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C | French bankers weighing Brexit face Paris pressure to come home | By Abhinav Ramnarayan Anjuli Davies and Maya Nikolaeva LONDON PARIS Reuters While most London based bankers are brushing up on their German to prepare for a move to Frankfurt post Brexit senior staff at French investment banks expect to say Oui to government pressure to bring jobs home to Paris Most international banks in London have declared where they will move their European business in the event of a hard Brexit in which the UK would give up access to the single market including financial passporting rights Frankfurt is by far the favorite European giant Deutsche Bank DE DBKGn for example said in April up to 4 000 UK jobs could move to Germany Although French banks have been wavering about their plans the bankers who work for them in London believe pressure from the government of Emmanuel Macron himself a former investment banker makes a Paris move almost certain The Macron administration is really pushing for the French banks to move some of us to Paris setting up international schools there and talking tax breaks said a senior London based banker at one of the three main French investment banks Personally I am preparing for life in Paris Unless we get a soft Brexit deal it s almost inevitable he said asking not to be named because like others interviewed for this story he was not authorized to speak to the media That sentiment was echoed by a second London based source from another top bank Most of the Americans are moving to Frankfurt and a lot of them are very advanced in their plans so there s a lot of pressure for us he said A source at France s finance ministry maintained there was no undue pressure on the banks but acknowledged the government was keen for domestic lenders to base more jobs in France This government is doing a lot in terms of attractiveness like getting rid of the wealth tax We want the banks to live up to promises they have made we want them to make a concrete gesture one ministry source told Reuters French banks feel they can afford to wait until the details around Brexit become clearer because they already have EU licenses through their Paris headquarters unlike their U S counterparts which conduct nearly all of their European investment banking business out of London France s two biggest investment banks in London BNP Paribas PA BNPP and Societe Generale PA SOGN have not set out firm plans though SocGen CEO Frederic Oudea told Reuters in June it could move 300 400 out of the 2 000 investment banking jobs to Paris Credit Agricole PA CAGR the third biggest has moved its 10 person European government bonds trading platform to Paris but a source at the bank said the move was not related to Brexit All three declined to comment ENEMIES NO MORE French authorities want to convince the financial community that the sector is no longer seen as the enemy as former socialist President Francois Hollande once called it The previous government was an ideological one this one is pragmatic a senior French banker at one of the top three told Reuters in Paris Banks moving to Germany aim to take advantage of the country s AAA credit rating relatively attractive tax regime and strong economic track record For its part France has introduced measures to cut labor costs and lower taxation and has pledged to build more international schools targeted at expatriates children Former Bank of France governor Christian Noyer tasked by the government to lobby foreign finance firms has made more than 400 pitches to banks in New York and London in the months since Britain voted to leave the EU in June 2016 One big win has been British bank HSBC which said it would move up to 1 000 traders to its Paris entity in the case of a hard Brexit That is the only major international bank so far to say France will be its new EU headquarters however Wall Street bank Citigroup NYSE C said last week it was applying for a license to conduct sales and trading activities in France but its legal EU headquarters will be in Germany Noyer has said that even if banks say they are seeking a banking license in Frankfurt that does not mean most of the jobs will be there
I know of some people who say I m setting up my base in Frankfurt but I m putting my trading rooms in Paris in a subsidiary I ll create a few jobs in Frankfurt but the bulk is in Paris Noyer told Reuters in June |
C | Citigroup C Is A Top Dividend Stock Right Now Should You Buy | Getting big returns from financial portfolios whether through stocks bonds ETFs other securities or a combination of all is an investor s dream But when you re an income investor your primary focus is generating consistent cash flow from each of your liquid investments
Cash flow can come from bond interest interest from other types of investments and of course dividends A dividend is the distribution of a company s earnings paid out to shareholders it s often viewed by its dividend yield a metric that measures a dividend as a percent of the current stock price Many academic studies show that dividends account for significant portions of long term returns with dividend contributions exceeding one third of total returns in many cases
