Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

Continue Reading

Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

Continue Reading

Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

Continue Reading

Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Archive | November, 2016

ECB loan boost heartens euro bulls

Posted on 29 February 2012 by

A species long absent from the currency markets is making a tentative return: the euro bull.

After Wednesday’s second round of cheap three-year loans from the European Central Bank, with eurozone banks taking €530bn this time, strategists were in upbeat mood.

Euro graphicClick to enlarge

The reason for this is simple. Financial markets have regarded the ECB’s longer-term refinancing operation, or LTRO, as a backdoor form of “quantitative easing” that has helped reduce the risk of a euro break-up or a sovereign default.

That banks tapped it again in substantial volumes was seen as a positive sign. A European credit crunch now looks more remote.

Wednesday’s dip on Federal Reserve chairman Ben Bernanke’s remarks aside, the question for investors is whether the single currency will respond to the confidence-boosting liquidity being pumped into Europe’s financial system with gains.

After tumbling during the autumn, the euro has already stabilised since the ECB’s first €489bn LTRO in December, rising 4 per cent against the dollar over the past 10 weeks. Though it barely reacted to the second LTRO figure on Wednesday, trading at about $1.34, the currency remains near three-month highs.

“What we’ve seen is that the diminishing risk factor has trumped the liquidity factor and the euro has strengthened,” says Alan Ruskin, head of foreign exchange strategy at Deutsche Bank. Currency analysts are ripping up their forecasts as a result.

UBS now predicts that the euro will be at $1.30 in a month, up from a previous prediction of $1.20. Analysts at Citi and HSBC think that it will hit $1.40 by the end of the year.

Many argue that the reduced likelihood of “tail risk”, or an extreme market-moving event, due to the ECB’s action is paving the way for wary investors to return to European assets and that this should be supportive for the euro. Progress by European leaders in tackling the Greek crisis has been important, too, in building confidence in the eurozone’s prospects.

Investors have been underweight in euro-denominated assets. Recent monthly surveys of global fund managers from Bank of America Merrill Lynch show that investors have not been net overweight in European equities since May 2011.

The survey for February shows that, while investors have stepped up purchases of European assets since the start of the year, they remain significantly underweight at 20 per cent, down from 31 per cent in January. A survey of more than 200 clients by Barclays Capital this week found about 50 per cent expected the euro to outperform the dollar in the event of a positive LTRO allocation.

Jose Wynne, BarCap analyst, points to the narrowing in Italian bond yields after the latest LTRO as evidence that clients are regaining appetite for European assets.

Two-year Italian bond yields dropped to their lowest level since the end of 2010, reflecting in part the expectation that Italy’s banks would continue to use the cheap ECB loans to buy higher-yielding Italian sovereign debt.

Central banks, moreover, are trying to diversify piles of dollars accumulated in recent weeks after a rush by investors into emerging market assets and after the oil price rise.

Trading desks have reported increased interest from emerging market sovereign buyers in the euro as a result.

The single currency makes up a big part of central bank foreign exchange portfolios. By the third quarter of last year, global central banks held 26 per cent of their reserves in the single currency and just over 60 per cent in the dollar, according to the most recent data from the International Monetary Fund. Investment banks say central banks had slowed their purchases of the euro in the last few months of 2011.

The feeling that the ECB’s loans have reduced tail risk has also changed the way the single currency is traded. It has become less prone to sharp swings in other risky assets during so-called “risk on, risk off” trading. The oil price has become more volatile, with currencies such as the Norwegian krone and the Japanese yen, rather than the euro, among the bigger movers.

In fact, according to an index of “risk on, risk off” asset classes created by HSBC – with the S&P 500 the most risk on and triple A rated US Treasuries the most risk off – the euro has moved from a positive 0.75 correlation at the start of the year to less than 0.5 now.

That shift could have knock-on consequences for the euro. If the “risk on” influence continues to fade, investors may start to focus more on macroeconomic influences. That could be negative for the single currency. The economic outlook for the eurozone is hardly buoyant.

“The longer term issue is that you’re left with another central bank with a big balance sheet and a growth problem,” says Steven Englander, head of foreign exchange strategy at Citigroup.

Mansoor Mohi-uddin, UBS’s head of foreign exchange strategy, says European banks will start to take advantage of the fresh ECB money to fund overseas projects, converting euros to dollars and putting downward pressure on the single currency.

