FT Alphaville » Markets Live transcript 12 Sep 2011

Share Print

Markets Live transcript 12 Sep 2011

Posted by Neil Hume on Sep 12 11:04.

Markets Live chat transcript for the chat ending at 11:20 on 12 Sep 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT Izabella Kaminska

Hola

Bonjour

willkommen

hello

it’s 11.03am

or thereabouts

and time for Markets Live

tin hats required today

in fact full body armour required

it’s looking quite ugly out there

Four — count’em, four — blue chip risers at the moment.

Two of which are banks.

FTSE 100 down 103 points at 5,111

but the picture is much much worse

in Europe

have you seen the Dax

Yup – ugly.

down another 147 points at 5,044

it’s been destroyed in the past couple of months

destroyed

Down about a third, right?

yeah

34 per cent since the start of May

FTSE 100 off by around 16%

so it could be worse

I guess why have the miners to thanks for that

Guess so.

So, against many expectations, Greece didn’t default over the weekend.

Though you wouldn’t know it looking at the CDS this morning.

nope

the can

or what’s left of it

has been given another kick

they have promised to implement some new tax or another

I thought the market might see things positively

but I was wrong

right

so this is the latest plan

Over the weekend, following an emergency meeting of the Greek government, Finance Minister Venizelos announced a fiscal plan that includes additional measures to meet the agreed targets in the programme, including reaching a primary surplus next year of over 1% of GDP. The main new measure announced is a one-off real estate tax to be applied in 2011-12 that will be charged through the electricity bill. Other new measures are: 1) cutting one month’s salary for all politicians on the public sector pay-roll; and 2) the submission of the 2012 budget to parliament by early October and approval by end-October (approximately one month ahead of schedule).

Nice touch

through the electricity bill

so the Greeks have to pay

no dodging this

unless they get cut off from the grid

Guess you could string a line to your neighbour’s place. Not ideal though.

quite

anyway

the above was from Barcap

who were quite excited by the plan

EU Economic and Monetary Affairs Commissioner Olli Rehn praised the government’s plan and said he expected the troika to complete the 5th EU-IMF programme review by the end of September. Ekathimerini reports the commissioner as saying “I welcome the expressed commitment by the Greek government to fully meet the agreed fiscal targets this year and next”.

In our view this is positive news. While these measures may not reach the (government) expected primary surplus in 2012, in our view the approval of these measures is likely to satisfy the troika on filling the identified fiscal gap. And as Commissioner Rehn indicated, it is likely that the programme review resumes in mid-September and, conditional on further progress on structural reforms, the troika could complete the review by end September.

urthermore, we see the 5th programme review and the approvals by EU parliaments of EFSF amendments as “pre-conditions” for launching the final-official dates for debt exchange proposal (PSI).

According to different reports (Bloomberg, Reuters, and local media), indicative (nonbinding) participation in the PSI by last Friday was about 70-75%, lower than the 90% target. That said, our strategists believe some institutions may not yet have had sufficient time to ascertain their position and, hence, may yet be persuaded to participate, in order to get participation closer to the target. The government has not released any information on the level of participation in the exchange after the 9 September deadline (for nonbinding indication of interest). And we do not expect any official announcement stating the level of participation thus far, as it is in the interest of the authorities to keep the incentives at play to minimise holdouts

but as we know

the market didn’t think much of it

and as a result it’s tin hat time

I guess things like this

haven’t helped

Italian debt auction – EUR 4bn 91 treasury bills at 1.907% yield (up 87bps from March levels, lower bid to cover ratio 1.86x vs 2.42x in March) and EUR 7.5bn one year bill at 4.153% yield (very sharp rise from last auction in August – average yield up 119bps. Lower take up – bid to cover ratio ar 1.53x vs 1.94 in August. Bad cross read for Italian banks (predominately domestically funded).

quite a rise

and there’s a whole bundle of flashes coming out of Germany

that we should look at

RTRS-GERMAN GOVT SPOKESMAN SAYS WE WANT TO STABILISE THE WHOLE EURO ZONE WITH ALL MEMBER STATES
10:58 12Sep11 RTRS-GERMAN GOVT SPOKESMAN SAYS IF GREECE DOES NOT FULFILL TROIKA CRITERIA THAN IT IS AUTOMATIC THAT NEXT TRANCHE CANNOT BE PAID

RTRS-CORRECTED-GERMAN ECON MIN SPOKESMAN SAYS INSTRUMENTS FOR ORDERLY GREEK DEBT INSOLVENCY NOT CURRENTLY AVAILABLE (NOT ‘NOT BEING READIED’)
10:53 12Sep11 RTRS-RPT-GERMAN GOVT SPOKESMAN: GERMANY ASSUMES GREECE DOING ALL IT MUST TO FULFILL OBLIGATIONS
10:53 12Sep11 RTRS-RPT-GERMAN GOVT SPOKESMAN: ONLY TROIKA CAN JUDGE IF GREECE IS DOING ENOUGH
10:53 12Sep11 RTRS-RPT-GERMAN GOVT SPOKESMAN: STRONG AGREEMENT BETWEEN MERKEL AND ECONOMY MINISTER OVER EURO ZONE CRISIS

what about a disorderly default?

what’s in place for that?

What could be in place?

well there’s a story running on Bloomie about this

hang on

will grab

Officials in Merkel’s government are debating how to shore
up German banks in the event that Greece fails to meet the
budget-cutting terms of its aid package and is unable to get a
bailout-loan payment, three coalition officials said Sept. 9.
The move capped a week of escalating German threats that Greece
won’t get the money unless it meets fiscal targets, and as
investors raised bets on a default.

