US junk bond market girds for spike in defaults 23 Oct 2008 Half of all US high yield debt now trades at levels that usually indicate a serious risk of default. If past correlations between interest rates and credit risk hold true, it means about $180bn of debt will go toes up in the next year.
Hungary’s bold barricade unlikely to stand up 23 Oct 2008 The country s central bank has raised interest rates by three percentage points to defend the forint. Even with aid from the IMF, the defence looks inadequate. After years of heedless borrowing, Hungary s external financing needs are too great. The endgame is likely to be ugly.
Microsoft’s riches alone won’t buy success 23 Oct 2008 The software giant is churning out the dollars despite economic woes. The cash is going in the right directions to shareholders and to fix the lumbering Vista. But with rivals stronger than ever, Microsoft will need more than money to keep profits from gradually fading.
Greenspan among the last to recognise his flaws 23 Oct 2008 The maestro is in a state of shocked disbelief that selfregulation didn t work in the banking sector. While the mea culpa from the combative former Fed chairman was unexpected, he s hardly the first to recognise the shortcomings of his handsoff approach.
Credit Suisse puts spotlight on corporate loans 23 Oct 2008 The writedowns on ordinary corporate loans not just the more toxic leveraged ones may presage bad news for the whole industry. Add in trading losses and one can see why Credit Suisse has been tipped into loss after previously avoiding the worst of the carnage.
Parmalat could give shareholders some cream 23 Oct 2008 After a $2.2bn suit against Citigroup turned into $360m of damages, the scandalhit milk group s shares dropped by 20%. Meanwhile, a goslow strategy has chilled investors. Maybe it s time boss Enrico Bondi considered a buyback before Parmalat becomes a bid target.
Credit crunch risks choking world trade 22 Oct 2008 The cost of trade finance has shot up in the past year. Trust between counterparties is at a premium. Constrained bank balance sheets, currency fluctuations, and nervous counterparties add to the pain. The global economy could suffer severely.
Argentina reverts to form with pension seizure 22 Oct 2008 President Kirchner s attempt to nab private pensions still must be ratified by Congress. But the mere attempt reinforces the insecurity of private property in Argentina. Economic reform is impossible when private assets are subject to state seizure.
New muni monolines may perfect the buggy whip 22 Oct 2008 Macquarie and Citadel are backing a new municipal bond insurer, following in Warren Buffett s footsteps. But the US market is less than half its former size and big bond issuers like California say they can do without. Muni insurance may become a much tougher business.
Fed blow torch thaws money markets – slowly 22 Oct 2008 The US central bank s balance sheet has expanded by 93% since September, with much more to come. The global effort to provide banks with money to lend is working, but interbank rates remain high. To get them down, governments will have to take on even more credit risk.
Yahoo could be junkyard treasure 22 Oct 2008 The stumbling internet group has become Wall Street's punching bag. But the beating's gone too far. After stripping out its Asian assets and cash, Yahoo's core businesses look undervalued. For investors with a stomach for risk, Yahoo might be a steal.
UBS’ Gulf private equity fund won’t have free run 22 Oct 2008 The Swiss bank s targeted $500m fund adds to a region teeming with private equity groups struggling to close deals. Longestablished players still primarily channel cash elsewhere. While the crunch opens new opportunities, investing in the region is still tough and risky.
At least latest 500-point Dow drop looks rational 22 Oct 2008 Not so much for the level of the index, but because investors appear motivated by evidence of global economic weakness rather than indiscriminate fear. Even Wachovia s giant loss didn t figure much. It s hardly good news, but any sign of clearer thinking is welcome.
Market plumbing set to flow more easily 22 Oct 2008 The merger of LCH.Clearnet and DTCC will create the world s biggest clearing and settlement operation. That will be tough for competitors but good for users. The new giant should exploit the trend to clear more offexchange trades making global finance a bit safer.
UK’s King ditches pound, launches lifeboats 22 Oct 2008 The Bank of England s governor emphasized on Tuesday that the UK s banks and economy relied on capital inflows which have dried up. Like an emerging economy in crisis, Britons face austerity. Rate cuts and a plummeting pound are King s lifeboats.
