Home / 2011 / May (page 12)

Monthly Archives: May 2011

Goldman Finding Third Time a Charm in Russia $GS

Dmitry Medvedev and Lloyd Blankfein

Russian President Dmitry Medvedev, left, shakes hands with Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., during their meeting at the residence Gorki outside Moscow, on March 15, 2011. Photographer: Vladimir Rodionov/AFP/Getty Images

Goldman Sachs Group Inc. (GS) is making a third attempt in 17 years to crack the Russian market, this time by leveraging a $1 billion private-equity bet to win deals and wooing the Kremlin for roles in asset sales.

The effort is paying off. The firm has jumped to second place in advising on Russian mergers and acquisitions this year, behind Morgan Stanley, after failing to make the top three for more than a decade, data compiled by Bloomberg show. It has also secured pledges from companies including Mail.ru Group Ltd. (MAIL) and Tinkoff Credit Systems to arrange equity and Eurobond deals in return for investing more than $1 billion of its own money.

The bank, led by Chief Executive Officer Lloyd Blankfein, who visited Russia twice in the past year, struggled after opening its first office in Moscow in 1994. It scaled back soon after as part of a worldwide retrenchment, returned in 1998 weeks before Russia defaulted, withdrew almost entirely after the crisis and ramped up again in 2006. Since then, the firm has more than tripled its workforce in Moscow to 150.

“The old perception of Goldman Sachs in Russia is that we haven’t been consistent in our efforts in this country,” said Christopher Barter, co-head of Goldman Sachs in Russia, in an interview in Moscow May 12. “This is not the reality today.”

Advising Medvedev

Goldman Sachs, the fifth-largest U.S. bank by assets, jumped to fourth place in handling equity sales for Russian companies last year, its highest position ever, behind VTB Capital and Renaissance Capital, both based in Moscow, and Morgan Stanley. The company has underwritten the third-largest amount of foreign debt this year, up from 13th place in 2010.

While Goldman Sachs has been slower to expand in Russia than rivals such as Deutsche Bank AG (DBK) and Credit Suisse Group AG (CSGN) because of concerns about the integrity of financial markets, it may become a co-investor alongside a new $10 billion state-owned private-equity fund, according to two sources familiar with the matter. Blankfein, 56, who along with other bank executives is advising Russian President Dmitry Medvedev on transforming Moscow into a global financial center, is also pushing to win mandates for the Kremlin’s $30 billion privatization program.

The key to success has been private equity, according to Barter, who called it “a major differentiator.”

FULL ARTICLE (long but good read)

Comments »

SNB May Raise Rates as Swiss Economy Grows

Swiss National Bank President Philipp Hildebrand

Philipp Hildebrand, president of the Swiss National Bank. Photographer: Adrian Moser/Bloomberg

Swiss National Bank President Philipp Hildebrand may soon have room to raise borrowing costs for the first time in almost four years as the economy defies the franc’s surge.

Policy makers are weighing the threat of near-zero interest rates stoking property prices against the risk that an increase in the benchmark will push up the franc. While the currency has gained about 20 percent against the euro since the SNB cut its benchmark to 0.25 percent in March 2009, there are few signs that the exchange rate is undermining the recovery, with exports increasing and leading indicators signaling quickening growth.

“Does the economy really need interest rates near zero?” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. “No, it doesn’t. Now is exactly the right time to raise borrowing costs because any increase would only show an impact on the economy in a year,” he said. The recovery is strong enough to weather borrowing costs of 1 percent to 1.5 percent, according to Kohl.

While Swiss rates, the lowest among major global economies after Japan and the U.S., have spurred the economy’s recovery from a 2009 slump, they’re also fueling housing demand. Prices for single-family homes jumped 4.7 percent in 2010, data compiled by real-estate consultant Wueest & Partner AG show. The region of Geneva led the gains, with prices climbing 12 percent.

Mortgage Market

Hildebrand toughened his tone on the mortgage market last month, saying that “imbalances with serious repercussions” can emerge if borrowing costs remain at a “very low level for a long time.” In their March assessment, policy makers said the property market warrants their “full attention.”

