Financial Teasers 19 March 2008

Top Stories

• Commodities drop as investors sell to cover other losses
  Oil, copper, coffee and wheat, among other commodities, fell Monday as investors sold to cover losses in financial stocks and bonds. "I think a move toward liquidity, aside from the longer-term fundamentals, is driving this," said Bart Melek, Global Commodity Strategist at BMO Nesbitt Burns in Toronto. Investors, however, clung to gold as a safe haven, keeping the price above $1,000 per ounce. CNBC/Reuters (17 Mar.)

• Hedge fund managers may emerge as market saviors
  While most eyes are on the Federal Reserve to get the markets back on track, a group of hedge fund managers is poised for action that could help restore liquidity. Brian Snider, senior vice president at hedge fund research firm Hennessee Group, said about 60 hedge funds are planning a bargain-shopping spree for distressed debt and leveraged loans. FinancialWeek (17 Mar.)

• JPMorgan gets hedge fund brokerage with Bear buy: The acquisition of Bear Stearns gives JPMorgan Chase the third largest hedge fund brokerage. News of the acquisition stabilized Bear's hedge fund business, which had been losing clients as financial woes mounted. "As bad as things are at Bear Stearns, this is still a franchise with a lot of value," said William Fitzpatrick of Optique Capital Management. Bloomberg (18 Mar.)

• Threat of "counterparty risk" hangs over markets
  Bear Stearn's near collapse underscores the threat of "counterparty risk," particularly in the credit derivatives market where it is a major counterparty. JPMorgan's takeover of Bear removes the immediate threat of default but kicks off the logistical nightmare that follows "novation," the replacement of one party by another. Financial Times (17 Mar.) , Reuters (17 Mar.)

• Western private equity investors look to Eastern Europe
  Private equity investors are increasingly looking to Eastern Europe for growth opportunities, as evidenced by the final quarter of 2007. Both CVC Capital Partners and The Carlyle Group are working to assemble teams for the region, following in the footsteps of Bridgepoint and 3i. Financial News Online (18 Mar.)

• Shareholders plan to file suit against German bank IKB
  IKB's shareholders say the German bank failed to inform them early enough about its U.S. subprime exposure. The parties have been unable to reach an out-of-court agreement, so the investors plan to file a lawsuit against the bank no later than July, according to an attorney for some of the investors. Spiegel Online (17 Mar.)

• Growing demand for metals has mining companies scrambling
  Mining companies are struggling to find enough workers and equipment to meet the global demand for steel. To understand the precarious situation, consider the problems facing Vale, a leading iron-ore producer that operates a mining complex in the Amazon Basin of Brazil. BusinessWeek (18 Mar.)

• China snubs ore from Australia's top mining companies: The Chinese Government is said to have orchestrated a boycott of Australian mining giants BHP Billiton and Rio Tinto, costing Australia millions in export profits and threatening a diplomatic battle. China's steel association said no official directive was issued and that steel companies decided for themselves. The Sydney Morning Herald (18 Mar.)

Market Activity

• Asian markets mixed as Shanghai extends losses
  Most Asian markets were down Tuesday, led by Shanghai-listed stocks, which extended their losing streak to five days on concerns the central bank will continue to tighten monetary policies. Japanese shares, though, were up in the morning session as investors trolled for bargains in financial stocks. The Nikkei 225 Average was up 1.5%, while the Topix index ended the morning session 1% higher. The Shanghai Composite dropped 1.1%, and the Hang Seng Index fell 1.6%. MarketWatch (18 Mar.)

• Bear deal spooks investors into selling Lehman stock
  
  
  Executives at Lehman Brothers said they've learned from past crises -- including the 1998 investor panic after Russia defaulted on its debt -- but investors remained jittery on Monday. Lehman plunged more than 19% on the day as investors feared it could be the next to follow in Bear Stearns' footsteps. ClipSyndicate/Bloomberg (17 Mar.) , The New York Times (registration required) (18 Mar.)

