Financial Teasers 22 May 08

Top Stories

Moody's retains law firm to review CPDO ratings process
In response to a recent Financial Times article, Moody's has retained law firm Sullivan & Cromwell to do an external review of the agency's process for rating European constant proportion debt obligations. Moody's had rated complex debt products higher than warranted because of a glitch in its computer models but did not fix the error for nearly a year, despite senior staff knowledge. Meanwhile, U.S. Sen. Charles Schumer, D-N.Y., has called on the SEC to investigate the situation. Financial Times (21 May.)

Dark pools work to prevent "gaming," catch perpetrators
Both broker-dealer-owned and independent dark pools are getting tough on "gaming," or the use of trade information by another party for financial gain. The potential problem intensifies as more liquidity flows into the dark pools. Tabb Group estimated that at least 10% of daily volume is running through dark pools. A Tabb report from last year found that 60% of buy-side participants surveyed said the gaming threat affected their decision on whether to interact with the pools. Financial News Online (22 May.)

Canadian court ruling could derail buyout of BCE
The Quebec Court of Appeal ruled that bond holders of BCE were unfairly treated when the company's board of directors approved a $52 billion buyout offer from the Ontario Teachers' Pension Plan and its partners. BCE and its proposed buyers said they plan to appeal the lower-court ruling to the Supreme Court of Canada. Attorney John Finnigan, who is representing the bond holders, said if BCE and the buyout group want the deal to be completed, they will have to start over. Canada.com (CanWest News Service) (22 May.)

Group warns about liquidity battle in energy contracts
The Futures and Options Association warns that if the looming fight between IntercontinentalExchange and the New York Mercantile Exchange regarding control of liquidity in energy contracts heats up, London's energy market could get burned. The exchanges, along with LCH.Clearnet, are battling over competing clearing services. The FOA is concerned that the liquidity will be split between clearinghouses, raising regulatory issues. Financial Times (21 May.)

Auction-rate securities leave investors in a bind
Investors of auction-rate securities are facing the dilemma of either waiting for the market to get back on track or find a way to get their money back. Individuals' financial situation plays a large part in the decision. Those who can afford to leave the money might be rewarded with higher yields, while those who need the money now will likely have to pay either interest on a loan from their brokerage or take a discount and allow their adviser to buy the securities.
Bloomberg (22 May.)

Oil price hits more than $135 a barrel in Asia

In Asia, oil reached a record high price of more than $135 a barrel today and then retreated. Concerns about supply, increasing global demand and a declining dollar are keeping crude futures moving up. Analysts are starting to question what will stop oil prices from increasing as they continue to set new records almost daily. Although there are technical indications in the futures market that crude might drop, few analysts are ready to call an end to the rally. ClipSyndicate/Bloomberg (22 May.)

, Associated Press (22 May.)

Asian governments deal with record oil prices differently: While some Asian governments are subsidizing fuel costs for consumers to keep inflation in check, others are raising energy prices to reduce the impact on their budgets. "We see fiscal positions deteriorating in countries that subsidize the local cost of oil," said Robert Subbaraman, chief economist at Lehman Brothers Asia. "If oil prices stay persistently high at these levels, these kinds of measures can do more damage than good." Bloomberg (22 May.)

NRG Energy makes $11.3 billion bid for struggling rival
Calpine, a troubled power wholesaler with dual headquarters in Houston and San Jose, Calif., has revealed that its rival NRG Energy made an unsolicited bid of roughly $11.3 billion in stock. NRG, which confirmed the offer, is attempting the takeover only months after Calpine emerged from operating under bankruptcy protection. Associated Press (22 May.)

Market Activity

Japanese, Australian shares up despite oil concerns
Shares in Tokyo and Sydney, Australia, shrugged off a global slump in equity markets to reverse earlier losses and finish the day with gains. Tokyo's Nikkei increased 0.4% and Sydney's S&P/ASX 200 edged up 0.1%. Meanwhile, South Korea's Kospi and China's Shanghai Composite both slid 0.7%, Hong Kong's Hang Seng Index dropped 2% and Taiwan's Weighted Price index fell 0.4%. Singapore's Straits Times Index and Indonesia's Jakarta Composite both fell as well, 1.1% and 1.4%, respectively. MarketWatch (22 May.)

Credit crisis spurs derivatives market's rapid expansion
The Bank for International Settlements said in a report that the market for derivatives expanded 44% to $596 trillion from 2006 to 2007, the fastest expansion in at least a decade. The market, which includes derivatives on debt, commodities, currencies, interest rates and stocks, was spurred by the global credit crisis as many used the contracts to hedge against losses. ClipSyndicate/Bloomberg (22 May.) , Bloomberg (22 May.)

