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Markets live transcript 27 Nov 2009

Posted by Bryce Elder on Nov 27 11:01.

Markets live chat transcript for the chat ending at 12:15 on 27 Nov 2009. Participants in this chat were: Bryce Elder (BE) Miles Johnson, FT (MJ) Neil Hume, FT (NH)

BE:

Welcome to Emirates Live
BE:

The FT’s daily ramble around all things Persian
BE:

Neil’s been given the day off for good behaviour
BE:

So it’s me and Miles for Dubaiwatch, day three
MJ:

Morning all
MJ:

So, how many Alphaville posts were there on Dubai yesterday?
BE:

About a dozen I think
BE:

More if you include LSE, which was tangentially involved
BE:

Which some may argue was overkill.
MJ:

So
MJ:

are we giving the readers a break from all things UAE today?
MJ:

Dubai-free zone?
BE:

That’d probably be sensible, yeah.
BE:

So let’s take a look at what else is happening this morning ……………
BE:

.
BE:

..
BE:

…
BE:

Er ……..
MJ:

So, back to Dubai then
BE:

I guess so.
11:05AM
MJ:

Well, we could look at what is going on in the foreign exchange markets
MJ:

Some pretty sharp moves
BE:

Hang on – first we should note the most important development of the morning
MJ:

Whats that?
BE:

Zoomy Boy’s back
MJ:

Ah yes, we thought he had strayed
BE:

Last seen disappearing into the Farringdon night wearing a tablecloth as a turban, if I remember correctly.
BE:

Anyway, good to see you here ZB.
BE:

So, back to forex Miles?
MJ:

Well, some peoplethis morning are playing down the Dubai stuff
MJ:

and are of the opinion that foreign exchange and carry bubbles is the real catalyst for what we saw yesterday
BE:

Well, yeah.
BE:

You only need to look at what is going on in the forex markets to see that.
BE:

Although it’s not like markets exist in isolation, is it?
MJ:

Indeed
MJ:

Dubai is more of a trigger event in this view
MJ:

the yen hit a fresh 14 year high against the dollar, went through Y85.
MJ:

The dollar meanwhile is powering ahead against most other currencies
MJ:

We are also hearing rumours from Japan
MJ:

that the government is considering intervening
BE:

Forex RAW eh?
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.
BE:

Yikes.
MJ:

Indeed
MJ:

From my experience the lowest grade of RAW
MJ:

Not suitable for human consumption
MJ:

but there is a bit more to this it seems
MJ:

Gwen was looking at it earlier in a post
MJ:

Bank of Japan was apparently checking rates with the Japanese banks during Asian trading
MJ:

which is what probably started the rumour
BE:

The yen at that level is obviously very bad news for the economy.
BE:

Which means it becomes plausible.
MJ:

(TB: Bryce has taken on zapping duty – he is more laissez faire than Neil though)
BE:

Any sensible comment on this theme?
MJ:

There is some. Here is a bit from BarCap
MJ:

JPY: Rising probability of intervention

As we highlighted in the piece Five reasons not to intervene, 23 October 2009, there were plausible explanations behind the acceptance of JPY strength. However, in the month that has passed, two out of the five reasons we outlined then have been diluted. First, the clear underperformance of the Nikkei compared with other countries has become worrying for investors and politicians. And second, the declaration of deflation by the Japanese Government last week has implications for FX policy. Japanese authorities have finally abandoned their benign neglect stance on strong JPY. Finance Minister Fujii commented that Japan will take appropriate action when the yen moves abnormally, and even the Prime Minister Hatoyama said the rapid currency moves were not desirable and it was natural for the Finance Minister to consider steps on currencies. The rarity of an FX comment by the Prime Minister is a strong indication that Japan is finally taking the currency issue seriously.

