Poll: Thames Estuary Airport: Fly or Sink?

It’s the Mayor of London’s pet project, but do you think it will ever get off the ground? To lower the risk of further painful puns please give us your views as soon as possible.

Results will be available on completion and the poll will remain open for the foreseeable future. Thanks.

image: Foster and Partners’ artist impression of the Thames Hub

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The Case of the Disappearing FBI probe into Heinz Option Trades

Zürich_-_Münsterhof_-_Halbparonama_2

Panoramics of Münsterhof square in Zürich, September 2008, ‘Roland zh’. The address of Goldman Sachs Bank AG [Zürich] is Münsterhof 4. [From Wikimedia Commons, "the free media repository"]

Two deals involving Berkshire Hathaway partner, 3G Capital, were scrutinized by the SEC for alleged insider trading. 

3G no stranger to US courts…

The takeover of H.J. Heinz & Co  by Berkshire Hathaway was done and dusted in May.

By definition that means all loose ends surrounding the takeover [including legal challenges] were cleared up.

Well, that would be true as far as it goes, but there is still one obvious issue outstanding, even though the takeover has been completed.

The freeze on a Swiss bank account linked to possible insider trading in H.J. Heinz Co. call options, just before Heinz agreed to be bought by Berkshire Hathaway Inc. and Brazilian investment firm 3G Capital, was never lifted.

Additionally, although the corporate side of the takeover played out in the northern hemisphere, and the wheeling and dealing in options reportedly took place in the US and Switzerland, further reports indicated the SEC was also investigating related CFD trading, with a focus on one of the largest markets for that type of bet, The City of London.

Another twist, it makes sense to suppose the options contracts have long expired, and are now worthless.

More to the point, and perhaps somewhat bizarrely from the point of view of us non-legal folks, the SEC’s lawsuit against ‘unknown traders’ suspected of insider trading in Heinz stock options, remains open.

[In July I e-mailed the SEC to check if it had made any further 'statement directly related to this case, either formally or informally?' after the FBI announced it was weighing in with its own investigation. I'm still waiting for a reply from the SEC as I publish this blog post.]

The FBI does not comment on current, ongoing cases.

So, this post is my attempt to keep as many of the strands of the mystery as possible in one place for safekeeping, until such time as the investigations are concluded and this becomes a court case story….or not.

Let’s start with some reductive basics.

Switzerland. Yes, there are a few connections.

But there is absolutely no suggestion whatsoever of wrongdoing by the Swiss-Brazilian co-founder and board member of 3G,  Jorge Paulo Lemann. He lived in Switzerland for several years from the 1990s, onward. Nowadays he ‘shuttles between ‘São Paulo, Lake Zurich and St. Louis.’

And for that matter, nor is there any suggestion whatsoever of wrongdoing by 3G Capital Inc. itself.

However, 3G Capital has had its share of direct tangles with US prosecutors.

There again, 3G Capital was indirectly ensared in another case of possible insider trading last year when the SEC froze the assets of another former Brazilian banker in September 2012.

In November 2012, that ex-banker, Igor Cornelsen, agreed, without admitting or denying culpability, to pay $5.1 million to settle SEC charges that he and his firm, Bainbridge Groupmade more than $1.68 million by trading Burger King options, using confidential information, ahead of the 2010 announcement that the company was being bought by 3G Capital.

According to the SEC, Igor Cornelsen sought information from his Wells Fargo broker, who regulators alleged was stealing information from another customer involved in the Burger King deal.

Cornelsen was alleged to have sought inside information from his broker Waldyr Da Silva Prado Neto by sending him emails with such masked references as: “‘Is the sandwich deal going to happen?’”, according to the SEC’s statement on the case and settlement versus Cornelsen.

As for Waldyr Da Silva Prado Neto, the last reference I can find on http://www.sec.gov/ to the commission’s investigation specific of him, was posted on September 21 2012 .

In that post, the SEC said the probe was continuing.

Both WSJ.com and FT.com reported in February 2013 that the SEC continued to investigate Waldyr Da Silva Prado Neto.

It’s worth repeating that there’s no suggestion whatsoever that such ticks against Cornelsen and Waldyr Neto involve any current executive or official of 3G Capital.