“By giving out all of this liquidity, I think the LTROs mask the fundamentals of the eurozone,” he says. “Eventually it will drain out again – but because it’s there for three years, it might take a while.”

Nasdaq and the markets

Posted on 29 February 2012 by

Technical analysts, market psychologists, and other practitioners of the financial black arts are having a busy winter. One supposedly significant milestone after another falls: Dow hits 13,000, the Nasdaq’s 2007 high, Apple’s $500bn valuation. But there is a non-voodoo message here too – we’ve simply had a serious rally.

A little reflection would not hurt. What we make of this latest burst of prosperity depends heavily on how it is measured, and it pays to avoid complexity. So take a highly liquid and transparent group of companies from a range of industries: the 50 biggest US companies by market capitalisation. The members of this sample have added $1.2tn in market cap since many indices bottomed on October 3 last year, a 23 per cent gain, according to Capital IQ. The gains have been very evenly spread. Yes, Apple is a large contributor, but strike it out and the remaining 49 are still up 22 per cent. Only one of these 50 companies has not notched up gains during the rally: Amazon, burdened with both a dizzying valuation and declining margins. And the best performers of the 50 are diverse. The likes of Citigroup, Comcast, Occidental Petroleum, Walt Disney and Home Depot have risen by more than 40 per cent. If one sector stands out, it is the banks – the six in the sample grew their market caps more, in aggregate ($167bn) than Apple did ($150bn).

The underperformers have more in common. They are mostly defensive stocks. Procter & Gamble, Johnson & Johnson, AT&T, Coca-Cola, Pepsi and Bristol-Myers Squibb all had single-digit percentage gains. They would have lagged even if their performances were adjusted to include their considerable dividends. If holders of these sedate names are feeling regret, it will probably be replaced by a sense of relief if the winter of our market content is made unglorious summer.

Email the Lex team in confidence at lex@

Portuguese bond yields climb on default fears

Posted on 29 February 2012 by

Portugal’s cost of borrowing leapt on Wednesday because of growing worries that the country will follow Greece and head towards a possible default on its debt.

Portuguese 10-year bond yields jumped to 13.75 per cent, a rise of 73 basis points, after a report from the troika of the European Union, European Central Bank and the International Monetary Fund unsettled the markets.

It suggested to many traders that Lisbon was increasingly likely to need a second bail-out, which in turn pointed to a growing probability that the country would default.

Portuguese yields, which have an inverse relationship with prices, were also hit by uncertainty surrounding pay-outs on Greek credit default swaps, which act as a kind of insurance for investors against default. Greek and Irish yields also rose. Greek 10-year yields jumped 42bp to 34.79 per cent and Irish nine-year yields increased 9bp to 16.59 per cent.

However, Italian and Spanish yields fell, helped by the ECB’s second longer-term refinancing operation, which was considered a success by many market participants. The ECB leant €529.5bn to eurozone banks, slightly higher than market expectations.

The International Swaps and Derivatives Association is due to decide on Thursday on whether a credit event should be triggered on Greece following a question over the de facto seniority given to the European Central Bank over repayments on the country’s debt.

Strategists and traders believe the committee is unlikely to agree to a credit event at this point.

The ECB also holds a significant slice of Portuguese debt, which means private creditors would also rank lower when deciding repayments following any default by Lisbon.

The jump in Portuguese bond yields prompted the ECB to make inquiries over buying the country’s debt, according to traders. These traders said the central bank may have bought a small amount of Portuguese debt. However, the mere suggestion that the ECB is considering purchases could help to arrest a rise in yields, they say.

The troika’s third review of Portugal’s economic programme following its first bail-out last year, which was published on Tuesday, said: “Provided the authorities persevere with strict programme implementation, the euro area member states have declared they stand ready to support Portugal until market access is regained.”

This was the section of the report that sparked worries over a second bail-out and default, said traders.

Standard & Poor’s and Fitch have both put Greece on temporary default. They will rate Greece again once a debt exchange with private investors, which will lead to losses of about 75 per cent on bonds, is concluded.

A request for a Greek credit event, or pay-out, was made to the determinations committee of Isda on Wednesday. Strategists and traders believe the committee is unlikely to agree to a credit event at this point, although they expect one to be triggered once Greece activates so-called “collective action clauses” on private investors as it will force them to accept the terms of the debt exchange.

The European Investment Bank has followed the ECB in gaining de facto seniority in Greek bonds, according to bankers.