Citigroup in Focus
Based in New York Citigroup C is in the Finance sector and so far this year shares have seen a price change of 25 22 Currently paying a dividend of 0 45 per share the company has a dividend yield of 2 76 In comparison the Banks Major Regional industry s yield is 2 9 while the S P 500 s yield is 1 96
Taking a look at the company s dividend growth its current annualized dividend of 1 80 is up 16 9 from last year Over the last 5 years Citigroup has increased its dividend 4 times on a year over year basis for an average annual increase of 152 16 Any future dividend growth will depend on both earnings growth and the company s payout ratio a payout ratio is the proportion of a firm s annual earnings per share that it pays out as a dividend Citigroup s current payout ratio is 27 This means it paid out 27 of its trailing 12 month EPS as dividend
Looking at this fiscal year C expects solid earnings growth The Zacks Consensus Estimate for 2019 is 7 45 per share which represents a year over year growth rate of 12 03
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages investors like dividends for a variety of different reasons It s important to keep in mind that not all companies provide a quarterly payout
High growth firms or tech start ups for example rarely provide their shareholders a dividend while larger more established companies that have more secure profits are often seen as the best dividend options Income investors have to be mindful of the fact that high yielding stocks tend to struggle during periods of rising interest rates That said they can take comfort from the fact that C is not only an attractive dividend play but is also a compelling investment opportunity with a Zacks Rank of 2 Buy |
C | Technically Speaking A Different Way To Look At Market Cycles | A Different Way To Look At Market Cycles
In this past weekend s newsletter we noted the issues of similarities between the current market environment and previous market peaks in the past To wit
It isn t just the economy that is reminiscent of the 2007 landscape As noted above the markets also reflect the same Here are a couple of charts worth reminding you of
Notice that at the peaks of both previous bull markets the market corrected broke important support levels and then rallied to new highs leading investors to believe the bull market was intact However the weekly sell signal never confirmed that rally as the unseen bear market had already started
Currently relative strength as measured by RSI on a weekly basis has continued to deteriorate Not only was such deterioration a hallmark of the market topping process in 2007 but also in 2000
The problem of suggesting that we have once again evolved into a Goldilocks economy is that such an environment of slower growth is not conducive to supporting corporate profit growth at a level to justify high valuations
My friend and colleague Doug Kass penned an important note about the current market backdrop on Monday
Even apart from the instability due to speculation there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations whether moral or hedonistic or economic Most probably of our decisions to do something positive the full consequences of which will be drawn out over many days to come can only be taken as the result of animal spirits a spontaneous urge to action rather than inaction and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities John Maynard Keynes
The markets confounding many have vaulted higher from the Christmas Eve lows with nary a selloff
This morning let s briefly explore the catalysts to the advance and consider what might follow
Liquidity and financial conditions have improved as Central Bankers to some degree have reversed their tightening policies Interest rates and inflationary expectations have moved lower than expected providing hope for an elongated economic cycle that has already been a decade in duration and appeared to be long in the tooth
Market structure and the dominance of price following products and strategies like ETFs CTAs and Risk Parity and Volatility Trending Targeting exacerbated the trend lower into late December The breadth thrust and reversal in price momentum contributed to the post Christmas rally As I have previously noted in an investment world dominated by the aforementioned products that worship at the altar of price momentum buyers live higher and sellers live lower This phenomenon has exaggerated market moves and has created an air of artificiality and absence of price discovery on both the upside and the downside
Corporate buybacks abetted by tax reform introduced 15 months ago provided another reason for a strong backdrop for higher stock prices
As a result of the above factors and others animal spirits rose and valuations expanded
These four conditions have offset the deceleration in the rate of global economic growth and U S corporate profit growth
He is correct the animal spirits which were awakened by consecutive rounds of financial stimulus on a global scale has enticed investors into the belief that all risks of a market cycle completion have been removed The problem as I have discussed previously is this optimism comes at a point in history diametrically opposed to when President Reagan instituted many of the same conservative policies