We’ll know more, I guess, when the FBI has completed it’s own investigation into the Heinz derivatives trading and has concluded whether or not wrong-doing took place, and also, by whom [maybe].

Guessing when that might be seems like a bet as complex, murky and vaguely crazy as a stock option trade, with a CFD on the side.

ThSM

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Three things we learned from: Missing fl

Three things we learned from: Missing flight MH370 | Malaysia | The Malay Mail Online http://ow.ly/uu4m9

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A Sketchy Cyprus Day

The situation in Cyprus which an investor might try to assess this morning is not quite as dire as the one seen 24 hours ago; at least on the surface.

The vote on that vexatious tax on deposits did not take place on Monday as originally planned but has been delayed till Tuesday at 1600 GMT.

Also, banks in Cyprus will now not re-open until Thursday, not Tuesday as first mooted.

A Eurogroup meeting concluded yesterday with the view that small depositors should be treated differently from large depositors.

This bolsters the treaty principle that deposits under EUR100k be guaranteed.

However the work-around which protagonists have adopted to achieve this involves a 15.6% levy for savers of above EUR100k (versus the original plan of taxing deposits under EUR100k at 6.75% and those above EUR100k at 9.9%).

The evasive action by the main players also appears to include some tacit devolving of responsibility, with the reaffirmation of Cyprus having the prerogative to decide how it raises the mooted EUR5.8bn through any alternative proposal, so long as it does indeed raise that sum.

Down the line this sleight of emphasis by the EU with respect to responsibility might prove useful for saving face.

It’s important to note that the EU appears to be attempting to subtly re-frame the focus of the debate, albeit a little late. This is because whilst the market is calmer on the surface, so far Tuesday, it is still clearly positioned to take account of the risk of potential contagion [which might lead to potential bank runs elsewhere in Europe, let alone in Cyprus
when the banks re-open] and in the event of an escalation of Cyprus’s crises and/or knock-on events, the EU’s battered reputation will probably be back on the line, which in turn might increase the risk of market volatility.

Of course, the chances of the amended proposals being passed in the Cypriot parliament, remain just as sketchyas before the amendments, due to the thin majority of the ruling coalition, with no party enjoying an absolute majority and three parties having stated outright that they will not support the tax.

No Threat from Russia

The good news for both Cyprus and the EU, is that whilst, the Russians
are angry, those very large depositors whose adroitness can be described as ‘light’ at best, don’t have a legal leg to stand on.

Russian deposit holders might be responsible for an estimated one-half of the funds with Cypriot banks, according data from IHS Global and of course, they can’t all in fact be sketchy.

Either way, the country can be expected to maintain pointed rhetoric in the near term over any form of taxation on deposits–President Putin on Monday described the proposals as “unfair, unprofessional, and dangerous.”

However, whilst the size of the complete effect of the proposed taxation of deposits would be major for Cyprus, it can be deemed as minor for Russia.

It appears unlikely that Russia will engage in more than rhetoric in terms of ‘retaliation’ and will probably pay little more than lip service in support of any Russian chancers who opt for the litigious gambit.

TSM

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Dancing Fox

Dancing Fox

A foraging fox in Dulwich south west London, Sunday January 20th 2012. © Harry Dorset, 2011 #uksnow

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Fiscal Cliff vs. Fiscal Bump? Post-Election Views

Two basic cut-out-and-keep-perspectives

Taken near Dead Horse Point and Canyonlands National Park, Utah; source http://www.marketplace.org/topics/economy/us-headed-fiscal-cliff  [Creative Commons]

 

 

The glass-half-full version:

Negotiations succeed in securing a temporary extension of expiring tax provisions and spending cuts.

This is the ‘kicking-the-cliff-down-the-road-for-a-few-months’ scenario.

In that world, a short-term debt ceiling increase will have to be agreed, to get the economy to the Spring, when the real work of a deal on fiscal policy would begin.

This would require that the economy be definitively in recovery mode [arguable, but go with it for now please] and despite the prospect of market uncertainty, balance of risks to US growth projections for 2013 would be tilted upside.

Extreme outcomes feared by many today in a worst-case scenario Cliff would thus be moderated to a reasonable extent, at least. [But even in this brighter world, the Cliff doesn't disappear; it's just delayed for the medium term.]

