pearl launched a bid
NH:
only to see it knocked back
NH:
and then Standard Life came in with an offer for Resolution
NH:
in the end Osmond won the day, but only after making an increased offer
NH:
and one can’t help wondering how John Tiner fits into all this
NH:
he is the former FSA CEO
NH:
and now the CEO of the new Resolution
NH:
anyway
NH:
Resolution were being very tight lipped this morning
NH:
but one point worth making
NH:
is a comment they make in their statement
NH:
they are expecting a swift conclusion to the investigation
NH:
Now, one has to presume the FSA has seen the statement
NH:
and approved the wording
NH:
so perhaps things aren’t as bad as they seem
NH:
and this is all about disclosure
NH:
as for the FSa all they will say is this
NH:
We note the announcement by the firm which was necessary in order for it to fulfil its obligations under the listings rules. As is our usual policy we will not be commenting on an ongoing investigation”
NH:
and here’s quick note from Cazenove
NH:
on the implications of the investigation
NH:
Resolution – FSA investigation will affect expectations of M&A execution – downgrading to IN LINE [RSL.L, RSL LN 108p] sector – Neutral
Resolution has announced that the chairman and executive directors (including Clive Cowdery & Mike Biggs) of the old Resolution plc are under investigation for unspecified allegations relating to the period October 2007 – May 2008.
Resolution has announced that the chairman and executive directors (including Clive Cowdery & Mike Biggs) of the old Resolution plc are under investigation for unspecified allegations relating to the period October 2007 – May 2008.
The individuals concerned include most of the principals of Resolution Ltd except John Tiner, who, rather ironically, until recently headed up the FSA. The dates concerned coincide with the period between acceptance and completion of the offer from Pearl.
NH:
We are reluctant to speculate as to the nature of the allegations, but even an investigation means Resolution is in no position to complete an acquisition, in our view:
Shareholders are unlikely to support a fund raising until the matter is resolved
The FSA is unlikely to approve a transaction until the directors have been cleared
The boards of target companies would probably be unwilling to recommend a transaction until the status of Resolution directors has been clarified.
NH:
Resolution Ltd is emphasising that it expects a “swift conclusion” to the investigation.
Resolution Ltd is a cash pile with an M&A strategy. This development means that the M&A strategy cannot be executed until the situation is resolved favourably. The M&A strategy had meant that the stock was trading at premium to its 98p cash NAV.
If the M&A strategy were permanently impaired the stock might trade at a discount to this until the money were returned. The group’s exotic governance structure is not helpful as it might affect perceptions of the difficulty of getting cash back in a worst case.
Resolution Ltd is a cash pile with an M&A strategy. This development means that the M&A strategy cannot be executed until the situation is resolved favourably. The M&A strategy had meant that the stock was trading at premium to its 98p cash NAV.
If the M&A strategy were permanently impaired the stock might trade at a discount to this until the money were returned. The group’s exotic governance structure is not helpful as it might affect perceptions of the difficulty of getting cash back in a worst case.
Although some investors may view a cash pile with no solvency issues as preferable to mainstream life companies, the investment case has at least temporarily been removed and we therefore downgrade the stock from OUTPERFORM to IN LINE.
PM:
Very interesting.
PM:
I also think it is interesting that the company felt it had to announce the fact that it was being investigated — and that the FSA now thinks this is inline with its listing obligations
PM:
Long been the case in the US the companeis under SEC investigation had to disclose the fact
PM:
But not so over here
PM:
In fact the opposite
PM:
When the DTI and or FSA used to investigate, all people involved told to keep their months shut
PM:
There seems to have been a policy change
PM:
Which is good, from our journalistic view
11:54AM
PM:
LIBOR — you said we should check it out today
PM:
Given events
PM:
3m Dollar – 1.31 v 1.29
3m sterling 1.93 v 1.1.95
3m euro – 1.708 v 1.73
PM:
So nothing too dramatic there.
PM:
But we haven’t got overnight rates
PM:
Reuters stopped putting them out for some reason
PM:
Maybe the BBA complained, cos they charage for them or something.
11:55AM
PM:
Anything to finish off on Neil
NH:
one thing, I got from Citigroup earlier this morning
NH:
I can’t put up the graphic unfortunately
NH:
well, I could later on the site
NH:
but I can paste this
NH:
Equity markets have sold off around the world. European equities are down
20% in the past few weeks and 60% since 2007 highs.
Figure 1 shows that Europe’s historic P/E has once again come close to moving
below its dividend yield. This would be the ultimate crossover and happened
before at the trough of the early 1970s bear market. At times like this, the
proverbial babies tend to get thrown out with the bathwater.
20% in the past few weeks and 60% since 2007 highs.
