ROUND-UP
Ben Bernanke suggested the Federal Reserve could begin ending QE “in the next few meetings” if the jobs market continues to improve. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down,” he cautioned, in testimony to Congress (Financial Times). Minutes of April’s FOMC meeting showed some officials were ready to “adjust the flow of purchases downward as early as the June meeting” (Wall Street Journal).
Hewlett-Packard showed signs that its turnaround is working. Operating profits of 87 cents a share in the second quarter beat analyst forecasts of 81 cents, and revenues fell less than expected in HP’s Enterprise Services unit (Financial Times). Net income fell to $1.08bn or 55 cents per share, compared to 80 cents or $1.55bn a year earlier. HP shares rose up to 14 per cent in extended trading on Wednesday (Reuters).
The International Monetary Fund is considering the biggest changes to its policy on sovereign debt restructuring in over a decade. The discussions include ways to ask bondholders to reschedule their debt early in an IMF bailout, and options for dealing with holdouts, who survived the Greek PSI intact and who have won recent legal victories against Argentina over its 2001 default. Set to be published later this week, the fund’s proposals are nevertheless unlikely to revive the idea of a full legal mechanism for processing sovereign defaults (Financial Times).
The European Commission plans to make investor “burden sharing” a bigger part of the conditions for EU banks to receive state aid. The new rules would use Spain’s rescue of its banks as a template for bailing-in shareholders and junior bondholders before public funds are injected into banks, and could be enforced as early as late summer (Financial Times).
General Electric is considering an IPO of its consumer finance business, its chief executive said. Jeff Immelt told a conference in Florida that GE planned to shrink the assets of its financial services unit by $50bn to $100bn by the end of 2014, and to redirect them towards commercial businesses such as aircraft leasing and equipment finance. The consumer operations of GE Capital could be floated off in one or more listings, with GE using the cash to fund share buybacks. “The market, I think, is open. If we miss it, that’s on me,” Immelt said (Financial Times).
Ratings agencies have come under attack for not upgrading mortgage-backed securities amidst the US housing recovery. Agencies have given investment-grade ratings to some 10 per cent of MBS not insured by the US government, but one hedge fund estimates that at least a quarter should qualify. Others have pointed to the market moving ahead of ratings: “It literally would take a complete catastrophe for the bonds in the tops of these structures to be principally impaired from here,” said Kyle Bass of Hayman Capital (Financial Times).
Oil price-reporting agencies including Platts announced independent reviews of their methods, following regulatory calls for controls to prevent market manipulation of prices (Bloomberg).
COMMENT AND CURIOS
- John Gapper to the feds, over Steve Cohen: prosecute or get off the pot. (Financial Times)
- Tax corporations where they make their sales, says Michael Devereux. (Financial Times)
- Veuve du Vernay Brut… and valets: how JFK<->LAX became an airline money-spinner. (Bloomberg)
- Robert Shrimsley previews Apple’s new iDodge — “simply, the most insanely great way to pay taxes.” (Financial Times)
- Has a bubble formed in Asia’s local currency bond markets? (Financial Times)
Regular market pricing will return in tomorrow’s London Cut. Apologies for the technical difficulties.