BE:

Thanks for that. Useful.
11:12AM
MJ:

We should also take a glance at the CDS market
MJ:

Which has come back into focus in recent days
BE:

Good idea.
BE:

Dubai CDS up 134 bips to 675 this morning
BE:

Trading 12% upfront.
MJ:

Thing is, compared to late Jan, that is still pretty low
MJ:

Was over 1000bps then
MJ:

So I suppose this is more credit markets being peeved at the way Dubai went about things, rather than people seriously expecting a default
BE:

Yeah – that seems a reasonable interepretation
BE:

Hang on
BE:

There’s a note from HSBC arguing things have gone too far
MJ:

Would be good to see some of that
BE:

No problem
BE:

It is HSBC’s view that the cheapening of the Dubai Sovereign is already starting to look excessive, along with others in the region. Selling protection in 5yr Dubai CDS at over 500bp is likely to be a profitable trade for those prepared to look through the near-term volatility and hold the position into next year. The uncertainty over the outlook for Dubai World and Nakheel is likely to prevail, while ultimately the Sovereign credit has a stronger fundamental backdrop.
BE:

Those investors seeking opportunities to position for a widening of Emerging Market spreads should look at other opportunities than Dubai. Through this year there has been a highly correlated increase in general risk-taking but markets should start to be more discriminating, focusing on the divergent fundamentals.
BE:

For local currency bond investors, preferences and flows through 2009 suggest the following markets have become more crowded: Russian Banks and Corporates, together with high yielding local currency markets such as Brazil, Indonesia, Hungary and Poland. Given current valuations, together with its rating, the richest of the Sovereign markets appears to be Turkey. The 5yr CDS is approximately 150bp below where it should be given its rating2 , according to HSBC.
BE:

There is a possibility that the restructuring of Dubai World could prove to be a catalyst for a further unwind of flows into more risky asset classes. The portfolio for HSBC’s Fixed Income Asset Allocation1 is already set with a bullish stance for US Treasuries but the developments in Dubai and elsewhere increase the conviction that US 10yr T.Note yields will fall below 3.0% by year end. Core Eurozone bonds such as Bunds and OATs, along with UK gilts, should also benefit from this flight-to-quality.
BE:

We will, of course, keep the flow of Dubai comment active today in the Long Room
BE:

Already plenty of good stuff in there
MJ:

Taxloss put up a video there which said it all really
MJ:

The story behind the Palm tree island
MJ:

MJ:

Makes one reflect on how bubblicious Dubai really is
11:19AM
BE:

Ok – before we go any further
BE:

What’s happening in the wider view, Miles?
MJ:

Well FTSE 100 is down
MJ:

Off 24 points at 5172
MJ:

Not as bad as people were expecting, I think its fair to say
BE:

That’s after Asia crapped out overnight
MJ:

Indeed. Which brings us on to the banks
BE:

Sure
MJ:

General broker view here is that things got a bit out of hand
MJ:

and that this presents a buying opportunity
BE:

Hm.
MJ:

(CMSD2 – we do indeed have a style guide)
MJ:

(Bryce is busy zapping himself)
BE:

(Yes: apologies for any offence or discomfort caused by my earlier use of the word crap. Those unsettled by the word crap should accept my sincerest apologies.)
BE:

So can we do some prices on the banks?
MJ:

Coming right up
Barclays PLC (BARC:LSE): Last: 295.40, up 4.3 (+1.48%), High: 298.45, Low: 275.00, Volume: 73.53m
Lloyds Banking Group (LLOY:LSE): Last: 56.65, down 32.18 (-36.23%), High: 61.52, Low: 54.62, Volume: 210.02m
HSBC Hldgs (HSBA:LSE): Last: 695.50, down 10.1 (-1.43%), High: 705.20, Low: 675.70, Volume: 27.81m
Royal Bank of Scotland Group (RBS:LSE): Last: 33.34, up 0.34 (+1.03%), High: 35.43, Low: 29.62, Volume: 161.01m
BE:

There’s been a lot of analyst comment this morning, most of it saying that direct exposure to Dubai and the region is rather small.
MJ:

Here is Jason Napier at Deutsche Bank saying exactly that
MJ:

*Exposure to the UAE is manageable

While counterparty-specific data is patchy, the table below shows the
UK banks have manageable exposure to the seven emirates, though with
StanChart and HSBC substantially more exposed. We expect hard data on
borrower exposure will remain scarce, given banks’ reticence to
comment on counterparties, it is right to say that the exposure to
Dubai is only a portion of the UAE amount, and the exposure to
corporate, and the affected borrowers, are a further subset of the
book. Barclays has technical exposure to the region by virtue of the
c.15-18% of fully diluted shares owned by Qatar Holdings, Challenger
and Sheik Mansour – though both parties have sold parts of their
stakes in recent times, this is a flow rather than economic
vulnerability, in our view.