Lending cuts floor from under UK growth

Posted on 29 February 2012 by

Sir Mervyn King summed up the mood of many small businessmen on Wednesday when the Bank of England governor told MPs all the planks for growth were in place – with the exception of credit availability for small companies.

It is a problem the government is acutely aware of. Much of Tuesday’s cabinet meeting – devoted to removing “blockages to growth” ahead of this month’s Budget – was spent wrangling over how to tackle the credit supply problem.

Click to enlarge

George Osborne, chancellor, and Vince Cable, business secretary, have become increasingly alarmed that small companies are still not getting the loans they need to drive growth, despite a dizzying array of government schemes set up in the past 18 months to address the issue.

Although some Tories accuse Mr Cable of failing to do enough to help business, Mr Osborne’s allies say the Treasury is not blaming the Liberal Democrat.

After all, the chancellor knows first hand how difficult such schemes can be to develop. His attempt to channel £20bn of loans to small businesses by offering cheaper, state-backed funding is already delayed as officials struggle to draw up a plan which is attractive both to banks and small business borrowers, while not being so generous that it falls foul of EU state aid rules.

A brief history of initiatives

Autumn Statement, November 2011:

National Loan Guarantees Scheme (credit easing)

Up to £20bn of guarantees for bank funding will be made available during two years. Banks to offer lower-cost lending to smaller businesses with a turnover up to £50m. However, several of the UK’s biggest banks have raised concerns about whether the scheme will mean cheaper loans
for SMEs

Business Finance Partnership

Government will invest up to £1bn alongside private sector investors on fully commercial terms by managed funds that lend directly to mid-sized UK businesses.

Plan for Growth,
March 2011:

Enterprise Finance Guarantee scheme

A flagship scheme, extended to enable more than £2bn of fresh lending. Since 2008, the scheme has supported nearly £1.4bn of lending to more than 13,900 businesses. Of the extra £2bn announced, £263m was dispersed between March and December last year.

By the scheme, the government underwrites up to 75 per cent of a loan to small businesses which would be seen as too risky to back without state guarantees. Applications are falling as banks demand bigger subsidies. Small businesses complain banks require guarantees from individuals despite the government underwriting.

Export Enterprise Finance Guarantee scheme

Launched by the business department in April 2011, to bolster SME exports. It has made only five loans, supporting £2.9m of trade. It is now being rolled into the UK Export Finance’s stable of loan support schemes. That quango’s two new schemes for export insurance and bond support, launched in March 2011, have supported £140m worth of business
to date.

Enterprise Capital Funds

A series of capital funds run by Capital for Enterprise, a quango. It awarded an additional £300m in March 2011.

Regional Growth Fund

A £2.4bn pot of money to fund regional development projects: 48 businesses have received more than £190m from £1.4bn of funding approved to date.

Business Growth Fund

A £2.5bn bank-led fund launched in May 2011. To date it has funded only
four projects.

David Cameron, the prime minister, was forced to defend the scheme in the Commons on Wednesday. “The chancellor said in the Autumn Statement the policy would be put in place in time for the Budget and that’s exactly what’s going to happen,” he told MPs.

Other schemes set up by Mr Cable’s department have also had disappointing results. The £2.4bn regional growth fund, which replaced Labour’s regional development agencies, has been “far too slow” in getting funds out of the door, complained one business figure. Just £190m of £1.4bn of allocated funds have been released so far.

Mr Cable’s attempts to boost SME exports through a host of guarantee schemes have also fallen flat. One flagship programme – the export enterprise finance guarantee – launched in April last year to great fanfare has made just five loans, supporting just £2.9m of trade.

“If you don’t provide support for 20 years you can’t just turn on the tap, it is going to take a while,” said said one business leader.

Sir Mervyn acknowledged these concerns in testimony to the Treasury select committee on Wednesday. He called for “patience” in economic policymaking on the basis that the conditions for sustainable growth in Britain were in place. But the governor noted small companies were still not accessing finance, with banks reluctant to lend if additional incentives are not on offer.

“How do we try to give some encouragement to the banks to lend to small businesses? It’s either direction in terms of the banks that the taxpayer owns or it is an incentive to do something which banks wouldn’t already do, in other words a subsidy.”

