Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Rally fades with summer’s demise
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 7 2010 07:40 | Last updated: September 7 2010 10:46
http://www.ft.com/cms/s/0/9ebb052e-ba4a-11df-8e5c-00144feab49a.html


Tuesday 10:30 BST. Risk appetite is fading as a return to full post-summer trading provides a challenge to ebullience seen since the start of September.

Commodities are softer, core sovereign debt yields are lower, the euro is under pressure and the FTSE All-World index is down 0.5 per cent.

This brings an end to a four-session bullish streak that had seen stocks gain 5 per cent on well-received economic data, sparking hopes the US, in particular, can avoid any double-dip recession.

However, Wall Street will return from the Labor Day break to be greeted by a more jaundiced take on recent economic reports and the unwelcome return of some European banking and fiscal tensions.

The latest European jitters seem to have originated from a Wall Street Journal story that claims some banks involved in the summers’ “stress tests” had understated their exposure to sovereign debt.

This comes a day after Germany’s banking association warned that the nation’s 10 largest banks may need to raise €105bn of new capital.

Together, the reports have reminded investors that, at the least, the eurozone financial system still has the capacity to throw up the odd unpleasant reminder of the credit and sovereign debt crises – a concern all the more resonant on a day when austerity measures lead to France enduring another big strike.

US equity futures currently suggest Wall Street will open lower by about 0.5 per cent.

● Debt. Core government debt is in demand after the sharp spike in yields over the past week attracts those traders not convinced by the broader market’s recent optimism. The yield on the US 10-year note – trading again after Monday’s Labor Day break – is down 7 basis points to 2.65 per cent. The US will auction $33bn of new 3-year notes later today.

Concerns about the European banking system is encouraging a flight into German Bunds, with the yield on the 10-year note down 0.6bp to 2.28 per cent

However, eurozone “peripheral” debt, is struggling to attract buyers as prospects for a surge in government borrowing this month starts to raise supply concerns among investors. The yield on Greek 10-year notes is up 23bp to 11.98 per cent, while similar duration Portuguese notes are higher by 7bp to 5.79 per cent. Sovereign CDS of the “peripherals” are mostly wider.

● Europe. The FTSE Eurofirst 300 is down 0.6 per cent as financials come under the cosh on the balance sheet concerns. The Eurofirst banking sector is down 1.2 per cent. The Markit iTraxx Senior Financials index, which tracks the credit default swaps of large European banks, is wider by 6.6 basis points to 135.5bp.

The FTSE 100 in London is down 0.8 per cent as the heavyweight mining sector join banks in the sell-off as resource demand projections are curtailed.

● Forex. The divergent performances of the euro and the yen speak to today’s switch in risk appetite, with the Japanese unit seeing more haven flows while the single currency is again struggling on eurozone banking worries.

The euro is down 0.9 per cent against the dollar to $1.2762 and off 1.1 per cent against the yen at Y107.10. The yen is up 0.3 per cent against the dollar at Y83.91, close to its 15-year high. The dollar is up 0.6 per cent on a trade-weighted basis.

● Commodities. Industrial resource prices are under pressure as the more cautious tone encourages profit-taking following the recent good run. Copper is down 2.1 per cent at $7,550 a tonne, while oil is lower by 1.7 per cent to $73.37 a barrel.

Gold is down 0.2 per cent at $1,247 an ounce as the stronger dollar weighs.

● Asia. Shares were initially mostly higher as investors were apparently cheered by US President Barack Obama’s $50bn stimulus plan. However, this strength soon faded as a stronger yen weighed on Japanese stocks and as the central banks of Japan and Australia left interest rates unchanged, the latter citing the “somewhat uncertain” global background as a factor for staying pat.

The FTSE Asia-Pacific Index is down 0.2 per cent after rallying 4.6 per cent in the past four days amid optimism over US growth.

