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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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Saying sorry to the 1.5%

When the most interesting headline of the day regards shipping finance and the auditing thereof, you know its a slow news day. The sector is suffering from the slowing of world trade, says the Handelsblatt, and it’s massive capacity doesn’t help the matter. But thank God that any sector’s misfortune is a hedge funds lucky day. Alternative investors, including hedge funds as well as private equity firms, are starting to buy both distressed assets and loans of distressed shipping companies at low cost, anticipating that the world won’t always look so bad (2014 could be our lucky year). read article

And that’s kind of where the exciting stuff ends.

Some merged and acquired: Arab new network Al-Jazeera, which is owned by the Qatari government, acquired Al Gore’s Current TV to finally move into the US market, and Avis bought Zipcar for $500m.

And while the US is edging from fiscal cliff to debt ceiling (Obama signed the legislation dealing with the former this morning in Hawaii), John Boehner is saying sorry to the American 1.5%. Fair enough, after all Boehner wants today to mark his re-election as speaker of the Housenot his return to Ohio. All discussion about progressive taxation aside, it is true that the richest 1.5% of America’s citizens will be worse off. In fact, they will be worse off than they have been since 1979says the Atlantic:

[…] it looks like the top 1 percent could end up paying more overall in federal taxes next year than at any time since at least 1979 […] The country’s richest households will be paying a bit more than 36 percent of their income to Washington — higher than the most recent peak of 35.5 percent in 1995, or 35.1 percent in 1979.

Finally someone said sorry.

The beneficiary of the rich’ increased tax bill are really the banks (sort of). Because one thing that was left out of the fiscal cliff joke of a deal was the exemption of US income tax on foreign income of US banks. Better known(?) as “subpart F exception for active financing income” it is, of course, a loophole that is big enough to let billions of dollars disappear in it – $150bn if you want to believe the estimates quotes by the FT. Established as a temporary relief measure by Bill Clinton in 1998, it does what it’s designed to do: letting US institutions do business cheaper and be more competitive. This isn’t the time to change that, just as much as it’s not the time for anyone to raise their corporation taxes.

So long.

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Black Friday after Black Thursday; FT Deutschland shuts down

It’s Black Friday, THE day in the world of retail, except some companies started early this time around. Firms included Wal-MartTarget and Toys”R”Us offered their traditional Black Friday discounts on Thanksgiving day itself. What was that good for? MarketBeat says it raised the bar: on expectations and stock prices.

On EU issues, this summary says it all:

First it was Greece, which Europe couldn’t “resolve” on Monday night despite Juncker’s vocal promises to the contrary, and was embarrasses into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the “resolution” of the EU budget, which was supposed to be implement[ed] last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse.

The FT reports that the deadlock between the EU’s North and South could delay a budget deal until the new year. So far, rumors say the overall size of the budget, approximately €1tn hasn’t changed – much to the displeasure of the UK and Sweden. As mentioned before, the European common agriculture policy takes the biggest share of the budget, and received an additioanl €7.7bn.

In other news, Bolivia has been invited to join Mercosurthe association between Brazil, Argentina, Paraguay, Uruguay and Venezuela, while Argentina has criticized yesterday’s decision of a New Yorker judge that the country has to proceed with its debt repayments and reimbursements to its hedge fund bond holders, sparking new fears about another South American defaultread article

The gender battle about the next appointment to the ECB’s board has been won by Yves Mersch of Luxemburg. Politically, Mersch is part of the German anti-inflation party. The German edition of the Financial Times is officially shutting down on 7 December, slashing 364 jobs in Hamburg, Frankfurt and offices abroad. I am deeply upset.

Weekend reading:

– Deutsche Bank and the [unbiased] case for the “universal” mega bankread article

– Is Ben Bernanke the new Wizard of Ozread article

– Gaza in an infographic, read article

– Inflation measured on the price of turkeyread article

Have a good one.