It is this exuberance that reminded me of the following investor psychology chart
This chart is not new and there are many variations similar to it but the importance should not be lost on individuals as it is repeated throughout history At each delusional peak it was always uttered in some shape form or variation this time is different
Of course to the detriment of those who fell prey to that belief it was not
As I was studying the chart something struck me
During my history of blogging and writing newsletters I have often discussed the importance of full market cycles
Long term investment success depends more on the WHEN you start investing This is clearly shown in the chart below of long term secular full market cycles
Here is the critical point The MAJORITY of the returns from investing came in just 4 of the 8 major market cycles since 1871 Every other period yielded a return that actually lost out to inflation during that time frame
By looking at each full cycle period as two parts bull and bear I missed the importance of the psychology driven by the entirety of the cycle In other words what if instead of there being 8 cycles we look at them as only three
This would of course suggest that based on the psychological cycle of the market the bull market that began in 1980 is not yet complete
Notice in the chart above the CAPE cyclically adjusted P E ratio reverted well below the long term in both prior full market cycles While valuations did very briefly dip below the long term trend in 2008 2009 they have not reverted to levels either low or long enough to form the fundamental and psychological underpinnings seen at the beginning of the last two full market cycles
Long Run Psychological Cycles
It is from that basis and historical time frames that I have created the following thought experiment of examining the psychological cycle overlaid on each of the three full cycle periods in the market
The first full market cycle lasted 63 years from 1871 through 1934 This period ended with the crash of 1929 and the beginning of the Great Depression
The second full market cycle lasted 45 years from 1935 1980 This cycle ended with the demise of the Nifty Fifty stocks and the Black Bear Market of 1974 While not as economically devastating to the overall economy as the 1929 crash it did greatly impair the investment psychology of those in the market
The third current full market cycle is only 39 years in the making Given the 2nd highest valuation levels in history corporate consumer and margin debt near historical highs and average economic growth rates running at historical lows it is worth questioning whether the current full market cycle has been completed or not
The idea the bull market which begin in 1980 is still intact is not a new one As shown below a chart of the market from 1980 to the present suggests the same
The long term bullish trend line remains
The cycle oscillator is only half way through a long term cycle
On a Fibonacci retracement basis a 61 8 retracement would almost intersect with the long term bullish trend line around 1200 suggesting the next downturn could indeed be a nasty one
Again I am NOT suggesting this is the case This is just a thought experiment about the potential outcome from the collision of weak economics high levels of debt and valuations and irrational exuberance
It s All Asymmetric
A second supporting theory of full market cycles was George Soros take on bubbles
First financial markets far from accurately reflecting all the available knowledge always provide a distorted view of reality The degree of distortion may vary from time to time Sometimes it s quite insignificant at other times it is quite pronounced When there is a significant divergence between market prices and the underlying reality there is a lack of equilibrium conditions
I have developed a rudimentary theory of bubbles along these lines Every bubble has two components an underlying trend that prevails in reality and a misconception relating to that trend When a positive feedback develops between the trend and the misconception a boom bust process is set in motion The process is liable to be tested by negative feedback along the way and if it is strong enough to survive these tests both the trend and the misconception will be reinforced Eventually market expectations become so far removed from reality that people are forced to recognize that a misconception is involved A twilight period ensues during which doubts grow and more and more people lose faith but the prevailing trend is sustained by inertia As Chuck Prince former head of Citigroup NYSE C said
As long as the music is playing you ve got to get up and dance We are still dancing
Eventually a tipping point is reached when the trend is reversed it then becomes self reinforcing in the opposite direction
Typically bubbles have an asymmetric shape The boom is long and slow to start It accelerates gradually until it flattens out again during the twilight period The bust is short and steep because it involves the forced liquidation of unsound positions
The chart below is an example of asymmetric bubbles