In the case of the government’s latest loan guarantee scheme, due to start later this year, it will be Lloyds Banking Group and the Royal Bank of Scotland, the two state-backed banks, which will be the biggest – if not the only – users, given that these banks pay more for funds than rivals such as HSBC.

But with Downing Street on the war path to boost lending in the run-up to the Budget, all banks will be under pressure to do more to ease the plight of small business.

“There remains this challenge and we need to tackle it,” said John Cridland, director general of the Confederation of British Industry. “It is a complex issue and it is as much about banking relationships, costs and covenants as it is about availability of funds.”

Additional reporting by Sharlene Goff

SEC builds case against banks on warnings

Posted on 29 February 2012 by

US regulators investigating banks’ disclosures with mortgage securities are building their cases on warnings by due diligence firms that some loans failed to meet the banks’ underwriting standards.

On Wednesday,
JPMorgan Chase became the latest bank to disclose it was told in January by the Securities and Exchange Commission that it may face two civil lawsuits.

One investigation relates to “due diligence conducted for two mortgage-backed securitisations”, the bank said. JPMorgan disclosed a second investigation, which people familiar with the matter say relates to the bank’s alleged failure to pass on proceeds it received in settlement claims it negotiated with loan originators or to disclose the settlements to investors. The practice is known as “double-dipping” because the banks collect proceeds twice, once for securitising the loans and again in settlements.

On Tuesday, Wells Fargo and Goldman Sachs said they may face SEC charges relating to their sale of mortgage securities. Credit Suisse was subpoenaed by the SEC last year related to its disclosures, according to court filings.

The disclosures mark the second phase of the SEC’s investigation into sales of mortgage securities, following lawsuits against three banks for allegedly misleading buyers of collateralised debt obligations.

Other cases involving CDO sales are expected. Standard & Poor’s and a Mizuho bank employee both have disclosed receiving notices.

The SEC’s cases are focusing on residential mortgage-backed securities, which were churned out by Wall Street firms and blamed for exacerbating the credit crisis when the underlying loans proved defective. They led to hundreds of billions of dollars in writedowns and losses suffered by investors.

The cases come as the SEC and the Department of Justice have been criticised for not holding banks more accountable for the financial crisis.

The bulk of the cases are based in part on findings by the bank’s due diligence or firms such as Clayton Holdings, which were instrumental in vetting the home loans that underwriters packaged into securities.

Investigators are using those findings to show that bank employees were put on notice that some loans were bad and then failed to disclose that to investors, according to people familiar with the matter.

It is among one of the other pieces of evidence regulators have compiled, these people say. Clayton analysed mortgages for banks including JPMorgan Chase, Goldman and Credit Suisse.

In September 2010, the US Financial Crisis Inquiry Commission disclosed that Clayton found that as many as 28 per cent of mortgages failed to meet basic underwriting standards. In roughly 101,000 of those cases, the banks discarded Clayton’s warnings and likely included those loans in securities for sale to investors.

Keith Johnson, Clayton’s president at the time, told the FCIC that he was not aware of any offering documents that included this disclosure to investors. Mr Johnson said the findings were “alarming”.

Clayton reviewed a small sample of loan files – typically five to 10 per cent – for securities issuers that wanted to purchase loans from originators such as New Century Financial, Countrywide Financial, and Fremont Investment & Loan, according to testimony provided to the FCIC. The company examined more than 911,000 mortgages in 2006 and the first half of 2007.

Clayton received immunity from Andrew Cuomo, the former New York attorney-general and current governor of the state, during a 2007 investigation into the banks. No charges were filed and Clayton has not been accused of any wrongdoing.

LTRO: largesse is not the answer

Posted on 29 February 2012 by

In the boring old days, central bankers and regulators delighted in taking away the punch bowl from banking parties. Not any more. The European Central Bank has poured even more vodka into its second party-starter, hoping to stave off a liquidity crunch and boost eurozone lending. The first three-year facility in December was guzzled by about 520 banks that took €490bn. For weaker banks the so-called longer-term refinancing operation was critical as funding markets ran dry. During the latest LTRO on Wednesday, 800 banks downed €530bn. But this second punch bowl merely further delays a potentially nasty hangover.