The aim of the contingency plan is to shield German banks
from losses from a possible Greek default, which has a more-than
90 percent chance of happening within five years, prices for
insurance against default show.

The plan involves measures to help banks and insurers that
face a possible 50 percent loss on their Greek bonds if the next
portion of Greece’s bailout is withheld, said the three
officials, who declined to be identified because the
deliberations are being held in private. The successor to the
government’s bank-rescue fund introduced in 2008 might be
enrolled to help recapitalize the banks, one of the people said.

seems to me

as if they are getting ready to cut Greece loose

Right a bit more comment

first up RBS

The fact that Greece did not default this weekend (as had been considered a possibility) is unlikely to provide even a short term fillip to markets that are focused on the broader issue of sovereigns and banks across the euro area.

We believe markets will continue deteriorating until a concerted global response takes place. In this context, market participants will scrutinise any policy makers’ statement to gauge the appetite for such response. Focus will be on the numerous high-level meetings scheduled for the week including on Monday, a meeting between Barroso and Merkel and the Eurogroup and EcoFin meetings in Poland starting on Friday and going into the weekend. A gathering of European policy makers. and private sector representatives will also gather at the Eurofi forum1 starting on Thursday with speakers including among others Weidman, Barnier and pdt Trichet. Euro area finance ministers will meet on Friday at 8:00 BST and will join the other EU ministers and central bankers at 11:30 BST in Wroclaw

and something interesting just landed from Goldman

Go on.

it’s on the Greek default stuff

not sure it says too much

German government ponders Greek default scenario. Economics minister Rösler wrote in an op-ed for Welt newspaper that “all possibilities should be on the table in order to stabilise the euro” and “this includes an orderly default of Greece if the instruments are available”. The finance minister, according to news reports, is at the same time discussing internally several scenarios in the event of a Greek default.

Finance minister Schäuble meanwhile proposed deputy finance minister Asmussen to replace Jürgen Stark in the ECB’s board after the resignation of Stark. Note, that it is the EU Council that approves the nomination of ECB board members. Several politicians in Berlin have interpreted Stark’s resignation as a vindication of their general unease with the different help measures. CDU MP Bosbach, for example, who is an outspoken critic of the expansion of the EFSF, said that this was to show that his skepticism wasn’t unfounded. One of the more extreme reactions came from the head of the Ifo institute Hans-Werner Sinn, who demanded that Germany should “boycott” the ECB as the ECB was taking on immense financial risk and this “should not be tolerated by Germany anymore”.

Ta for that. Also, this is useful from Merrill.

Technical analysis. Anyone seen using this on ML will be banned for life.

(Ah, I see “ta” sets off the “TA” alarm. Will have to adjust my language.)

End-game implications of a default: two types of discussions are dominating
the scene, that of a Greek default (with or without exclusion from the euro zone)
and that of a Euro bond. In our view, a Greek default is more likely than a Euro
bond in the short term, but will not happen unless the IMF/ECB/EU decides to pull
the plug, most likely in a scenario where Greece would be unlikely to satisfy its
fiscal adjustment demand. Excluding Greece from the Euro zone would be a
further step for which we think there is little ground for the moment.

This would
most likely be discussed when a Euro bond discussion takes place. Whether the
IMF/EU/ECB is in a position to unplug support remains an open question, but is
not a taboo question. The real question is the extent to which there would be
contagion towards Euro countries that the Euro zone banking sector can resist.
Our banking equity analysts reckoned under the EBA double dip scenario –which
is a severe stress scenario-, and assuming a 50% loss in Portugal, Ireland and
Greece (but nothing in Spain and Italy), the banks covered in their universe
capital need would amount to about €100bn (to recap to an 8% Basel III core Tier
1 number; BofAML universe represents 50% to 2/3rds of the European universe
looked at by the IMF.

Using data disclosed with the EBA stress test, European
banks hold roughly €650bn of peripheral sovereign debt in their banking and AFS
books, which can be broken down as follows: Greece (€78 bn), Ireland (€14 bn),
Portugal (€30 bn), Spain (€244 bn), Italy (€220 bn) and Belgium (€57 bn)).

Euro bond discussion: this is a discussion really conditional on the appetite for
Euro governments to surrender some national sovereignty in favour of Euro
sovereignty. Although, based on our reading of the press, Germany seems open
to these suggestions in the sense that there is a debate around it, it appears that
France may be less open to these topics, and the debate (popular and
Parliamentary) has been modest. In our view, only further pressure from the
markets would trigger an open discussion of these subjects before the next
couple of years (i.e. past the French and German national elections, due in May
2012 and Sept. 2013 respectively).

Intermediate solution: this has to do with finding a way of increasing the EFSF
action capacity either without endangering the rating of the guaranteeing
countries or ensuring that a possible downgrade would have little impact on the
EFSF capacity of action. This would follow the Gros-Mayer proposal of turning the
EFSF into some kind of credit institutions that could accede the liquidity window
operations of the ECB, or would allow the EFSF to borrow and leverage on its
current capital. In either case, we think the idea would be to find some way for the
EFSF to have a large firepower based on the current euro zone government
commitment structures. We think it is a possibility that the Eurogroup may find an
alternative that sidesteps EFSF’s current legal status and capital structure to give
it new firepower, but we think it is becoming more difficult to satisfy markets with
these kinds of solution, so whether this will be enough to prevent the contagion to
Italy from worsening remains to be seen

thanks for that

now

we must look at the other factor weighing on the markets today

the european banks

11:23AM

A real bloodbath

SocGen down 10%

back at a level last seen in 1992!

