January 2011
30 posts
FT: applying IFRS rules to US banks would double... →
The Financial Accounting Standards Board and the IFRS Foundation are working on a common approach to reporting banks’ assets and liabilities. As a result, US banks may have to drastically change the way they report exposures to other banks. Whereas they can currently net off payables and receivables to a given counterparty, the new rules would make this much more difficult, increasing the...
How a Greek debt restructuring plan would work →
Der Spiegel has an excellent overview of the EU’s current thinking around a Greek debt restructuring, which turns out to be very concrete, despite the official protestations to the contrary. The plan would effectively entail a debt buy-back of Greek government bonds, financed or at least guaranteed by the EFSF. This is a tactic that has successfully been used in emerging markets before,...
What next for exchanges? →
Interesting “Chart of the Day” over at Felix Salmon’s blog, on the steadily declining number of new listings at the major US exchanges. Combined with the rise of ever more dark liquidity, the exchanges will have to come up with a few new tricks to ensure their survival. One such trick probably includes providing more and more market data to those clients willing to pay for it to...
Former chairman argues for break-up of RBS →
Sir George Mathewson presided over the merger of RBS and Natwest in 2000, and now argues that the group should be broken up in the interest of competition, in a response to the UK Independent Banking Commission’s call for evidence. Other noteworthy bits include a barb against securitisation and the lack of lending for SME’s. It seems that Sir George turned sour on the financial...
Inaugural EFSF bond auction heavily oversubscribed →
The issue was nearly nine times oversubscribed, with tight pricing as a result. Dream start for the EFSF in other words, thriving on demand for AAA-rated paper from Asia in particular:
“It was always going to go well with the likes of the Japanese and Chinese reserve fund managers — and probably a whole heap of others — piling into it like there’s no tomorrow,”...
Could Eurozone central banks go bankrupt through... →
FT Alphaville has extensive coverage of Willem Buiter’s latest research note, in which he studies Eurozone central banks (in particular the Central Bank of Ireland) providing Emergency Liquidity Assistance to their country’s banks. His conclusions are not reassuring. The amount of ELA has - predictably - soared over the last two years and, in the case of Ireland, is many times higher...
CDS spreads better indicators of stress than bond...
Bloomberg pushed the theory last week that CDS spreads are a better indicator of the pressures on the Eurozone “periphery” than bond yields, now that the ECB has started buying bonds on the open market, thereby distorting the price and yield. Unfortunately, other than a few quotes, there is precious little meat on the bone. Eric Burroughs at Reuters did a much better job of analysing...
UK banks to be forced to separate retail and... →
Sir John Vickers, head of the Independent Commission on Banking in the UK, said in a speech at London Business School that he would consider proposals to split banks’ trading and retail operations. Such a requirement would be a blow to the profitability of investment banks, since it would increase their cost of funding dramatically.
The review is only halfway through, so this is by no...
France's Banque Postale agrees to buy Dexia debt →
This is an intriguing story in Le Figaro. Last year talks between Dexia and Banque Postale on far-reaching cooperation foundered, but disagreements were apparently settled by Banque Postale committing to buy 3bn EUR of Dexia covered bonds. At the 30th of September 2010, Dexia had some 222bn EUR of outstanding debt securities, so this amount is not worth mentioning. I wonder why this was publicised...
Goldman Sachs posts third-straight quarterly... →
The main culprit is the drop in advisory and trading revenue, a trend other banks also saw. To make matters worse for Goldman however, Morgan Stanley posted a 35% increase in profits, mainly thanks to its asset management and private banking franchises.
And to top it all off, the New Yorker has a piece comparing Goldman Sachs’ results to Apple’s, and concludes that Apple generates an...
Wall Street analysts beaten by bloggers on Apple... →
A bit further afield from the normal subject matter here, but this story made me smile. It reminds of the days at business school where we learned that all sell-side analysts tend to cluster together because it’s a low-risk strategy (you were wrong, but hey, everybody else was too!) This serves as a nice illustration…
Lukewarm syndicated sale for Belgium but overall... →
The syndicated sale of 10-year OLO’s raised less than hoped, but the achieved yield is reasonable and an auction for 3- and 12-month treasury bills was at least twice oversubscribed. As a result the debt agency canceled an OLO auction scheduled for the 31st of January.
Meanwhile, FT Alphaville has a lengthy critique of selling government bonds through syndications. Its main point seems to...
Eurozone leaders discuss extension of EFSF →
Ministers see the successful “periphery” auctions last week as buying them some time, though signs point to a revamp of the Fund by March. Proposals being discussed would see the EFSF increase in size and also widen its mandate, for example buying bonds on the secondary market as well. The first test of the Fund’s credibility will come next week when it launches its first bond...