Most Brazilian companies cancel, postpone IPOs
With nearly two-thirds of last year's new stocks in Brazil losing money, most of the country's companies planning initial public offerings have either canceled or postponed their plans. Banco Fibra, PST Eletronica, Norse Energy do Brasil and more than a dozen other companies in Brazil, which has the best-performing equity market in the world, have delayed or withdrawn IPOs this year. Bloomberg (21 May.)

Economics

Experian: U.K. better positioned to weather storm than U.S.
Experian, the biggest credit information agency in the world, said U.K. banks started tightening lending standards two years ago, putting Britain in a better position to ride out the financial crisis than the U.S. Experian CEO Don Robert said the quality of credit portfolios in the U.K. is holding up, while the company has seen the housing market woes spread to credit cards and other areas of the market, resulting in "real evidence of the weakening consumer in the U.S." Telegraph (London) (22 May.)

Japan's trade surplus drops by more-than-expected 46.3%
Falling exports to the U.S. combined with the rising cost of energy imports caused the trading surplus in Japan to plunge 46.3% in April. The figure underscores the pressure that Japan is facing caused by the global economic downturn, analysts said. Increased shipments to rapidly expanding emerging markets are helping. Channel NewsAsia/Agence France-Presse (22 May.)

Iceland's central bank expected to boost or hold interest rate
Nine economists surveyed by Bloomberg expect the Central Bank of Iceland to either raise its benchmark interest rate today or hold it steady. The bank is struggling to reverse significant decline in the country's currency, the krona, and curb inflation, which is accelerating at its fastest pace in 18 years. Last week, central banks from three other Nordic countries offered to provide emergency funding to prop up Iceland's currency and financial system. Bloomberg (22 May.)

Geopolitical/Regulatory

Influential group calls for pan-EU "super regulator"
A group of former European premiers and finance ministers has sent an open letter to the European Commission and European Union president criticizing the financial industry and calling for an EU-wide regulator to prevent future crises. The letter takes aim at bankers' compensation, risk taking by financial institutions, lack of transparency in the markets and loss of business ethics. Telegraph (London) (22 May.)

Financial Products

Study predicts issuance of CDOs will likely disappear
A report by Aite Group predicts that the market for collateralized debt obligations is headed for oblivion. Data show that $226 billion worth of CDOs backed by asset-backed securities were issued two years ago. So far in 2008, only $1.5 billion worth of the CDOs have been issued. "As capital has become more dear, credit rationing, particularly applied to mortgages, has become de rigueur at lending institutions," said John Jay, the report's author. "With less collateral to securitize into CDOs and no ready buyers in sight, ABS CDO issuance has virtually disappeared." FinancialWeek (21 May.)

PowerShares launches first ETFs of ETFs
The PowerShares Autonomic Global Asset Portfolios are the first exchange-trade funds of ETFs. The three funds track indexes of ETFs developed by New Frontier Advisors, a Boston advisory firm. They were launched this week on the American Stock Exchange. The funds represent different risk levels and asset allocation strategies. Index Universe (20 May.)

Ethics

Judge: SEC lacks authority to fine advisers who aid, abet fraud
A ruling by the District Court in Washington might make it more difficult for the SEC to fine financial advisers found guilty of aiding and abetting fraud. After finding Robert Radano guilty for the illegal activity, District Judge Colleen Kollar-Kotelly said under the Investment Advisers Act of 1940, the SEC does not have the authority to fine Radano. "What the judge is saying is that the statutory language to fine adviser aiders and abettors is not in the Advisers Act," said Jane Stafford, managing member of Stafford & Associates. InvestmentNews (19 May.)

Financial Teasers 20 May 08

Top Stories

U.S. cuts use of imported oil for first time since '70s

The U.S. has seen its dependency on imported oil dip for the first time since 1977. Imports comprised 57.9% of oil consumption in the first three months of the year, down from 58.2% last year. Americans are using less because of high prices and because more ethanol is in use, said Guy Caruso, head of the U.S. Energy Information Administration. Financial Times (19 May.)

Microsoft targets Yahoo's search advertising operation

In its renewed romance of Yahoo, Microsoft has proposed several ideas for a pairing, including a revenue-sharing partnership and Yahoo selling its search advertising operation. Yahoo is under pressure to negotiate some kind of partnership or deal after resisting Microsoft's earlier buyout offer. Yahoo's future might depend on reaching a decision to sell or outsource some of its advertising business, Stifel Nicolaus analyst George Askew said. Microsoft has made it clear that it plans to build its search advertising business one way or another. San Jose Mercury News (Calif.) (19 May.)

Buffett keeps eyes on Europe for takeover targets

Investor Warren Buffett said he's concentrating on Europe, not emerging markets, for companies that his Berkshire Hathaway might be interested in buying. "You want to fish in a pond where the fish are, and Europe is a much better pond," he said. Buffett is on a four-city European tour designed to form relationships that might identify purchase targets for his investment and holding company. Bloomberg (19 May.)

