Financial Teasers 21 April 08

Top Stories

U.K. unveils unprecedented bond swap plan
Britain's central bank moved to help the U.K.'s ailing banking system with an unprecedented £50 billion injection. The Bank of England will allow lenders to swap assets for government-backed bonds in an attempt to restore confidence sapped by the credit crunch. Finance minister Alistair Darling tried to head off criticism of the plan by insisting the move was not a bailout and that Britain's banks would have to repay the credit. ClipSyndicate/Bloomberg (21 Apr.) , The Times (London) (21 Apr.) , Financial Times (20 Apr.)

Traders doubt banks' worst days are done
Bets against bank stocks intensified again with speculators lining up more put option contracts, which offer insurance against share price falls. The negative sentiment appeared early last week after news of Wachovia's first-quarter loss and its need to raise $8 billion in added capital, said Andrew Wilkinson, senior market analyst at Interactive Brokers. "People are beginning to understand how big the iceberg is, but there is still an overwhelming sense of fear out there," he said. Financial News Online (21 Apr.)

BofA to sell shares in China bank to raise capital
Bank of America is planning to sell part of its 9% stake in China Construction Bank, sources say. BofA is also considering exercising its options to buy more shares in China's second largest bank at prices will below market rates. The bank's two-pronged approach is an effort to offset writedowns while preserving relations with the Chinese bank. Financial Times (21 Apr.)

Speculators not to blame for grain prices, U.S. board to say
Hedge funds and other speculators are not responsible for rising agricultural commodities prices, U.S. regulators will say this week. The U.S. Commodity Futures Trading Commission is meeting farmers and traders on Tuesday and will say prices have been driven by high demand, weather, government trade restrictions and the impact of the weaker dollar. Financial Times (20 Apr.)

Biotech crops draw new interest with global grain shortage
Farmers and food producers who have avoided genetically modified grains because they feared consumer backlash are changing their minds as food prices soar. After prices tripled in the past two years, manufacturers in Japan and South Korea are for the first time buying genetically modified corn to use in soft drinks, snacks and other foods. The New York Times (21 Apr.)

Hedge funds to pump up to $8 billion into National City
The 10th-biggest U.S. bank is set to receive an infusion of $7 billion to $8 billion from a group of mutual funds and hedge funds. National City Bank is expected to announce the deal with the group, which is led by the private equity firm Corsair Capital. Financial Times (21 Apr.)

Oil tops $117 a barrel after OPEC refuses to increase output
Crude oil spiked above $117 a barrel after OPEC denied pleas from the U.K. and Japan to increase output. The oil cartel's secretary-general blamed the historically high price on a weak dollar and speculators. Bloomberg (21 Apr.)

Market Activity

Asian markets climb on optimism, Chinese action
Asian stock markets advanced Monday as optimism and government action in China lifted investors. Shares traded in Shanghai and Shenzhen rose after Chinese regulators announced rules Sunday designed to support markets that have lost more than 40% since fall. Exporters such as Canon Inc. and Honda Motor Co. headlined the surge in Tokyo after the dollar gained ground against the yen. Financial firms such as Commonwealth Bank gained in Sydney on hopes the global credit crunch may be ending. MarketWatch (21 Apr.)

Interbank bonds in China rise more than 50% in Q1
China's interbank bond market rose to $67 billion in the first quarter, up nearly 52% from last year, the People's Bank of China said. Most of the total came from short-term bonds and so-called policy financial bonds, the central bank said.
People's Daily (China) (19 Apr.)

Economics

Dollar's plunge helps U.S. multinationals
Coca-Cola, IBM and Google all boosted first-quarter earnings thanks to the declining value of the dollar. Economic growth in Europe, China and Brazil is helping companies that get most of their revenue from abroad. The dollar's 6.4% decline against a basket of currencies this year made U.S. products cheaper overseas and increased the value of foreign sales when they are converted to dollars. Bloomberg (18 Apr.)

Spain pushes stimulus package to counter housing bust
Spain's government rushed approval of tax cuts and stimulus spending aimed at kick-starting an economy burdened by slumping house prices and the global credit shortage. Madrid is tapping a budget surplus for the program expected to cost $28 billion over two years. The measures include a $637 tax rebate to all workers and pensioners. Bloomberg (18 Apr.)

Consumer credit looms as next threat, Citigroup says
The massive losses beating up the banking industry have come from troubled corporate and leveraged loans. There's more trouble on the horizon as consumers default on credit cards and loans, Citigroup says. Telegraph (London) (21 Apr.)

Geopolitical/Regulatory

Energy-rich nations in control at Rome meeting
A global trend toward resource nationalism -- energy-rich countries maximizing their returns -- is not expected to let up at a forum in Rome. Consumer countries and international oil companies seeking greater access to oil and gas fields are finding that the producing countries are in control.
ClipSyndicate/Bloomberg (21 Apr.) , Reuters (20 Apr.)

German firms fear China backlash over Tibet protests
German business leaders worry they will lose out if China uses its economic power to retaliate against Western criticism of its Tibet crackdown. Germany has more than 200,000 jobs dependent on exports to China. Spiegel Online (20 Apr.)

Refugees flooding out of Zimbabwe
The flow of people into South Africa has surged in the three weeks since Zimbabwe's disputed election and during the violent crackdown that followed, South African and Zimbabwean human rights groups say. Robert Mugabe's government in Harare is using food as a weapon and giving much of the United Nations-donated grain to supporters of the ruling party, said a Zimbabwean who crosses the border often to trade. "As we speak," he said, "people are starving." International Herald Tribune (21 Apr.)

Financial Products

Report reveals shift in investment habits in Asia
A report from Barclays Capital shows that Asia's affluent private investors are increasingly interested in more conservative investment products than leveraged, short-term financial vehicles. In its Wealth Management survey of Asia excluding Japan, BarCap found that the three most important product features are growth, diversification and liquidity, according to wealth managers. Financial Times (20 Apr.)

Ethics

FSA criticised for handling of Global Trader Europe
The Financial Services Authority is being criticised for allowing Global Trader Europe to continue writing new business for more than a month after the broker informed the agency that it was in trouble. GTE's management brought in the FSA in to address problems with the client that eventually led to GTE's collapse, sources say. GTE's clients are expected to lose a high percentage of their cash. Telegraph (London) (21 Apr.)

SEC, states investigate auction-rate bond market collapse
U.S. states and the Securities and Exchange Commission are among those investigating the virtual disappearance of the auction-rate bond market. Citigroup predicted last week that the $330 billion market that started to unravel in February will "cease to exist." Borrowers are replacing the bonds, whose yields are set through periodic auctions, because the market's collapse raised borrowing costs for taxpayers to as high as 20%. Bloomberg (21 Apr.)