Europe picks risky moment for uncomfortable truth 25 Mar 2013 Jeroen Dijsselbloem, who speaks for euro zone finance ministers, says Cyprus is a template: shareholders, bondholders and even uninsured depositors are expected to contribute to bank recapitalisations. Investors took fright. They should get used to a less cosseted world.
ECB’s street-cred faces another hit over Cyprus 25 Mar 2013 The European Central Bank has pledged to fund the Bank of Cyprus if deposits flee. The Cyprus lender can probably comply with existing rules; capital controls look unnecessary. The bad news? Yet again, the ECB would be granting “exceptional” funding for longer than it should.
Blackstone, Icahn likely to stub toe on Dell 25 Mar 2013 Both are offering more for the computer maker than its eponymous founder. But the new bids rely on existing investors keeping a small public stake. In theory that obviates the need to get Michael Dell’s support. In practice, the downsides of such stub equity make it a long shot.
JPMorgan board needs a dose of "trust, but verify" 25 Mar 2013 The bank’s directors support keeping Jamie Dimon as both chairman and CEO. Some faith in his leadership is warranted: JPMorgan performed well last year despite a $6 bln trading hit. But that sorry risk-management episode shows why a separate chairman’s oversight would be useful.
U.S. deals Europe poker industry a betting hand 25 Mar 2013 New laws allow gamblers to take seats at America’s online poker table. Investors got burned in the gaming craze that took hold last decade and ended in the U.S. arrest of two CEOs of foreign companies. The stakes remain high but the odds facing Europe’s croupiers are shortening.
Bond market calm ignores Cypriot lessons 25 Mar 2013 Bank bondholders don’t seem to have noticed, but Cyprus has changed their world. They are finally bearing the cost of failure. Terrifying scenarios, from capital controls to a partial breakup, are no longer taboo. And politicians can change the rules of the game overnight.
Clock ticking on next Cyprus bank bailout 25 Mar 2013 Bank of Cyprus survives, and gets some deposits off its dismembered rival Laiki. But Cyprus’ biggest lender is saddled with likely spiralling bad debts as the local economy tanks, and the real danger of a run when it reopens. Don’t bet against future rescue operations.
Hugo Dixon: Cyprus deal best of a very bad job 25 Mar 2013 It is good that there is no haircut for insured deposits, while uninsured creditors rather than taxpayers pay for bailing out banks. But there are two lingering doubts. Will capital controls be imposed? And is Cyprus’ debt sustainable given the economy will be clobbered?
The first oligarch dies, his kleptocracy thrives 25 Mar 2013 The exiled Boris Berezovsky was a key figure in the Yeltsin regime but then fell out with Vladimir Putin. He was the main architect of the corrupt system that meshes business and politics, and which still rules Russia today. It survives him in good health.
Abandoned gold loans are India’s "jingle mail" 25 Mar 2013 As prices fall, Indians are defaulting on loans secured against the precious metal, just like U.S. homeowners walked away from underwater mortgages. For subprime borrowers, financial self-interest overcomes cultural taboos. It’s a lesson lenders have once again failed to learn.
Tea Leaf Index: China’s economy running on fumes 25 Mar 2013 China is back to its unsustainable old ways. Property and exports are strong, while steel production suggests heavy industry grinds on. If this is how the year’s 7.5 percent growth target is to be met, January’s spike in air pollution may be a gritty taste of things to come.
Hugo Dixon: Cyprus must avoid capital controls 24 Mar 2013 Imposing them wouldn’t just be terrible for Cyprus. It would be a historic error that could even spell the beginning of the end of the single currency. The ECB must instead stand ready to supply banks with unlimited liquidity and fund a run, provided Nicosia cuts a bailout deal.
M&A practitioners deliver verdict on snarky judges 22 Mar 2013 The spectacle of Delaware jurists bashing the clever bromides and impertinent opinions of colleagues prompted hoots of delight from dealmakers attending their annual New Orleans jamboree. The criticism is on target. To avoid confusion, courts should stick to facts and the law.
U.S. oil billionaire’s divorce is no private affair 22 Mar 2013 Investors stripped half a billion from the value of Continental on news that founder and 68 pct owner Harold Hamm is getting divorced. That may not do the threat justice. Splitting the tycoon’s $11 bln fortune leaves Continental exposed to hefty stock sales or a feud at the top.
Greece finally does something helpful for Cyprus 22 Mar 2013 Piraeus has snapped up the Greek branches of Cypriot banks. Athens’ default last year is one of the reasons why Nicosia’s banks are in trouble. Greece has proved more accommodating with the island’s departing banks than it was last year with French lenders.
