MBIA’s CDO-squared surprise shows bad judgment 20 Dec 2007 Shareholders and lenders pummelled the bond insurer after it revealed $8.1bn of exposure to the riskiest sorts of CDOs. It should have come clean earlier. Now it has lost even more of the market s confidence, just when it may need it most.
Rio’s price games alone won’t win it independence 19 Dec 2007 The mining giant is cleverly taking advantage of a quirk in the iron ore market to jack up its own value. But pouring iron into the spot market carries risks and won t defend Rio from rival BHP s unwelcome $150bn approach.
UK commercial property proves hard to price 19 Dec 2007 Only £5bn of transactions are expected this fourth quarter, down 75% from last year. Big deals have almost dried up completely. Markets are shifting so quickly that buyers and sellers can t easily find common ground. When they do, it could be at significantly lower prices.
Massive ACA downgrade reflects raters’ incompetence 19 Dec 2007 Ratings agencies are bond insurers de facto regulators. By downgrading ACA by 12 notches in one fell swoop, Standard & Poor s failed in this role. Rather than highlighting ACA s deterioration over time, it pushed it off a cliff leaving bondholders holding the bag.
Morgan Stanley losses wipe out Mack’s successes 19 Dec 2007 The CEO's efforts to emulate Goldman Sachs have backfired, with trading losses undoing advances elsewhere. Heightened risktaking got ahead of the necessary checks and balances. Mack is less vulnerable than, say, Merrill's O'Neal was, but at best he s back near square one.
China bets credibility on $5bn Morgan Stanley stake 19 Dec 2007 The stateowned China Investment Corporation s $3bn Blackstone investment has been disastrous. It s trying again, despite warning three weeks ago that it could need a year before it made the next big bet. Another failure could seriously damage its reputation.
Harry Potter in, Magna Carta out 19 Dec 2007 A manuscript related to the bestselling wizardry series went for 40 times its expected price last week. But a rare copy of the founding document of democracy brought in only 70% of its valuation. Sotheby s, which auctioned both, will have to change with the times.
Fed should re-think its discount window policy 19 Dec 2007 Banks stampeded for the $20bn of loans it just auctioned, pushing the rate to just 10 basis points shy of the punitive and stigmatising discount rate. That could further shake confidence. The Fed would do better to change its discount window policy to aid liquidity.
Belgium’s surreal politics shows Europe way forward 19 Dec 2007 After six months of squabbles between the country's French and Dutch speakers, Guy Verhofstadt, defeated former Prime Minister, is forming a new Belgian government. The muddle shows how EU regional identities are replacing old national loyalties, which is nothing to be scared of.
Perry shows activism can succeed in Japan – sort of 19 Dec 2007 Japan can be a frustrating place for investors, as Perry Capital's struggle with NEC shows. But Perry hasn't failed. It got the chipmaker to accelerate its costcutting efforts. This small success offers other investors a faint glimmer of hope.
Fed mortgage curbs show how far markets moved from reality 18 Dec 2007 The Fed's proposals to tighten consumer protection on mortgages may be a bit late, but they re sensible. So sensible, that it s hard to imagine lenders lost sight of them. They may help a bit, but probably won t stop the next round of excesses.
Populism could trip up South Africa 18 Dec 2007 High commodity prices and strong domestic consumption have kept the economy growing. But the new black middle class remains thin and the poor majority aren t impressed. Jacob Zuma, the probable leader of the ruling party, is from the Old Left. Investors are right to be concerned.
Goldman sets the bar high for bonuses 18 Dec 2007 The firm s fourthquarter results cement a 23% increase in pay for the year, a 6% raise per employee. That s a hard act for Wall Street to follow even Lehman kept per capita pay flat. This gives Goldman a further advantage in the talent war just when the going gets tough.
Vivendi gets serious in broadband 18 Dec 2007 The French telecom and media conglomerate is in talks to buy Groupe Louis Dreyfus's 30% stake in telecom operator Neuf Cegetel, of which it already owns 40%, for E2.5bn. As tripleplay broadband becomes ubiquitous, the move may be kicking off the industry s consolidation.
Naspers punished too harshly for Tradus deal 18 Dec 2007 It s easy to see why the South African media group s shares tanked given that it is paying 30 times ebitda for the online auction group formerly known as QXL. But Naspers has a track record for bold deals. This one could be worth cheering too.