Soros view on the pattern of bubbles is interesting because it changes the argument from a fundamental view to a technical view Prices reflect the psychology of the market which can create a feedback loop between the markets and fundamentals As Soros stated
Financial markets do not play a purely passive role they can also affect the so called fundamentals they are supposed to reflect These two functions that financial markets perform work in opposite directions In the passive or cognitive function the fundamentals are supposed to determine market prices In the active or manipulative function market prices find ways of influencing the fundamentals When both functions operate at the same time they interfere with each other The supposedly independent variable of one function is the dependent variable of the other so that neither function has a truly independent variable As a result neither market prices nor the underlying reality is fully determined Both suffer from an element of uncertainty that cannot be quantified
The chart below utilizes Dr Robert Shiller s stock market data going back to 1900 on an inflation adjusted basis I then took a look at the markets prior to each major market correction and overlaid the asymmetrical bubble shape as discussed by George Soros
There is currently much debate about the health of financial markets Have we indeed found the Goldilocks economy Can prices can remain detached from the fundamental underpinnings long enough for an economy earnings slowdown to catch back up with investor expectations
The speculative appetite for yield which has been fostered by the Fed s ongoing interventions and suppressed interest rates remains a powerful force in the short term Furthermore investors have now been successfully trained by the markets to stay invested for fear of missing out
The increase in speculative risks combined with excess leverage leave the markets vulnerable to a sizable correction at some point in the future The only missing ingredient for such a correction currently is simply a catalyst to put fear into an overly complacent marketplace
In the long term it will ultimately be the fundamentals that drive the markets Currently the deterioration in the growth rate of earnings and economic strength are not supportive of the current levels of asset prices or leverage The idea of whether or not the Federal Reserve along with virtually every other central bank in the world are inflating the next asset bubble is of significant importance to investors who can ill afford to once again lose a large chunk of their net worth
It is all reminiscent of the market peak of 1929 when Dr Irving Fisher uttered his now famous words Stocks have now reached a permanently high plateau The clamoring of voices proclaiming the bull market still has plenty of room to run is telling much the same story History is replete with market crashes that occurred just as the mainstream belief made heretics out of anyone who dared to contradict the bullish bias
It is critically important to remain as theoretically sound as possible as a large majority of investors have built their portfolios on a foundation of false ideologies
The problem is when reality collides with widespread fantasy |
JPM | Homebuilders Banks Under Pressure | Asian traders bought US dollar against the majors and yen against the US dollar The USD JPY continued seeing resistance pre 103 mark in Tokyo The month and quarter end inflows kept the yen in demand nevertheless the pair is gaining potential for a surge towards the 105 mark on softer Federal Reserve Fed expectations and speculations of further monetary stimulus from the Bank of Japan BoJ
The FTSE 100 opened in the red after having outperformed its European peers by a decent 3 58 rally yesterday The UK banks are paring gains in London Lloyds LON LLOY 1 60 Barclays LON BARC 1 49 RBS LON RBS 3 44 Banks and financials will certainly be facing major challenges in the period ahead Rising speculation of potential flights out of the City of London are whistled in the wind
Property market and homebuilders are also subject to fresh selling pressures amid news that Singapore s UOB suspended its loan programme for London properties due to Brexit risks and uncertainties Taylor Wimpey LON TW 2 41 Persimmon LON PSN 1 73 Baratt Developments 2 25
We reiterate that volatility is a sign of stress on both sides Despite short term rallies UK equities are expected to remain downbeat due to a combination of reasons credit downgrades from Moody s S P and Fitch uncertainties regarding the UK s future in Europe and also the complex political situation within the United Kingdom as a whole In a recent report JPMorgan NYSE JPM said to consider the Scottish independence and a new Scottish currency as a base case scenario
Today PM Cameron will hold an emergency meeting with leading business leaders in an effort to restore confidence following the Brexit vote Leaders will discuss how to get the best possible deal from the European Union how to secure the best free market access and how to get alternative trade deals across the globe In this respect the UK prepares to put in place a dedicated commission to take part in trade negotiations Business leaders will also be demanding new fiscal measures to support and boost business in the UK Hence reduction in corporate taxes will likely be on the menu of the day