Study: Quantitative fund managers must reassess models

These are tough days for quantitative fund managers. A study by the CFA Institute released last week found that a reliance on similar market factors has made it hard for many quant managers to generate returns. "If your model uses only public information, then everyone else has the same insights," said Michael O'Brien, head of European distribution at Barclays Global Investors. "Quant managers have traditionally taken their insights from the world of academia, but in the future they will have to rely less on this." The study found a need for managers to "update models continuously." FinancialWeek (20 May.)

Big consumer predicts platinum price will keep rising

One of the world's biggest users of platinum foresees a further 15% price increase in the next six months. Metals and chemicals group Johnson Matthey said global platinum output fell 4.1% in 2007, creating a shortage. That is likely to worsen this year as South African mines suffer disruptions because of the country's severe electricity disruptions. Financial Times (19 May.)

Alternative energy projects large and abundant

Forbes.com has identified the biggest and boldest projects that the world has seen so far. They include a geothermal project tapping into the volcanic heat below Indonesia; solar arrays in Australia and California's Mojave Desert; and wind farms in the Texas panhandle and off the coasts of England and Norway. Financial Post (Canada) (16 May.)

Japan expects to come out victorious in credit crisis

While other developed countries cope with the troubling ripples of the credit crisis, domestic and overseas markets should drive a recovery in Japan by the end of this year. Most Japanese financial institutions avoided exposure to subprime loans and dodged the worst of the fallout. Japan will also benefit as the falling dollar forces exporters to diversify their markets away from the U.S. China became Japan's largest export partner last year, and sales to Russia and oil-producing countries in the Middle East are strong. Telegraph (London) (20 May.)

Market Activity

Lack of news lowers Asian markets

Asian stock markets sank Tuesday as investors turned cautious in the absence of market-moving news. Hong Kong led the declines, with the Hang Seng Index down 1.8% after China Mobile reported lower-than-expected growth in telephone subscribers. MarketingWeek (subscription required) (20 May.)

U.K.'s gap in bond yields creates doubt about inflation fight

Investors appeared skeptical of the Bank of England's ability to fight inflation rising at its fastest rate in more than a decade. The gap has widened in recent months between the yields on index-linked U.K. government bonds and conventional bonds. The broader gap shows that bond investors want to pay increasingly higher prices for inflation protection. ClipSyndicate/Bloomberg (20 May.) , Financial Times (19 May.)

Economics

In unanimous decision, Bank of Japan holds interest rates

After dropping its growth outlook, the Bank of Japan decided Tuesday to keep interest rates steady. The overnight lending rate in Japan, at 0.5%, is the lowest among the world's major economies. "There are no options for the Bank of Japan other than to adopt a policy status quo," said Yasunari Ueno, chief market economist at Mizuho Securities. "It won't raise rates until around July next year at the earliest. At the same time, we don't expect a cut." ClipSyndicate/Bloomberg (19 May.) , International Herald Tribune/Bloomberg (20 May.)

Aussie dollar peaks on possible interest rate hike

The Australian dollar punched to a 24-year high Tuesday against the U.S. currency when traders priced in expectations of a coming interest rate hike by the Reserve Bank of Australia. Records of the RBA's May meeting showed that central bank policymakers discussed raising a key cash rate to fight inflation that is at a 17-year high. The Sydney Morning Herald (20 May.)

Brazilian president vows to fight rising inflation

Brazilian President Luiz Inacio Lula da Silva said the government will fight accelerating inflation. Economists predicted that consumer prices will jump to 5.12% this year, a central bank survey shows. Brazil's central bank is expected to raise its key interest rate by a half percentage point to 12.25% at its meeting June 3-4. Bloomberg (19 May.)

Geopolitical/Regulatory

U.S. change to global accounting standards could jolt

The widely expected U.S. adoption of international financial reporting standards could lead companies to dress up their bottom line. Of about 130 companies reconciling accounts from foreign filers using IFRS in 2006, 63% increased their earnings over GAAP reporting by a median 11.1%, according to a study by accounting analyst Jack Ciesielski. The most frequent differences were in the accounting for pensions, share-based compensation and derivatives, his analysis found. FinancialWeek (19 May.)

Nigeria to reform state oil company into private firm

Nigeria's president said the country's dominant and corrupt state oil company will be turned into an efficient private business once a reform process finishes sometime next year. President Umaru Yar'Adua heads a committee whose proposals on restructuring Nigerian National Petroleum Co. are expected in a couple of weeks. Nigeria is the world's eighth-largest oil producer, and the product is the country's main foreign currency earner. Agence France-Presse (18 May.)

Egypt says no tax is coming to reassure investors

Egyptian officials said they have no plans to impose a capital gains tax, hoping the reassurance will stop a slide in stock markets of more than 10% since the start of last week. The plunge came after President Hosni Mubarak announced new tax measures to raise US$2.6 billion for a 30% pay raise for public employees. Investors said the government failed to communicate its intentions, creating fear that more steps were coming and the sell-off of Egyptian shares. Financial Times (20 May.)