As before, some banks such as Spain’s Banca Cívica genuinely crave the LTRO. For others, given the lack of stigma attached, it is a quick hit to fuel the carry trade jolly. The three-year cash at 1 per cent allows for a handsome pick-up even as sovereign bond yields fall. Banks swapping existing short-term ECB loans for LTRO borrowing accounted for two-fifths of the take-up; a net increase in liquidity demand (up by nearly three-quarters from December) made up the rest. That smacks both of opportunism by carry traders (who can blame them?) and of an easing of collateral requirements by seven eurozone members. Still, no matter how cheap the liquidity, it only provides a three-year anaesthesia on limited parts of banks’ funding. And there is no certainty when loans mature that banks will be in better nick.

Although LTRO2 lifts total ECB operations to a record €1.2tn, it is unlikely to achieve its aim of more lending to the real economy. Sure, it will bring margin relief for some and reduce refinancing risk. But given feeble loan demand, ECB largesse is not the answer. Demand requires confidence. Nor is liquidity the only thing stalling lending. That is also being done by the European Banking Authority’s higher capital hurdle, which is forcing even big banks to curtail lending. For demand – and supply – to return still requires resolution of the bigger conundrum: the wider eurozone crisis.

Email the Lex team in confidence at lex@

Spanish push to ease target riles EU

Posted on 29 February 2012 by

Mariano Rajoy, Spain’s prime minister, is seeking support from fellow eurozone leaders in his bid to soften his country’s deficit reduction targets, raising concerns about political interference in the bloc’s new fiscal rules.

Mr Rajoy, whose Popular party (PP) government took power at the end of last year, said on Wednesday that Spain would do “everything we can” to cut the budget deficit because the public sector could not carry on spending €90bn more than it earned each year.

However, an imminent economic recession and a worse than expected legacy from the previous, Socialist government – the 2011 deficit was 8.5 per cent of gross domestic product compared with a target of 6 per cent – will make it hard to meet the EU-agreed deficit target of 4.4 per cent of GDP this year.

“There is an in-depth debate: is it logical to maintain targets as if nothing had happened?” said Joaquín Almunia, Spain’s European commissioner. “That is a political discussion that may start tomorrow in the European Council and I think it is better to have this discussion with as much data as possible on the table.”

Publicly, José Manuel Barroso, the Commission president, has reiterated his view that his staff cannot yet make a judgment on whether to adjust Spain’s deficit targets.

“We do not yet have a full picture of Spanish fiscal slippage last year and the reasons for that fiscal slippage,” Mr Barroso told a pre-summit news conference.

EU officials said Spain must first complete its 2012 budget, expected at the end of March, before the Commission can make an informed decision.

Privately, the Spanish push has caused consternation within the Commission, where officials view the effort as an improper politicisation of what is supposed to be a technocratic judgment by staff economists.

Many eurozone policymakers now regard the watering down of eurozone fiscal rules at the behest of the French and German governments in 2003 as one of the causes of the bloc’s current woes.

Mr Rajoy’s efforts have also angered smaller eurozone countries and governments in similar binds with the European Commission. Several senior European diplomats said they viewed the Spanish efforts as an attempt by a large member state to get special treatment not afforded to smaller countries.

“It would question the entire economic governance tool kit,” said one senior diplomat from a smaller country that has had a tough fight with the Commission on its deficit targets. “We hope there is equal treatment.”

“If we are to succeed with our [fiscal] rules, it would be absolutely ridiculous right at the beginning of the application of a new system to release the pressure,” said a senior diplomat from a eurozone country.

According to an official familiar with the thinking of Herman Van Rompuy, the European Council president who sets the summit agenda, Mr Rajoy would be allowed to discuss Spain’s deficit issue at the summit, just as any other prime minister can raise issues of national concern.

But Mr Van Rompuy would resist a broader political endorsement of Mr Rajoy’s position, the official said. “If the Spanish government wants it to be discussed, the first interlocutor is the European Commission,” said the official. “We intend to follow the usual procedures.”

Another senior EU official said: “What we cannot do is upend the [process] by having a discussion at the European Council.”

Officials said they are hopeful Mr Rajoy will be satisfied by language in the summit communiqué that makes clear fiscal discipline should be applied differently in each country facing economic troubles. According to a draft obtained by the Financial Times ahead of the summit, the text now says that “fiscal consolidation . . . must be differentiated according to a member states’ conditions”.

In January, Belgium’s government was forced by the European Commission to cut nearly €2bn from its 2012 budget or face significant fines just weeks after it came into office, even though it was less than 0.5 per cent off agreed targets. Similarly, Hungary has been fighting a Commission recommendation to withhold EU development funds because it is estimated to overshoot targets by 0.25 per cent in 2013.