Last but not least the Bank of England Governor Mark Carney also decided to step in the scene hoping to temper the turbulence caused by the Brexit vote Carney will certainly announce the contingency plans to reassure liquidity and to smoothen activity in finance
The sterling recovered 3 off the post Brexit bottom against the US dollar 2 against the euro Nevertheless a combination of loose monetary and fiscal policies could dent appetite on the buy side The sterling market remains heavily loaded with put options Option barriers are solid from 1 35 to 1 38 against the US dollar call options abound at 0 80 against the euro at today s expiry |
JPM | BancorpSouth Agrees To Settle Suit On Unfair Lending Actions | On Wednesday BancorpSouth Inc NYSE BXS agreed to settle the lawsuit for 10 6 million under which the bank was being sued for encouraging discriminatory mortgage lending practices The settlement agreement was entered with the U S Department of Justice DOJ and the Consumer Financial Protection Bureau CFPB DetailsThe bank was accused for violating the Fair Housing Act and Equal Credit Opportunity Act Both DOJ and CFPB investigated BancorpSouth s lending practices initiating in 2014 in the Memphis area as well as in parts of neighboring Mississippi and Arkansas and concluded that the bank used racial criteria to direct potential borrowers towards certain neighborhoods and determined their eligibility for loans We note that as per the DOJ such discriminatory practice is referred as redlining Moreover regulators revealed BancorpSouth evaded areas with large African American and Hispanic populations by refraining from opening branches or allocating those areas to loan officers It has been notified that BancorpSouth was involved in predatory lending practices providing overcharged higher fees and interest rates loans to minority borrowers Awaiting the U S District Court s approval in Northern District of Mississippi the bank will be paying around 10 6 million including about 4 million as loan subsidy with a penalty amount of 3 million Further the settlement includes payment of 2 78 million to black consumers who were illegally denied or overcharged for their loans and 800 000 for community programs and credit repairs BancorpSouth s discrimination throughout the mortgage lending process harmed the people who were overcharged or denied their dream of homeownership based on their race and it harmed the Memphis minority neighborhoods that were redlined and denied equal access to affordable credit CFPB Director Richard Cordray said in a statement BancorpSouth neither accepted nor denied the wrongdoings and disagreed with the accusations saying the decision to settle was to avoid prolonged and distracting litigation We believe this settlement is a positive development for the bank and is in the best long term interest of our customers employees and shareholders James D Rollins III chairman and chief executive of BancorpSouth said in a statement BancorpSouth is fully committed to fair and responsible lending practices in all communities throughout our footprint Our settlement is a testament to that commitment Notably the bank has already reserved 13 8 million during the first quarter of 2016 to meet such settlements and therefore further financial impact is not anticipated
ConclusionAmong other mortgage lenders Citigroup Inc NYSE C JPMorgan Chase Co NYSE JPM and Bank of America Corp NYSE C were also sued for discrimination in lending practices Deutsche Bank AG DE DBKGn had also been previously accused by Los Angeles of letting the foreclosed homes in low income regions deteriorate to poor conditions The case was settled in Jun 2013 For banks legal headwinds are on the rise They continue to face several cases and probes regarding their business conduct preceding the financial crisis Though the banks have resolved many such issues in the past years increasing legal hassles keep dragging their financials downward Currently BancorpSouth carries a Zacks Rank 3 Hold Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
JPM | JPMorgan JPM Goes Against The Herd To Expand In India | While most foreign banks are contracting their operations in India due to regulatory concerns JPMorgan Chase Co NYSE JPM is all set to open three more branches in the country It has already won the Reserve Bank of India s approval for this expansion The branches one each in New Delhi Bengaluru and Chennai are expected to be operational in the next few months All of JPMorgan s existing products and services including cash management trade finance foreign currency payments and lending services are expected to be available in the new branches Rationale Behind the ExpansionChennai s position as a manufacturing hub Bengaluru as an information technology center and New Delhi being the national capital will help the company to provide better services to its current clients including multinational companies and Indian firms that have worldwide trade links Further as Kalpana Morparia CEO South and South East Asia JPMorgan stated This is another significant milestone for growing our Indian franchise and deepening our banking footprint