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Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.

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Judgment day for J.P. Morgan

There won’t be an email on Monday and Tuesday of next week, 18/19 March 2012.

Today, the London Whale Senate hearing starts in DC, led by John McCain and including testimony from former CIO Ina Drew who left the firm in May 2012. The allegations include a failure to appropriately report on the $6bn trading losses, misleading regulators and investors. read article

Following the Fed stress testBank of America is set to buy back $5bn of shares and $5.5bn of preferred stock, while J.P. Morgan will buy back $6bn in common stock. Goldman Sachs will also be allowed to repurchase shares, but overall the Fed seems worried about J.P. Morgan‘s and Goldman‘s capital structures: the banks will have to submit revised capital plans by September. read article

The British Parliamentary Commission on Banking Standards (PCBS) stated that the UK didn’t need a ban on proprietary trading, mirrored from the American Volcker rule. The Commission suggested capital requirements as alternative tools and cited the difficulty of defining proprietary trading appropriately. Future BoE Governor Mark Carney agrees as well. read article

After months of investigations and grounded fleets, Boeing’s Dreamliners could be back in the air “within weeks”. The spontaneously igniting batteries have been replaced and “only” need approval from the Federal Aviation Administration to be ready for take-off. Japanese authorities remain skeptical and declined to put a date on when the Dreamliners could fly again. Either way, Boeing doesn’t have the capacity to replace batteries in all 50 active planes simultaneouslyread article

While the EU-US trade agreement is in the works, Japan has entered negotiations for a similar deal for Pacific nations. read article

Meanwhile, Greece, or rather the Hellenic Republic Asset Development Fund, is selling gas and gambling companies as part of its privatization campaign. Get in there while it’s cheap. read article

Last night, Samsung launched its latest smart phone in the Radio City Music Hall in New York. A review from All Things D, here.

Weekend reading:

– the America we used to know, read article

– the US is more energy self-sufficient, except China wants to own all their natural gas fueling stationsread article

– when hedge funds get personal: the Herbalife background storyread article

 Have a good weekend.

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Why an EU policy success may do no good

Brussels is celebrating one of the rare agreements on European blanket policy, while the City of London is collectively banging its head against the wall. In a nutshell, the latest Basel III negotiations have led to this: more capital, more capital, more capital, and capping banker bonuses at 100% of salary (or at 200% with shareholder approval). Currently in draft form, the legislation is set to be implemented in January 2014. Enough time to find a place in Hong Kong. read article

Across the globe, Argentina is kind of blackmailing the American legal system. In November, three New York judges ruled that Argentina had to repay selected creditors a total of $1.3bn. Since then, the country has behaved like a child, fighting its creditors (and winning), bringing the case to the appeals court culminating in its attorney announcing that it was willing to default – again – on its government debt, if the ruling wasn’t reversed. It is unsure whether the final ruling can be issued before new repayments fall due. read article

Following Bernanke’s QE comments yesterday, Mario Draghi confirmed his commitment to the ECB pumping money into Europe. Meanwhile in Italy, Bersani and Berlusconi are looking into forming the mother of all coalition governments, says Finance Undersecretary Gianfranco Polillo. Apparently, the idea has been buzzing around the Italian press for days. Might be a rumor. All we know for certain is that Grillo is not going to make an effort to move towards Bersani whatsoever. read article

The aviation industry is swinging up an down in the meantime, with Iberia‘s restructuring causing its parent International Airlines Group a €997m pre-tax loss, while EADS is being celebrated as a “European success story” (that’s a thing?) by the Handelsblatt.

Otherwise, Europe got its own “fear” index called Ivi (implied volatility index), modelled on that of the US, measuring volatility in the Londoner FTSE 100 and Italy’s FTSE MIB indices, and the US is getting ready for the dramatic advent of the sequester spending cuts tomorrow.

So long.

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Bad PR for corporations as such

Today’s news are mostly dominated by the siege on an Algerian gas plant that started yesterday, triggered by French military action in Mali. All else seems to be on hold.