MJ:

Pulls out Barclays as his top pick, UK bank-wise.
MJ:

And
MJ:

JP Morgan’s Kian Abouhossein has also done a “calm down, calm down” piece
MJ:

We are less concerned for global banks about Dubai World’s direct $59bn outstanding debt exposure with $4.3bn due to mature in Dec-09 and a further $4.9bn in 1Q10, considering “only” $13bn of syndicated loans across global banking sector based on Dealogic data. Assuming a 10% “hold” strategy, the most exposed banks would be RBS with $0.23bn, DB and CS with $0.17bn each.
• We are also not concerned about Abu Dhabi, considering c.$150bn FX reserves and c.$300bn sovereign wealth fund. However, we are more concerned about the spillover effect within the UAE with CDS spreads in Abu Dhabi increasing from 99bp on 24 Nov to 136bp COB 26 Nov. We are clearly unwilling to take a haircut approach at this point for UAE exposure considering it is difficult to access the risk. In addition it remains unclear if the Dubai government will support the liabilities of the GREs and how Dubai related corporate and neighbors will weather the storm.
MJ:

Hold up
11:26AM
MJ:

Just seen this on the wires
MJ:

GREECE IS NOT CURRENTLY FACING ANY BORROWING DIFFICULTY – FINMIN

GREECE IS NOT PLANNING TO BORROW MORE IN 2009 – FINMIN

MJ:

Thank god for that then
MJ:

Anyway, banks
BE:

(HB – your lloyds price is not rights adjusted)
BE:

While we’re cutting and pasting
BE:

There’s a piece from Daniel Tabbush at CLSA, the Hong Kong brokerage
BE:

Who was the first guy to call the HSBC on the rights issue, I think
BE:

The potential default by Dubai World has negative implications for Stanchart and HSBC, but certainly others. Figures in the press suggest $50bn of liabilities for Dubai World, which may seek restructuring on its loans. There is far greater concern should the Government of Dubai which owns Dubai World not support the company, or Abu Dhabi for that matter – the richest state in the UAE. We estimate STAN exposure in Dubai equivalent to 60% of group shareholders’ funds and 27% for HSBC. We downgrade STAN from BUY to U-PF, where we see 10% off market capitalisation ($5bn from here) as reasonable to contain MESA credit risks. It lost $3bn in market capitalisation yesterday, on this news.
BE:

STANCHART
Dubai exposure for Stan is included in its MESA region, and is about 70% of it
This suggests $14bn of loans and $21bn of other assets (bonds, derivatives, etc)
Stan has $1.4bn in CRE and construction loans in all of MESA, though
Most of its loans are commerce, credit cards, financing, manufacturing
BE:

HSBC
HSBC’s has $32bn of loans in UAE with $16bn of other assets
This is 3% of group loans vs 6% for Stanchart
HSBC’s CRE & other property-related loans are $2.9bn or 12% of Mid East exposure
For STAN this figure is 7% ($1.4bn/$20bn) so far less
BE:

Bank comment pending
We expect updates from both banks immediately, more important for STAN
This is due to its overall exposure in MESA compared with its global equity base
Capital raisings can not be ruled out by either bank due to this, but especially STAN
However, we have no granularity on collateral, marks taken, exact corp exposures
With credit default spreads widening considerably, impairments will rise for 4Q09
BE:

Valuations
HSBC remains UPF at 1.7x PB and 15x PE and no change, it will weaken
STAN is at 13x PE and at 1.9x PB, it will too weaken, expect 10% downside
A write off of 20% of all MESA exposure, that is a year’s of profit for STAN
With CRE and construction at 7%, we believe this to be too extreme
We are compelled to downgrade STAN to U-PF, where we see $5bn off mkt cap
11:30AM
MJ:

Ok ok, everyone, things are going to be fine
MJ:

The man who saved the world has just spoken
MJ:

RTRS – UK’S BROWN SAYS DUBAI STANDSTILL A SETBACK FOR GLOBAL ECONOMY BUT NOT ON SCALE OF PREVIOUS PROBLEMS
BE:

Miles …………
BE:

You know that kind of thing triggers a bit of heat among the ROTR
MJ:

I just wanted to help reassure them that there was nothing to worry about
BE:

And I just want to remind everyone this is not Question Time.
MJ:

Indeed
11:32AM
BE:

We should mention Lloyds
BE:

Not least because of the apparent confusion re. its price this morning
MJ:

Yeah, have we got a real price yet?
MJ:

Erm, I take that as a no then
BE:

Hang on – I was just confirming FT data had adusted for the rights issue dilution
MJ:

more breaking news
MJ:

this time not from Brown
MJ:

but from the big showdown at national Express
MJ:

*NATIONAL EXPRESS CHAIRMAN DEVANEY SPOKE AT INVESTOR MEETING*NATIONAL EXPRESS CHAIRMAN SAYS 90% OF VOTES SUPPORT SHARE SALE
MJ:

Shares are down 3.7p at 334.7p
BE:

90%?
BE:

Indicating Cosmen voted FOR the rights issue?
MJ:

Not sure
BE:

Or is he only counting votes from the floor?
MJ:

Maybe he just capitulated at the very end
BE:

This raises far more questions than it answers
MJ:

Need some more info on that
BE:

Hm.
BE:

Right, back to Lloyds
BE:

(Fair point Lemmy – Cosmen could have abstained.)
BE:

(And the previous buying was simply to save getting diluted off the board.)
BE:

(Perhaps.)
BE:

Anyway ………………………………
BE:

LLOYDS
BE:

I’ll try an autoquote, without much confidence that it’ll be accurate.
Lloyds Banking Group (LLOY:LSE): Last: 57.53, down 31.3 (-35.24%), High: 61.52, Low: 54.62, Volume: 225.80m
BE:

Nope. It ain’t.
BE:

Price actually down 2.7% or thereabouts accounting for the rights issue.
BE:

Which is a bit weaker than people were expecting it to open
BE:

TERP’s 59.1p
BE:

1.34 new shares at 37p per share
BE:

With the offer closing at 11am on 11 December 2009
BE:

And the rump – which is likely to be quite hefty – getting placed on the week of December 14
MJ:

thanks for that
11:42AM
MJ:

We could move onto Dragon Oil
BE:

Hang on
BE:

There’s bigger news in the smallcap oil world
MJ:

This doesn’t by any chance have anything to do with Neil’s favourite oil company?
Gulf Keystone Petroleum (GKP:LSE): Last: 103.00, up 9 (+9.57%), High: 105.00, Low: 87.00, Volume: 3.48m
BE:

Doing nicely, it seems.
MJ:

why so?
BE:

Er … the cynic in me would say “bounce”
BE:

But, as the GKP Liberation Front notes to the right, Todd Kozel has gone meeja
BE:

BE:

And doesn’t he look cheery?
MJ:

Must take the time to watch that
MJ:

Why all the grins?
MJ:

I cant see any news
MJ:

Any RAW?
MJ:

anything?
BE:

Nope.
BE:

Just the executive chairman appearing on CNN International and looking cheery.
BE:

Therefore
Gulf Keystone Petroleum (GKP:LSE): Last: 104.00, up 10 (+10.64%), High: 106.00, Low: 87.00, Volume: 3.58m
MJ:

So it goes
BE:

Right – we were talking about Dragon
MJ:

ah yes
MJ:

you were looking at that earlier right?
MJ:

Whats the latest?
BE:

Shares small up last I checked
Dragon Oil (DGO:LSE): Last: 406.50, up 6.5 (+1.63%), High: 407.00, Low: 395.25, Volume: 1.02m
BE:

And that follows a rather frantic day for the arb houses
BE:

trying to determine whether Dubai World’s standstill blows up ENOC’s takeover financing
MJ:

ENOC being the Dubai state refiner
BE:

Yup. And Dragon’s 52% per cent shareholder
BE:

Anyway, the general feeling seems to be “no”
BE:

Standard Chartered, which is stumping up the majority of the debt financing, apparently sees no link whatsoever between ENOC and Nakeel beyond their shared parent.
BE:

So no trigger event that would allow them to walk.
BE:

Hang on – there’s a good Mergermarket story giving an outline of how the financing works
BE:

Standard Chartered has committed around USD 1.1bn of the 1.425bn USD debt facilities with Emirates National Bank of Dubai (ENBD) handling the balance, said the second source familiar with the situation. The source close to Standard Chartered said the bank could step in and provide the additional USD 325m in acquisition financing if ENBD were forced out to step down for any reason.
BE:

(Buy a subscription for the rest)
MJ:

When’s the vote on this?
BE:

December 11
MJ:

And will it go though?
BE:

Dunno. Arbies reckon the balance of probability is in favour of a yes.
BE:

This bunch disagree: http://www.savedragon.com/
BE:

Actually, one of the rebels turns up in the Hootsmon today
MJ:

(Which Bryce is allowed to call it because he is Scottish)
BE:

Richard Sneller, Baillie Gifford’s head of emerging markets equities
BE:

Saying they wouldn’t normally do this kind of thing, but have been driven to disorder
BE:

BE:

“You’d be correct to read that it reflects the strength of feeling in this case, rather than any great strategic policy change at Baillie Gifford.”
BE:

“People who are looking to hold on to this share with a long-term time horizon are unanimous. I’ve yet to meet anyone with a long-term horizon who doesn’t essentially say they agree and will vote against.”
BE:

Restrained outrage. All very Morningside.
BE:

The article also makes the point that JP Morgan holds about 3% of Dragon, so might be crucial in hitting the 75% scheme limit.
BE:

but it is not commenting.
MJ:

Could they still switch to a tender offer?
BE:

In theory, but it’s looking increasingly unlikely
MJ:

And if the bid does fail?
BE:

Well, I guess Dubai could dump the Dragon stake into the market to raise funds
BE:

But a firesale seems a bit of a stupid tactic when you could just auction it off to another bidder.
11:53AM
MJ:

Some more news on Nakheel
BE:

Oh joy.
MJ:

Bond is trading now at 39-44
BE:

Yuk.
MJ:

And
MJ:

Somthing called Abu Dhabi-Gulf news is reporting that Dubai will get another $5bn from Abu Dhabi
BE:

Do we know much about Abu Dhabi-Gulf News?
MJ:

Er.. no
MJ:

But here is story, for those who have not seen
MJ:

Abu Dhabi: The Dubai Government successfully raised a further $5 billion from two Abu Dhabi banks on Wednesday as part of its $20 billion long-term bond programme launched at the beginning of 2009.

Mohammad J. Berro, Chief Executive of Al Hilal Bank, said $500 million was released to the Dubai government by Al Hilal Bank on Wednesday. “The remainder will follow,” he added.

The $5 billion tranche was fully subscribed equally by National Bank of Abu Dhabi and Al Hilal Bank.

“We have subscribed to sukuk worth $2.5 billion because Dubai has come strongly out of the financial crisis,” Berro told Gulf News. “The tenure is five years and the coupon rate is four per cent, which is a good return,” Berro added.

BE:

While we’re back in the Dubai mire ……….
BE:

Mark Mobius’s latest commensts look interesting
BE:

Mobius has for many years been a cheerleader for all things emerging
BE:

But here’s what he’s saying today
BE:

Nov. 27 (Bloomberg) — Dubai’s attempt to reschedule debt may spur a “correction” in emerging markets, according to Mark Mobius, while the global slump in equities shows government spending alone won’t protect financial markets, Arnab Das of Roubini Global Economics said.

Mobius, who oversees about $25 billion of developing-nation assets as chairman of Templeton Asset Management Ltd., said a 20 percent drop for shares is “quite possible.” Stock volatility and risk aversion may jump as countries and companies default on loans, according to Das, the head of market research and strategy at RGE, the advisory firm founded by Nouriel Roubini.