The expansion endorses our long term commitment to India a key market for J P Morgan as well as for many of our clients Strategy to Benefit JPMorganThis strategy is in stark contrast to those being followed by the other leading foreign banks operating in India In the past few years most foreign banks have withdrawn a range of services from the country because of the restrictions imposed on them The regulations in the country allowed the foreign banks to open only a limited number of branches and allocate part of their lending to the priority sector Consequently earlier this year HSBC Holdings LON HSBA Plc NYSE HSBC planned to close almost half of its branches in India and rely more on digital banking to expand its consumer base in the nation Also Barclays LON BARC Plc NYSE BCS announced that it would be closing down India s equity business to cut costs and improve profits However in spite of going against the fellow banks and not scaling back its operations in India JPMorgan did not feel any significant impact on its profit margins Rather the new initiative should lead to better business for the bank in the absence of competition from other foreign banks Share price of JPMorgan increased following the announcement of the Reserve Bank of India s approval for the expansion indicating investors optimism about this step Currently JPMorgan has a Zacks Rank 3 Hold A better ranked stock in the finance sector is Bank of Montreal TO BMO sporting Zacks Rank 1 Strong Buy |
MS | Morgan Stanley CEO sticks by performance target in tough questioning | By Olivia Oran PURCHASE N Y Reuters Morgan Stanley NYSE MS Chief Executive James Gorman on Tuesday stood by his intention to reach a key performance target after facing sharp questions from an analyst about whether he can achieve the goals he laid out At the Wall Street bank s annual meeting CLSA analyst Mike Mayo asked Gorman how confident he is that Morgan Stanley can get its return on equity up to a range of 9 to 11 percent by the end of 2017 That metric is important to shareholders because it measures how well a bank is using its capital to produce profit However tougher capital requirements and weak revenue has left Morgan Stanley far from Gorman s goal reporting just a 6 2 percent return on equity in the first quarter Mayo who seemed skeptical said his investor clients are upset One recently hung up the phone on him out of anger about Morgan Stanley s performance he said Although the first quarter was a very challenging environment to earn money across Wall Street Gorman said he does not expect that to be the case the rest of this year or in 2017 As a result he is still confident the bank will hit its 9 to 11 percent return target We think those goals are sensible he said Erskine Bowles the lead independent director of Morgan Stanley s board also said he believed the bank would hit its target but that it may have to make other changes to get there He did not specify what those changes would be Morgan Stanley has been cutting staff and other costs to buoy profits as revenue has come under pressure One thing that could keep markets volatile in the near term and possibly hurt trading revenue is the outcome of a vote in Britain on whether to leave the European Union Gorman said If that proposal wins support it would also damage the broader United Kingdom and London as a city he added After counting votes during the meeting Morgan Stanley said shareholders supported management s proposals and opinions in the proxy Around 90 percent voted to approve the board s plan for executive compensation |
MS | Macau casinos face growing bad debts as VIP punters step back | By Farah Master Macau Reuters Casinos in Macau face a growing volume of bad debt provisions further hitting earnings in the world s largest gambling hub at a time when high roller VIP punters are backing off China s slowing economy and a pervasive campaign against graft has sapped demand from wealthy gamblers and prompted operators in the southern Chinese territory to shift their focus to lower spend mom and pop gamblers As more and more rich Chinese steer clear of Macau s baccarat tables revenues from the VIP sector have shrunk to around half of total revenue from over 70 percent at the start of 2014 The bad debt provisions which have more than doubled in 2015 and are seen growing further due to tightening regulation are now adding to the pressure on the industry to adjust Macau s new gaming regulator Paulo Martins Chan said the government was auditing junkets middle men employed by casinos to lure big whale gamblers to assess the size of their bad debts Authorities also plan to establish a central credit database to minimize credit risk Chan appointed in November 2015 is due to hold a speech at a Macau Gaming conference on Wednesday which industry watchers will scour for details on any new regulatory measures This increasing scrutiny and policy tightening while positive for the segment s long term prospects will likely be detrimental to the shorter term prospect for the junket operators VIP revenue and their related activities said Jamie Soo analyst at Daiwa Capital Markets in Hong Kong Junkets facing further operating pressures may result in further VIP room closures Although