But there’s some drama: Tom Albanese, chief executive of Rio Tinto, British-Australian metals and mining company and gold star member of the companies-that-are-what’s-wrong-with-the-world club, has stepped down after the company had to admit to $14bn in impairment charges following unsuccessful acquisitions under Albanese’ supervision. In February 2012, one of these questionable assets, aluminum business Alcan, was written down by $9bn. read article

Thanks to a little €1.5bn incident in Italy, Deutsche Bank got bad PR again. In 2008, the aforementioned amount was loaned to Banca Monte dei Paschi di Siena, the world’s oldest established bank. As part of the deal, the Italian bank avoided a €367 loss on an old derivative contract and bet against Italian government bonds. A year later, Monte Paschi received a €1.9bn bailout from the Italian government, following by the December 2012 EU approval of a total €3.9bn bailout. It may raise a question of fairness, if not at least of proportion. While Monte Paschi is being investigated for manipulation and obstruction of regulatory activities (in Italy… that’s convincing), German authorities are trying to justify another investigation of Deutsche Bank. They promised to leave the machine guns at home this time. read article

As more or less all of Boeing’s Dreamliner fleet [globally] is now grounded for inspection, aircraft order numbers for 2012 were released. And guess which manufacturer has re-taken the number one spot after five years… exactly, Boeing. The difference to Airbus: 13 planes. And for all you know, those aren’t even fit to fly. In the US and Europe, it is not even the airlines that keep their fleet on the ground, the authorities have banned Dreamliners from flying until Boeing can resolve the risk of battery fires. read article

And the headline of the day: “Dimon Takes a ‘Whale’ of a Pay Cut

So long.

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Eurozone crisis: Just grow out of it, stupid!

After yesterday’s news of the shrinking German economy, Spanish PM Mariano Rajoy called on all those country’s who aren’t Spain, Portugal, Ireland, Greece, Cyrpus, really also Italy and maybe not even France, to implement growth stimulating policies as long as they can, because Spain sure can’t. This is the same Spain that still hasn’t called the ECB for help. Should someone break the news that Europe might not just grow out of this crisis? Maybe. But it’s siesta now. Let’s wait. read article

In the meantime, the German central bank is working on the logistics of getting 700 pounds of gold back into German vaults. At this point most of it is stored at the New York Fed, with the rest of it locked up in Paris, a precaution that is still in place from the cold warread article

The Netherlands‘ fourth largest bank SNS Reaal announced that it would need a restructuring due to its toxic property loans in autumn 2012. Now, the bailout will have to be carried out by the government. According to a decision by the European Commission, Dutch banks ING and ABN Amro will not be allowed to be part of the restructuring, because they received bailouts during the financial crisis. One scenario would be the creation of a bad bank for said loans, with all other big Dutch banks as shareholders. Hello over there at the Basel committee! Does this sound systemically risk-free to you? Altogether, it is estimated that SNS Reaal will need about €1.2-1.8bn to keep its doors open. In 2008, the bank received €750m from the government. read article

Otherwise, there are a number for “Facebook searching for revenue” headlines out there, because the website just launched its own search function, which despite it’s lose limits on Facebook itself, is stepping onto Google’s turf. Has that ever been a good idea? read article

And speaking of corporate catfights. It seems obvious that EADS has won the “massive plane”-round against Boeing. The Dreamliner (787), competitor aircraft to the A380, doesn’t seem to fly so well. This morning All Nippon Airlines and Japan Air grounded their 787 fleets for review, after yet another Dreamliner had to perform an emergency landing due to technical difficulties. read article

A whole truckload of banks announce fourth quarter earnings today, including JP Morgan, which has just announced to cut CEO Jamie Dimon’s salary in response to his responsibility in the London Whale case.

So long.

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Japan’s recursive debt dilemma; Papandreou’s mother evaded taxes on €550m

The morning news sang the song of positive Chinese manufacturing data as the savior of the world economy. Quietly, in the background, the CEO of the Bank of Tokyo pointed at the systemic risk deriving from government debt exposure of Japanese banks. According to the Bank of International Settlements, Japan’s lenders hold 900% of their tier 1 capital in Japanese government bonds. For comparison: since 2002, the equities to tier 1 ratio is capped at 100%.

As usual, things are messier in Europe, where Moody’s downgraded the credit worthiness of the ESM super-duper rescue fund over the weekend, while Greece announced its intention to buy €10bn in debt back.

Angela Merkel said in a weekend interview that she was willing to consider a Greek debt haircut in a possible world in which Greece got its finances back under control and doesn’t require additional debt. In other words, she isn’t really.

In other Greece news, Margaret Papandreou, the former prime minister’s 89 year-old mother is the beneficiary of an HSBC account worth €550m in Geneva. Oh well that is awkward. Switzerland has loosened its privacy laws on bank accounts to give the troika a better look at Greek tax evasionread article

In an embarrassing attempt to market Paris as a location, Christian Noyer of the Banque de France as argued that it was intolerable for the eurozone to have its financial center, i.e. London, outside the monetary union. Under normal circumstances, one should laugh at Noyer for being French […] and ridiculous [……..], but he has influence in the ECB, which will be have power over all European banks as soon as the banking union is agreed upon. read article

In the world of aviation, Delta, the world’s second largest airline after United Continental, is considering buying the 49% stake in Richard Branson’s Virgin Atlantic that is currently held by Singapore Airlines. In 1999, the stake was wrth £600m. If the deal goes through, Delta’s partners in crime Air France-KLM could acquire part of Branson’s 51%. Delta’s motivation for buying into the airline is (surprisingly) not the midnight ice cream-trolley on 34,000 feet, but Virgin’s slots at Heathrow, where it is ranked third in terms of take-offs and landings per week. read article

No room for news from the fiscal cliff, in a word: deadlockread article

So long.