Financial Products

Gold in high demand despite decreased production

At the same time that gold production has dropped to its lowest in five years, demand by investors is booming. Demand for gold exchange-traded funds doubled from the first quarter of 2007, the World Gold Council said. MarketWatch (20 May.)

S&P starts new agribusiness composite index

Standard & Poor's has created a composite index that tracks both global agribusiness companies and farm commodities. S&P's Global Agribusiness Composite Index meshes subindexes based on crops and livestock with its agribusiness equities tracker. The new model will be less volatile, the company said. Structured Products (19 May.)

Ethics

SEC sues former AOL execs over inflated ad revenue

Eight former AOL executives overstated online advertising revenue by $1 billion, the Securities and Exchange Commission said in a lawsuit against them. The allegedly inflated revenue increased AOL's stock price, allowing it to buy Time Warner in 2000 for $184 billion to form the world's largest media company. The merged company's market capitalization has now fallen to about $56 billion. Four of the executives agreed to settle with the SEC without admitting or denying the allegations and to disgorge a total of $8 million. Forbes (19 May.)

Financial Teasers 24 April 2008

Top Stories

Defaults of subprime-related credit vehicles mount
Defaults of credit vehicles based on subprime mortgages have risen from $54 billion at the beginning of this year to a current total of $170 billion, according to Total Securitization. The mounting defaults in the U.S. housing market have hindered the collateralized debt obligation market. Ambac recently reported more than $3 billion of mortgage-related charges. Financial Times (23 Apr.)

Fitch sees some defaulted bonds recouping 10 cents on dollar
The expected tide of corporate bankruptcies is expected to leave unsecured bondholders with much less than the historical average recovery of 42 cents on the dollar. Owners of a third of high-yield, high-risk bonds rated B+ or lower may get no more than 10 cents, New York-based Fitch Ratings said. About 22% are likely to get 11 cents to 30 cents. ClipSyndicate/Bloomberg (23 Apr.) , Bloomberg (23 Apr.)

Sam's Club limits rice sales
Wal-Mart's U.S. warehouse unit, Sam's Club, has restricted purchases of some types of rice. The price of this food staple has more than doubled in the past year as China, Vietnam and India curbed exports to protect local supplies. Sam's Club limited customers to four bags of jasmine, basmati and long-grain white rice per visit. The U.S. warehouse clubs are trying to protect their business customers, like smaller restaurants and caterers, said food industry consultant Jim Degen. Bloomberg (24 Apr.)

Brazil, too, holds back on rice exports
Brazil has joined several Asian rice exporters in temporarily halting foreign sales to ensure domestic supply amid rising world prices. Brazil will not meet requests by African and Latin American countries for shipments totaling nearly 500,000 tons of rice, Agriculture Minister Reinhold Stephanes said. Brazil has 1.6 million tons of rice in government warehouses. CNBC (23 Apr.)

Steel prices climb on overseas demand, fewer imports
Steel prices have hit record highs in the U.S. this year, despite a slump in the auto and construction sector. Analysts say the factors driving prices higher include strong global demand, fewer imports from overseas mills, continued appetite from parts of the construction industry, and a jump in input costs. MarketWatch (23 Apr.)

Many oppose housing bailout by Congress
Talk in Congress of bailing out distressed homebuyers is sparking a backlash on new Internet sites created to oppose the plan. Los Angeles attorney and blogger Morgan Ward Doran created Nationalbubble.com because "I just got really angry." Doran argues that lenders, brokers and homebuilders made huge profits by overbuilding and pushing poorly underwritten loans. Now they want taxpayers to cushion their fall, Doran said. CNNMoney.com (23 Apr.)

Report: Gazprom to take over TNK-BP with majority stake
Russia's gas export giant Gazprom will buy majority control of oil major TNK-BP by the end of the year, the Vedomosti daily newspapers reports, citing unnamed sources close to the management of both companies. BP is a 50% owner of TNK-BP, and the other half is held by a group of Russian billionaires. Analysts had predicted a forced sale to a state firm with close ties to the Kremlin such as Gazprom. Reuters (24 Apr.)


Speculators seen as helping drive up world food prices
Biofuel demand and weather disruptions have been blamed for shortages driving up the price of food. But blame is spreading to hedge funds, index funds, pension funds and investment banks. Analyst Greg Warner of the Chicago grain wholesaler AgResource says the current wheat market is unprecedented. He estimates that financial investors now hold the rights to two complete annual harvests of one type of grain, soft red winter wheat. Spiegel Online (23 Apr.)

Market Activity

Asian markets mixed, Chinese shares up on tax cut
Asian stock markets posted mixed results Thursday, although Chinese markets soared after Beijing slashed a tax on share transactions. The tax cut reverses the increase Beijing imposed last year to slow surging stock prices. The Shanghai Composite index climbed as much as 9.6% Thursday before slipping back. Shenzhen's All Share index jumped 8.5%. MarketWatch (24 Apr.)