annual income is still five times that of Las Vegas last year revenues in the former Portuguese colony of Macau dropped 34 percent to 29 billion Average monthly revenues have halved from what they were at the start of 2014 and are set to fall for a 24th consecutive month in May Receivables over 90 days amounts owed to the casinos by gamblers or junkets for Sands China HK 1928 MGM China HK 2282 Wynn Macau HK 1128 Galaxy Entertainment HK 0027 SJM Holdings HK 0880 and Melco Crown O MPEL doubled in 2015 with bad debts growing by 30 percent year on year Genting Singapore SI GENS which owns the tropical Sentosa resort in the city state said its bad debt provision more than doubled quarter on quarter in the first three months of the year While operators like Sands have tried to accelerate the transition to the mass market segment they are also increasing the proportion of high rollers they lend to directly rather than through junket operators Macau s junkets have been operating in the territory since the 1970s as casino gambling is illegal in mainland China and there is no formal mechanism to recoup debt However they have been decimated by the slowdown over the past two years with many small and mid sized junkets going out of business Daiwa estimates the junket industry s total debt could be between HK 30 billion HK 60 billion 3 9 billion to 7 7 billion Sands China the Macau unit of U S billionaire and prominent republican donor Sheldon Adelson missed estimates for first quarter earnings with Morgan Stanley NYSE MS analysts attributing the negative surprise to a bad debt of 22 million
1 7 7626 Hong Kong dollars |
MS | Here s some fruit now pay up say Thai debt collectors | By Orathai Sriring and Wirat Buranakanokthanasan BANGKOK Reuters When Piya Pong acha s employees chase payments from Thai debtors there are no strong men pounding on doors or threatening letters from lawyers A basket of fruit and a polite home visit does the trick We go to their houses with oranges or mangosteens Piya who runs one of the growing number of firms in Thailand seeking profits from recuperating bad debt We don t talk about the money but they know why we are there Piya s firm JMT Network Services BK JMT is the largest consumer loan collector among the 42 asset management firms that have sprung up in Thailand since 1998 with dozens of them set up in recent years Southeast Asia s second largest economy has become a new frontier for distressed debt players mirroring a business model that has a long history in Europe and the United states and has recently taken off in emerging markets such as China and India The market is seen so profitable that state owned Bangkok Commercial Asset Management the country s biggest debt collector plans an IPO valued at up to 1 billion The firm established in the wake of the Asian financial crisis in the 1990s plans to acquire about 10 billion baht 280 million of bad housing retail and corporate debt this year a senior company official told Reuters Thailand s debt collectors are feasting on a growing portfolio of non performing loans as the country s economy struggles NPLs rose to 2 64 percent of total lending or 357 4 billion baht at the end of March from 2 55 percent at the end of 2015 The Bank of Thailand is bracing for more NPLs are likely to rise further as the economic recovery is slow putting pressure on banks senior central bank director Don Nakornthab told Reuters Top lender Bangkok Bank s BK BBL first quarter profit fell 12 percent on the year in part due to increased provision for souring loans Siam Commercial Bank s BK SCB profit tumbled 20 percent Corporate debt defaults are less of a problem than consumer debt but are on the rise Small and medium enterprises are struggling the most accounting for just under half of all defaults according to Reuters calculations Foreign firms are quietly making inroads into the corporate debt collection business Inter Capital Alliance Management Co part of Morgan Stanley NYSE MS buys big business loans and seeks to recover them said a company executive who declined to be named as he was not authorized to speak to the media Many foreign investors are interested in this business but nobody wants to do it openly he said Foreigners buying distressed Thai assets can be sensitive Most Thai banks prefer keeping distressed corporate debt in house to avoid expensive write downs Some have given up on the worst of the bad debt Thanachart Bank BK TCAP sells a few billion baht of sour consumer and syndicated loans each year to cut NPLs the bank s executive vice president Anuwat Luengtawekul said If the debt isn t worth chasing we will sell it he said DEBT HANGOVER Thais are deeper in the red than most in Asia with record household debt at 81 5 percent of GDP Consumers are struggling to pay after splurging on cars houses and electronic goods encouraged by the populist policies of former Prime Minister Yingluck Shinawatra The debt hangover has stymied attempts to stimulate consumption by the junta that seized power from Yingluck s government in 2014 It has also made the central bank reluctant to cut rates for fear of encouraging more borrowing JMT is making the most of bad times snapping up distressed debt at just 5 percent of its nominal value It plans to amass nearly 110 billion baht 3 10 billion by the year s end up over 20 percent from 2015 Piya said It s a good time to buy bad loans he said There are plenty of them out there