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UK vs European budget; FSB vs shadow banking

After the UK has demanded higher budget cuts in the next long-term EU budget, followed by Germany’s threat to blow off the budget negotiations altogether, planning is now going ahead without British input. The budget summit commences on Thursday in Brussels and so far there’s little confidence that Britain’s demands will be included in the proposal. David Cameron responded that an ex-UK budget wouldn’t be acceptable. Besides the Brits, Sweden is also pressing for more cuts. But they are up against policies deep-rooted in the European ethos and expenses, such as ridiculous agriculture subsidies, which France wants to leave untouched. read article

Trying to ease the tension ahead of the talks, David Cameron’s spokesperson said the British government was sure to be able to reach an agreement with the EU.

The Financial Stability Board (FSB), set up by the 20 largest economies in the wake of the financial crisis to combat evil and restore balance in the global financial system, has made some significant observations: After traditional bank lending became more and more difficult after 2008, alternative credit providers, soon called the shadow banking system, emerged just in time to be blamed for all evil in the world. Policy makers’ favorite examples of shadow banking entities are private equity and hedge funds, which are entirely different in both motivation and structure, but nonetheless equivalent in regulatory context. With the introduction of new regulation to protect the unknowing consumer, banks’ lending capacity decreased and more business gets redirected into the shadow banking system, currently worth $67tn, set to grow even further and still comparably unregulated – something the FSB wants to change asap. Now, besides this very impressive number, couldn’t we have seen that coming? read article

Møller-Maersk, the world’s leading operator of container ships, has decided to refocus away from its core business. Instead of preserving its 16% global market share, Maersk will instead invest more in oil exploration and drilling rigs, as well as ports. The shipping division Maersk Line lost $540m in 2011. read article

In other news, Gaza is heating up more and more by the minuteSpanish bad loans rose to €182.2bn, the highest level on the record, and everything about Greece is screaming Grexit once again, as Joerg Asmussen of the ECB predicts that Greece will need foreign aid beyond the current 2014 end date.

For more enjoyable lunch-food-coma-afternoon reading: a review of Nassim Taleb’s latest book, full of linguistic questions and marmite. read article

So long.

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“Unlike cigarettes, banks don’t actually kill people”

Unlike cigarettes, banks don’t actually kill people.” That’s how Anthony Browne, new head of the BBA, the British Bankers Association, opened the organizations annual conference. The BBA is currently working on a proposal to have City bankers register with an independent organization, which can ban them from their profession in case of ethical or professional misconduct. A regulation like that would exceed the power of the FSA (Financial Services Authority), which only extends to senior-level management and traders. read article

In other banking news, Credit Agricole is getting closer to selling its Greek operations Emporiki to Alpha Bank, after looking to strike a deal for months. Alpha Bank is Greece’ second largest bank and if you’re thinking “where in god’s name did they get the money from?”, just bear with me. The total price will amount to €1, a joke, an insult, a token fee. Overall, Credit Agricole will lose around €2bn on the entire operation (including transaction fees of more than €300m), as the Wall Street Journal reports.

As part of the deal, Credit Agricole will need to inject an additional €550 million into Emporiki before the sale, which it hopes to complete by year-end. It will also need to maintain a €1.4 billion credit line to Emporiki that the Greek bank would repay in three installments over the next two yearts.

Yesterday’s big news came in right after lunch, with Citigroup’s CEO Vikram Pandit resigning after five years of service. Pandit had been with Morgan Stanley for ages, then left Wall Street to start his own hedge fund, Old Lane, which was then bought by Citigroup, who promoted Pandit in practically no-time. Rumor has it that Pandit may have resigned over disagreements with the chairmen of the board, but other sources say the parting had been on perfectly friendly terms. According to the FT:

Michael Corbat, the new chief executive, said he did not want “to alter the strategic direction” of Citi, with a continued concentration on increasing the size of its emerging markets business and the shedding of the remainder of Citi Holdings, the “bad bank” of non-core assets.

Corbat was formerly Citi’s head of international operations for EMEA. But despite the above statement, changes of direction due to new management are likely. Plus, all this is following Sandy Weill’s (ex-chairman) comment regarding the necessary separation of investment and retail banking, which had led to the initial formation of Citigroup in 1998.