Blackstone founder tops private equity pay league

Posted on 29 February 2012 by

Stephen Schwarzman

Stephen Schwarzman, Blackstone chief executive

Stephen Schwarzman, the Blackstone chief executive, took home $213.5m in pay and dividends in 2011, a third more than the year before and topping the scale for a select group of the founders of listed private equity companies.

The riches for a high profile fundraiser for Mitt Romney, the frontrunner for the Republican presidential nomination who made his own fortune as head of Bain Capital, comes in an election year where private equity has been pushed to the centre of a debate about income inequality and how executives benefit from the tax code.

The 65-year-old Mr Schwarzman received $74m in cash distributions from investment funds started before Blackstone’s 2007 New York listing and $134.5m in dividends from his 21 per cent stake in the company, according to regulatory filings.

He was also paid a $350,000 base salary and received $4.6m from the firm’s share of investor profits, known as carried interest. So-called carried interest is usually taxed as a capital gain, which is levied at a 15 per cent rate, rather than the 35 per cent paid on ordinary income.

In his 2013 budget released this month, Barack Obama, the US president, proposed to “eliminate the carried interest loophole for hedge fund managers and other similar investment service providers”, a move that would raise $13.4bn, the administration estimates.

Previous attempts to change the treatment of carried interest and so increase the amount of tax paid by partners of financial firms have failed, including a 2010 proposal that Mr Schwarzman compared to Hitler’s invasion of Poland in 1939. He later apologised for the analogy, made privately.

The billionaire was ranked as the 66th richest American by Forbes magazine last year, with a fortune estimated to approach $5bn. In September, he told CNBC that he paid a 36 per cent federal tax rate, and a 17 per cent rate on his state and local income in 2010.

His income from Blackstone for 2011 was higher than the $113m taken home by the three founders of Carlyle Group, which is set to list on Nasdaq this year, and the $94m that Henry Kravis and George Roberts, co-founders of KKR received.

However, it pales in comparison to the almost $400m that Mr Schwarzman received in 2006 before the alternative asset manager listed in New York. The 2007 listing marked the high point in the private equity boom: shares in Blackstone hit a peak of $35 per shareholder unit shortly after the initial public offering before falling to below $5 during the financial crisis.

Blackstone traded nearly unchanged at $15.69 mid-afternoon in New York on Wednesday.

Irish minister pushes to cut bail-out cost

Posted on 29 February 2012 by

The European Union should cut the cost of Ireland’s banking bail-out to help it pass the eurozone fiscal pact in a high-stakes referendum due to be held later this year, a senior Irish minister has said.

Joan Burton, Ireland’s minister for social protection, said the EU should restructure €31bn in promissory notes issued by Dublin in 2010 to cover the cost of winding up Anglo Irish Bank, the institution at the centre of Ireland’s financial crisis. The notes are used by Anglo Irish to access liquidity from the central bank.

“People have made enormous sacrifices in terms of austerity . . . Relief in relation to the promissory notes would underline and emphasise once again the solidarity that Ireland has received from the eurozone,” Ms Burton told The Financial Times.

Ms Burton said the notes should be extended over 50 years to cut the cost to the exchequer during its present difficulties.

Ms Burton made the call on Wednesday as battle lines were drawn in a referendum campaign that offers European voters the first chance to pass judgment on a treaty enforcing tighter budget discipline to try and shore up the euro currency.

If Irish voters reject the treaty, Ireland could lose access to the eurozone’s permanent bail-out fund, jeopardising its return to bond markets and potentially threatening its membership of the single currency.

“The countries of the eurozone are entering into a deeper arrangement in relation to co-operation solidarity and so on,” Ms Burton said. “If we decide to opt out of that we have opted out of that arrangement and therefore we are fundamentally changing our relationship to the eurozone.”

Up to 1,000 protesters held a demonstration outside parliament, calling on the government to reverse cuts to public services and new charges on everything from property to septic tanks. Some protesters held anti-EU banners. Others specifically called for the government to use the referendum to provide leverage on banking debt.

“This referendum should be used as a bargaining chip with Europe. It should be a referendum on banking debt,” said Michael Kennedy, a protester from Limerick.

Dublin faces a bill of at least €63bn for recapitalising its main banks, which have all required state bail-outs to cope with a property crash. The cost of honouring a blanket bank guarantee issued in September 2008 eventually forced the previous government to turn to the EU and International Monetary Fund for a bail-out.

