Tesco’s off-balance sheet wheeze, courtesy of Goldman Sachs

This is not new, but bears revisiting, given recent events.

Between 2009 and 2013, as part of its sale and leaseback plan, Tesco used a series of six special purpose vehicles to issue close to £4bn worth of property bonds. Structured with the help of Goldman Sachs, the programme even won Tesco an award — Risk Magazine’s 2010 Corporate risk manager of the year.

But Nigel Stevenson, a former M&A banker at Kleinworts who now runs his own research shop, reckons the effect of this off-balance sheet financing has been to artificially reduce Tesco’s net debt by around £2bn.  Read more

How to (further) spook a grocer, HSBC edition

With one, throwaway line… right at the end of a four-paragraph research note…

Many issues remain unanswered and the possibility of a rescue rights issue should not be ignored.

That’s from HSBC’s David McCarthy.

While we rather doubt that a cash call could be anywhere near to top of Tesco’s to-do list right now, just a whisper of those two words around the London market was enough to send shares in Tesco sharply lower once more (low of 200 at pixel time):

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Seeking customers for Plus500

The UK’s Financial Conduct Authority has taken an interest in the way Plus500 recruits customers, according to a story in The Times on Monday.

Peers of the Haifa, Israel, based contract for difference company don’t like the way Plus500 does business, you see. We pointed to some oddities in third party traffic stats for Plus500 in August, as well as some of the more aggressive aspects of the way in which customers are recruited, and now this:

The financial regulator launched its review after rival CFD and spread-betting companies raised concerns about how Plus500 acquired its customers.

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Of Tesco value points and returns

As already noted, the sharp plunge in Tesco’s share price on Monday following news of its profit overstatement comes with just a hint of accounting irregularity at the UK’s largest supermarket chain.

What we couldn’t help but notice, however, is the interesting array of warning signals that have been gathering at the grocer for years, and their similarity to the sort of concerns that today are being readily dismissed by investors when it comes to value debates elsewhere.

In other words, to what degree has Tesco, an omnipresent retail brand in Britain, been overly dependent on the sort of strategy typically deployed by so-called yieldcos? A.k.a the tendency to dazzle shareholders with earnings per share, while hoping to divert investors’ eyes from a diminishing overall return on capital employed. Something that tends, by the way, to be forgiven or ignored, so long as the stock price itself keeps going up. Read more

Markets Live: Monday, 22nd September, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Tesco reveals it overstated first-half results by £250m || British Land’s ‘super-prime’ penthouse breaks sales record || Aldermore Bank plans October London offering || China’s war on graft leads to drop in outbound investment || Siemens buys US oil services group Dresser-Rand for $7.6bn || Scots to get more powers regardless of English devolution talks || Blackstone to pull out of Russia || Alibaba boosts IPO size to world record $25bn || Markets Read more

The Tesco value range

So, feeling gutsy, you assume that Tesco is too big and solid to go bust. You remember the Ahold accounting problems that blew up the Dutch grocer a decade ago, but are willing to gamble whatever happened at the UK’s biggest retailer is not terminal.

When, then, do you buy? Read more

Tesco: Every little helped?

A £250m profit overstatement will do that to you… Read more

Further reading

Elsewhere on Monday,

- The political economy of a universal basic income.

- What if counterfactuals never existed?

- That referendum was fun. Shall we do it again?

- Xi who must be obeyed.  Read more

The 6am London Cut

The Cut, The Survey: The 6am Cut, Lunch Wrap and Closer emails will soon be relaunched in enhanced form. We want to ensure we’re providing only the most useful data, news and views — taking this short 2 minute survey would help us do that.

Markets: Asia-Pacific equities began the new week on a sour note, with all major indices in the red after key commodity prices fell and momentum in US markets stalled on Friday. (FT’s Global Markets OverviewRead more

Second Circuit still not Argentina’s biggest fan

With Argentina in default, the pari passu saga has become a long, ludicrous, gruelling standoff — which plenty of financial institutions and Argentina’s restructured bondholders have been trying to escape.

And then running smack into the US court system.