Also in the US (and also yesterday, sorry about that), a more acceptable presidential debate took place between Barack Obama and Mitt Romney. Obama was more on his A-game than last time, but it appears that the jury is still out on who won. The Washington Post has put another 2-minute summary video together. So is anyone going to turn this into a rap battle a la Keynes vs Hayek or what?!

Otherwise, happy news for the UK, with employment number rising and jobless benefit claims falling between August and September. The unemployment rate beat expectations by 0.3% and the overall number of working people rose to the highest level ever recorded (i.e. since Q1 1971, when ‘records began’). read article

Yesterday (jesus…) was a historic day for Cuba: the country abolished its travel restrictions and announced that its citizens will be able to leave the country for up to 24 months starting on January 14, 2013. A Cuban blogger responded saying the island would be empty come January. read article

So long.

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I’ll have a political crisis with my financial one, please.

What goes best with a financial crisis? Exactly, a political one. And Spain finally got a matching pair. While the government is set to announce its latest measures, unrest is increasing and Catalonia has called snap elections in the region.  In Madrid, protests are getting out of control.

Catalonia is Spain’s most important economic region and contributes 1/5 of GDP. It also has the most debt. The suprise election could be a move towards its independence from Spain. Although Catalonia has always been the Scotland of Spain, the most recent separatism movement stems from the “unfair treatment” of the relatively richer region, which is required to increase its payments to Madrid due to crisis measures. From the FT on September 12:

“If we cannot reach a financial agreement, the road to freedom for Catalonia is open,” Artur Mas, Catalonia’s president, said on Tuesday.

Followed by this statement today:

“The hour has come to exercise our right to self rule,” said Artur Mas, Catalonia’s president.

And as though that wasn’t enough, Andalucia now wants to apply for a government bailout worth €4.9bn. It’s kind of busy right now, please try again next week. After all, the 2013 budget is due tomorrow. The market’s reaction: yields are back at 6% for the first time since Draghi unveiled the ECB asset purchasing plan. read article

And while we’re talking about the periphery: Greece is headed for a general strike today, where all those who still have employment (and actually get paid) show there discontent with the government’s fiscal measures. Airtravel, railtravel, any other travel, banks and post offices (the list goes on) will be impacted. Barely impressed, PM Antonis Samaras approved a €11.5bn cuts package yesterdayread article

After protests and temporary production stops, the Japan-China conflict has reached a new stage. Both Nissan and Toyota said they would scale back their Chinese production indefinitelyAll Nippon Airways recorded 40,000 cancellations for flights between Japan and China in the coming weeks. Toyota stated that it will not reach its production target for the year due to the unforeseen circumstances. read article

Of course this is coinciding with China’s economic slowdown and Asia-focused hedge funds underperforming against other regions and global benchmarks. Let’s rush to Latin America as long as we can.

So long.

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Berlusconi could be back in 2013

There won’t be a news brief tomorrow, Thursday, July 12, 2012.

Yesterday, Italy’s Mario Monti declared that he got enough and won’t run in the country’s next elections. Remember, Monti wasn’t elected to begin with, but appointed to office after the government collapsed in November 2011. So who could be the front runner for next year’s election… only one comes to mind: Berlusconi might just be back. read article

Meanwhile, Germany has its own stab at technocratic politics, with 172 economists writing a joint public letter to Merkel’s administration, criticizing the banking union. read article

Spain will introduce taxes and cuts to shrink the country’s deficit by €65bn within less than 1.5 years, said Prime Minister Mariano Rajoy. Measures will include a 3% hike in sales tax to 21%, cuts in pensions and tax deductibility and abandoning annual bonus schemes for public sector workers. Spanish government spending has historically followed the unemployment rate (as you’d expect), until shit got real in 2010… This is what austerity looks like in a graph. Spain will also see a public inquiry into the nationalization of Bankia due to the losses suffered by investors. Old news from Finland on that note, they want collateral for the European bailout. read article

A final word on Europe: the International Labor Organization said the eurozone could lose up to 4.5 million jobs until 2016 unless job creation policies become a focus of governments. 2012 is unlikely to see any sort of policies like that; there’s no money, or if there is, it’s going towards banks in the periphery. 2013 could be different. But if the past couple of years have taught us anything, we know that the mess might just continue and four years is not a long time.