German Bunds drop, Spanish debt rises →
This is not very interesting in itself, but it’s fun to try and guess some of the trading strategies behind the moves. The article speculates traders investors are swapping out of Bunds into Spanish debt to chase yield. That would mean they have become less concerned about a Spanish default. Alternatively, they may be buying Spanish debt because they expect the ECB will carry on buying...
ICBC expands European branch network →
Steady trickle of noises pointing towards increasing openness and integration in the global economy coming out of China. Of note:
“We are the biggest bank in China and we have to follow our customers, who are increasingly operating abroad,” Chairman Jiang Jianqing told reporters in Luxembourg today.
Spain drops bond auction in favour of syndicated... →
The yield increased, but that is a reflection of technical factors ahead of the syndicated sale rather than investors losing confidence. On the contrary, the mood seems cautiously optimistic, on the back of the news that Eurozone leaders are aiming to bulk up the EFSF in March.
Spain opted for a syndicated sale rather than a more conventional auction because this usually results in more...
How computers are taking over financial markets →
Great article by Felix Salmon for Wired this month on the rise of computers in financial markets and how the vast majority of trades are really algorithms battling each other.The general tone of the article isn’t alarmist, it merely posits that the stock market is now ruled by computers and behaves in a way humans can no longer understand, let alone trade in profitably:
“Our financial...
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Portugal, Italy and Spain get all their bonds away... →
Moreover, yields are generally lower than investors were expecting. The euro bears aren’t convinced, but it seems to me the first hurdle has been passed (as expected.)
Other news that will have helped is that EU politicians are discussing increasing the size of the bailout fund and that inflation nudged up in December, with Eurozone growth seemingly on track.
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European Banking Authority announces new round of... →
It will also carry out a separate review on liquidity in 2011. All hail yet another banking supervisor.
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On the investment of Chinese foreign reserves
Western leaders, in particular those of Eurozone countries, seem to be hanging onto the Chinese leadership’s every words recently. One could almost hear the collective sigh of relief when Chinese Deputy Prime Minister Li Keqiang pledged his support for Spanish government bonds on his visit. Everyone knows the reason for this of course, with China currently sitting on the world’s...
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Fed expected to continue with QE2 →
The tone of the article contrasts with the headline though. It quotes several regional Fed presidents that oppose the bond buyback programme, even if some of their reasoning appears a bit debatable:
[…] businesses are flush with cash and not in need of the easier borrowing conditions that the Fed is trying to engineer.
With the housing market still in the doldrums and refinancing...
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Default rates for high-yield plummet in 2010 →
The contrary would have been very crass, given the record issuance. It would be interesting to dig up a credit migration matrix for these somewhere as well, and compare to pre-crisis one.
WSJ: ECB "aggressively" steps up purchases of... →
Yields on Portuguese, Irish and Greek bonds shrank sharply, apparently because of large scale buying by the ECB. Investors are worried about a failed Portuguese bond auction on Wednesday, even with yields on Portuguese 10-year bonds around 7% (twice as high as the AAA-rated yield curve published by the ECB.) On the other hand, all Portuguese auctions last year were oversubscribed.
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Bank of America winds up its ABCP conduits →
They had been moribund for a while obviously, particularly since they lost their regulatory capital advantages. Interestingly the conduits still offered some funding costs advantages in a few special cases, which is why they were still in existence.
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KBC increases provisions for Irish loan portfolio →
An increase of around 320m EUR. They also uncovered irregularities in their UK leasing arm. KBC’s expansion in the British Isles must be leaving them with a sour taste…
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ACA sues Goldman Sachs over Abacus →
Abacus was the CDO composed of securities John Paulson selected and then shorted; ACA agreed to provide credit protection on the transaction and now claims it was intentionally misled by Goldman. I’m puzzled by the small amount of damages ($120m) they claim though, I would have expected the losses they suffered to be bigger, unless ACA managed to find a counterparty for the CDS and offloaded...
China helps out Spain →
Just when investors are fretting about the prospects of Spain’s property market, the Chinese come through and pledge their support. In return, they get to diversify a bit more of their huge USD reserves and Sinopec gets the Brazilian assets of Repsol. If proof was needed the Chinese are astute traders.
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Bond holders worry about weak covenants →
In the hunt for yield, investors are now worried about weak covenants that would enable the lenders to repay early without penalties. Somehow this story seems oddly familiar…
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Signs of life in the US office market →
Some markets are seeing an increase in the office occupancies, to the highest levels in 3 years. To paraphrase the saying, is this one swallow actually making a spring?
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BlackRock is building an internal trading platform →
Missed this one last week; it stands to reason that one of the world’s largest fund managers would want to do this. It would be interesting to see statistics on number of trades and matches etc.