The bear version:

Election results for The House of Representatives and [one third of] the Senate show that the balance of power in Washington DC post-election looks suspiciously like it did before.

The government is still regarded as divided in this world. In fact, arguably, the new House and new Senate are more polarized than before – in this more negative view, with fewer moderates all round; more right-wing right-wingers and more left-wing left-wingers.

In that world, fiscal cliff negotiations become another grown-up game of chicken, basically, in the same way the debt ceiling negotiations did.

House Republicans would probably oppose any kind of tax increase – but many commentators expect them to eventually agree to an end of the ‘payroll tax’ break.

It’s the ‘Bush tax’ cuts which would probably cause the most fireworks.

Republicans would not agree to those ending easily, if at all, even if automatic spending cuts are likely to be delayed until 2014 and maybe beyond.

All this might unsettle financial markets in November and December and put downward pressure on US Treasury yields, even if some sort of fudge is the likeliest eventual outcome as various final deadlines [late in the Spring] loom.

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The Bankia Signal

Another Friday, another wait for economic news out of Spain.

The results of the second part of an audit of Spain’s banks  – started in May and with particular reference to their funding needs – is likely to be released today [Friday] around 1600 GMT.

It’s a good time to note that in fact, Spain’s main banks are actually rather strong in capital terms and certainly relatively speaking.

This article on from Seeking Alpha from June, has some excellent data and comments which should help to differentiate such giants as BBVA and Santander from their smaller and sometimes upstart sector peers.

It’s the smaller, more regionally focused ‘cajas’ and the newer entities to which we should conclude any barbed comments in Oliver & Wyman’s report might be aimed.

Foremost amongst the struggling newer entities must be Bankia.

It takes quite a suspension of scepticism to regard this bank as sound in all respects.

It was formed at quite near the peak of the last phase of Europe’s debt crisis in December 2010, from seven regional savings banks.

It was the fourth-largest bank in Spain with 12 million customers in May 2012.

The same month, Spain failed to avoid publicly declaring it would have to provide actual financial backstops and intent of the same for Bankia.

Beyond what has publicly been disclosed though, that’s all we know.

And it might not matter much anyway, since the stock has halved from flotation levels and the only folk still interested are the daredevils and perhaps interests on the Spanish state side.

Even so, there are still ways the stock can tell us interesting things as we watch it from the sidelines. I’ve put together a few charts of Bankia’s stock price. Each bar on them represents one day of trade.

Chart 1 – Bankia stock price over three months [Bar-per-day] 

This one shows the range bound nature of what is now a relatively closely-held banking stock, over three months.

Chart 2 – Bankia stock price – zoomed to Sept. 11 to Sept. 26

Zooming in we can see the day of the most pronounced buying this month was on September 11, a day on which the stock gained more than 10%.

Looking at the volume bars underneath the candles, we can see that despite the jump, that day wasn’t a day with the biggest volume — in other words a relatively few buyers were eventually willing to buy the stock at 10% higher than most of the market was willing to buy.

The stock went from a low of EUR1.26 to a close of EUR1.388.

The day before the day of determined buying, the stock looked to be on the verge of piercing the 100-Day Moving Average line.

That line, regardless of the validity of such views or not, is widely regarded by traders as one signal of strength which a stock needs to remain above in order to continue being regarded as worth buying.

Looking rightwards, we note the short candles representing relative stability in a range for several days.

We come to a couple of days ago, and note the stock had slipped beneath another signal line, the Exponential Moving Average.

Here’s Bloomberg’s delayed ticker for the stock.

Of course, since September 11th, the 100-day moving average line has collapsed.

But the stock price is today but a few cents from the point at which someone or a few parties [for the most part] thought they had to step in, earlier in September.

Hence today, being the second-most crucial news day for Spanish banks of the year, one could reason that the same parties might like to act again, so long as they had a burden of proof on their side [AKA audit results.]

Failure on their part to act in a similar way as on September 11, would imply ‘support’ being withdrawn and levels past EUR1.26 [and perhaps beyond] potentially being breached.

The stock is as I write at EUR1.286.

ThSQM

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