In Japan, the stronger yen hit the shares of exporters, leaving the Nikkei 225 down 0.8 per cent. Hong Kong rose 0.2 per cent and Shanghai eked out a 0.1 per cent gain, supported by the steel sector after reports Beijing has asked a number of mills to stop production in an apparent plan to consolidate and improve efficiency in the sector.

Trading was cautious in Seoul, ahead of the Bank of Korea’s monetary policy board meeting on Thursday. The Kospi composite fell 0.3 per cent, despite a rally in steelmakers on hopes that the partial Chinese steel mill shutdown would boost product prices.

In Sydney, mining shares lost ground, after Prime Minister Julia Gillard secured the support of independent and reached the majority necessary her Labor party to form the new Australian government. The S&P/ASX 200 fell 0.1 per cent.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm





Hedge funds feel pressure with August results
By Sam Jones in London
Copyright The Financial Times Limited 2010
Published: September 6 2010 22:31 | Last updated: September 6 2010 22:31
http://www.ft.com/cms/s/0/3f174224-b9df-11df-8804-00144feabdc0.html


Hedge fund managers are facing growing pressure to deliver strong performance in the last four months of the year after yet another month of mixed results.

While August was, on average, a positive month for the industry, several big-name managers struggled to gain traction, with many more under pressure to ramp up the level of risk in their portfolios to boost year-end numbers, according to brokers.

The average hedge fund returned 0.17 per cent in August, according to preliminary month-end numbers from Hedge Fund Research.

The average fund was up 1.29 per cent this year until the end of July, according to confirmed HFR figures.

Among big-name funds, only a handful have shone, however, almost all thanks to a more bearish outlook on the global economy.

The $1.7bn Autonomy Capital saw its global macro flagship fund, which aims to make money by trading on global economic trends and events, return 0.71 per cent in August, bringing its year-to-date return to 21.3 per cent.

The $700m Conquest macro fund, meanwhile, returned 10.96 per cent in August, bringing its year-to-date return to 23.32 per cent, according to an investor in the fund.

In contrast, many of the industry’s largest and most prominent global macro players have struggled.

Brevan Howard, the $28bn hedge fund manager founded by Alan Howard, was flat through August, bringing its year-to-date loss to just under 1 per cent.

Large managers have been particularly careful of directional trades in foreign exchange and bond markets that have seen violent price movements in recent months.

Even more straightforward strategies have suffered. Equity long-short managers – which trade in the equity markets – also had another tricky month on both sides of the Atlantic.

Odey Asset Management’s European fund was down on the month 4.12 per cent as of 20 August, according to an investor, bringing year-to-date performance for the UK manager to a loss of 12.5 per cent.

In the US, the Viking Global Equities fund was down 0.85 per cent for the month as of August 20.

The Man Group’s $19bn AHL fund returned 6.2 per cent in August, while Winton Capital saw its flagship computer-driven fund return 4.33 per cent.








Consumer finance rebounds from crisis
By Henny Sender in New York
Copyright The Financial Times Limited 2010
Published: September 6 2010 22:34 | Last updated: September 6 2010 22:34
http://www.ft.com/cms/s/0/ceeef808-b9dd-11df-8804-00144feabdc0.html


Finance companies that lend to consumers and smaller businesses in the US are finding it easier to fund themselves in the wholesale credit markets, marking a comeback from their troubles during the financial crisis.

Finance companies typically operate by borrowing in the markets and lending money at higher rates to their customers.

During the credit crunch, the cost of their funds rose to crippling levels, forcing industry leaders like CIT into bankruptcy. However, CIT quickly emerged from bankruptcy protection and leading finance companies are now regaining their access to the credit markets.

Bankers estimate that during this year’s third quarter, global financial companies – including deposit-taking banks as well as finance companies – will issue as much as $80bn-$100bn in debt, more than in either of the first two quarters.

“Financial firms have access to debt capital once again,” one senior banker said. “I give the speed of CIT in and out of bankruptcy as an example of how quickly credit has recovered.”