BNP Paribas off almost 13%

(@Milky!: Yellow! For! Exclamation!)

Credit Ag off 9%

Deutsche Bank off 9%

ING 8.6%

Unicredit off 7.3%

CARNAGE

(@Mo06. We make the rules here. Yellow)

Are we blaming SocGen for this?

At least a bit?

why not

they blame everyone else for their failings

let’s give some back

So another asset dump announced this morning.

Attempting to rake in 4bn euros by 2013

yes

but it was much more than that

a statement

and presentation

like the one from BNP last week

which attempts to set the record straight

give us some HARD FACTS

unfortunately

these hard facts

were very selective

very selective

and they haven’t answered the key concern the market has

namely short term funding at SocGen

there’s an excellent note

from Andrew Lim at Espirito Santo on this

and Izy

has some thoughts to

lets’s put the note up

and then get out Swiss correspondent

Yup

on the line

One mo

Here’s the backstory

via Lim

Following in BNP’s footsteps, Soc Gen has decided to issue a detailed press release (titled “Accelerating the Transformation”) in response to concerns about its short and long-term funding, and troubled asset exposure to GIIPS and legacy assets, and its solvency. We remain of the opinion that the short-term liquidity profile of the bank is very poor compared to peers and its solvency is relatively weak, in accordance with our recent report on the French and investment banks, attached

note very poor

The main facts that Soc Gen management puts forward in its defence, and our response to them, are as follows:1) Short term liquidity: we have successfully managed the reduction in access to USD funding affecting European banks.

This is where we have the greatest concern for the bank. Management states that it has successfully addressed the reduction in US$ funding acccess through a combination of:a) Acceleration of disposals of USD legacy assets,b) Increased use of secured USD funding (eg. Repos of EUR 6bn CMBS and CLOs with maturity longer than 6 months)c) EUR/USD swapsd) Reduction in short term market positions.This is a costly exercise in our opinion which, as BNP management has already noted, entails more expensive funding being used, resulting In a negative impact on margins.

now here’s the meat of it

Most importantly, management does not state its short-term high quality liquid assets with respect to its short-term wholesale funding (i.e. the liquidity coverage ratio). This is a fairer measure of the robustness of Soc Gen’s liquidity profile and in this respect, Soc Gen fares the worst out of all the French and investment banks (see page 4 of attached note). Soc Gen states that the group’s buffer of unencumbered liquid assets is €105bn – however, this includes lower quality assets (such as risky sovereign bonds which can now only really be repo’d with the ECB, and AAA credit assets like RMBS, which we do not consider high quality and liquid). We think its true high quality liquid asset portfolio is more like €42bn by our calculations

and the conclusion

which SocGen won’t like

but can’t blame on speculators

This model will come under threat if the credit and equity markets lose belief in the robustness of its short-term funding profile, in our view.

Indeed!

good note that

what’s your thinking Izy

aren’t we calling SocGen

the Steptoe & Son

of European banking?

yes quite

the key point here is that socgen is assessing itself based on the requirements of the pawnbroker of last resort

Which is the ECB

right

Which has much crappier standards, than any other pawnbrokers in the world

especially those dishing out $$$

hence the sudden fascination with the currency basis swap market

and the big moves

also if SocGen was serious about giving us an indication of its true health

it would provide us with its short-term coverage ratio

which it has not

hmmm

so far from answered the markets concerns

Jarvis – c’est la rocheuses du nord

they have added to them

But it’s generally their entire model that is the problem

now

this is the interesting stuff

give us the theory

it’s the Steptoe & son model

rag & bone men.

make money on finding stuff cheap or misvalued

and then pawning it?

for cash?

which is fine, providing your pawnshop is always available

basically — the ECB has also encouraged this arbirage by accepting crappy collateral all this time.

We shall see what happens, but it’s seems fairly precarious to me

indeed

thanks for that

Basis swap market has been interesting that’s for sure

as JC just noted

Speaking of EURUSD basis swaps… 3-month swap at -120bps, which is well into Lehman levels

right

we should move on

and cover the UK banks

wow – latest is at 123

which

i just checked

aren’t doing too badly

11:38AM

Lloyds is up

What that means btw — is that anyone who has euros

has to pay a lot of basis points to swap into dollars

Lloyds Banking Group plc (LLOY:LSE): Last: 31.38, up 0.339 (+1.09%), High: 32.20, Low: 29.08, Volume: 82.32m

look at that

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 21.55, up 0.05 (+0.23%), High: 21.82, Low: 19.89, Volume: 60.94m

also up

a miracle

given the wider market backdrop

Not surprising really.

Given Vickers

Which is tough on the industry, very long term.

But kind on shareholders in the short, medium and quite long term.

and very kind on Lloyds

no more branch sales

just some promise

to make sure

it creates a viable challenger bank

hang on

will get the quote

In the light of further evidence, the Commission confirms its view that the prospects for competition in UK retail banking would be much improved by the creation of a strong and effective new challenger by way of the Lloyds divestiture. (The required RBS divestiture has already taken place.)

Since the currently proposed divestiture has important limitations, its substantial enhancement would be desirable. This is not simply a question of the number and quality of divested branches, or of the related share of personal current accounts, which at 4.6% is at the low end of the range associated with effective competitive challenge in the past.