“An increase would be the beginning of a normalization,” said Caesar Lack, head of economic research at UBS AG’s Wealth Management Research in Zurich and a former SNB economist. “It wouldn’t have much of an impact on the franc. But the fact that they’ve kept rates on hold for so long indicates that they’re extremely worried about possible implications.”

Five of 23 economists in a Bloomberg survey forecast that the Zurich-based SNB will raise its key rate on June 16, compared with none in March, marking the biggest division since the SNB cut its benchmark rate to near-zero more than two years ago. Among those predicting an increase are analysts at UBS and Bank of America/Merrill Lynch.

Upside Risks

The European Central Bank increased borrowing costs last month for the first time in almost three years, while central banks in Sweden, Norway and Russia also have raised their benchmark rates. Hildebrand has indicated a growing unease about price pressures, saying April 29 that the economy is expanding “more vigorously than anticipated” and “certain upside risks” on inflation “are beginning to emerge.”

The median forecast among economists is for a rate increase in September. The SNB has four regular meetings a year.

The franc was at 1.2422 per euro at 11:17 a.m. in Zurich, after reaching a record of 1.2324 yesterday. The currency, perceived as a so-called safe haven, has risen 6 percent since April 6 as the euro-area’s debt crisis worsened. It was at 88.23 centimes versus the dollar, down from an all-time high of 85.54 centimes on May 4.

SNB Vice Chairman Thomas Jordan told Swiss state television in an interview broadcast last night that while policy makers are “very concerned” about currency developments, exporters have “coped relatively well” with the franc’s appreciation.

“The currency isn’t having any significant impact on the economy,” said Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt. The SNB “clearly risks being behind the curve,” he said.

Overcoming Appreciation

Data suggest the recovery can withstand a policy tightening just as it has overcome the currency appreciation. Strengthening global growth has boosted demand for goods ranging from Swatch Group AG (UHR) watches to ABB Ltd. (ABBN) turbochargers, with exports surging 9.8 percent in the first quarter from a year ago when adjusted for inflation and work days. Unemployment is at 3.1 percent, the lowest since February 2009, and KOF leading indicators rose to the highest in almost five years last month.

The Swiss economy may expand 2.4 percent this year and 1.9 percent in 2012, the BAK Basel Economics research institute said. That’s above the SNB’s forecast of about 2 percent for 2011. In 2010, gross domestic product rose 2.6 percent. In the euro region, GDP may advance 1.6 percent this year, the European Commission said.

Foreign sales continued to grow even as the real effective exchange rate rose 10 percent in the past year, according to Jan Amrit Poser, the chief economist at Bank Sarasin in Zurich. Such an appreciation usually translates into a 15 percent plunge.

‘Export Miracle’

This “can only be described as an export miracle,” Poser said. “It appears that exports are less susceptible to prices than generally thought. We expect that the SNB will undertake its first tentative interest-rate hike in June.”

For Alexander Koch, an economist at UniCredit Group in Munich, the SNB can afford to keep borrowing costs on hold until its September meeting. Inflation was 0.3 percent in April, compared with 2.8 percent in the euro area, partly as the franc’s gain softened the impact of rising oil prices.

“The economic situation has improved further and exports have resisted the franc’s strength,” Koch said. “Still, as long as inflation remains subdued, there’s no need for the SNB to raise rates anytime soon.”

Comments »

Dr. Copper’s Summer Cold $HG_F $FCX

Dr. Copper is feeling under the weather. But will his ailment prove fatal?


The charts don’t look good for the metal widely regarded as having a Ph.D. in economic forecasting. Monday’s 3.1% fall in the Comex front-month copper contract, to under $4 a pound, pushed it back below the 200-day moving average, a closely watched support level. Worse, the shorter-term, 50-day moving average has been dropping pretty steadily since late February. The dreaded “death cross” looms, when the short-term average drops below the long-term one, portending sustained weakness.

[copper0412] Bloomberg NewsBeijing’s efforts to rein in inflation should serve to constrain copper demand.

Any prognosis must rely on more than charts, however. Copper’s last death cross, just under a year ago, didn’t bury the metal. By September, the 50-day average had moved back above the 200-day indicator, as copper entered a seven month bull run. By mid-February, the copper price had risen 54% and surpassed its 2008 peak at the height of the precrisis commodities boom.