Apple beats Wall Street, quarterly profits over $1 billion
Apple reported profits of $1.1 billion in its second quarter, or $1.16 per share, to outdistance Wall Street expectations. Macintosh computers continued to sell strongly, with shipments of 2.3 million units, up 51%. ClipSyndicate/Bloomberg (23 Apr.) , CNET (23 Apr.)

Boeing Q1 profits up 38%, CEO predicts strong year
Boeing's first-quarter profits rose 38% to $1.2 billion, with earnings per share up 43%, thanks to strong results in commercial plane, military aviation and space businesses. Boeing expects another strong year, Chairman and CEO Jim McNerney said, despite its well-publicized loss of a massive Air Force tanker contract and long delays in its premium 787 airplane project. AviationWeek.com (23 Apr.)

China's listed companies see combined profits up 55%
Combined profits on the more than 400 listed Chinese companies climbed 55% in the first quarter, thanks largely to Beijing reducing the corporate income tax. Real estate companies saw their combined profits rise nearly fourfold. Other sectors with a growth rate of 200% or more were agricultural, forestry, animal husbandry and fisheries, and information equipment. China Daily (Beijing) (24 Apr.)

Economics

Interest-rate derivatives indicate Libor may rise more
Interest-rate derivatives point to possible continued increases in the London Interbank Offered Rate for dollars as banks remain reluctant to lend to each other. After a high of 90 basis points earlier this week, the Libor-OIS spread is now 88 basis points. Market insiders speculate that lenders have manipulated the Libor to keep their borrowing costs from increasing. Bloomberg (24 Apr.)

Geopolitical/Regulatory

China may recall ship carrying arms to Zimbabwe
China says it may recall a ship carrying weapons bound for Zimbabwe. South African port workers refused to unload it. Mozambique and Angola refused it access to their ports. Zambia, which chairs the Southern African Development Community, said the weapons could deepen Zimbabwe's election crisis. A Chinese Foreign Ministry spokeswoman said the arms contract was signed last year and was "unrelated to recent developments" in Zimbabwe. Reuters (22 Apr.)

China bans funds from buying certain corporate debt
The China Securities Regulatory Commission has ordered the country's funds to avoid buying unsecured medium-term corporate debt. Although The People's Bank of China said earlier this month that it would allow the sales, the regulator said it needs additional time to determine whether the trading volumes will be active enough. The commission didn't mention whether the order applies to banks, insurers and other companies. Bloomberg (24 Apr.)

Futures industry asks Indian PM to scrap tax
The U.S.-based Future Industry Association has asked India's prime minister to end plans to tax commodities futures trading. India's commodities markets were created five years ago and already have entered the ranks of the top 10 exchanges in the world. The growth is due to India's growing economy, vast agricultural sector, and the traditional demand of its people for gold and silver. Financial Times (23 Apr.)

Financial Products

UBS derivatives fund to focus on shipping futures
UBS plans to introduce a derivatives index for institutional investors that tracks coal and iron ore prices and the Chinese economy. The UBS Blue Sea index will be built on shipping futures, specifically dry-bulk forward freight agreements. UBS aims to create the alternative asset for banks and hedge funds hunting for a market not affected by the credit crunch or U.S. economic slowdown. Financial Times (23 Apr.)

Ethics

Samsung saga shows how families rule South Korean economy
The resignation in disgrace of Samsung Group's chairman underlines a paradox of South Korea: the fast-growing, modern economy is still dominated by a handful of family fiefdoms. The 30 largest family groups, known as chaebol, control almost 40% of the economy, the Bank of Korea estimates. The New York Times (24 Apr.)

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.)

Financial Teasers 14 April 08

Top Stories

World leaders seek donations to counter high food prices

World leaders meeting in Washington agreed to support a World Bank "New Deal" to hold down climbing food prices that have led to riots in some poor nations. The call for donors to provide $500 million for short-term food relief came on the final day of the World Bank and International Monetary Fund spring meetings. Financial Times (13 Apr.)

Paulson urges poor countries to avoid food, energy controls: U.S. Treasury Secretary Henry Paulson urged developing countries struggling with soaring food and energy costs not to use price controls or subsidies. Direct government intervention may do more economic harm than good to long-term growth, Paulson said in a speech to the World Bank's development committee in Washington. They "tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," he said. Bloomberg (13 Apr.)

Wachovia to raise billions to shore up balance sheet

Wachovia, which dived into adjustable-rate mortgages with the acquisition of Golden West Financial Corp., is expected to announce as early as today that it plans to raise several billion dollars in fresh capital from outside investors. It appears likely that Wachovia will receive a cash injection of up to $7 billion, and investors will receive shares priced at a 15% discount to the bank's Friday share price. Financial Times (14 Apr.) , The Wall Street Journal (subscription required) (14 Apr.)

