Tuesday, March 25, 2008

Financial Teasers 25 March 08

Top Stories

Regulators allow banks to boost MBS holdings
The Federal Housing Finance Board announced Monday that regional U.S. banks will be able to temporarily increase their holdings of mortgage-backed securities. This latest effort to stabilize the mortgage markets enables the banks to boost their holdings of Fannie Mae- and Freddie Mac-issued securities. ClipSyndicate/Bloomberg (24 Mar.) , Reuters (24 Mar.)

Loophole in JPMorgan's original bid for Bear shines spotlight on lawyers
JPMorgan Chase's original offer for Bear Stearns included a clause that could have required JPMorgan to guarantee Bear's trades even if the deal failed. The legal loophole may have helped spur the increased offer and has focused attention on the high-powered lawyers who wrote the deal. It is unclear whether the clause was a mistake or an attempt to gain the loyalties of clients and employees at Bear. Financial Times (25 Mar.)

China's banks to trade gold futures
When China allowed trading of gold futures earlier this year, the China Banking Regulatory Commission barred commercial banks from the market. But a notice on the regulator's Web site says banks that meet specific criteria will now be allowed to trade. "That's great news for the gold futures market, which is not operating that well," said Hu Yuyue of Beijing Technology and Business University. "Commercial banks can provide more liquidity and stability to the market, after all, they hold huge capital." China Daily (Beijing) (25 Mar.)

Palestinian wealth fund takes a different path
As head of the Palestine Investment Fund, Mohammad Mustafa views the fund's mandate a bit differently than those of other sovereign wealth funds. In the three years since Mustafa took over, the fund has shifted from investing mostly in foreign companies to trying to help the Palestinian economy. "We want to play a different role, to move from being a financial vehicle to a vehicle for sustainable development in Palestine," Mustafa said. Financial Times (24 Mar.)

Congo to cancel mining contracts thought to be corrupt
The Democratic Republic of Congo is planning to cancel or renegotiate numerous mining contracts, according to Deputy Mines Minister Victor Kasongo. Many of the contracts are thought to be corrupt, and the government said it is trying to ensure that its mineral wealth is benefiting its people, he said. The Global Witness campaign says an inquiry into the mining contracts should have been made public. BBC (20 Mar.)

Some investors see post-election opportunity in Zimbabwe
The upcoming presidential election in Zimbabwe could bring significant policy changes to a country suffering from astronomical inflation and economic ruin. Many foreign investors have fled, but some are betting that opportunities in sectors such as power, construction and telecommunications will follow Saturday's vote. Reuters (24 Mar.)

Icahn, keeping heat on Motorola, sues for access to documents
Billionaire Carl Icahn, who holds 6.4% of Motorola's stock, is suing the company for access to documents on its efforts to revive its mobile-phone business, corporate jet use, hiring and more. At this year's annual shareholder meeting, Icahn will try again to win board seats. ClipSyndicate/Bloomberg (24 Mar.) , BusinessWeek (25 Mar.)

Market Activity

Australian, Hong Kong shares soar after long holiday
Led by gains in Hong Kong and Australian shares, most Asian markets advanced Tuesday. The Hang Seng Index jumped 4.1%, while the Hang Seng China Enterprises Index soared 4.8%. Australia's S&P/ASX 200 gained 4.2%, while the Nikkei 225 Average was up 1.8%. Shanghai's Composite index, however fell 1.7%. MarketWatch (25 Mar.)

JPMorgan's increased bid sends Bear Stearns shares soaring

Facing shareholder pressure, JPMorgan Chase boosted its offer for Bear Stearns from $2 a share to $10 a share. "Clearly, this increases the chance the deal goes through," said James Ellman, a portfolio manager with Seacliff Capital. "But there are still going to be employees and shareholders unhappy with $10 a share." The revised bid sent Bear shares soaring, but the deal is far from done. CNBC/Reuters (24 Mar.)


With Bear deal, Bernanke pushes Fed into new territory
Chairman Ben Bernanke, in trying to restore confidence in the markets, is leading the Federal Reserve into unchartered territory. The latest move has the Fed hiring BlackRock to manage and sell $30 billion of Bear Stearns' assets. The assets will be placed in a company that the Fed creates. Bloomberg (25 Mar.)

Lower interest rates put new pressure on money market funds
Already suffering from the subprime meltdown, money market funds are facing new pressure as interest rates drop, causing fund yields to narrow. The result is significantly diminished returns after deducting management fees. Some funds are waiving the fees and others are believed to have received liquidity support from their parent companies. Financial Times (24 Mar.)

Economists: Emerging economies won't drag West out of slump
From Dell to Kellogg's, Western businesses are courting the increasingly wealthy Asian consumer. But economists say emerging economies will not save the U.S. and Europe from a serious economic downturn. "It's mathematically impossible to see a major decrease in U.S. consumption being made up by the Chinese and Indians," said Stephen Roach, Morgan Stanley's head of Asian business. Roach said India and China together account for just a sixth of U.S. demand. The Times (London) (25 Mar.)

Australian, New Zealand dollars gain against yen, greenback
The New Zealand and Australian dollars climbed against the yen and the U.S. dollar Tuesday. Gains against the yen were attributed to stock gains that spurred investors to purchase higher-yielding assets funded by Japanese loans. "Risk-taking appetite has improved," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. "Investors feel a bit more comfortable in buying higher-yielding currencies including the Aussie and kiwi." Bloomberg (25 Mar.)


EU walks fine line between consumer, business interests
The European Commission, the executive arm of the European Union, is being blasted by industries as difficult to work with and a threat to regional security. Some say the commission is adopting consumer-pleasing initiatives that hinder business to boost its popularity. Commission supporters say it is rooting out situations that hurt competition and take advantage of dominant market positions. International Herald Tribune/Reuters (24 Mar.)

Rudd's first major overseas tour includes U.S., U.K., China
Australian Prime Minister Kevin Rudd leaves for an 18-day tour that includes stops in the U.S., Britain, Belgium, Romania and China. Rudd's agenda includes everything from the global credit crisis to the wars in Afghanistan and Iraq. His first stop will be the U.S. where he will meet President George W. Bush and Federal Reserve Chairman Ben Bernanke. The Age (Melbourne, Australia) (25 Mar.)

Medvedev opposes allowing Ukraine, Georgia to join NATO
Russia's incoming president, Dmitry Medvedev, says security in Europe could be threatened if Ukraine and Georgia win membership in NATO. Medvedev's warning is expected to increase pressure on NATO to vote against allowing the states to join its "membership action plan" at an upcoming summit in Bucharest. Financial Times (24 Mar.)

Financial Products

Barclays new ETNs track currencies in Asia, Middle EastBarclays Global Investors plans to launch three new exchange-traded notes: Asian and Gulf Revaluation, Intelligent Carry Index ETN and Global Emerging Markets Strategy. The notes, which have already picked up $150 million, will track currencies in the Middle East, Asia and other emerging markets.
CNNMoney.com/Investor's Business Daily (24 Mar.)

Commentary: Industry developing many actively managed ETFs
Until now, it was up to advisors to generate Alpha using industry-provided Beta products, such as exchange-traded funds. Now, the industry is developing a number of actively managed ETFs, a sign that it is ready to take some responsibility, writes Toronto-based consultant Richard Kang. Seeking Alpha (25 Mar.)

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