That last run upward, however, coincided with a couple of things. First, the Federal Reserve’s second round of quantitative easing, or QE, drove U.S. real interest rates decisively lower. By weakening the dollar and reducing the opportunity cost of holding nonyielding assets, this made metals a relatively attractive investment. Second, Chinese inventories of copper were restocked during the second half of 2010, according to Deutsche Bank estimates.


Looking ahead to the summer, further U.S. monetary loosening is a debatable prospect. If QE3 fails to materialize, that would undermine the case for holding commodities.

Chinese demand is also key. Apart from the usual seasonal slowdown, Beijing’s efforts to rein in inflation and deflate a real-estate bubble should serve to constrain copper demand in its biggest market. Monday, HSBC released index data showing Chinese manufacturing expanding at its slowest pace in 10 months. The twist is that, if QE3 does materialize and drives the dollar down again, that would exacerbate China’s inflation problem because of the yuan’s peg to the greenback, putting more pressure on Beijing to tighten.

The doctor may take to his bed for the rest of the year.



Comments »

Uncle Sam Gives Stimulus Monies to Tax Cheats

“WASHINGTON (AP) — Thousands of companies that cashed in on President Barack Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found.

The Government Accountability Office, in a report being released Tuesday, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion from the stimulus effort owed $757 million in back taxes as of Sept. 30, 2009, the end of the budget year.

The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined, and it cautioned that the real number might be higher because the known tax debt does not measure such factors as income underreporting.

Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.” A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million.

The GAO referred those two cases and 13 others to the Internal Revenue Service, the country’s tax collectors, for further investigation.”

Full article

Comments »

Goldman Goes Long Crude Again; Raising 1 Year Target to $130 pb

“Anyone remember that rapid succession of brent downgrades by Goldman last month which did nothing until the CME and the administration launched an all out war on speculators a relentless barage of crude margin hikes? Well, uber momo Goldman sure doesn’t. Just out from David Greely: “While near-term downside risk remains as the oil market negotiates the slowdown in the pace of world economic growth, we believe that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand. Events in the Middle East and North Africa are having a persistent impact, which leads us to increase our oil price targets We expect that the ongoing loss of Libyan production and disappointing non-OPEC production will continue to tighten the oil market to critically tight levels in early 2012, with rising industry cost pressures likely to be felt this year. We are now embedding in our forecasts that Libyan production losses will lead to the effective exhaustion of OPEC spare capacity by early 2012. Consequently, we are raising our Brent crude oil price forecast to $115/bbl, $120/bbl, and $130/bbl on a 3, 6, and 12 month horizon.” Welcome back volatility. CME petroleum product margin reduction in 5…4…3…”

Full article

Comments »

Moody’s Said To Downgrade Many U.K. Banks Momentarily

I have learned that the credit rating agency Moody’s will announce on Tuesday that it is considering downgrading the creditworthiness of more than a dozen British financial institutions to reflect the eventual withdrawal of Government support for the banking industry.

I am told that Moody’s, one of the big three global rating agency groups, will say in a statement to the stock exchange that it has placed 14 of the 18 banks and building societies it covers on review for downgrade.

People close to Moody’s told me tonight that more than one of the big four UK banks, including Lloyds Banking Group, were among the institutions being put on review for downgrade.

Full article

Comments »

Nikkei Indecisive; Currently Trading Unch

“Japanese stocks swung between gains and losses as trading companies and exporters retreated after reports signaled economic growth is slowing in the U.S. and Europe, while shipping lines advanced on higher cargo rates.

Mitsubishi Corp. (8058), Japan’s largest commodities trader, retreated 0.5 percent. Toyota Motor Corp. (7203), the world’s largest carmaker, lost 0.9 percent. Nippon Yusen K.K., the country’s biggest shipping line by sales, climbed 2.4 percent.

Nikkei 225 Stock Average was little changed at 9,467.48 as of 9:30 a.m. in Tokyo after falling as much as 0.6 percent. The broader Topix index slid 0.1 percent to 816.69 with about the same number of stocks retreating and advancing.”

