Category Archives: Global

Legg Mason fights a new war | Equities vs Fixed Income

As fixed income loses the temporary sheen from 2008, Legg Mason bore the brunt of investor displeasure and lack of confidence losing $24 billion from fixed income schemes and close to $33 billion overall in the last quarter, 4 times more than the July – September Quarter. Most banks worldwide have reported losses in Fixed Income in the latest quarter as yields spike with China ready to go off the Charts from doubt in its banking system :lol

However that all seems to be passed as in after its results last week, news filtered in that new board member Nelson Peltz is selling an over 15% in H J Heinz ketchup worth $32 million and another $8 million in Tiffany’s Diamonds.

Interestingly, Legg Mason’s flagship Value fund is heavily invested in healthcare, read health insurers like Humana, Wellpoint and United Health who are celebrating after Scott Brown’s victory in Massachusetts! O What a tangled web we weave. Bill Miller, the fund’s Equities star also mentions of late his trust in the growing US GDP and in Equities. While we agree with the second, Obama’s latest belt-tightening measures may cloud America’s way on growing in double digits a year.

Fund Managers on Bills side in London and New York also feel more wary of heavily weighted China and India investments which we propose is heresy except that in China one must watch the for the bull entering the China Shop. And who’s invested in India? Not many more than 5 years ago..talk about oversimplification!!!

Note: From a September 09 flyer of the World #10 Asset manager, outflows of $33b would close out fixed income offerings in its entirety, leaving Bill Miller and $8 billion in equity that would be worth $800m, $40m seems at the top of the fair price range for 5%

Litterman leaves, GS closes Quant fund | Business Week

Robert Litterman, chairman of Goldman Sachs Group Inc.’s quantitative hedge-fund group, will step down at the end of this month, a move planned before President Barack Obama’s call yesterday to limit proprietary trading at banks, according to people familiar with the situation.

Litterman, a 24-year Goldman Sachs veteran, advised a unit that ran Global Equities Opportunities, a quantitative hedge fund that required a $3 billion cash infusion in 2007. The fund, which used mathematical models to trade securities, closed last month after its assets fell to $200 million from as much as $7.5 billion, according to two people familiar with the situation.

Litterman’s departure was not connected to the fund’s closure, the people said. Global Equities and Goldman Sachs’s Global Alpha fund lost value in August 2007 when many quantitative managers raced to exit trades simultaneously. In June 2008, Litterman said the hedge funds suffered because they were too large for a “de-leveraging explosion.”

Advantage zyaada | Litterman Said to Retire From Goldman Sachs Hedge-Fund Unit – BusinessWeek.

A new strategic climate fund

Everyone is in Oil these days and with Dubai coming back off the cliff, China bankrolling African dreams, Indian energy corps going global and Russia waiting to come back from a contraction and Gazprom thru Europe without Ukraine, that is the light at the end of the tunnel. Though a lot of people have talked about it, a market for carbon credits has just taken off this year, Copenhagen may likely have an agreement and time is ripe for the right people to get into energy funds. Who better than the Governments and the World Bank…Great news to hear. Maybe some will bankroll ethanol the right way too! It’s a great collection of baubles from the O’nomics back team to clear out the Christmas tree. Rassmussen reports will love Obama and the markets will love this new Sheikh out of Texas and the sands.

The United States pledged on Monday to contribute $85 million to a $350 million multinational fund aimed at speeding up renewable energy and energy efficiency technologies in poor countries. U.S. Energy Secretary Steven Chu also announced a high-level meeting will be held in Washington next year of major developed countries energy ministers to discuss global deployment of clean energy technology. Chu made the announcements on the sidelines of a Dec. 7-18 international climate conference in Copenhagen. The talks temporarily stalled on Monday when African countries walked out, accusing rich countries of trying to kill the U.N. Kyoto Protocol which set targets for emissions cuts by most industrialised countries. Projects which the fund will support include a plan to speed affordable solar-generated lighting systems and LED lanterns to those without access to electricity. Chu said the devices would eliminate air pollution from indoor kerosene lamps that he said contributes to 1.6 million deaths per year in poor countries. Other facets of the programme are the encouragement of more energy-efficient appliances in developing countries and rich country information-sharing of clean energy technologies. The White House said the financing would enhance a World Bank strategic climate fund that helps poor countries develop national renewable energy plans. Italy, Australia, Britain, the Netherlands, Norway and Switzerland also are participating and already have promised funds.

via MyFeedMe – Show Article.