Jonny Fine, head of US investment-grade debt syndication at Goldman Sachs, said: “The unsecured markets are repairing themselves.

“We see investment-grade debt cheaper than it has ever been. There is capacity for institutional investors to lend to finance companies as long as they are more strongly capitalised than in the past.”

One sign of the recovery came last month when ILFC, the aircraft leasing arm of AIG, raised $4.4bn in a mixture of secured and unsecured debt. This included $1.35bn in 4-year notes priced to yield 6.5 per cent; $1.275bn in 6-year notes priced to yield 6.75 per cent; and $1.275bn in 8-year notes priced to yield 7.125 per cent.

Ford Motor Company’s credit arm also has been able to raise capital at attractive prices, issuing $1.25bn of 7-year bonds priced to yield 6.9 per cent.

CIT itself raised a $3bn 5-year loan last month that pays an interest rate of 4.5 percentage points more than the benchmark Libor rate.

Fortress, the hedge fund group, signalled its bullishness about the sector last month when it bought American General, the consumer finance arm of insurer AIG.

AmGen’s problem had been that it had too little capital and too much unsecured debt. Fortress is hoping that it can persuade creditors to exchange their debt for equity, thereby bolstering the lender’s balance sheet and lower the cost of its borrowings.

Investors are still signalling concerns about the financial sector. Interest rates for non-financial firms tend to be lower than those for financial firms with similar credit ratings.

For example, double A-rated Procter & Gamble can raise 10-year money for more than 2 percentage points less than double A-rated Citigroup.

One banker familiar with the market said: “If the volumes go up, the price is likely to remain elevated for finance companies.”








Hurd named co-president of Oracle
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2010
Published: September 7 2010 00:31 | Last updated: September 7 2010 00:31
http://www.ft.com/cms/s/2/6293b112-ba0a-11df-8804-00144feabdc0.html


Mark Hurd is to become co-president of software maker Oracle only a month after being forced out as head of Hewlett-Packard over breaches of the computer makers’ code of conduct.

The rapid return by one of the technology industry’s best-known executives reflects the strong support he has continued to receive in some corners of Silicon Valley, in spite of his falling-out with HP’s board after an investigation of sexual harrassment allegations levelled by a former HP marketing consultant and actress, Jodie Fisher.

Oracle late on Monday named Mr Hurd as one of its two presidents and a board director, giving him a key supporting role to co-founder and chief executive Larry Ellison.

Mr Ellison has been one of Mr Hurd’s strongest public supporters since the surprise move by HP in early August to force out its former chief executive over breaches of its conduct of business rules tied to misstatement of expenses and his “inappropriate” relationship with Ms Foster. The two executives are friends and play tennis together.

The outspoken Oracle chief criticised the decision to push Mr Hurd out as “the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago” in an e-mail to The New York Times.

HP should have kept Mr Hurd on since it had found no truth to Ms Foster’s sexual harassment allegations, Mr Ellison said, adding: “In losing Mark Hurd, the HP board failed to act in the best interest of HP’s employees, shareholders, customers and partners”.

Oracle would not comment on Monday on whether its board had carried out its own review into the circumstances of Mr Hurd’s departure from HP.

However, Mr Ellison’s quick display of public support and the speed of the appointment suggested it did not feel the need to dig deeper given he had been cleared of the most damaging sexual harassment charges. “Their loss is our gain,” said one person close to the software maker.

Mr Hurd replaces Charles Phillips, a former Morgan Stanley analyst who left the company on Monday, Oracle said. In a statement, Mr Ellison said that Mr Phillips had approached him about leaving the company last December, but had agreed to stay on for a transitional period following its acquisition of Sun Microsystems.

As co-president, Mr Hurd will take over an expanded role that includes both Mr Phillips’ responsibility for sales and marketing as well as putting him in charge of the company’s 20,000-strong support organisation.

Safra Catz, Oracle’s other president, will continue to oversee operations and finance, with Mr Ellison taking charge of the company’s engineering.