The funding position of the divested entity is also important for competitive prospects. In particular, unless remedied, its large funding gap – i.e. high loan-to-deposit ratio – would blunt the incentive of the divested entity to compete effectively as a credit provider, and might raise its funding cost base, thereby weakening its ability to compete generally. The Commission therefore recommends that the Government seek agreement with Lloyds to ensure that the divestiture leads to the emergence of a strong challenger bank.

So, if I’m reading this correctly, Lloyds can maintain its place in a de facto cartel because no-one can close the funding gap to set up valid competition.

that’s it

I think Pestowire

Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.

put the figure at £30bn

no one can raise that much at the moment

so the status quo

goes on

Lord Levene can buy the branches being put up for sale

or Branson

but they won’t create a worthy challenger

Eric Daniels vindicated

it’s blown up Lloyds

but his got the monopoly in the mortgage market

and personal current accounts

And, to put my Daily Mail hat on for a second …………

The costs of constructing the firewall will be put upon the least competitive side of the split, ie. the retail side.

The “casino” is competitive. There’s no way they’ll take the costs.

So, it comes to the consumers.

I’m not saying this is a bad thing — the industry needs reform — I’m just noting who’ll pay for it.

Ok – Daily Mail hat off now.

actually Barclays comes out of this the worst

Barclays PLC (BARC:LSE): Last: 143.60, down 0.4 (-0.28%), High: 145.00, Low: 135.90, Volume: 41.46m

as far as I can see

the capital requirements are a bit more than we expected

hang on

will grab some comment

Bruce Packard at Seymour Pierce

UK Banks – ICB report
The Final ICB report came out this morning – looks mostly as expected by anyone reading the UK press in the last month.

That is: domestic retail banking services should be inside the ring-fence, global wholesale/investment banking should be outside, and the provision of straightforward banking services to large domestic non-financial companies can be in or out. Unlike full separation the ICB believes that the benefits of diversification retained for shareholders and (group level) creditors, while making sure that tax payers do not foot the bill for future losses.

Higher capital requirements: the Commission recommends that the retail and other activities of large UK banking groups should both have primary loss-absorbing capacity of at least 17%-20% of RWA (this could include co-cos, and bail in bonds, equity capital 10% of RWA). Timetable: the Commission believes that banks should be strongly encouraged to implement any operational changes ASAP. But increased capital may require an extended implementation period. Implementation should however be completed at the latest by the Basel III date of the start of 2019.

Initial reaction – given expectations well flagged, this looks like it might be a little better for Barclays and RBS (Hold and Reduce respectively). Lloyds (Hold) is not required to sell more branches, but the ICB recommends that Lloyds divestment must have enough funding in place to allow a strong challenger bank to emerge. All banks are well below our target prices because banks share price declines have out paced our target price reductions, as investors fretted over the secondary and tertiary effects of Eurozone crisis on UK bank valuations.

and we have something from Ian Gordon at Evo Securities

who reckons the ICB report

could have been much much worse

Today’s ICB report is unwelcome and unhelpful, but it could easily have been a whole lot worse. A (recommended) “delay” in implementation until 2019 should cause materially less transitional damage than might otherwise have been the case.

he ICB report (as leaked) runs to 358 pages. Accepting the fact that the report was only ever going to represent bad news, there is cause for not immaterial relief this morning. Most importantly, the ICB recommends a final mandatory implantation date of 2019. With a nod to political sensitivities, there is a call for an immediate commencement of implementation work, but, if accepted, the additional breathing space will certainly avoid any lingering fears of a requirement for fresh equity issuance, and most importantly, allows banks some planning time to mitigate the likely adverse impact of segmentation on funding costs.

This is particularly true given the apparent scope for the banks themselves to partially determine what falls inside or outside the retail “firewall”. Retail banking and SME business falls inside, so-called “casino” banking falls outside, but (for example) the provision of many services to large corporates may be placed on either side of the firewall.

Lloyds has also escaped any immediate requirement to divest more than the existing European Commission-mandated 630 branch disposal, (although the ICB attempts to leave the door open for fresh interference from the competition authorities later).

Whereas we continue to regard the recommendations of the ICB as likely to permanently increase the risk of instability within the UK financial services sector, with materially adverse consequences for the broader UK economy, some of the worst excesses of the extremist “reform” agenda appear to have been mitigated. We accept that may sound a somewhat peculiar comment when even the ICB still estimates a GBP4-7bn price-tag for implementing its dangerous “firewall” proposals.

The market was priced to expect bad news, and although we continue to expect all three UK domestic banks to generate depressed returns on equity through 2012/13 and to still trade below tangible book value in 12 months time, we do expect at least a (relative) relief rally from here.

a victory of sorts then

for the banking lobby?

is that the way to read this??

As I say, it’s a victory for the status quo.

In the sense that the reforms are eight years away.

Which, in investor terms, is never.

I think that’s the bottom line here. The report’s actually quite sensible, but for anyone holding a bank share today it’s next to irrelevant.

Today’s rally is some fear coming out of the price. That’s all.

(@BBB+ – that’s the trouble. you can read it many ways)

11:50AM

Right

quick market update

FTSE 100 down 121 points at 5,092

and some breaking news

fancy owning shares in S&P?