Costs blow up – Goldman Sachs accepts Stock comp

Goldman Sachs’ earlier bonus component that averaged $700,000 per employee for this year is likely to be drastically revised. Initial reports suggested a 5 year stock purchase plan but the exact structuring is likely to throw up even more surprises as the government makes agreeing noises to the new compensation plan. France joined Britain in imposing a supertax, but the supertax by itself is unlikely to refund governments that are out of pocket..Immediate target for govt. failures and restructuring Portugal, Italy, Ireland, Greece and Spain. Italy and Ireland are yet to get notice from S&P or Fitch ratings divisions for the country debt/risk downgrade.

Also, the Commercial RE cost is likely to rack up over $225 billion and the US stimulus funds are likely to attempt more foreclosure finance having achieved only 4% till date. These may not affect bonuses but are likely to keep the government from allowing all its ‘equity’ in Citi, BofA and others to be paid off.

However, this partnership between governments and banks is also likely to bear some fruit in the tight infrastructure financing space despite the step up from private equity and ETFs

Bowing to calls for restraint in tough economic times, Goldman said that its most senior executives would forgo cash bonuses this year. Instead, the 30 executives will be paid in the form of long-term stock — an arrangement that means they will not get big year-end paydays, but one that could turn out to be enormously lucrative if Goldman’s share price rises over time.

The move is meant to address concerns that bankers and traders in the past benefited from short-term performance. The shift at Goldman locks up the executives’ rewards for five years and enables Goldman to claw back the bonuses in the event the bank’s business sours.

Goldman did not say how much it would pay the executives, suggesting the bank would continue a practice — widely followed in investment banking — of allocating roughly half its annual revenue for compensation. While their bonuses will be paid in long-term stock, the payouts are likely to be worth many millions of dollars.

via Executives at Goldman Sachs Will Forgo Cash Bonuses – NYTimes.com.

Will the French dominate post crisis?

The French BNP and the Barclays’ have definitely come out on top post-crisis and given parochial attitudes in both nations, their governments are likely to plan making heavy weather on the bad financial markets industry..but I wouldn’t say these repayments signify any better practices on the part of these wannabe practitioners on the global horizon, but rather the fact that they were bystanders during the banking explosion of the last decade.

They do maintain a continued conservative stance which will come in useful, but given the history of the markets..they are much more likely to be the source of the next big black hole in a few days (years) maybe. However, with Citi planning to get out of government stakes as well, this could really absorb the prior decades’ sentiments some more and yet faster..leaving us with a blank slate in which to regulate our childrens’ future.

Coming back to the French, they do not have the depth in their markets to fund expansion and their global diaspora in terms of expansion by SocGen and BNP hardly enough to give them currency to support their non US pro Iran , pro Russia stance. They could however be the closest Euro member state for the new nations in East Europe that have been trying to get a piece of the global economics in this last decade as also they could substantially support some African nations. Being pragmatic however, they are likely to discover faster that they really do not want significant exposure in these markets

BNP recently paid $19.8 billion for Fortis (October 2008) and has therefore significantly completed its footprint in West Europe while SocGen has been active in Asia ( Offshore from Singapore, JVs with SBI in India)

China has had a long history with European Banks with the Deutsche Asiatique Bank, British Belgian Industrial Bank of China and the Sino Belgian Bank which issued Taels (North Asian currency) during Siberian-Japanese-Chinese trade ‘wars’ of the late 19th century but has never been remunerative for Foreign bank ( Comparitively with India, Chinese have very few branches and investment assets in Foreign banks)

However, as of March 2009 Bank of china had already purchased 20% in the Paris based Banque de Rothschild and with BNP out of government indebtedness, its reasons for going into China would be more mercantile than ever.