Diamond to be new head of Barclays
By Patrick Jenkins, Banking Editor
Copyright The Financial Times Limited 2010
Published: September 7 2010 00:19 | Last updated: September 7 2010 09:07
http://www.ft.com/cms/s/0/a7aae28e-ba0a-11df-8804-00144feabdc0.html


Barclays on Tuesday confirmed Bob Diamond, head of its fast-growing investment bank, as its next chief executive.

Mr Diamond, who is based in New York but will move back to London to take up his new post, will be paid an annual salary of £1.35m, up from the current £250,000. His annual bonus will be two and a half times his salary or £3.375m and he will also receive a long-term incentive plan of five times his salary.

The generous remuneration package has been benchmarked against rival global international banks and financial institutions, Barclays said. Pay is likely to be a point of friction for Mr Diamond who has come under attack before on remuneration levels.

In March, only weeks after apparently showing restraint on his bonus for 2009, it emerged that Mr Diamond had only waived his cash entitlement and that he had been awarded a long-term incentive worth up to £6m by 2012.

Last year he earned an extra £27m from selling his shares in the group’s asset management arm.

Mr Diamond, a former teacher who has built Barclays Capital from scratch into a multibillion-pound operation, will take over from John Varley at Barclays’ annual meeting next March.

Mr Varley will become a senior adviser to the board on regulatory issues until September 2011.

Mr Varley had told colleagues he wanted to concentrate on charitable work and his range of non-executive directorships. However, he has been mooted by some for a potential role in government. He insisted on Tuesday he had no plans for a move into another role outside of his charity and advisory work.

Having steered Barclays through the financial crisis without recourse to government bail-out money, and overseen a bounce-back in profitability and the bank’s share price Mr Varley believes now is a good time to step down from his job.

In recent months he has also begun an overhaul of the bank’s structure, splitting out corporate banking into a separate unit and prioritising it and the bank’s underdeveloped wealth management operation for growth.

The succession plan, overseen by chairman Marcus Agius, has been widely forecast for several years.

After building BarCap steadily for years, Mr Diamond’s succession to the chief executive role is widely seen as having been secured when he masterminded the bold acquisition of the defunct Lehman Brothers’ US assets at the end of 2008.

From that base he has spent the past 18 months building out a global investment banking operation to match the acquired US assets, with a mass recruitment programme across Europe and Asia.

Barclays insiders said there would be no change to the bank’s strategy under its new leadership. Both men are firm believers in the universal banking model, with an investment bank and retail bank under the same roof.

However, Mr Diamond – who locked horns with the last UK government when he and Mr Varley refused to take government money at the height of the financial crisis despite pressure to raise capital fast – may soon find himself at odds with the new Con-Lib administration.

A government-appointed commission on banking is weighing the arguments for breaking up Britain’s universal banks, such as Barclays and HSBC.

On Tuesday Mr Agius defended the universal banking model again and Mr Diamond insisted there was no “space” between the three men on strategy.

Mr Diamond said he felt “honoured” to be taking over as chief executive of the 300-year-old institution.

As Barclays’ chief executive, the spirited US-born investment banker will come under far greater scrutiny and more intense political pressure to show moderation, especially amid an ongoing economic downturn.

As part of the reshuffle at the top of BarCap, Jerry del Missier and Rich Ricci, will become co-chief executives of the investment bank from the beginning of next month.

Barclays shares opened 2 per cent down on Tuesday at 316¼p.

Bob Diamond
- Born in Concord, Mass
- Lecturer at the School of Business, University of Connecticut
- Managing director and head of fixed-income trading for Morgan Stanley International
- Chief executive of CS First Boston Pacific
- Vice-chairman and head of global fixed income and foreign exchange at CS First Boston
- Joined Barclays in 1996
- President of Barclays plc and chief executive of corporate and investment banking and wealth management, comprising Barclays Capital, Barclays Corporate and Barclays Wealth