RTRS-MCGRAW-HILL – TO SEPARATE INTO 2 INDUSTRY-LEADING PUBLIC COMPANIES – MCGRAW-HILL MARKETS, MCGRAW-HILL EDUCATION
11:39 12Sep11 RTRS-MCGRAW-HILL COMPANIES INC SAYS MCGRAW-HILL EDUCATION EXPECTS REVENUES OF APPROXIMATELY $2.4 BILLION IN 2011

A rival to Pearson of course

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

Pearson (PSON:LSE): Last: 1,046, down 29 (-2.70%), High: 1,057, Low: 1,040, Volume: 595.39k

so no gloating

but the business has been under pressure from an activist

and the answer

is to do the spilts

spin off

the education bit

which could be a target for errr US

and leave S&P to go it alone

which may not be such a bad idea

Been on the cards for some time, as you say.

S&P’s the cash cow.

While Education — what with its need to actually commission and publish books and stuff — was diluting returns.

So — it’d end up in the hands of PE probably.

hmmm

Jana Partners

is the activist investor

pressing for change

and as you say

demerging education

has been on the cards

McGraw-Hill is moving towards a spin-off of its education business in September as it continues a wholesale restructuring of the company and tries to reinvigorate its Standard & Poor’s ratings business, according to people familiar with the matter.

The disposal of the education business would mark the most dramatic move yet as McGraw-Hill reacts to shareholder pressure and moves to accelerate growth of the disparate businesses owned by the publishing and financial services conglomerate.

The proposed spin-off also comes as McGraw-Hill responds to criticism of the decision by its Standard & Poor’s unit to downgrade US credit on August 5. On Monday night, S&P’s president, Deven Sharma, announced he would step down, but company officials said the timing was unrelated to the downgrade.

And, before anyone says it, I don’t think Pearson would be able to buy MH Education given the antitrust.

financial markets business then?

Yes, maybe. We could own S&P!

That’d be neat.

Handy for getting the jump on downgrades.

(@not yet Taxloss. But you were disqualified on an technicality.)

11:57AM

Ok – before we move on to the London market …….

Someone was asking for a CDS update.

Anything handy, Neil?

yep

Greece now being quoted in points

not basis points

yep things are that bad

this from Markit

# Markit iTraxx Europe S15 201bp (+13), Markit iTraxx Crossover S15 803bp (+46)
# Markit iTraxx SovX Western Europe S5 352.5bp (+16.5)
# Markit iTraxx Senior Financials S15 314.5bp (+28.5)
# Markit iTraxx Subordinated Financials S15 560p (+45)
# Sovereigns – Greece 56.5 points (+3), Spain 435bp (+22), Portugal 1200bp (+72), Italy 505bp (+38), Ireland 925bp (+52)
# France 191bp (+11), Germany 88bp (+4)

Widespread risk aversion is causing records to be broken across the credit spectrum. Markit iTraxx Europe is over 200bp for the first time since March 2009, Crossover is over 800bp for first time since May 2009, and the Markit iTraxx Senior Financials is over 300bp for the first time on record. The Markit iTraxx SovX Western Europe index is also at a record wide. Italy has gone over 500bp for the first time, and Greece and Portugal are at record wides.

11:59AM

Finally then

to the UK

nd some stocks

Start with Charter?

yep

we have a counter bid

a proper one

From Colfax.

Charter International Plc (CHTR:LSE): Last: 854.50, up 50.5 (+6.28%), High: 880.00, Low: 817.00, Volume: 7.02m

At 910p, including 20% stock.

Which is a surprise.

The stock bit, I mean.

what the stock

yes

[Internet outage. Half an hour late today. The IT guy who unplugs the server to plug in his smoothie maker must've missed his regular train.]

Markets Live chat transcript for the chat ending at 11:20 on 12 Sep 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT Izabella Kaminska

Hola

Bonjour

willkommen

hello

it’s 11.03am

or thereabouts

and time for Markets Live

tin hats required today

in fact full body armour required

it’s looking quite ugly out there

Four — count’em, four — blue chip risers at the moment.

Two of which are banks.

FTSE 100 down 103 points at 5,111

but the picture is much much worse

in Europe

have you seen the Dax

Yup – ugly.

down another 147 points at 5,044

it’s been destroyed in the past couple of months

destroyed

Down about a third, right?

yeah

34 per cent since the start of May

FTSE 100 off by around 16%

so it could be worse

I guess why have the miners to thanks for that

Guess so.

So, against many expectations, Greece didn’t default over the weekend.

Though you wouldn’t know it looking at the CDS this morning.

nope

the can

or what’s left of it

has been given another kick

they have promised to implement some new tax or another

I thought the market might see things positively

but I was wrong

right

so this is the latest plan

Nice touch

through the electricity bill

so the Greeks have to pay

no dodging this

unless they get cut off from the grid

Guess you could string a line to your neighbour’s place. Not ideal though.

quite

anyway

the above was from Barcap

who were quite excited by the plan

urthermore, we see the 5th programme review and the approvals by EU parliaments of EFSF amendments as “pre-conditions” for launching the final-official dates for debt exchange proposal (PSI).

but as we know

the market didn’t think much of it

and as a result it’s tin hat time

I guess things like this

haven’t helped

quite a rise

and there’s a whole bundle of flashes coming out of Germany

that we should look at

what about a disorderly default?

what’s in place for that?

What could be in place?

well there’s a story running on Bloomie about this

hang on

will grab

seems to me

as if they are getting ready to cut Greece loose

Right a bit more comment

first up RBS

and something interesting just landed from Goldman

Go on.

it’s on the Greek default stuff

not sure it says too much

Ta for that. Also, this is useful from Merrill.

