Tuesday, April 8, 2008

Financial Teasers 8 April 08

Top Stories

Will poor countries use commodities windfalls to diversify?

The huge price jump in agricultural and mining commodities is boosting the economies of the world's poor countries. Will they improve their economic future by investing the bounty? The lessons of the oil price boom of the 1970s suggest the answer depends on a country's political choices, says Pranab Bardhan, an economics professor at the University of California at Berkeley. International Herald Tribune (08 Apr.)


WaMu to stop offering mortgages through independent brokers

Washington Mutual plans to focus on offering mortgages through its retail bank branches as it puts an end to the wholesale side of the business. Legend Mortgage CEO Mitch Ohlbaum said a WaMu representative told him that Thursday is the last day to submit loan applications. Meanwhile, Washington Mutual appears set to receive a $5 billion cash injection from TPG. BusinessWeek (07 Apr.)

China to finance bulk of new Syrian oil refinery

China and Syria will team up to build an oil refinery in eastern Syria. China National Petroleum Corp. said an agreement the two countries signed last week calls for China to pay 85% of the cost to construct a refinery with a capacity of about 110,000 barrels a day. Forbes/Associated Press (08 Apr.)

Phase two of Novartis swoop for Alcon priced at $28B

Source: CNBCNovartis will become the world's biggest maker of eye-care products with a two-stage purchase of Alcon Inc. from Nestle SA. Novartis is buying 25% for $11 billion and has an option to buy another 52% for $28 billion. Nestle says it will use the money to reduce debt and expand its health-foods unit. CNBC (07 Apr.) , Bloomberg (07 Apr.)

Permira opens private equity office on U.S. West Coast
The U.K.-based private equity group Permira plans to expand its U.S. operations by opening a new West Coast office this year. The new location will focus on buying stakes in technology companies. Financial Times (07 Apr.)

Market Activity

Asian shares fall on profit-taking

Asian markets retrenched Tuesday as concerns of rising prices for crude oil and other raw materials hurt airline and steel stocks. Shares of Japanese financials declined when investors locked in profits after a strong run. Matt McKeith, head of equity dealing at First State Investments, called it a "breather" after "several good up days" for Asian shares. MarketWatch (08 Apr.)

Convertible issuance soars in Asia, falls elsewhere

Issuance of convertible bonds reached record levels in the Asia-Pacific region in the first quarter of 2008, according to Thomson Financial, but issuance dropped in the rest of the world. China was for the first time one of the top issuers, second only to the US, in part because of a $4.2 billion offer from Sinopec. Japan, Singapore and Malaysia also made the top 5. Financial Times (07 Apr.)

Other News

Percentage of firms with distressed debt hits 5-year high Financial Times (08 Apr.)
Alcoa Q1 profits cut in half by weak dollar, costly energy

Source: CNBCHigher energy costs and a weak dollar overcame a surge in the price of aluminum, cutting in half Alcoa Inc.'s first-quarter profit. The aluminum producer missed Wall Street's earnings expectations by 5 cents a share, but investors instead focused on high metals prices. "I think the fundamentals for aluminum could be quite strong over the next couple of years," said Brian Hicks, co-manager at U.S. Global Investors' resources fund. CNBC (07 Apr.) , Reuters (08 Apr.)

Economics

Rising wages, costs in Asia pushing inflation in West
Rising energy and labor costs have forced exporters even in poor countries to increase prices. While producers are passing on their higher prices, American consumers are able to buy less from exporting countries because of the falling value of the dollar. That contributed to U.S. consumers paying 4% more in the past year. But so far, Asian exporters have passed along only a portion of their costs. International Herald Tribune (07 Apr.)

Uptick in Indian wages, falling dollar turn IT services nearshore

North American companies are turning away from India as their offshore IT site in favor of the Western Hemisphere. A company used to be able to save 40% to 50% by hiring Indian firms to handle IT and other services, said Atul Vashistha, chairman at management consulting firm neoIT. But if the dollar keeps falling and Indian wages keep rising, that differential would shrink to 10%, he said. Spiegel Online (07 Apr.)
IADB lending mark shows Latin American expansionThe Inter-American Development Bank last year approved more loans and guarantees for projects in Latin America and the Caribbean since the debt crisis of 1999. "Much of the bank's lending last year was focused on investments that will help our members to deepen and consolidate the gains from booming commodity exports and growing trade with new markets in Asia," IADB President Luis Alberto Moreno said. Bloomberg (07 Apr.)

Vietnam's middle class becoming a prized market

Its emerging urban middle class could turn Vietnam into one of Asia's biggest consumer markets, said Tung Kim Nguyen, a partner at Indochina Capital. Investors attending the Credit Suisse Asian Investment Conference were told Vietnam's other advantages included political security, an appreciating currency and plans to privatize more state-owned firms.
FinanceAsia.com (08 Apr.)

Geopolitical/Regulatory

Financial officials call on governments to work together

Source: CNBCAhead of the Group of Seven meeting in Washington this week, several top financial leaders have called for a coordinated government effort to prevent another crisis and protect the global economy. So far, no firm proposals have emerged and U.S. officials have kept unusually quiet.
CNBC (08 Apr.) , CNBC/Reuters (08 Apr.)

Former SEC heads criticize proposed Bush revamp of agency

Three former leaders of the U.S. Securities and Exchange Commission say the Bush administration's proposed overhaul of financial regulation would weaken the agency. SEC chiefs under Presidents Reagan, Clinton and George W. Bush said it was wrong to change the SEC's approach to one that solves problems through informal discussions with market actors. "We have to have an enforcement approach," said David Ruder, an SEC chairman under Reagan. Bloomberg (08 Apr.)

Mortgage brokers oppose Fed rules on fee disclosure

The public comment period ends Tuesday for proposed Federal Reserve rules aimed at limiting abusive mortgage lending. One rule would bar mortgage brokers from receiving yield-spread premiums unless consumers state in writing that they understand their broker will be paid more for arranging their higher-rate loan. Mortgage brokers say the proposed Fed rules are unfair. MarketWatch (07 Apr.)

China allows banks to buy shares on U.S. markets

Chinese banks will be allowed to buy on U.S. stock markets for institutional investors, the country's banking regulator said. The banks also will be permitted to invest in U.S. mutual funds if they get approval from U.S. regulators, the China Banking Regulatory Commission said. Chinese banks are already allowed to direct money into markets in Hong Kong, Japan, the U.K. and Singapore. Financial News Online/Dow Jones Newswires (07 Apr.)

Financial Products

Technical standard sought for credit derivatives market

The scope of counterparty risk if Bear Stearns had collapsed last month, potentially scarring the $45 trillion credit derivatives market, galvanized regulators and bankers to fix flaws in the market's infrastructure. The New York Federal Reserve has pushed to computerize over-the-counter derivatives processing to improve the speed and accuracy. Many trades are still confirmed by e-mail, instant messaging and fax. Financial Times (07 Apr.)

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