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“The ECB is by and large done [trying to help you]”

The moment when it’s not the Greeks who don’t live up to their promises: the troika wants to delay the next debt tranche despite the deal on austerity measures, to wait for a full report on compliance with the bailout terms. At the core of the issue is the €5bn repayment due next week, but the next bailout tranche is also connected to a two-year extension to 2016 for Greek aid. So far, so bad. While the EU seems to be mainly concerned with the restructuring of debt that will never be repaid, the IMF worries whether Greece will ever return to growthread article

Mario Draghi, fed up, announced the ECB was done supporting Greece. And you can’t blame the man who has been waiting for Spain to make one, just one, phone call for the past two months, and who is being chased by German lawmakers scared of inflation. As a last act of kindness, he said the  €12-15bn profits the ECB made on the €55bn of Greek debt it owns should go back to the country itself.

Meanwhile, France is expected to slip into recession by the time the year comes to an end. In SpainIberia, which is owned by IAG, just as British Airways, will cut the airline’s 21,000-people workforce by a quarter in an effort to turn the loss-making business around. That’s just what Spain ordered. read article

The Telegraph broke a story saying that UK tax authorities got a hold of the details of every British HSBC client in Jersey. Mind you, Jersey is a tax-haven, population 98,000 (and most of them are accountants). The list of names was obtained from a whistle-blower, who didn’t get the memo that the EU whistle-blower-incentive is not actually in place yet. It features drug lords, weapon smugglers and fraudstersHSBC, of course, will have to pay between $1.5-2bn for breaching anti-money laundering rules in the US and Mexico. For those that remain sceptical of a whistle-blower from Jersey or the journalistic standards of the Telegraph:

Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday: Does HSBC have just 4,388 Brits holding offshore accounts on this Channel island?

Weekend reading

– Interactive infographic for real GDP, unemployment and inflation developments in Europe, read article

– El-Erian’s 4-point plan to save the US economyread article

– The Asian way: economic stability in the 21st century, read article

– Democrats and Wall Street, version 2.0 read article

– From law to oil to Paris to … the new archbishop of Canterburyread article

Have a good one.

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Heathrow to be renamed China-Qatar International Airport

The US saw 158,000 jobs added in October, undercutting expectations of 162,000. Jobless claims fell by 9,000 from last week. ADP, which releases the numbers, changed its methodology for this report, introducing its new partner company Moody’s Analytics, after having faced criticism regarding the data’s relation to the monthly unemployment report. Said report will get out tomorrow, despite being almost delayed due to the aftermath of hurricane Sandy. This is the second last unemployment data release before falling or not falling off the fiscal cliff in January, as this wonderful infographic illustratesForecasts see unemployment going up to 7.9%.

PMIs were released both in the UK and China. The former missed expectations, hope and dreams of a number closer to the magic 50 (growth benchmark), proof the exiting a recession is not as fun as it sounds. In China on the other hand, fears over the country’s slowdown were eased with stronger growth returning to the manufacturing sector and the October PMI reading being back in the black.

And the timing could hardly be any more ironic. Yesterday, CIC, China Investment Corporation, confirmed to have bought a 10% stake in Heathrow, the third busiest airport in the world. The stake will be acquired from Spanish infrastructure investor Ferrovial, which currently holds 5.7% of Heathrow’s holding company, which will acquire an additional 4.3% to guarantee CIC’s ownership of 10%. It’s busy days at the European Competition Authority, which is still in the middle of reviewing the purchase of 20% of the airport by Qatar’s sovereign wealth fund. Since 2007, Heathrow has been involved in debates as to whether or not the airport would get a necessary third runway.

Otherwise, JP Morgan has filed a case against the supervisor of the Bruno Iksil, the London Whale, in London’s High Court of Justice. Javier Martin-Artajo, who has left the bank along with a number of other people associated with the $5.8bn loss, has not been served yet. Details of the bank’s legal arguments or the amount of money the whale watcher is being sued for are are not publicly available.