Deutsche Bank, Citigroup have most unsold LBO loans

Banks worldwide hold about $200 billion of unsold leveraged buyout debt. Deutsche Bank, with $55 billion, has the largest share of the debt, followed by Citigroup with $43 billion, according to a BNP Paribas report. Bloomberg (11 Apr.)

World Bank considers super fund plan for Africa

The International Finance Corp., the private-sector lending arm of the World Bank, might encourage sovereign wealth funds to invest in a super fund that would channel money into Africa's emerging markets. IFC Chief Executive Lars Thunell said the proposal is to develop a new asset class, not simply aid. Last week, World Bank President Robert Zoellick asked SWFs to invest 1% of their assets in African equities. Financial Times (13 Apr.) , Bloomberg (12 Apr.)

Individuals see cash frozen in auction-rate securities

Retail investors who thought their money was safe in auction-rate securities have learned their money is stuck since trading in the securities seized up two months ago. Though Wall Street heavyweights and major corporations also have been stung, many of them appear to have bailed out of the market ahead of individuals. Institutional investors held just 30% of all auction-rate securities issues at the end of last year, down from about 80% two years earlier. The New York Times (13 Apr.)

Property prices falling in more of the world's boom areas

The bursting U.S. housing bubble is mirrored in dropping real estate prices in Ireland, Spain, the Baltic states and parts of India. Experts predict that some countries, like Ireland, will face an even tougher adjustment than the U.S., with the possibility of a wholesale collapse of the property market. International Herald Tribune (14 Apr.)

Delta, Northwest to pursue merger without pilots deal

The long-discussed merger of Delta and Northwest airlines may take off this week without agreement on how the combined carrier would sort out seniority status for 11,000 pilots. Sources told the Atlanta Journal-Constitution that Delta will try to cut a deal with its 6,000 pilots, announce the merger, and negotiate with Northwest's 5,000 pilots later. Seniority-rights battles "could go on for years," airline analyst Robert Mann said. The Atlanta Journal-Constitution (free registration) (13 Apr.)

Market Activity

Asian stocks drop on falling GE profits, consumer spirits

Bad news from the U.S. overshadowed the Group of Seven's promised support for the dollar, depressing Asian stock markets on Monday. GE's surprise 6% profit drop on Friday made investors shudder ahead of the upcoming quarterly earnings season. Asian markets also reacted to a report that U.S. consumer sentiment hit its lowest level since 1982, a year of low growth and high inflation. International Herald Tribune/Reuters (13 Apr.)

Bond market regaining faith, quits bidding up Treasuries

In an indication that bond markets are returning to normal, traders have quit paying huge premiums for U.S. Treasury bonds. Three weeks ago, traders were willing to lend cash at rates 2 percentage points less than the Fed's target for overnight loans if they could obtain Treasuries as collateral. Now, the gap is back in line with the 0.06 percentage point average in the 10 years prior to August, when subprime mortgage losses spread. Bloomberg (14 Apr.)

Profits for Philips Electronics falls 75%

Royal Philips Electronics NV said first-quarter profit fell 75% from last year due to falling U.S. TV prices and its sale of shares in Taiwan Semiconductor Manufacturing Co. Europe's largest consumer electronics maker sold most of its chip assets in a shift to areas with more stable earnings, such as medical equipment and lamps. ClipSyndicate/Bloomberg (14 Apr.) , Bloomberg (14 Apr.)

Metal, mining firms from emerging markets flock to LSE

IPOs by metals and mining companies on the London Stock Exchange and Alternative Investment Market exceeded all other sectors last year. The 22 deals raised €4.5 billion. The LSE is poised for another good year thanks to emerging markets' metal and mining firms. Last week it announced IPOs from the sector worth €1.6 billion. Financial News Online (11 Apr.)

Economics

G7 warns of intervention to prop up dollar

Finance ministers and central bank governors from the world's seven biggest economies warned they may intervene in currency markets to support the weak dollar. The new posture is seen as a U.S. concession after European governments complained the euro's rise to record highs is the result of the dollar's plunging value. ClipSyndicate/Bloomberg (13 Apr.) , The Times (London) (14 Apr.)

ECB leader says Europe can't afford interest rate cuts

The European Central Bank is unable to cut interest rates this year because inflation is likely to top the allowed limit of 2% in both 2008 and 2009, a bank policymaker said. Yves Mersch, who heads Luxembourg's central bank, is at least the fourth ECB policymaker to suggest last week that the bank ECB will ignore the IMF's advice to cut interest rates in line with the U.S. Federal Reserve and the Bank of England. Bloomberg (14 Apr.)