Full article

Comments »

ICBC Credit Suisse On China: Although a short-term bounce is possible, it’s not the time for bottom fishing. We need to see a clearer policy signal.”

China’s benchmark stock index may extend declines after erasing all of its gains for 2011 yesterday as higher interest ratesslow economic growth without cooling inflation, ICBC Credit Suisse Asset Management Co. said.

The Shanghai Composite Index slumped 2.9 percent yesterday, the most since Jan. 17, after a preliminary reading of a purchasing managers’ index showed China’s manufacturing may expand at a slower pace this month. The guage has tumbled 9.3 percent from a five-month high on April 18 amid concern government tightening measures will slow earnings growth.

“We remain cautious in the near term and we haven’t seen the bottom yet,” said Hao Kang, a Beijing-based fund manager at ICBC Credit Suisse Asset, which oversees $8.7 billion. “The economy’s definitely slowing but we’ve yet to see inflation easing. Although a short-term bounce is possible, it’s not the time for bottom fishing. We need to see a clearer policy signal.” ”

Full article

Comments »

BAC Gets Court Nod on a $410 Million Settlement in Overdraft Fees Class Action Suit

“NEW YORK (Reuters) – Bank of America Corp (BAC.N) has won tentative approval of a $410 million settlement of lawsuits accusing it of charging excessive overdraft fees to roughly 1 million customers.

U.S. District Judge James Lawrence King in Miami granted preliminary approval for the accord on Monday and scheduled a November 7 hearing to consider final approval, court records show.

Bank of America, the largest U.S. bank by assets, is among more than two dozen U.S., Canadian and European lenders that had been named as defendants in the class-action litigation, which in 2009 consolidated lawsuits filed across the country.

JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N) are among the other defendants.

Critics say overdraft fees, which are typically $25 or $35, disproportionately burden customers with lower incomes or low account balances.

In their November 2009 complaint, customers accused Bank of America of routinely processing debit transactions from largest to smallest rather than in chronological order.

They said this caused account balances to fall faster, sometimes causing customers to rack up hundreds of dollars of fees, even if they had been overdrawn by just a few dollars.”

Full article

Comments »

Today’s Best and Worst Performing ETF’s

No. Ticker % Change
1 CVOL 9.75
2 CZI 8.65
3 DPK 6.98
4 TVIX 6.80
5 EDZ 6.34
6 SOXS 6.29
7 BXDC 6.03
8 LHB 5.51
9 TZA 5.42
10 SQQQ 5.25
11 SCO 5.11
12 SRTY 5.04
13 EPV 4.90
14 FXP 4.85
15 ERY 4.49
16 TYP 4.27
17 MWN 4.24
18 EFU 4.23
19 FAZ 4.09
20 EEV 4.05
21 INDZ 3.76
22 BGZ 3.67
23 SJH 3.65
24 TWM 3.58
25 DTO 3.56
No. Ticker % Change
1 CZM -7.99
2 DZK -7.04
3 SOXL -6.24
4 EDC -6.15
5 BRIL -5.54
6 TNA -5.47
7 UCO -5.18
8 JJN -5.07
9 XPP -4.58
10 JJT -4.53
11 ERX -4.51
12 FCGL -4.41
13 TQQQ -4.41
14 TYH -4.40
15 MWJ -4.29
16 FAS -4.14
17 UKK -3.99
18 EET -3.94
19 BDD -3.89
20 XIV -3.79
21 GAF -3.78
22 TAN -3.75
23 EWY -3.70
24 EIDO -3.66
25 INDL -3.64

Comments »

U.S. Markets Take it on the Chin Over Strong Dollar and Debt Worries

“Doubts about Europe’s ability to manage its debt hammered global markets Monday, pushing the dollar up sharply and dragging down commodities and stocks.

Following a three-notch cut of Greek debt by Fitch Ratings Friday, which pushed the country’s rating deeper into junk status, rivalStandard & Poor’s revised its outlook for Italy to “negative” from “stable” on Saturday.

Fitch also warned Monday it may downgrade Belgium’s credit ratings if the government misses its deficit targets due to lack of political consensus on a balanced budget.