• Moody's: Structured bonds in Asia likely to rise slowly
  The global rout in the credit market will likely hurt the sales of structured bonds, including asset-backed securities, in China, Taiwan and Hong Kong, Moody's Investors Service predicts. Borrowers in that region sold about $5.2 billion of securities linked to assets in 2007, down 46% from the previous year. Bloomberg (18 Mar.)

• Political concerns drag down Turkey's financial markets
  The global credit crunch already had investors in Turkey nervous, and then the country's senior prosecutor threatened to shut down the governing party, causing financial markets to drop by as much as 9% Monday. The prosecutor is accusing the Justice and Development party of "anti-secular activities" and demanding its closure. The constitutional court said it will decide whether to proceed with the case within the next 10 days. Financial Times (17 Mar.)

Economics

• Federal Reserve may cut rates by up to 1%
  
  
  The Federal Reserve could cut interest rates by as much as a full percentage point when it meets Tuesday. Investors are worried that investment bank results could trigger a full-blown market crisis. The Fed has reduced interest rates by 2.25% since mid-September. ClipSyndicate/Bloomberg (18 Mar.) , Reuters (18 Mar.)

• U.K. banks seek emergency loans from Bank of England
  British retail banks sought more than £23 billion in emergency loans from the Bank of England on Monday amid fear that the global credit crisis is worsening. Shares in U.K. banks plunged, causing the FTSE 100 index to close at a 2 1/2-year low. JPMorgan's cut-rate rescue of Bear Stearns -- an attempt to ease fear in the markets -- triggered the sell-off. The Times (London) (18 Mar.)

• Wen: China concerned about global economy
  Chinese Premier Wen Jiabao said he's "deeply worried" about the global economic fallout from the subprime meltdown. "What concerns me now is the continuous depreciation of the U.S. dollar and when the dollar will hit bottom," he said. Keeping inflation at 4.8% is a challenge, he said, although he added that he is confident China can keep price rises in check while allowing growth. Reuters (18 Mar.) , Bloomberg (18 Mar.) , China Daily (Beijing) (18 Mar.)

Geopolitical/Regulatory

• China's Wen says Dalai Lama supporters caused Tibet violence
  China's Prime Minister Wen Jiabao said the Dalai Lama's supporters are to blame for inciting the violence that led to several deaths and much destruction in Tibet last week. The exiled Tibetan spiritual leader has called for those involved to avoid violence and accused China of "cultural genocide." International Herald Tribune (18 Mar.)

• Japan nominates new candidate to head central bank
  The government named a new candidate to lead the Bank of Japan: Koji Tanami, head of the Japan Bank for International Cooperation and a former top finance ministry official. Opposition lawmakers, however, said they'd likely block Tanami's nomination. Reuters (18 Mar.) , Forbes (Asia)/AFX News Limited (18 Mar.)

Financial Products

• Mutual fund companies offer access to private equity
  Some mutual fund companies are offering their clients access to private equity investments in an effort to boost returns while the stock market is stumbling. Lehman Brothers recently launched a platform for exchange traded notes called Opta. One of the ETNs tracks the S&P 500 Listed Private Equity Index. InvestmentNews (17 Mar.)

• Mutual fund industry challenging ETN tax status
  The mutual fund industry is challenging the deferred-tax status of exchange-traded notes, but a key lawmaker says the push could backfire when the industry asks Congress to give similar benefits to mutual funds. InvestmentNews (17 Mar.)

Ethics

Former Qwest CEO gets new trial on insider trading charges
A U.S. appeals court voted 2-1 to overturn the conviction of Joseph Nacchio, former CEO of Qwest Communications International, on charges of insider trading. The court ordered a new trial before a different judge, saying District Judge Edward Nottingham was wrong to bar an expert witness in Nacchio's first trial. Reuters (17 Mar.)