On Friday the Second Circuit Court of Appeals dismissed an appeal by Citibank to get local-law, US dollar-denominated restructured bonds (the ones with the ISIN confusion) out of the pari passu embargo: Read more

A friendly reminder that Yahoo’s core business is worth -$11.6 billion

Alibaba has started trading and its current market valuation is about $227 billion. Yahoo! Inc., which currently owns a little more than 16 per cent of the Chinese conglomerate, is currently valued at just over $40 billion. Yahoo also owns a 35 per cent stake in publicly-traded Yahoo! Japan, which currently has a market cap of about $23 billion.

Let’s do some arithmetic to see how much Yahoo’s core business is currently worth: Read more

The BABA pop, snapped

Just for the record…

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Anti-Abacus, anti-BISTRO and anti-balance sheet synthetic securitisation


Close your eyes, lay back and imagine yourself as a regulator at the US Securities and Exchange Commission (do we have to? -ed). Read more

It wasn’t QE that caused a collateral scarcity this summer

The Liberty Street Economics blog of the Federal Reserve Bank of New York provided a good analysis this week of the summer’s UST settlement fails spike.

For those unfamiliar, settlement fails in US Treasury securities rose to their highest level in more than five years in June, with DTCC figures reaching more than $1.2 trillion in gross fails for the month:

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When break-even inflation expectations are falling…

George Saravelos at Deutsche Bank has looked at Eurozone inflation break-even rates and worries that the ECB may be losing control:

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You call that a balance sheet expansion?

“Too Low To Resuscitate Optimism” indeed…

From BofAML on the definitely underwhelming, potentially stigmafied TLTRO pickup (our emphasis):

When gathering all the comments made by banks on their participation at today’s operation, we find that the major banks in Spain, Italy and Greece have requested a total of €40bn, i.e., 40% of their Sep+Dec available allowance (Exhibit 1, page 4). After extrapolating this to the whole banking system in each of the three countries and including estimates for Portugal and Ireland, we find that the periphery could have accounted for as much as €61bn, out of the €82.6bn borrowed yesterday.

This leaves an estimate of €21.7bn for the take-up by core banks, representing as little as 9% of their available allowance (Table 1). To derive a more precise estimate of the country breakdown, we have to wait for each national central bank to release the details of their end-of-Sep balance sheet. This should happen starting from early-October (with Italy, Finland and Belgium the first to report).

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Markets Live: Friday, 19th September, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning New York,


Cult Markets: When the bubble bursts

This is Jean-Paul Rodrigue’s stages of a bubble chart:

This is a chart of the price of Bitcoin from the BoE: Read more

Further reading

Elsewhere on Friday,

- We are a camera, the rise of GoPro.

- “Obama’s neglect of Federal Reserve appointments is, in some ways, mysterious.”

- From the lips of Michael Woodford.  Read more

The 6am London Cut

The Cut, The Survey: The 6am Cut, Lunch Wrap and Closer emails will soon be relaunched in enhanced form. We want to ensure we’re providing only the most useful data, news and views — taking this short 2 minute survey would help us do that.

Looks like a No in Scotland. The FT Live blog here, but at pixel with most of the counting done, this is how it stood:

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The Closer


- The disruption myth. Read more

The return of the American borrower

The Federal Reserve’s latest flow of funds data shows that US households have rediscovered their credit cards, and lenders are eager to oblige them. Just look at this:

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Henley demoted at Oracle as Ellison refuses to retire

Generalised exec deckchair shuffle at USS Oracle, out of the blue on Thursday…

The Oracle (NYSE: ORCL) Board of Directors today announced that it has elected Larry Ellison to the position of Executive Chairman of Oracle’s Board and appointed him the company’s Chief Technology Officer. Jeff Henley, who has served as Oracle’s Chairman for the last 10 years, was appointed Oracle’s Vice Chairman of the Board. Read more

A Scot vote bonus for Long Room members

Sorry we can’t offer this up to the open web, but if you are planning to stay up to watch the Scottish independence vote, and you also have access to the usual place, check this handy little excel download. Read more

Slowly, very slowly, getting China’s house in order?

Oh look, China’s property market has worsened again:

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Markets Live: Thursday, 18th September, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Scotland votes || Easyjet increases dividend, fleet || Bayer to float plastics business || Dubai regulator restricts Espirito Santo activity || News Corp takes Google opposition to EC || Dollar and Sterling up Read more

Un petit TLTRO

This is well below the €100bn-plus forecasts that were consensus…

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