Financial Teasers 4 April 08

Top Stories

Hedge funds face new threat as investors bail
First, banks started pulling hedge fund credit lines and demanding greater security against loans. Hedge funds were forced to sell assets and incur heavy losses. Now, investors are pulling out of the hedge funds, increasing the risk of more fire sales of assets to raise capital to meet withdrawals. Financial Times (03 Apr.)

Officials, executives defend their actions in Bear Stearns takeover
Testifying before the Senate banking committee, top Wall Street executives and federal officials for the first time publicly explained the negotiations that led to JPMorgan Chase buying
Bear Stearns. Officials from the Federal Reserve, SEC and Treasury defended their roles in the deal and the government's rescue of the investment bank's creditors. ClipSyndicate/Bloomberg (03 Apr.) , International Herald Tribune (04 Apr.) , Bloomberg (04 Apr.)

Late payments by U.S. borrowers reach 16-year high
A study by the American Bankers Association found that 2.65% of U.S. consumer loans were at least 30 days past due in the fourth quarter. That's up from 2.44% in the third quarter and from 2.23% in the fourth quarter of 2006. The results show that credit trouble has spread from mortgages into other types of debt. Reuters (03 Apr.)

Spike in food prices triggers panic in developing nations
The prices of rice, corn, wheat and other food staples have been rising the past couple of years, but recent spikes have sparked food riots in Morocco and Yemen and driven governments to radical steps to make sure they have enough. Egypt, for example, has banned rice exports for the next six months. Economists say the problem stems from farmers planting crops for biofuel rather than food. ClipSyndicate/Bloomberg (04 Apr.) , The Washington Post (04 Apr.)

Thailand denies rumors it will reduce rice exports: Thailand, the biggest exporter of rice in the world, is not planning to reduce rice exports, according to a government official. "We are confident that Thailand has ample supply for both domestic consumption and exports," said Apiradi Tantraporn, head of the Commerce Ministry's Foreign Trade Department. The Guardian (London)/Reuters (03 Apr.)

Venezuela plans tax on oil sales to boost revenues
Venezuela's Congress is expected this week to give initial approval to a tax measure that will take half of oil revenues above $70 per barrel, and 60% of revenues above $100 per barrel. "Because of high oil prices, oil companies have excessive earnings that go beyond reasonable levels of profitability," legislator Angel Rodriguez said. "One way to distribute them to our people, who are the owners of the oil, is to create this tax."
CNBC/Reuters (03 Apr.)

Moody's warns about Latin America's maturing corporate debt
Moody's Investors Service said the amount of corporate debt in Latin America that will mature in the last six months of this year will reach $6.8 billion, up from less than $2 billion in the first half of the year. If the debt market slump continues, the companies may have trouble refinancing. "Debt maturities should be the main area of focus for liquidity risk in the region," Moody's analysts wrote. The "big spike in maturities in the second half of the year will test investor appetites for Latin American credit and the ease of corporate access to alternative sources of financing." Bloomberg (03 Apr.)

Analysis: Asian banks to emerge from subprime crisis OK
Analysts say that Asian banks will face losses related to the U.S. subprime meltdown, but they won't be as severe as the losses hitting UBS, Merrill Lynch and Bear Stearns. "They are nowhere near as embroiled as the large U.S. and European banks," said Jason Rogers, a credit analyst at Barclays Capital. Reuters (04 Apr.)

Other News

Former UBS chief launches campaign to overhaul bank Financial Times (03 Apr.)

Merger set up tumultuous decade for Citi The New York Times (registration required) (03 Apr.)

Market Activity

Asian markets mostly down, Sydney inches up
Japanese stocks ended the week down and Australian shares were propped up by gains by oil and mining companies. Tokyo's Nikkei 225 Average fell 0.7%, South Korea's Kospi slid 0.2% and India's Sensex dropped 2.2%. Meanwhile, the S&P/ASX 200 in Sydney gained 0.2%. Markets in Shanghai, Hong Kong and Taipei were closed Friday for a holiday. MarketWatch (04 Apr.)