Spreading inflation may force U.S. to veer from easy money

U.S. officials have started talking about action against the dollar's falling value at a time when inflation has seemed secondary to Washington. The Fed's easing of the money supply is the opposite of the normal inflation cure. Group of Seven finance ministers said Sunday they could intervene to support the dollar. The G7 hopes tough talk will be enough, said Eswar Prasad, a Cornell University economics professor and former International Monetary Fund official, but he thinks markets will see it as a bluff. Reuters (13 Apr.)

European executives see gathering economic clouds

Some of Europe's leading executives believe the eurozone will be hit with the worst effects of the credit crunch within six months. European chief executives have been more optimistic than their U.S. rivals, in part because of their international scope and focus on emerging markets. But with the euro at record highs and booming raw material prices, many executives are growing worried about the wider impact of the U.S. recession. Financial Times (13 Apr.)

Geopolitical/Regulatory

G7 leaders vow regulation to balance financial excesses

Governments of the Group of Seven free-market democracies promised action against the financial excesses that have led to global economic fears. Leaders promised that within 100 days they would set higher bank capital requirements and direct banks to reveal the full extent of their losses in their first-half earnings reports. Reuters (12 Apr.)

Paulson welcomes IMF tracking of currencies, sovereign funds

U.S. Treasury Secretary Henry Paulson said the International Monetary Fund should improve its surveillance of currency exchange rates and sovereign wealth funds. Paulson welcomed the IMF developing a set of best practices for sovereign funds and said it also should work with countries receiving the state-controlled investments. CNBC/Reuters (12 Apr.)

Financial Products

PowerShares launches actively managed ETF for stocks

Invesco PowerShares Capital Management LLC has launched the first exchange traded funds that will actively manage investments in stocks. The three new PowerShares ETFs will disclose their holdings daily on a website for the funds. The portfolios may only be changed on the last business day of each week, according to the PowerShares prospectus. InvestmentNews (11 Apr.)

Ethics

ANZ to investigate conduct involving failed brokerage

ANZ Banking Group will conduct an internal review to assess whether any employee has breached policies or ethical standards in securities lending. Secured creditors of Opes, which included ANZ, stepped in after Australian brokerage Opes Prime was put in receivership. The creditors sold the shares that Opes clients had placed with the failed stockbroker in a bid to recoup more than $1 billion in loans Opes owed. Opes Prime clients say in lawsuits that the shares still belong to them and want them returned. The Sydney Morning Herald (14 Apr.)

Financial Teasers 11 April 08

Top Stories

Subprime barometer shows shortcomings
Dealers and investors trying to find a price for mortgage securities have drifted toward the imperfect ABX derivative index. The index tracks a portfolio of U.S. subprime mortgage bonds, which are infrequently traded compared with elements of other cash and derivative benchmarks. Investors have seen the index move far and fast on little fundamental news. Financial Times (10 Apr.)

Paulson to discuss creating stronger mortgage regulator
Treasury Secretary Henry Paulson plans to meet next week with the leaders of Fannie Mae, Freddie Mac and the Senate Banking Committee to hammer out legislation creating a stronger regulator for the mortgage sector. Paulson has helped expand the mortgage giants' investment holdings to ease the housing crisis, but has so far failed to work out a deal for a new regulator. Reuters (10 Apr.)

Expecting losses, Citigroup investors want to know plans
Citigroup is expected to report another major quarterly loss next week, but that news may be secondary. The banking giant is looking to shed businesses, reduce costs and tighten up business as investors press for reassurance that bank has the losses under control. "They're moving in the right direction, by divesting non-core assets, right-sizing the company and freeing up liquidity," said Chris Armbruster, an analyst at Al Frank Asset Management. CNBC/Reuters (10 Apr.)

Food price spikes help, hurt farming countries
High grain prices are making Latin American farmers rich and restoring the treasuries of many countries in the region, but consumers are hurting. Some governments have banned exports of staple foods or imposed price caps. Peru is promoting potato flour as an alternative to wheat. Argentines are encouraged to eat pork or chicken instead of grain-fed beef. Reuters (10 Apr.)

Philippines seeks wheat after China rejects sale
The Philippines finds itself searching for stocks of wheat in addition to rice after an overture to China was turned down. The episode highlights the growing problems food-importing nations face at a time of thinning grain supplies and rising prices. Bloomberg (11 Apr.)

Iceland buckles under global financial crisis
Iceland has been hard hit by the global financial crisis, and its government is searching for ways to fight off creditors. The country, once a symbol of economic prosperity, has seen its currency take an unprecedented plunge. The krona has dropped 20% against the euro so far this year. Spiegel Online (10 Apr.)

Market Activity

Asian markets mostly gain; GE stuns with 6% profit drop
Japanese, Indian and Chinese shares advanced on Friday on news that the subprime woes may be nearing an end. However, shares in Australia dropped for a fourth consecutive day. Meanwhile, General Electric shocked the market with a 6% decline to $4.3 billion in profits in the first quarter. MarketWatch (11 Apr.) , MarketWatch (11 Apr.)