And while JP Morgan continues to be under investigation from the FBI concerning the above, Barclays was fined $470m for manipulating California’s electricity market. The fine includes a $35m disgorgement for the period from 2006 to 2008. BP and Deutsche Bank are also under investigation of the Federal Energy Regulatory Commission. Maybe it’s time to manipulate utilities in another state? One that’s less experienced in law suits against big corporations maybe? Just a thought.

So long.

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Suddenly Q4

 

And then it’s suddenly Q4: another grim earnings season ahead, as well as poor economic performance all over, the god-damn fiscal cliff and US elections, and presumably another rekindling of the European crisis, leading to a massive suspense just before Christmas to start 2013 in the same way as last year. Great. According to MarketBeat

The S&P 500 companies are expected to report contracting profits by about 2%, for the first time since 2009, according to S&P Capital IQ. That’s certainly not a good thing for stocks.

But let’s face it, what is these days… For today, we can stay tuned for bad economic news out of Germany, the eurozone as such and the US.

The first on up is eurozone unemployment, which has hit 11.4%, a[nother] new record. Otherwise, manufacturing is down in the UK and Greece is likely to see a sixth year of recession in 2013, suggesting that there will be another Greek bailout.

The big news today is that after seven month of negotiations, sweat and tears, Xstrata has finally agreed to recommend Glencore’s bid to its shareholders. The final vote will be at the end of the month. The offer remains at $33bn, but Xstarta’s board required the company’s senior management to be retained for at least two years following the merger, to ensure the project pipeline. Xstrata’s CEO Mick Davis, who is bound to leave his position, was going to be replaced by Glencore’s Ivan Glasenberg; under the new conditions, the position will be filled by an Xstrata board member. read article

Also in the wonderful world of M&A: Germany and France have agreed to give up some of their veto rights conditional upon getting a big equity slice of the EADS-BAE pie. The CEOs of the two companies involved in the £34bn merger said that neither France nor Germany would be allowed to hold more shares/rights than the average shareholder. This is mainly to to BAE’s worries about defence contract with other countries. read article

In Germany, it has been confirmed that Peer SteinbrueckFinance Minister from 2005-2009, will challenge Angela Merkel in next year’s national elections. Steinbrueck worked alongside the chancellor during the coalition government of the Christian and social democrats. In line with the technocracy governing Europe at the moment, Steinbrueck is an economist and has publicly spoken out against Keynes, stimuli, Swiss bank secrecy, private equity and hedge funds. He also wants Deutsche Bank to split its commercial and investment banking business for better risk management. Thank god all of this comes in a time of prosperity, otherwise it may comprise Germany’s competitive position. Oh no wait… read article

So long.

 

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It’s the politics, stupid!

There won’t be a news brief tomorrow, September 25, 2012.

Today, and possibly this entire week, is about politics, whether underlying or obvious.

The UK is getting a new bank. This government-backed brain child of Business Secretary Vincent Cable is the latest idea to poke the lending market back to life. The British business bank is a way of starting from scratch with a new clean balance sheet, argues Cable. A little bit like buying new socks after having worn a pair once. But the bank won’t be a public affair: privately run, proceeds from selling shares will add to the £1bn government injection. A harsh comment from the FT:

The announcement is, partly, an admission of failure of government attempts to free up lending. The coalition’s early loan targets for banks, Project Merlin, proved ineffective and was quickly dropped. It was replaced by a national loan guarantee scheme and, most recently, a “funding for lending” scheme to provide cheap finance to banks offering business or home loans.

Let’s see how long this one will be around for. read article

This week may see the official bailout request from Spain to the bottomless savings account that is the EU. This is exciting because it will test the ECB’s new bond purchasing policy and, well, it might save Spain. The request is contingent on the results from Spain’s bank review, determining available credit line. On Thursday, the country will also announce its 2013 budget, suggesting that the bailout business will wait until Friday. This may come to the discontent of Angela Merkel, whose cabinet said that Rajoy had to make up his mind rather sooner than laterread article

Next door in Portugal, the government has indicated to abolish an austerity measure that would increase worker contributions to lower overall labor costs to avoid a country wide protest. read article

Otherwise, the BAE-EADS merger is becoming more politicized, as BAE fears its customer relations with the pentagon will suffer, and the German Ifo business climate index fell unexpectedly to a 2.5 year low. Oh nein!

Meanwhile, China and Japan are edging further towards a full-blown political conflict, with three Chinese ships ‘casually floating through’ the disputed area of the East China Sea today. read article

And not just as far east, in BelarusAlexander Lukashenko, “Europe’s last dictator“, appears to have secured all parliamentary seats once again. read article

So long.

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