Collapse of auction-rate securities market hits student lenders
No student loan-backed municipal bonds were sold in the first quarter of 2008, a situation that hasn't occurred in nearly 40 years, according to Thomson Financial. The lack of debt sales by public student-loan agencies is a result of the collapse of the auction-rate securities market. Bloomberg (04 Apr.)

Samurai bond issuance soars to nearly $5 billion
Yen-denominated bonds issued in Japan by foreign institutions more than quadrupled from $1.12 billion in the first quarter of 2007 to $4.95 billion in the same quarter this year. The boost in issuance of Samurai bonds highlights the attraction to Japan as a funding source during the global credit crisis. Financial Times (04 Apr.)

Economics

Bernanke says full benefit of rate cuts not yet realized
Federal Reserve Chairman Ben Bernanke said the full effect of the Fed's recent reductions in interest rates has not yet been realized by the economy. "Further actions will have to depend on how the economy evolves and we are looking of course at both sides of our mandate, growth and inflation," Bernanke testified at a Senate hearing. ClipSyndicate/Bloomberg (03 Apr.) , Reuters (03 Apr.)

RBA governor indicates Australia's economy is slowing
Glenn Stevens, governor of the Reserve Bank of Australia, said he expects inflation to hover around 4%. "I can't tell you at what point (interest) rates can start to come down," Stevens said. "I can't even promise that they might not rise again." The bank believes the Australian economy may be slowing, but Stevens said more evidence is needed. Forbes/Associated Press (03 Apr.) , The Herald Sun (Melbourne, Australia) (04 Apr.)

Investment banks boost borrowing from discount window
The Federal Reserve reported Thursday that large Wall Street banks averaged more than $38 billion in daily borrowing from the Fed's discount window. That's up from just under $33 billion the previous week and $13.4 billion during the first week the lending facility opened to the investment banks. CNBC/Associated Press (03 Apr.)

Service sector, jobless reports point to economic slowdown
For the third consecutive month, the U.S. service sector contracted in March. Meanwhile, government data show that the number of workers applying for unemployment benefits jumped to the highest level since September 2005. The reports reinforce concerns that the U.S. economy is sputtering. ClipSyndicate/Bloomberg (03 Apr.) , Reuters (03 Apr.)

Geopolitical/Regulatory

EU finance officials meet to address economic woes
Finance ministers and central bankers from the 27 European Union nations are meeting in Slovenia today and Saturday to address a slowdown in the region's economy and climbing inflation rates. They will try to develop a joint response to these problems, and the 15 countries that use the euro will discuss the currency's rapid acceleration against the dollar. ClipSyndicate/Bloomberg (04 Apr.) , International Herald Tribune (03 Apr.) , Forbes/Associated Press (04 Apr.)

Financial Products

Credit Suisse launches first ETN from its new platform
Credit Suisse's first exchange-traded notes began trading on the New York Stock Exchange. The ETN is tied to the Credit Suisse Global Warming Index, which is made up of 50 top ranking stocks of companies that take on climate change. Credit Suisse is the seventh issuer to enter the American ETN market. Structured Products (03 Apr.)

Ethics

SEC accuses London-based Pentagon Capital of fraud
The SEC has filed a complaint against Pentagon Capital Management, a London-based hedge fund, and its CEO, Lewis Chester, for allegedly scheming to defraud U.S. mutual funds and investors. The suit claims Pentagon defrauded the funds through deceptive market timing and late trading. Lawyers for Pentagon said they are confident they have legal and factual defenses to the claim. Reuters (03 Apr.)

Marubeni, Lehman both say they are victims in scam
Lehman Brothers is suing Marubeni, an influential Japanese trading company, over an allegedly fraudulent banking scheme. The Japanese trading company says it, too, is a victim in the scam. This Financial Times article outlines the case, the players involved and the questions surrounding the deal. Financial Times (03 Apr.)