Sandisk pulls a Yahoo 22 Oct 2008 Its unwanted suitor, Samsung, just dropped its generous offer for the memory maker. Sandisk played hardtoget, but looks to have miscalculated. The 30% fall in the won and Sandisk s own weak earnings made the deal too rich for Samsung s liking.
Banks aren’t rushing to ditch fair-value 21 Oct 2008 The EU has followed the US lead in allowing banks to ignore market prices for some securities. Some French bankers would like to go even further. But as long as investors are hanging on every mark, few banks are likely to use accounting fiddles to minimize reported losses.
Iphone gives Blackberry a run for its money 21 Oct 2008 The Apple handset s popularity is rapidly outselling Research in Motion s more corporatised offerings. Blackberry may have introduced features such as mobile email for highend professionals, but it took Apple to democratise them for the masses.
French bailout may only be hors d’oeuvres 21 Oct 2008 The government is forcing the country s banks to take on E10.5bn worth of subordinated debt. Given that this ranks above equity and preferred stock, taxpayers are reasonably protected. But the sum is fairly modest and some banks may need to come back for more capital.
Kerkorian’s Ford stake falls to oligarch disease 21 Oct 2008 The billionaire investor s decision to amass a 6.5% stake in Ford looked risky enough. But he compounded it by pledging plunging MGM stock as collateral. Now he s selling the carmaker, and sitting on a $650m loss. It s an ignominious end to his dabbling in Detroit.
Where have all the debt vultures gone? 21 Oct 2008 Plunging prices of distressed debt should have them swooping. But many have seen earlier investments nosedive, and now are only dipping in an occasional talon. That could be smart the outlook for dodgy companies and their borrowings is far from clear.
Team Obama narrowly wins economic advisors’ debate 21 Oct 2008 Both candidates economic whizzes battled it out over healthcare, energy, taxes and housing. On balance, the program put forth by Obama s University of Chicago braintrust looks stronger. More importantly, the stature of his advisers makes them difficult to ignore.
Gulf needs its own financial giants 21 Oct 2008 The liquidity squeeze should trigger consolidation amongst the region s fragmented financials. Bigger banks would better meet the Gulf s own needs and reduce dependence on foreign banks. Dubai property lenders Amlak and Tamweel are already courting. Abu Dhabi's banks look next.
Carlyle will be lucky to collect on oligarch 20 Oct 2008 Novolipetsk, the Russian steel group backed by Lisin, agreed to buy a US steel maker from the private equity group for $3.5bn in August. After its own value shrank by 80%, it can t afford the deal. There s little chance Carlyle will ever collect.
Turkey should swallow its pride and tap the IMF 20 Oct 2008 Capital inflows have dried up, the Turkish lira is tanking and the economy is grinding to a halt. The government is jealous of its free market reputation, but such machismo is misplaced. An IMF agreement could help avert yet another Turkish economic disaster.
US watchdogs’ CDS campaign misses the mark 20 Oct 2008 SEC chair Cox says the credit derivatives market needs more transparency and antifraud scrutiny. Yes, its counterparty risk management and settlement processes should be improved. But regulators mainly need to do a better job of overseeing its participants.
US should be GM’s bankruptcy lender – and no more 20 Oct 2008 The cashburning carmaker is seeking up to $12bn in federal aid to fund a Chrysler merger. But unlike banks, GM s woes are chronic. If lawmakers do have to stump up cash, it shouldn t be to stave off bankruptcy: it should be to fund Detroit s Chapter 11 reorganisation.
The curious case of Dubai’s credit default swaps 20 Oct 2008 Despite the United Arab Emirates underwriting its financial system, buying protection against Dubai's debt still costs five times more than for neighbouring Abu Dhabi. It s unclear whether individual emirates debts are guaranteed investors are confused.
Will Paulson turn a profit for America? 20 Oct 2008 The Treasury boss is calling the $125bn sunk into banks an investment that won t cost taxpayers. The US should make 18% over five years, though higher overall borrowing costs or a bank failure would wipe that out. Still, it means Paulson s mostly right.
ING’s E10bn bailout comes with carrot and stick 20 Oct 2008 Dutch authorities are injecting capital into the bancassurance group at a premium and only get paid a coupon if ING pays dividends. That might seem lenient. But there are also pay curbs, a steep 150% redemption fee and a floor on the Dutch return. That evens things out.