Technical analysis. Anyone seen using this on ML will be banned for life.

(Ah, I see “ta” sets off the “TA” alarm. Will have to adjust my language.)

thanks for that

now

we must look at the other factor weighing on the markets today

the european banks

11:23AM

A real bloodbath

SocGen down 10%

back at a level last seen in 1992!

BNP Paribas off almost 13%

(@Milky!: Yellow! For! Exclamation!)

Credit Ag off 9%

Deutsche Bank off 9%

ING 8.6%

Unicredit off 7.3%

CARNAGE

(@Mo06. We make the rules here. Yellow)

Are we blaming SocGen for this?

At least a bit?

why not

they blame everyone else for their failings

let’s give some back

So another asset dump announced this morning.

Attempting to rake in 4bn euros by 2013

yes

but it was much more than that

a statement

and presentation

like the one from BNP last week

which attempts to set the record straight

give us some HARD FACTS

unfortunately

these hard facts

were very selective

very selective

and they haven’t answered the key concern the market has

namely short term funding at SocGen

there’s an excellent note

from Andrew Lim at Espirito Santo on this

and Izy

has some thoughts to

lets’s put the note up

and then get out Swiss correspondent

Yup

on the line

One mo

Here’s the backstory

via Lim

note very poor

now here’s the meat of it

and the conclusion

which SocGen won’t like

but can’t blame on speculators

This model will come under threat if the credit and equity markets lose belief in the robustness of its short-term funding profile, in our view.

Indeed!

good note that

what’s your thinking Izy

aren’t we calling SocGen

the Steptoe & Son

of European banking?

yes quite

the key point here is that socgen is assessing itself based on the requirements of the pawnbroker of last resort

Which is the ECB

right

Which has much crappier standards, than any other pawnbrokers in the world

especially those dishing out $$$

hence the sudden fascination with the currency basis swap market

and the big moves

also if SocGen was serious about giving us an indication of its true health

it would provide us with its short-term coverage ratio

which it has not

hmmm

so far from answered the markets concerns

Jarvis – c’est la rocheuses du nord

they have added to them

But it’s generally their entire model that is the problem

now

this is the interesting stuff

give us the theory

it’s the Steptoe & son model

rag & bone men.

make money on finding stuff cheap or misvalued

and then pawning it?

for cash?

which is fine, providing your pawnshop is always available

basically — the ECB has also encouraged this arbirage by accepting crappy collateral all this time.

We shall see what happens, but it’s seems fairly precarious to me

indeed

thanks for that

Basis swap market has been interesting that’s for sure

as JC just noted

Speaking of EURUSD basis swaps… 3-month swap at -120bps, which is well into Lehman levels

right

we should move on

and cover the UK banks

wow – latest is at 123

which

i just checked

aren’t doing too badly

11:38AM

Lloyds is up

What that means btw — is that anyone who has euros

has to pay a lot of basis points to swap into dollars

Lloyds Banking Group plc (LLOY:LSE): Last: 31.38, up 0.339 (+1.09%), High: 32.20, Low: 29.08, Volume: 82.32m

look at that

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 21.55, up 0.05 (+0.23%), High: 21.82, Low: 19.89, Volume: 60.94m

also up

a miracle

given the wider market backdrop

Not surprising really.

Given Vickers

Which is tough on the industry, very long term.

But kind on shareholders in the short, medium and quite long term.

and very kind on Lloyds

no more branch sales

just some promise

to make sure

it creates a viable challenger bank

hang on

will get the quote

So, if I’m reading this correctly, Lloyds can maintain its place in a de facto cartel because no-one can close the funding gap to set up valid competition.

that’s it

I think Pestowire

Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.

put the figure at £30bn

no one can raise that much at the moment

so the status quo

goes on

Lord Levene can buy the branches being put up for sale

or Branson

but they won’t create a worthy challenger

Eric Daniels vindicated

it’s blown up Lloyds

but his got the monopoly in the mortgage market

and personal current accounts

And, to put my Daily Mail hat on for a second …………

The costs of constructing the firewall will be put upon the least competitive side of the split, ie. the retail side.

The “casino” is competitive. There’s no way they’ll take the costs.

So, it comes to the consumers.

I’m not saying this is a bad thing — the industry needs reform — I’m just noting who’ll pay for it.

Ok – Daily Mail hat off now.

actually Barclays comes out of this the worst

Barclays PLC (BARC:LSE): Last: 143.60, down 0.4 (-0.28%), High: 145.00, Low: 135.90, Volume: 41.46m

as far as I can see

the capital requirements are a bit more than we expected

hang on

will grab some comment

Bruce Packard at Seymour Pierce

UK Banks – ICB report
The Final ICB report came out this morning – looks mostly as expected by anyone reading the UK press in the last month.

and we have something from Ian Gordon at Evo Securities

who reckons the ICB report

could have been much much worse

a victory of sorts then

for the banking lobby?

is that the way to read this??

As I say, it’s a victory for the status quo.

In the sense that the reforms are eight years away.

Which, in investor terms, is never.

I think that’s the bottom line here. The report’s actually quite sensible, but for anyone holding a bank share today it’s next to irrelevant.

Today’s rally is some fear coming out of the price. That’s all.

(@BBB+ – that’s the trouble. you can read it many ways)

11:50AM

Right

quick market update

FTSE 100 down 121 points at 5,092

and some breaking news

fancy owning shares in S&P?