Under a deal struck with the EU authorities Dublin must pay €31bn over 10 years to cover the cost of the promissory notes issued to cover the cost of winding up Anglo. When interest charges are included the total cost to the exchequer is estimated at €47bn. The next €3.1bn instalment is due on March 31, just before the referendum on the treaty that will probably be held in late May or early June.

Dublin has previously asked the EU authorities to renegotiate the promissory notes and technical work has been taking place for several months. However, Dublin has so far received no firm indications that the EU authorities will provide any relief.

Ms Burton said a move by Europe on the promissory notes would be very helpful in the referendum campaign and would be noted by the Irish people. She said it would also benefit Europe, which could point to Ireland as a success story.

“Yes, of course it would be helpful because €3.1bn is almost as much as the (public spending) cuts that have taken place annually.”

Ms Burton said most of the blame for Ireland’s banking crisis lay with the crazy actions of property developers, banks and previous government – a “golden circle” in Irish society. But she said the huge credit flows into Ireland from the European Central Bank and European banks had also contributed to the property bubble.

Gerry Adams, president of Sinn Féin, said on Wednesday his party would oppose the treaty, which he claimed would put an “economic straitjacket” on the Irish people for decades. The first anti-treaty campaign was launched by a group called People’s Movement. Patricia McKenna, former Green Party MEP, said the treaty would cede more power to Europe and described it as an assault on the Irish democratic process.

The proposed referendum on the eurozone treaty claimed its first political victim in Ireland on Wednesday with the resignation of the deputy leader of the biggest opposition party.

Eamon O’Cuiv, deputy leader of Fianna Fáil and grandson of former Irish president Eamon de Valera, resigned last night after expressing reservations over the party’s decision to support the fiscal compact in the upcoming referendum. The resignation reflect unease among some grassroots supporters in the party about the treaty.

Regulators warn against ratings plan

Posted on 29 February 2012 by

Forcing issuers to rotate the agencies that rate their bonds, as proposed by the European Commission, could do more harm than good by opening the door to lower quality ratings by inexperienced analysts, European and UK regulators have said.

The leaders of the new European Securities & Markets Authority and a senior UK Financial Services Authority official told a UK parliamentary hearing of their grave concerns about mandatory rotation, a central part of the commission’s proposal to tighten regulation of credit rating agencies.

The proposal is designed to encourage competition and cut down on chumminess between the raters – led by Moody’s, Standard & Poor’s and Fitch – and the companies that hire them.

But Steven Maijoor, chairman of Esma, which supervises the agencies, told the Treasury select committee: “If a smaller agency gets the rating, do they have the right capacity and internal controls to ensure this is a high quality rating?”

The FSA’s David Lawton said mandatory rotation could lead to a shortage of acceptable raters and the market would come “to a complete halt”.

They testified as the Treasury committee opened a formal inquiry to examine the role the credit rating agencies played in the 2008 financial crisis and to examine ways to prevent a recurrence.

“Regulators are leaping to reduce the risk with a raft of proposals. Their intentions are good but will they get results?” asked Andrew Tyrie, committee chairman, adding that more hearings and a report were planned.

The rotation proposal also drew criticism from an industry panel that raised concerns about commission plans to have Esma supervise ratings methodologies. At the moment the watchdog focuses on ensuring internal procedures preserve analyst independence and are properly followed.

The Commission’s rating agency package is in the Brussels legislative pipeline, with agreement between the European parliament and member states necessary for it to come into force.

Under pressure from his fellow commissioners last November, Michel Barnier, the internal market commissioner, was forced to drop some of the most controversial measures, including powers to ban sovereign credit ratings in exceptional circumstances.

These more radical ideas are being revived by MEPs, who view the rating agencies as guilty parties in the financial crisis and blame them for exacerbating the eurozone sovereign debt woes.

Leonardo Domenici, an Italian socialist MEP who is drafting the parliament’s negotiating position, backs the rotation plan but he also wants to ban unsolicited ratings on sovereign debt and cap market share for the big agencies.

However, at a European parliament hearing on Wednesday, some of his proposals were opposed by other MEPs, who criticised the restrictions on sovereign ratings as counterproductive and unrealistic. These more radical measures are unlikely to hold sway in the Council, where a significant number of member states are unconvinced by such interventions in the market.