Fitch’s warning comes less than six months after a similar action by Standard & Poor’s, which also revised to “negative” the outlook on Belgium’s ratings. Both agencies rate the country’s debt at AA-plus, the second-highest rating on their scale.”

Full article

Comments »

Research Suggests BNY Screwed Over Pension Funds on FOREX trades

“Bank of New York Mellon Corp. has been fighting accusations that it took advantage of clients while trading currencies. A Wall Street Journal analysis of more than 9,400 trades the bank processed over the past decade for a large Los Angeles pension fund could provide ammunition to its critics.

BNY Mellon priced 58% of the currency trades within the 10% of each day’s trading range that was least favorable to the fund, the analysis shows. As a result, the trades cost the pension fund, the Los Angeles County Employees Retirement Association, $4.5 million more than if the average trade occurred at the middle of the trading range for each day, the analysis showed.”

Full article

Comments »

Prostitute Party Hosted By Munich Re Was a Smash; Leaving Massive Blackouts

“Recently, a company-paid prostitute party sponsored by Munich Re in 2007 has become public news, so the CEO answered some tough questions about the party.

The whole thing is “incredibly embarrassing for our staff,” said Torsten Oletzky, the CEO of Munich RE, a Germany-based insurance company.”

Full article

Comments »

Prosecutors Snooze on Justice

“In November 2009, Attorney General Eric Holder vowed before television cameras to prosecute those responsible for the market collapse a year earlier, saying the U.S. would be “relentless” in pursuing corporate criminals.

In the 18 months since, no senior Wall Street executive has been criminally charged, and some lawmakers are questioning whether the U.S. Justice Department has been aggressive enough after declining to bring cases against officials atAmerican International Group Inc. (AIG) and Countrywide Financial Corp.

Prosecutions of three categories of crime that could be linked to the causes of the crisis — corporate, securities and bank fraud — declined last fiscal year by 39 percent from 2003, the period after the accounting scandals at Enron Corp. and WorldCom Inc., Justice Departmentrecords show.”

Full article

Comments »

Boeing and General Dynamics Get Favorable Court Ruling

“WASHINGTON (Dow Jones)–The U.S. Supreme Court on Monday threw out a ruling that could have forced the Boeing Co. (BA) and General Dynamics Corp. (GD) to repay $3 billion to the federal government because of the Pentagon’s long-ago cancellation of a multibillion-dollar contract to build a Navy stealth-fighter jet.

The court, in a unanimous ruling written by Justice Antonin Scalia, said a key issue in the case could not be litigated because it involved state secrets that could not be aired in court.

The case dates to 1991, when then-Secretary of Defense Dick Cheney canceled a $4.8 billion contract with General Dynamics and McDonnell Douglas Corp. to build a Navy stealth fighter, the A-12 Avenger.

The first jet was to be delivered to the Navy in June 1990. The contractors, however, had problems from the start and couldn’t meet the proposed schedule. They also said the cost of finishing the project would substantially exceed the price of the contract.

No planes were ever delivered.

McDonnell Douglas merged with Boeing in 1997.

Monday’s decision tossed out a 2009 lower court ruling that found the government was justified in terminating the contract because the companies had failed to meet important milestones on the project. In light of that ruling, the government had demanded the companies repay roughly $3 billion in contract-progress payments and interest.”

Full article

Comments »

David Walker: “We’re not growing enough and we’re not going to grow our way out of this problem,”

“The US is spending $4 billion a day more than it is taking in, putting the country on an unsustainable fiscal path perpetuated by both Democrats and Republicans, according to David Walker, head of the Comeback America Initiative.

Solving America’s problems will require a combination weighted toward spending reductions but one that also will require spreading the taxation burden around more evenly, said Walker, the former US comptroller general.

“We’re not growing enough and we’re not going to grow our way out of this problem,” he said in a CNBC interview. “We would have to have double-digit real GDP growth for decades to grow our way out of this hole.”

Walker’s organization promotes fiscal stability and is warning that the US is trailing many other developed nations in terms of getting its fiscal policies in order. Comeback America is a conservative think tank funded mostly through a grant from the Peter G. Peterson Foundation, named for the founder the Blackstone Group private equity firm.”

Full article

Comments »