Margin Call
Ken Odeluga, July 5th, 2014
(M2 items only this time.)
Goldman Sachs hit with Rare Broker Downgrade
The stock of The Goldman Sachs Group Inc. was downgraded by an analyst at brokerage Sanford C. Bernstein & Co., according to the website of Institutional Investor magazine, which called such a downgrade of the stock “rare”. The magazine said Bernstein analyst Charles Hintz had been bullish on the stock for more than a decade. In a report meant for clients dated June 30th in which he changed his stance on GS to ‘market perform’ from ‘outperform’, Hintz said Sanford C. Bernstein “had not anticipated the effect of the regulatory response to the financial crisis”. Citing the new Basel III and Volcker Rule regimes which include funding policy changes and “onerous stress tests”, Hintz went on to lament Goldman’s “heavily weighted” propensity to “sales and trading, especially [fixed income, currency and commodities].” The analyst qualified the opinion by noting he still had confidence in Goldman’s management, but he noted his brokerage could not “get around the fact that sales and trading is facing deep structural impairment and will likely not get back to its previous highs.”
Source: Institutional Investor
Nibor reforms don’t end risk of manipulation – Industry Experts
Proposed central bank reforms of Norway’s Nibor interbank lending rate will fail to eliminate the risk of manipulation, according to finance industry experts.
Norway promised reforms of the Norwegian Interbank Offered Rate last year after some foreign banks complained about suspected rigging.
After investigating, the banking regulator said it found no evidence of rate rigging but could not rule it out either.
There has been intense scrutiny of the numerous interbank rates in use around the world following the scandal that led to some of the world’s biggest banks being fined $6 billion for rigging the London Interbank Offered Rate (Libor) and its European counterpart Euribor.
Norway introduced new rules for Nibor – which sets parameters on a range of financial instruments including bonds – last autumn, including the creation of a control committee.
The experts say the proposed mechanism still lacks transparency and the panel that sets the benchmark is too small.
Additional measures have been under consideration since then.
In a letter to the Norwegian financial regulator published in early June, NorgesBank said regulations needed to be changed as soon as possible “to make Nibor more robust and create more trust than it does today”.
Source: Reuters
Stanford Marine pulls London IPO
Stanford Marine Group postponed a planned London listing after its Dubai-based majority owner Abraaj Group said it was now searching for potential buyers of the business, Bloomberg reported, citing two people with knowledge of the matter.
Abraaj Group, which is the largest buyout firm in the Middle East, declined to comment on the report.
The sources said Stanford Marine may now sell shares in the first half of 2015 instead of this year and will not proceed with the IPO if it finds a buyer earlier.
Abraaj may seek a market value of about $300 million for Stanford Marine, with a valuation of about five times Ebitda, Bloomberg said.
Stanford Marine Group is an operator of offshore supply vessels for oil and gas firms in the Middle East and Gulf of Mexico.
Abraaj owns 51 percent. The rest is held by Al Waha Capital PJSC, an Abu Dhabi-based investment firm.
Source: Bloomberg
Israeli ad firm Matomy in ‘Take Two’ with plans for London IPO
Israeli digital advertising firm Matomy Media Group is once again looking into floating on the London Stock Exchange, according to a report by Reuters on Friday citing a source familiar with the matter. The report comes just months after the firm got cold feet amid earlier plans to list. Matomy indicated, at the time that it put plans to list on ice, that it was concerned the market’s appetite for Internet stocks had soured. Matomy was one of the first companies of the year to pull plans, as European investors balked at a drop in U.S. Internet stocks like Facebook.
Matomy has since trimmed its $100 million offering of new shares, plus an unspecified amount of existing shares, Reuters said. Matomy will now only offer $75 million of new shares, at a fixed price of 227 pence each, giving the firm an equity value post-listing of around £205 million, Reuters added.
The books are fully covered at that price, which is a scale-back from the previously expected valuation of closer to £300 million, the source told Reuters.
Source: Reuters
BT takes out Insurance against Pension Fund Risk
The trustees of BT Group Plc.’s pension scheme have taken out insurance against the costs associated with members living longer than expected, the biggest such deal of its kind in Britain.
BT has 320,000 members in its scheme, making it the country’s largest private sector defined-benefit pension plan.
The trustees said on Friday they created their own insurance company with the Prudential Insurance Co of America that would cover 25 percent of the scheme’s total exposure to people living longer, currently £16 billion –worth of the scheme’s liabilities.
The type of deal that BT has entered is known as a longevity swap. It is intended to insure against the risk that a company might make a mistake in calculating potential shortfalls in funding a pension scheme. Under a longevity swap, a pension fund makes regular payments to a third party, based on agreed expected mortality rates among the scheme’s policyholders.
The third party then agrees to take on the risk that those figures were underestimated and is liable to pay out to policy holders based on actual mortality rates.
The U.K. appears to have taken the lead in this new market. Insurer Aviva entered into such an arrangement in March.
Deals done since the first by engineering contractor Babcock in May 2009 totalled nearly £32 billion pounds, according to Reuters, with an additional 50% of that total expected from BT’s deal.
BT currently pays annual deficit payments of £325 million and analysts believe this could increase to almost £500 million following the next review. The triennial review began on June 30 and often takes around 9 months
Source: Reuters
Bulgaria’s Bank run the backdrop for a tale of political, criminal intrigue
A run on major commercial and retail banks in Bulgaria was precipitated by political rivalries between major bank shareholders and investigations into senior central bank figures whilst the situation was exacerbated by claims of malicious rumours, a report by Reuters’ INSIGHT team alleges.
The bank run initially centred on Bulgaria’s Corporate Commercial Bank (Corpbank) which at the end of the 2013 financial year was adjudged by auditor KMPG, to be in good health, with less than one percent of its loans non-performing, against an average of 17 percent for Bulgarian banks.
The country’s central bank initially blamed the bank run on media reports about Corpbank’s main owner and leaked news that a central bank deputy governor was under investigation. Central Bank Governor Ivan Iskrov called the leak a deliberate “attack” on the bank.
Privately, Reuters said, senior government officials blamed the run on a clash between Corpbank’s main owner Tsvetan Vassilev and his political rivals, without saying who they were. Prime Minister Plamen Oresharski publicly blamed a “corporate clash” for the run on Corpbank, without going into specifics.
By June 20, more than a fifth of the bank’s assets had been withdrawn, prompting the central bank to temporarily nationalise Corpbank.
The run quickly spread to another bank and saw Sofia announce a protective $2.3 billion credit line.
Source: Reuters
Fund Managers increasing Exposure to Copper
Some fund managers are increasing exposure to copper mining companies, betting the industry has reached the bottom of a downturn and that shares offer value for money, according to Reuters.
Reuters calculates that copper has lost almost a third of its value from a peak in 2011 due to a slowdown in top metals consumer China, which buys about 40 percent of global output.
Current conditions in the commodity market provide an attractive entry opportunity for investors in shares of copper miners, with a 2-5 year view because copper’s fundamentals are expected to improve in the medium term, Reuters suggests.
It cites data from Morningstar which shows that some of the largest natural resources funds, including JPM Natural Resources and BGF World mining, have already increased their exposure to copper companies in the last few months.
Source: Reuters
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