Auction-rate securities market down by 15%
The market for auction-rate securities that used to be so appealing to U.S. municipal borrowers is shrinking by at least 15%, or $51 billion. Higher rates and a stalled market have led borrowers to convert or plan to replace at least $43.1 billion of the debt. Bloomberg (11 Apr.)

Economics

Bank of England cuts rate, with little immediate effect
The Bank of England cut a key interest rate by a quarter point to 5%, but it brought little immediate result. The central bank's statement didn't focus on recession threats but on inflation. Three-month interbank lending rate futures failed to drop and two mortgage lenders increased their fixed rate deals. Telegraph (London) (11 Apr.) , Financial Times (10 Apr.)

ECB holds rate at 4%
European Central Bank President Jean-Claude Trichet kept interest rates unchanged Thursday, as he has throughout the credit crunch, despite demands for action. Trichet has focused on battling inflation, now at a record 3.5% in the region. "We have one needle in our compass. We have to deliver price stability," he said. Critics say Trichet and the ECB have their heads in the sand and can't see the coming tidal wave. Telegraph (London) (11 Apr.)

Growing U.S. trade deficit surprises economists
The U.S. trade deficit grew from a revised estimate of $59 billion in January to $62.3 billion in February, the Commerce Department reported. The increase surprised economists because the economic slowdown was expected to suppress demand for foreign goods. Instead, import sales had their biggest jump in nearly a year. The New York Times (registration required) (11 Apr.)

China's trade surplus down 10.8% in first quarter
China's trade surplus dropped to $41.42 billion in the first quarter, a 10.8% decline year over year, according to China Customs. Total trade volume was $570.4 billion, a 24.6% increase, with exports at $305.9 billion and imports reaching $264.5 billion. China Daily (Beijing) (11 Apr.)

Geopolitical/Regulatory

G7 finance chiefs differ on how to respond to crisis
Group of Seven finance chiefs, meeting in Washington today, will probably disagree on how to address the global financial crisis. The officials plan to discuss market regulation to prevent a future crisis, but some analysts worry they won't broach the current market distress. The finance chiefs are expected to urge the private sector to ramp up efforts to ease the turmoil.
ClipSyndicate/Bloomberg (11 Apr.) , Bloomberg (11 Apr.) , Reuters (11 Apr.)

Bernanke says financial reforms needed quickly
Federal Reserve Chairman Ben Bernanke said that although the ongoing market turmoil is complicating efforts, overseers of the global financial system need to quickly take action to boost market confidence. "We do not have the luxury of waiting for markets to stabilize before we think about the future," he said. ClipSyndicate/Bloomberg (10 Apr.) , Reuters (10 Apr.)

IMF chief says U.S. rejected oversight program
Dominique Strauss-Kahn, head of the International Monetary Fund, said the U.S. refused to implement the fund's suggestions for supervising the financial markets. Most European countries implemented the IMF's Financial Sector Assessment Program, which requires assessments of the financial sector by an expert team, Strauss-Kahn said. The IMF can not be held responsible for "lack of supervision," he said. Reuters (10 Apr.)

Countries line up for Chinese free trade agreements
China secured its first free trade pact with a developed nation, closing a pact with New Zealand on Monday. The pact is seen as a means for China to acquire dairy products, food and raw materials -- products crucial to its economic expansion. Other countries are scrambling to secure similar deals with China. Forbes (09 Apr.)

Analysis: Chavez resumes nationalizations, socialist strategy
In the past week, Venezuelan President Hugo Chavez has moved to nationalize steelmaker Ternium Sidor, which is controlled by Techint of Argentina, as well as the Venezuelan operations of Mexico's Cemex. This comes over objections from Argentina and Mexico and shows Chavez is pursuing his strategy of developing a socialist state. International Herald Tribune/Reuters (10 Apr.)

Financial Products

Barclays launches FX volatility indexes
Barclays Capital launched BetaVol, Smart BetaVol and AlphaVol. The three FX volatility indexes are aimed at providing portfolio diversification and protection against sudden market downturns. "The FX volatility market has grown dramatically," said Andy Kaufmann, co-head of FX structuring at Barclays Capital. Structured Products (10 Apr.)

Blue Sky launches third tranche of Protected Income Plan
Blue Sky's third tranche of its Protected Income Plan offers a fixed growth rate of 10% per year over six years. PIP III's income payments are fixed and are not linked to the portfolio's performance. The plan requires a £10,000 minimum investment and closes on May 23. Investment Week (10 Apr.)

Ethics

Broker pleads guilty to participating in insider trading
Samuel Childs, 35, pleaded guilty to participating in an insider-trading ring in a case that involved former employees from UBS, Morgan Stanley, Bear Stearns and Bank of America. Childs, the last of more than a dozen defendants to plead guilty, said he accepted money in exchange for not reporting suspicious trading activity at Assent, the securities broker-dealer where he was employed. Reuters (10 Apr.)