BNP Paribas, the largest French bank, said on Tuesday that it would raise €4.3 billion from investors to repay government bailout funds, The New York Times’s David Jolly and Chris V. Nicholson reported.

BNP Paribas, based in Paris, said its board had decided to repay, within the next month, the €5.1 billion, or $7.5 billion, it borrowed from the state March 31. The government would also receive a payout of €226 million on the nonvoting preferred shares it purchased.

Baudouin Prot, BNP Paribas’s chief executive, said in a conference call that the G20 meeting in last week in Pittsburgh, where world leaders agreed in principle that banks should raise more capital, had influenced the timing of BNP’s decision to issue shares, as had the lender’s share price, which is up more than 92 percent this year.

Christophe Nijdem, a banking analyst at Alphavalue in Paris, called the stock issue’s timing “judicious.”

“They had a window of opportunity,” he said. “A lot of banks will turn to the market in the months to come, and it’s first come, first serve.”

Mr. Nijdem added that, compared to American banks, European banks were more leveraged, and had to play catch up. Major Western banks are forecast to post losses of almost $2.5 trillion for the period 2007-2010, according to the International Monetary Fund.

via BNP Paribas to Raise $6.27 Billion to Repay Bailout – DealBook Blog – NYTimes.com.

Another AIG update

As the world’s largest Aircraft Lessor, ILFC is still in play with a mountain of debt which was $17 billion even 12 months ago. ILFC and General Electric Co.’s GE Commercial Aviation Services, the world’s largest aircraft-leasing firms, are the biggest customers for aircraft makers including Airbus SAS and Boeing Co. ILFC, founded 36 years ago, has a fleet of more than 1,000 planes valued at more than $50 billion, according to its Web site.

Companies like ILFC and GECAS buy planes from manufacturers and place them with airlines, reaping monthly rental income and helping their customers by shouldering the debt and balance- sheet burden. Aircraft list prices typically range from about $65 million to $240 million or more.

ILFC funds itself mostly by issuing public debt. Since its purchase by AIG in 1990, the business benefited from an implicit guarantee from the parent company, according to Moody’s Investors Service. That guarantee became less valuable as AIG’s credit rating dropped amid the financial crisis, said Nick Cunningham, an analyst at Evolution Securities Ltd. in London. Standard & Poor’s cut AIG four levels, to A- from AA, last year.

RBS is also currently trying to value its aircraft leasing business at $7-8 billion, while AIG ILFC’s original founder had suggested it ‘s value to be $10 billion and more but that was 12 months back

Hester


RBS has hired Goldman Sachs to find a buyer for its aircraft-leasing business, said people close to the matter, in a disposal that would be a large step forward in the new chief executive’s restructuring plan for the bank.

The book value of the aviation assets is roughly $8 billion, these people said. But any sale would likely be worth much less for but the bank, which could only book only several hundred million dollars, these people said.

RBS’s Dublin-based unit leases aircraft to more than 100 airlines in 38 countries, and has loans secured against some 300 commercial aircraft, according to the bank. Demand for Aircraft is significantly down this year

Onex and Greenbriar team with ILFC chief in bid for AIG assets

Posted on September 1, 2009 5:48 PM

American International Group Inc.’s auction of its debt-laden aircraft leasing business International Lease Finance Corp. has taken a turn as Greenbriar Equity Group LLC and Onex Corp., which had initially bid to buy the entire unit, are now working on a deal to buy a minority portion of its assets in partnership with Steven Udvar-Hazy, ILFC’s chairman and chief executive, according to a source.

Rye, N.Y.-based Greenbriar and Toronto’s Onex had been named preferred bidders in the ILFC auction in early June with an offer of just under $4 billion, but have been unable to reach a deal due in part to a stalemate between ILFC’s lenders and the U.S. government as to how its mountain of $30 billion-plus debt would be handled in an auction, the source said.

via Onex and Greenbriar team with ILFC chief in bid for AIG assets (Dealscape – Pipeline).

AIG’s Taiwan Life Unit

zyakaira notes: The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad..