In an attempt to make this week’s indicators of its poor economic performance disappear, China has declared to open its doors for foreign hedge funds to market their services to Chinese high-net individuals and families to fund oversees transactions. This is called the Qualified Domestic Limited Partner program and is part of China opening up as a capital market. Hedge fund managers might want to target these guys, as the FT is portraying Beijing’s rich families in today’s issueread article

The Libor drama gets deeper and dirtier… Yesterday, the New York Fed said it had knowledge of the rate-rigging that was going on in London. Intrigues everywhere.  read article

So long.

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A pile of money: why doing ‘good’ isn’t enough for hedge funds

The German office for national statistics released 2011 growth figures today, stating that the German economy grew by 3% in 2011, which is down from 3.7% in 2010, and up from -5.1% in 2009. Household spending grew by 1.5%, representing the main driver for the country’s growth. However, the German central bank estimates growth to slow down to 0.6% in 2012 – the estimate is based on an unresolved eurozone crisis. Germany also managed to cut its budget deficit from 4.3% in 2010 to 1% of GDP in 2011, which means that it is now complying with EU rules. read article

Meanwhile, hedge funds investing in Greek government bonds are giving the IMF massive headache. Basically, it is like this: the IMF, the EU and the ECB are proposing another haircut (lowering of nominal value), which would reduce the debt burden enough to keep the country from defaulting. The private sector (banks, hedge funds, etc.) own about €206bn of Greek debt now. Greece itself wants the net present value of its debt to be cut by 75%. But the ECB or IMF can’t just march in and say “the debt is only worth this much now”, people actually have to sign up for the deal. But hedge funds invested on the grounds that either, Greece will repay the debt, or the country defaults, in which case their credit default insurance comes into play. For them, there is no incentive to admit to a deal [except for saving a country maybe]. It’s a complicated problem and nobody seems to have any solution to it. We’re staying tuned… According to Reuters, the paperwork of a deal between all parties could take up to six weeks. The next Greek government bond, a pile of €14.5bn, matures on 20 March. If it doesn’t get paid in any shape or form, Greece defaultsread article

Bottom line: cutting a deal would be nice, but according to the German Handelsblatt anonymous sources said some hedge funds won’t be part of itread article (in German)

If you knew all of this already, you might enjoy this rather sarcastic Dealbreaker assessment of the whole thing.read article

Glen Senk resigned as CEO and director of Urban Outfitters today and says goodbye to a total annual compensation of $29.94m (2010 numbers, according to forbes).

Finally, a little something we all would have needed in 2011: a flowchart telling you what to ‘occupy’ (I should occupy my private island). view chart

So long.

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Friday, #49: Hating on Hungary and hedge funds

Hungary (which already worried everyone before Christmas) is seeking financial support from the IMF. This morning, their chief negotiator Thomas Fellegi said the country is willing to implement the measures demanded by the IMF and the EU. Presumably, the reason for Hungary kissing the IMF’s ass is that the majority of government debt that is maturing in the first six months of 2012 is TO the IMF. The IMF’s and EU’s conditions include amendments to media law, central bank legislation, tax law and changes to the constitution – and those are only the really big/unusual requirements… read article

I think the average person [that knows a bit about finance] believes rating agencies and auditors serve the same purpose: surveillance, monitoring and ultimately protection. Rating agencies have lost their face in the past months, but it seems like auditors are following their lead. The FSA is charging PwC a record fine of £1.4m for misleading regulators about the separation of firm and client money of JPMorgan Securities. The Accounting and Actuarial Discipline Board (AADB) had proposed a fine of £6m, which also shouldn’t have hurt PwC too much, as its gross revenues of 2011 amounted to £29.02bnread article

The Economist’s Buttonwood blog gives us a very short history of hedge funds, or: how to make money over years to fund the loss of one dayread article

Finally someone other than an unpaid intern in a mediocre company is saying that it sucks that kids with [parents with] connections steal all the good internshipsread article

But maybe they got it all wrong, and the [upward mobile] interns at Deutsche Bank and the UN are just all economics majors… read article

So long. Have a good weekend.

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