A rival to Pearson of course

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

Pearson (PSON:LSE): Last: 1,046, down 29 (-2.70%), High: 1,057, Low: 1,040, Volume: 595.39k

so no gloating

but the business has been under pressure from an activist

and the answer

is to do the spilts

spin off

the education bit

which could be a target for errr US

and leave S&P to go it alone

which may not be such a bad idea

Been on the cards for some time, as you say.

S&P’s the cash cow.

While Education — what with its need to actually commission and publish books and stuff — was diluting returns.

So — it’d end up in the hands of PE probably.

hmmm

Jana Partners

is the activist investor

pressing for change

and as you say

demerging education

has been on the cards

And, before anyone says it, I don’t think Pearson would be able to buy MH Education given the antitrust.

financial markets business then?

Yes, maybe. We could own S&P!

That’d be neat.

Handy for getting the jump on downgrades.

(@not yet Taxloss. But you were disqualified on an technicality.)

11:57AM

Ok – before we move on to the London market …….

Someone was asking for a CDS update.

Anything handy, Neil?

yep

Greece now being quoted in points

not basis points

yep things are that bad

this from Markit

11:59AM

Finally then

to the UK

nd some stocks

Start with Charter?

yep

we have a counter bid

a proper one

From Colfax.

Charter International Plc (CHTR:LSE): Last: 854.50, up 50.5 (+6.28%), High: 880.00, Low: 817.00, Volume: 7.02m

At 910p, including 20% stock.

Which is a surprise.

The stock bit, I mean.

Markets Live chat transcript for the chat ending at 11:20 on 12 Sep 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT Izabella Kaminska

Hola

Bonjour

willkommen

hello

it’s 11.03am

or thereabouts

and time for Markets Live

tin hats required today

in fact full body armour required

it’s looking quite ugly out there

Four — count’em, four — blue chip risers at the moment.

Two of which are banks.

FTSE 100 down 103 points at 5,111

but the picture is much much worse

in Europe

have you seen the Dax

Yup – ugly.

down another 147 points at 5,044

it’s been destroyed in the past couple of months

destroyed

Down about a third, right?

yeah

34 per cent since the start of May

FTSE 100 off by around 16%

so it could be worse

I guess why have the miners to thanks for that

Guess so.

So, against many expectations, Greece didn’t default over the weekend.

Though you wouldn’t know it looking at the CDS this morning.

nope

the can

or what’s left of it

has been given another kick

they have promised to implement some new tax or another

I thought the market might see things positively

but I was wrong

right

so this is the latest plan

Nice touch

through the electricity bill

so the Greeks have to pay

no dodging this

unless they get cut off from the grid

Guess you could string a line to your neighbour’s place. Not ideal though.

quite

anyway

the above was from Barcap

who were quite excited by the plan

urthermore, we see the 5th programme review and the approvals by EU parliaments of EFSF amendments as “pre-conditions” for launching the final-official dates for debt exchange proposal (PSI).

but as we know

the market didn’t think much of it

and as a result it’s tin hat time

I guess things like this

haven’t helped

quite a rise

and there’s a whole bundle of flashes coming out of Germany

that we should look at

what about a disorderly default?

what’s in place for that?

What could be in place?

well there’s a story running on Bloomie about this

hang on

will grab

seems to me

as if they are getting ready to cut Greece loose

Right a bit more comment

first up RBS

and something interesting just landed from Goldman

Go on.

it’s on the Greek default stuff

not sure it says too much

Ta for that. Also, this is useful from Merrill.

Technical analysis. Anyone seen using this on ML will be banned for life.

(Ah, I see “ta” sets off the “TA” alarm. Will have to adjust my language.)

thanks for that

now

we must look at the other factor weighing on the markets today

the european banks

11:23AM

A real bloodbath

SocGen down 10%

back at a level last seen in 1992!

BNP Paribas off almost 13%

(@Milky!: Yellow! For! Exclamation!)

Credit Ag off 9%

Deutsche Bank off 9%

ING 8.6%

Unicredit off 7.3%

CARNAGE

(@Mo06. We make the rules here. Yellow)

Are we blaming SocGen for this?

At least a bit?

why not

they blame everyone else for their failings

let’s give some back

So another asset dump announced this morning.

Attempting to rake in 4bn euros by 2013

yes

but it was much more than that

a statement

and presentation

like the one from BNP last week

which attempts to set the record straight

give us some HARD FACTS

unfortunately

these hard facts

were very selective

very selective

and they haven’t answered the key concern the market has

namely short term funding at SocGen

there’s an excellent note

from Andrew Lim at Espirito Santo on this

and Izy

has some thoughts to

lets’s put the note up

and then get out Swiss correspondent

Yup

on the line

One mo

Here’s the backstory

via Lim

note very poor

now here’s the meat of it

and the conclusion

which SocGen won’t like

but can’t blame on speculators

This model will come under threat if the credit and equity markets lose belief in the robustness of its short-term funding profile, in our view.

Indeed!

good note that

what’s your thinking Izy

aren’t we calling SocGen

the Steptoe & Son

of European banking?

yes quite

the key point here is that socgen is assessing itself based on the requirements of the pawnbroker of last resort

Which is the ECB

right

Which has much crappier standards, than any other pawnbrokers in the world

especially those dishing out $$$

hence the sudden fascination with the currency basis swap market

and the big moves

also if SocGen was serious about giving us an indication of its true health

it would provide us with its short-term coverage ratio

which it has not

hmmm

so far from answered the markets concerns

Jarvis – c’est la rocheuses du nord

they have added to them

But it’s generally their entire model that is the problem

now

this is the interesting stuff

give us the theory

it’s the Steptoe & son model

rag & bone men.

make money on finding stuff cheap or misvalued

and then pawning it?

for cash?

which is fine, providing your pawnshop is always available

basically — the ECB has also encouraged this arbirage by accepting crappy collateral all this time.