Review: Seeing through bankers’ woolly thinking 22 Mar 2013 Banks like to argue that higher capital ratios kill lending. A new book by economists Anat Admati and Martin Hellwig exposes this as self-serving. But getting lenders to bear their true costs to society will mean overcoming vested interests that extend beyond the industry.
Maybe "Gucci" didn’t work. But "Kering": really? 22 Mar 2013 It sounds like caring, there’s a hint of Breton, and it comes with an owl. PPR is becoming “Kering”. Renaming the parent company will hardly deter buyers of Gucci or Brioni, but this latest corporate offence against language hints at groupthink within PPR - sorry, Kering - HQ.
Cyprus plan B targets more deserving victims 22 Mar 2013 The stricken state’s politicians are to vote on a new rescue plan. Stuffing some large depositors into a bad bank is fairer than taxing small savers. But a Cypriot plan to set up a multi-billion euro sovereign fund looks rickety and isn’t impressing the country’s euro partners.
Cyprus will struggle to make gas math work 22 Mar 2013 The struggling island is thinking about bundling future gas revenues into a fund to stave off financial collapse. But Breakingviews calculations suggest the recent discoveries off the country’s south coast won’t be enough to plug a 5.8 billion euro funding gap.
Hugo Dixon: Cyprus will pay dearly for its sins 22 Mar 2013 The Mediterranean island has committed many follies over the years - and is still making mistakes. The troika compounded Cyprus’ errors by going along with the crass deposit tax. But Nicosia is the prime culprit. Every day it delays getting real, the cost of the crisis will rise.
Exposed bondholders suffer solar burns in China 22 Mar 2013 When solar power was hot in 2008, investors in Suntech bought bonds with no claim on the panel maker’s Chinese business. Now they are likely to emerge from bankruptcy proceedings with pennies. Have lessons been learned? Recent issues by debt-laden property developers suggest not.
"Made in China” still winning strategy for some 22 Mar 2013 Danish toy maker Lego is setting up a China factory just as British noodle maker Golden Wonder brings production home to England. While rising wages drive low-end manufacturers away, others will find shifting production closer to China’s wealthier consumers makes ever more sense.
Dell counter-offer better in theory than practice 21 Mar 2013 Though backers of the $24 bln buyout are, oddly, talking down Dell’s prospects, investors rightly think the price is low - and Blackstone is kicking the tires. Still, the buyout firm’s losses on its last big tech LBO and Michael Dell’s role in the deal weigh against a higher bid.
Venezuela’s new capital controls just won’t work 21 Mar 2013 Two-tier exchange rates are frequently used to limit imports. However, history shows that three-tier rates like Venezuela’s new system foster rent-seeking, corruption and huge economic costs, and then fall apart, as did Venezuela’s previous such attempt in the 1980s.
ETE’s $30 bln pipeline empire still too tangled 21 Mar 2013 Not since Chesapeake have energy investors had to wrap their heads around such a convoluted structure as the Energy Transfer family. A $3.75 bln deal eliminates one company from this four-headed beast. But the group still pays a high price for being too impenetrable.
Italy illustrates reward, and cost, of austerity 21 Mar 2013 Rome raised its deficit target for the next two years. It’s a belated realisation of austerity-induced recession, and a reward from Brussels for towing the line. A country with no government and rising debt might spook markets, but Mario Draghi has sedated the bond vigilantes.
Central banks have key role to play fixing Libor 21 Mar 2013 Benchmark interest rates are public goods, as the Bank of International Settlements contends. The yardsticks can also be huge: bonds worth $10 trln reference the London interbank rate. It is only right that a state-sponsored authority such as a central bank oversees rate setting.
New UK mortgage help misses lesson of U.S. debacle 21 Mar 2013 British Chancellor George Osborne hopes to boost housing by guaranteeing home loans. It sounds like the beginnings of an approach that saddled taxpayers across the Atlantic with huge losses at Fannie Mae and Freddie Mac. Letting a Limey Muck take root would only build trouble.
HP board needs to add an "r" to evolution 21 Mar 2013 After Chairman Ray Lane and two other directors squeaked back into office with less than 60 pct of the vote, a board colleague said the body would “evolve.” A more radical shake-up of both directors and strategy is called for. A new chairman open to a breakup would be a start.
Next economic "It girl" is about to be discovered 21 Mar 2013 In 2008, the obscure Baltic Dry Index was suddenly the subject of every financial conversation. The TED spread and the ABX also briefly rocketed to fame. Waiting in the wings to shine ahead of rising interest rates are the JOLTS report, forward curves and the overnight index swap.