Bloomberg reports that Morgan Stanley’s (NYSE:MS) private equity fund pulled out of the bidding group Chinatrust Financial Holding Co. is leading. So is Chinatrust still in the bidding?

The sale of the unit is expected to bring in about $2 billion, but it could have trouble hitting that price target as the unit is under as much financial pressure as its parent. Nan Shan was forced to raise $1.45 billion in a rights offer last year to avoid slipping below a regulatory capital requirement as unprofitable policies eroded its reserves.

So who else is in the bidding for the unit?

Carlyle Group, which joined Fubon Financial Holding Co.

Cathay Financial Holding Co.

China Strategic Holdings Ltd. may have joined Primus Financial Holdings Ltd.

Binding offers are due for submission on Aug. 28, according to the reports. – Maria Woehr

via Morgan Stanley, ChinaTrust to drop AIG unit bid? (Dealscape – Private capital).

Europe Issues New Bank Guidelines – BusinessWeek

Europe Issues New Bank Guidelines

zyakaira notes: These common rules specify stress tests for the 30 that have received state aid. Also they emphasize the fact that this aid must stay on the books to be of any value and not immediately used to save falling/defaulted bonds. All in all, it looks good on paper and barring any unforeseen bickering by the nation states individually as BoE and maybe a few others may prefer, these would set a nice denominator. From my side I would recommend that the best and worst case be not used to skew results and be used in a fair range, which should be eminently possible in 6 months

BW:

To even out different requirements imposed on banks that have received government aid, the European Commission has set forth common rules

The European Commission laid out new guidelines for banks receiving government support on Thursday (23 July) in order to avoid distortions of competition within the sector.

Since the fall of Lehman Brothers last September, roughly 30 banks within the EU have received state aid to keep them afloat on condition that a restructuring plan be submitted within six months.

But banks will have five years to implement their plans, an indication that the commission still considers the current climate extremely difficult.

Philip Lowe, the commission’s director-general for competition, said the guidelines were “the ultimate stage in restoring health to the banking sector…which is done by returning individual institutions to viability without state aid.”

He cautioned that state aid could not be provided so that banks could continue with a “failed business model.”

Instead, the restructuring plans must take account of “the present state of and future prospects of financial markets, reflecting best-case and worst-case assumptions,” say the guidelines, which will remain in place until 31 December 2010.

via Europe Issues New Bank Guidelines – BusinessWeek.

IS Capital One really good at analytics and targeted marketing? | Amit ‘zyaada’ Mittal

New government restrictions on credit card issuers may force Capital One Financial, which revolutionized the credit card industry through customized marketing and granular data research, to reinvent itself for a new age of regulation. Capital One is not alone. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 will restrict many industry practices when it takes effect next year, and some companies could face a rough transition, analysts said.

The legislation, for instance, will require Capital One and other lenders to take new steps to ensure that customers know what fees they will pay if they exceed the limits on their credit cards. This could hurt Capital One’s business, because it relies more than most other issuers on late fees for revenue. But the legislation could help Capital One by placing new limits on “teaser rates” and deals on balance transfers, which are used more widely by Capital One’s competitors.

The restrictions could help level the playing field for recruiting new customers. Capital One Chairman Richard D. Fairbank told analysts recently that the new law could jolt the industry at a vulnerable time, particularly if the nation is still in a recession when it takes effect. “We’ve driven industry reinvention before,” Fairbank told analysts. “The transition will be rough, and we may face a particular sour spot beginning in the second quarter of 2010. But in the long run, I believe that we’ll be in a very strong position to drive industry reinvention and thrive in the new credit card industry.”

McLean-based Capital One, founded in 1988 by Fairbank and business partner Nigel Morris, helped drive a credit card boom over the past 20 years through innovations like direct-mail solicitation, using sophisticated computer programs to micro-target potential customer groups. The techniques, some of which reached people with poor credit, allowed Capital One to customize interest rates and card fees based on a cardholder’s behavior rather than applying a one-size-fits-all approach. In response to article at http://www.washingtonpost.com