We shall see what happens, but it’s seems fairly precarious to me

indeed

thanks for that

Basis swap market has been interesting that’s for sure

as JC just noted

Speaking of EURUSD basis swaps… 3-month swap at -120bps, which is well into Lehman levels

right

we should move on

and cover the UK banks

wow – latest is at 123

which

i just checked

aren’t doing too badly

11:38AM

Lloyds is up

What that means btw — is that anyone who has euros

has to pay a lot of basis points to swap into dollars

Lloyds Banking Group plc (LLOY:LSE): Last: 31.38, up 0.339 (+1.09%), High: 32.20, Low: 29.08, Volume: 82.32m

look at that

Royal Bank of Scotland Group PLC (RBS:LSE): Last: 21.55, up 0.05 (+0.23%), High: 21.82, Low: 19.89, Volume: 60.94m

also up

a miracle

given the wider market backdrop

Not surprising really.

Given Vickers

Which is tough on the industry, very long term.

But kind on shareholders in the short, medium and quite long term.

and very kind on Lloyds

no more branch sales

just some promise

to make sure

it creates a viable challenger bank

hang on

will get the quote

So, if I’m reading this correctly, Lloyds can maintain its place in a de facto cartel because no-one can close the funding gap to set up valid competition.

that’s it

I think Pestowire

Top News from Top Sources. The BBC’s Business Editor, Robert Peston, has played in important role keeping the British public fully informed during these difficult times.

put the figure at £30bn

no one can raise that much at the moment

so the status quo

goes on

Lord Levene can buy the branches being put up for sale

or Branson

but they won’t create a worthy challenger

Eric Daniels vindicated

it’s blown up Lloyds

but his got the monopoly in the mortgage market

and personal current accounts

And, to put my Daily Mail hat on for a second …………

The costs of constructing the firewall will be put upon the least competitive side of the split, ie. the retail side.

The “casino” is competitive. There’s no way they’ll take the costs.

So, it comes to the consumers.

I’m not saying this is a bad thing — the industry needs reform — I’m just noting who’ll pay for it.

Ok – Daily Mail hat off now.

actually Barclays comes out of this the worst

Barclays PLC (BARC:LSE): Last: 143.60, down 0.4 (-0.28%), High: 145.00, Low: 135.90, Volume: 41.46m

as far as I can see

the capital requirements are a bit more than we expected

hang on

will grab some comment

Bruce Packard at Seymour Pierce

UK Banks – ICB report
The Final ICB report came out this morning – looks mostly as expected by anyone reading the UK press in the last month.

and we have something from Ian Gordon at Evo Securities

who reckons the ICB report

could have been much much worse

a victory of sorts then

for the banking lobby?

is that the way to read this??

As I say, it’s a victory for the status quo.

In the sense that the reforms are eight years away.

Which, in investor terms, is never.

I think that’s the bottom line here. The report’s actually quite sensible, but for anyone holding a bank share today it’s next to irrelevant.

Today’s rally is some fear coming out of the price. That’s all.

(@BBB+ – that’s the trouble. you can read it many ways)

11:50AM

Right

quick market update

FTSE 100 down 121 points at 5,092

and some breaking news

fancy owning shares in S&P?

A rival to Pearson of course

Pearson plc is the parent company of the Financial Times, publisher of FT Alphaville.

Pearson (PSON:LSE): Last: 1,046, down 29 (-2.70%), High: 1,057, Low: 1,040, Volume: 595.39k

so no gloating

but the business has been under pressure from an activist

and the answer

is to do the spilts

spin off

the education bit

which could be a target for errr US

and leave S&P to go it alone

which may not be such a bad idea

Been on the cards for some time, as you say.

S&P’s the cash cow.

While Education — what with its need to actually commission and publish books and stuff — was diluting returns.

So — it’d end up in the hands of PE probably.

hmmm

Jana Partners

is the activist investor

pressing for change

and as you say

demerging education

has been on the cards

And, before anyone says it, I don’t think Pearson would be able to buy MH Education given the antitrust.

financial markets business then?

Yes, maybe. We could own S&P!

That’d be neat.

Handy for getting the jump on downgrades.

(@not yet Taxloss. But you were disqualified on an technicality.)

11:57AM

Ok – before we move on to the London market …….

Someone was asking for a CDS update.

Anything handy, Neil?

yep

Greece now being quoted in points

not basis points

yep things are that bad

this from Markit

11:59AM

Finally then

to the UK

nd some stocks

Start with Charter?

yep

we have a counter bid

a proper one

From Colfax.

Charter International Plc (CHTR:LSE): Last: 854.50, up 50.5 (+6.28%), High: 880.00, Low: 817.00, Volume: 7.02m

At 910p, including 20% stock.

Which is a surprise.

The stock bit, I mean.

This entry was posted by Neil Hume on Monday, September 12th, 2011 at 11:04 and is filed under Uncategorized. Edit this entry.

Share Print

Markets Live transcript 12 Sep 2011

Popular posts

Most commented

Tags

Blogroll

Site Navigation

Categories

The Cut by date

Jump to day