Could Nike run with Sports Direct? 18 Dec 2007 The US sportswear giant wants to buy UK minnow Umbro. A 30% stake owned by Sports Direct, Mike Ashley s fiefdom, stands in the way. Maybe they could strike a deal Nike buys Sports Direct. That would give Nike what it wants, and put Ashley where he belongs, off the public pitch.
Will Ukraine be the ex-Soviet star? 18 Dec 2007 Julia Tymoshenko s victory in Ukraine shows it is a genuine democracy. In the 1990s, it fell furthest of all exSoviet Republics, but it is now growing rapidly even though it lacks oil. Its balanced economy and pluralism may make it the biggest success outside the Baltics.
UK caught between Northern Rock and hard place 18 Dec 2007 The government might have to choose between administration and nationalisation of the stricken UK lender. Neither is especially appealing. Both come with job cuts, political costs and uncertainty. But if push comes to shove, administration looks like the least bad option.
Treasury yields much too low for comfort 17 Dec 2007 Banks have been flocking to US government paper for an illogical technical reason they help counter regulatory damage from the liquidity squeeze. But that won t last forever. Bonds eventually have to yield more, not less, than inflation. That suggests something more like 6%.
Aussie CDO rumpus adds blame to fear and greed 17 Dec 2007 Several Australian municipal councils are reported to be considering lawsuits against the bankers who sold them CDOs. But like others the world over, they bought the CDOs out of hunger for high yields, and they should take most of the blame themselves.
UK housebuilders tarred by US brush 17 Dec 2007 The big UK housebuilders shares are down twothirds from their 2007 peak. Sure, the UK housing market is slowing rapidly. The markdown is as deep for their US peers, which have much more on their plate. That seems excessive.
Osborne doesn’t have a Northern Rock policy 17 Dec 2007 Silence has served the UK shadow Chancellor well during the Northern Rock debacle. He should have continued to hold his tongue. His first significant contribution to the debate so far shows he has no more idea than the government what to do next.
Why the Taittingers are feeling festive 17 Dec 2007 The Taittingers are buying back the family business to focus on premium brands. Europe s wine industry is in crisis, but not champagne. The bubbly s biggest problem is how to meet surging demand. Longterm, the industry needs to expand production.
20:20 could be first sign of LBO troubles 17 Dec 2007 Critics have long warned of the dangers of private equity putting too much leverage on the wrong sort of company particularly if you overpay. Doughty Hanson s 20:20 Mobile deal looks like a good example. It could have company, even if the UK economy doesn t soften.
Merger Monday returns – to shareholders’ chagrin 17 Dec 2007 Ingersoll s paying $10.1bn for Trane and Grant Prideco s going for $7.4bn to National Oilwell. After a dearth of activity, this warms investment bankers hearts. But shareholders have nothing to be thankful for: both deals destroy value.
Could Sarko retreat from industrial engineering? 17 Dec 2007 The French president s economy minister has suggested as much. She doesn t want CDC, the French government s financial powerhouse, to tell the companies it invests in what to do. If she is speaking for her boss, this would be a welcome and abrupt change.
The parable of the 10 virgins – retold to take account of the credit crunch 17 Dec 2007 In the original biblical version, the foolish virgins face the consequence of not taking precautions. In this new version, told by Hugo Dixon, they get bailed out and the wise virgins pay the price. In which case, are the foolish virgins really fools?
Citi’s new boss pulls rug on super-SIV 14 Dec 2007 Vikram Pandit has wasted no time reversing the bank s earlier stance on SIVs, bailing out $49bn of assets. True, his hand was largely forced by European banks and rating agencies. But Pandit's bold move only adds to his strategic challenges.
Rising US inflation undercuts case for rate cuts 14 Dec 2007 Consumer inflation in November was 4.3%, up from 2% in August. That pace is above anyone s target. With the overnight rate at 4.25%, the case for further cuts is looking weak, especially as retail sales are strong. An end to Fed rate cuts would hurt equities and help the dollar.
Protectionism likely winner of US election 14 Dec 2007 If even mild recession hits in 2008, candidates will seek someone to blame. The likely scapegoats are globalisation and immigration. In that environment, the next president will be committed to restricting trade. That may doom the world economy to slow growth.