Figure 1 shows that Europe’s historic P/E has once again come close to moving
below its dividend yield. This would be the ultimate crossover and happened
before at the trough of the early 1970s bear market. At times like this, the
proverbial babies tend to get thrown out with the bathwater.
NH:
an interesting stat
NH:
but is it a buying signal?????
PM:
Im not saying
NH:
if anyone has some thoughts
NH:
pls write in
11:57AM
PM:
SVG capital came up below
PM:
We were just glancing at that
PM:
Price down 7.75p to 67
PM:
Had figs last week, that give a little glimpse into Permira land
PM:
I think the important thing to look at is the level of portfolio writedowns
NH:
yep, some of these values are still not realistic.
NH:
they have further to come down
PM:
I think you are right
12:00PM
PM:
Are we done?
NH:
they are round at Teathers
NH:
been told to clear their desks by lunchtime
PM:
Ah yes, the last craggy bit of Icelandic finance has gone under
NH:
it has
NH:
and Teathers – the UK broking offshoot – has closed
NH:
not making any more prices
NH:
and…
NH:
staff have been told to get out of the building by lunchtime
NH:
and it looks as they did not see it coming
PM:
This is from Financial News
PM:
Oh actually — they stop you copying and pasting
PM:
Hang on a mo
PM:
Nick Stagg, chief executive of Teathers commented, “We are delighted to welcome
Alan and James to Teathers. Their arrival marks Teathers re-entry into the
investment funds market and is the latest illustration of our momentum in
building the business.”
Alan and James to Teathers. Their arrival marks Teathers re-entry into the
investment funds market and is the latest illustration of our momentum in
building the business.”
PM:
phew
NH:
Zoomy – yellow card for that awful gag. one more and you are off.
PM:
NH:
and banned for three sessions
12:05PM
PM:
Leave Zoomy alone
PM:
We must be done now
NH:
we are, must just update some prices
NH:
have you seen L&G??
PM:
Er, not for half an hour
NH:
22.7p now
NH:
out of dead cat lives
PM:
dear me
NH:
and one more piece of strategy
NH:
from Citi again
NH:
they are trying to talk this market up
NH:
at least for a dead cat
NH:
Tobias M Levkovich
NH:
reckons 99% of NYSE stocks are at or below their 200-day
moving averages.
moving averages.
NH:
which seems amazing
NH:
Markets continue to be pressured, but there are interesting tidbits to consider.
Confidence in future earnings growth is near non-existent based on our analysis
and is closing in to near the lows seen over the past 40 years. In this sense, credit
conditions and disappointment with policies thus far are trumping the various fiscal
and monetary stimuli. Indeed, 99% of NYSE stocks are at or below their 200-day
moving averages.
Confidence in future earnings growth is near non-existent based on our analysis
and is closing in to near the lows seen over the past 40 years. In this sense, credit
conditions and disappointment with policies thus far are trumping the various fiscal
and monetary stimuli. Indeed, 99% of NYSE stocks are at or below their 200-day
moving averages.
NH:
We are lifting the Energy sector to overweight from market weight. After having
been negative on this sector for most of 2008 and market weight for the past few
months, the group looks washed out on earnings expectations and valuation is
attractive using our analysis. Moreover, Energy typically outperforms from February
through September. Not all signals are positive, but evidence suggests that this
higher beta group can perform well during a market rally and is no longer likely to
disappoint investors significantly. As a result, we are adding Marathon Oil and EOG
Resources to Citi’s Recommended List.
We are taking Pharma & Biotech to underweight from market weight. The group
has proven to be defensive and thus has protected investors to some degree in the
current equity price freefall. Yet, unattractive valuation, a worsening political
environment for the industry and most favored status by sell-side analysts all
indicate that a shift in weighting is appropriate. While trading seasonality is
supportive, there appear to be more problems brewing that could hurt investors.
Accordingly, we are removing Merck from the Citi Recommended List.
been negative on this sector for most of 2008 and market weight for the past few
months, the group looks washed out on earnings expectations and valuation is
attractive using our analysis. Moreover, Energy typically outperforms from February
through September. Not all signals are positive, but evidence suggests that this
higher beta group can perform well during a market rally and is no longer likely to
disappoint investors significantly. As a result, we are adding Marathon Oil and EOG
Resources to Citi’s Recommended List.
We are taking Pharma & Biotech to underweight from market weight. The group
has proven to be defensive and thus has protected investors to some degree in the
current equity price freefall. Yet, unattractive valuation, a worsening political
environment for the industry and most favored status by sell-side analysts all
indicate that a shift in weighting is appropriate. While trading seasonality is
supportive, there appear to be more problems brewing that could hurt investors.
Accordingly, we are removing Merck from the Citi Recommended List.
PM:
right — im off
NH:
me too
PM:
thank you for joining
PM:
thanks for the comments
PM:
Back tomorrow at 11am
NH:
see ya