MJ:

That is very bearish from him
BE:

Not ‘arf.
MJ:

20 per cent drop
MJ:

wowzers
BE:

“This may be the trigger to allow for the market to take a rest and pull back,” Mobius said in a Bloomberg Television interview by phone from Hanoi. “I felt that there would be a significant correction in what is an ongoing bull market,” he said. “If Dubai has to default, that could start a wave of defaults in other areas.”
11:59AM
BE:

Ok
BE:

Some talk to the right linking Heritage with Gulf Keystone ………..
BE:

Hm.
BE:

Not a story we’ve heard, needless to say.
MJ:

Surely that is almost worthy of a zapping?
BE:

A bit of a coffee-hits-monitor theory, to be honest.
MJ:

Crazy story
BE:

Absolutely barking, in my opinion.
BE:

Buckingham and Kozel. A management dream team.
MJ:

MJ:

Dynamic duo
BE:

Probably best to move on, before we say something we might regret ……..
12:01PM
MJ:

Worth briefly mentioning EU developments
MJ:

France on Friday secured oversight of the European Union’s banking and financial services policy, after a long political dog-fight that sees it take the key internal market portfolio in the next European Commission.

But this balanced by a top job for a British bureaucrat in the department that services this portfolio – a move which will may help to soothe concerns in the City of London.

MJ:

European Commission president José-Manuel Barroso on Friday morning unveiled 25 appointments for the commission’s next five-year term. The new commissioners – one from each member country – will play an influential role in pursuing Europe’s agenda in key areas such as climate change, energy policy, competition, and internal harmonisation of the 27-country bloc.

France’s success in securing the internal market job, and keeping the portfolio intact, will be seen as a political triumph.

MJ:

So France gets the top banking job
MJ:

Right – anything else you want to add before we go Bryce?
BE:

We have the official result from National Express I think
BE:

for: 67.96%
BE:

Agin: 32.04%
BE:

As to stock specific stuff, there’s very little around
BE:

Legal & general rallying a bit on the back of a Nomura note, that’s too dull to post
BE:

Amec getting some attention ahead of a strategy meeting, details of which I’m dragging out now
Amec (AMEC:LSE): Last: 792.00, up 23 (+2.99%), High: 796.00, Low: 759.00, Volume: 777.70k
BE:

Here’s Deutsche
BE:

Tide is turning
We believe Amec’s ‘Vision 2015′ (4th December) should be an opportunity for
management to outline its future strategy based potentially on a renewed financial
framework. In our view, this presentation should focus the market’s attention on
its LT growth potential. Despite taking our EPS down 5% 2009-11E (driven
primarily by our more cautious outlook in P&P near term) we believe the company
continues to offer an impressive EPS outlook (DBe 15% 2009-11E) that is also
sector leading. We therefore re-iterate our Buy recommendation and 850p PT.
BE:

Nothing new on Cairn, and nothing sadly on Dana.
BE:

And with that, we should wind up this somewhat haphasard session.
MJ:

Indeed
MJ:

Thanks for joining us
MJ:

And for the comments
BE:

Yup.
NH:

Hi guys
BE:

Enjoy the weekend.
NH:

Just got back from the dentist
NH:

two fillings
NH:

cost loads
MJ:

ouch
NH:

and very painful
NH:

site looking good
NH:

is the market up on the day now?
MJ:

Not quite
NH:

pity
MJ:

Still down 5 points, but getting there
NH:

and I see Zoomy Boy is back
NH:

and thanks to Praxis
NH:

and my other IT helpers
NH:

as you can see my Mac works again
NH:

and what’s this about a Todd Kozel
NH:

video?
BE:

CNN
MJ:

You should watch – you would love it
NH:

WTF?
BE:

He looks terribly pleased with himself
NH:

they gave him airtime
NH:

did he have a tan
NH:

still
BE:

He definitely had a healthy glow.
NH:

anyway, i should let you guys go and have lunch
NH:

thanks for holding the fort
BE:

By the way, a CNN International booking is not exactly a badge of honour.
NH:

cya later
NH:

TL – will mail u this afternoon re Saturday
MJ:

Bye all
BE:

Cheers for dropping by, Neil.
BE:

And on that note, evening all.
NH:

Frog – if Drogba plays Arsenal lose. simples
BE:

(Football event triggered: session going into automatic shutdown.)
NH:

it was just for you TB.

This entry was posted by Bryce Elder on Friday, November 27th, 2009 at 11:01 and is filed under Uncategorised. Edit this entry.

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