1 35 77 baht |
C | Global banks sharpen focus on yuan offerings as China s Silk Road fuels demand | By Sumeet Chatterjee HONG KONG Reuters Global banks including Citigroup N C and HSBC L HSBA are boosting their staff and presence for offerings in yuan from capital market solutions to hedging as China s drive to build a modern Silk Road fuels demand The push rides on hopes Chinese President Xi Jinping s policy of building a Silk Road to expand global trade and influence of China will accelerate the internationalization of yuan also known as the renminbi RMB The Chinese currency s ranking as a world payment currency fell to sixth in June from fifth two years ago according to industry tracker SWIFT as capital outflow curbs take some shine off the yuan However bankers believe Chinese firms aggressive expansion in countries from Vietnam to Belgium could reverse this trend as such businesses demand products and services denominated in their home currency As our clients increase their operations across the BRI Belt and Road countries we are seeing a pick up in demand for RMB said Rajesh Mehta Citi s Asia Pacific treasury and trade solutions head Citi is planning to add 25 staff to work in eight key trade corridors over the next one year under the Belt and Road program some of them redeployed from other parts of Asia Pacific to South Korea Vietnam China Japan and Hong Kong Its yuan linked services include trade finance hedging cash management and capital markets solutions in most of the 58 markets across the Belt and Road countries It also has nine China specific business desks along the Silk Road corridor Unveiled in 2013 the Belt and Road project is aimed at connecting China s economy by land and sea to Southeast Asia Pakistan and Central Asia and beyond to the Middle East Europe and Africa Chinese acquisitions in the 68 countries officially linked to the initiative are soaring and totaled 33 billion in the year to mid August surpassing the 31 billion tally for all of 2016 Standard Chartered LON STAN has set up a core team in China for Belt and Road projects and is also building a team of corridor bankers along the main Belt and Road trading routes including in Europe said its global head of RMB solutions Carmen Ling Although HSBC and other global banks have used the Silk Road in advertising and speak enthusiastically of leveraging the network analysts say foreign banks would find it harder to compete with Chinese banks for yuan loans due to higher costs of funding Therefore global banks are expected to vie for a bigger share of the yuan denominated fee income based products and services by beefing up their expertise and resources in that segment they said To tap that HSBC which makes more than half of its profits in Asia is relying on its 24 China dedicated business desks across the globe and has started hiring Chinese speaking staff in client facing teams in Europe The majority of the capital and trade transactions are in U S dollars along the Belt and Road corridor now but we are now seeing a pickup in usage of RMB said Vina Cheung global head of RMB internationalization at HSBC
We are hiring in the way we have right resources to support that growth |
C | Uniti Group 7 9 as Citi cuts to Neutral on Windstream woes | Uniti Group NASDAQ UNIT has tumbled 7 9 as lingering concerns at former parent Windstream WIN 7 1 have led Citigroup NYSE C to downgrade Uniti to Neutral Windstream today is facing a notice of default from a large bondholder surely Aurelius tied to its spin off of Communications Sales Leasing now Uniti and its already widening bond spreads might fuel further near term underperformance for Uniti says analyst Michael Rollins h t Bloomberg The market looks like it s anticipating a cut in Windstream s lease payments he says He s cut his price target on UNIT to 18 from 27 shares today have fallen to 15 99 implying 12 6 upside from here Previously Windstream 5 6 after noteholder claims default in spin off deal Sep 26 2017 Now read |
C | Santee Cooper to sell claims from Toshiba for failed nuclear project | Reuters South Carolina utility Santee Cooper said it would sell the rights to its portion of a 2 17 billion settlement with Toshiba Corp T 6502 at a discount to Citibank N C as the utility looks to avoid risk associated with payment delays spread over five years Under the agreement Citibank will pay 91 5 percent of the settlement claim and the company will receive 831 2 million on Wednesday for its 45 percent share Santee Cooper said The South Carolina utilities Santee Cooper and South Carolina Electric Company decided to abandon the twin reactor project V C Summer in July blaming the bankruptcy of project s contractor Toshiba Corp s Westinghouse Electric Co The project was less than 40 percent complete with more than 9 billion having been spent on construction |
C | Real rebalancing could lift oil prices to 80 bbl S P commodity chief says | The recent rise in crude oil prices are poised to continue eventually to possibly as high as 80 85 bbl as there is now a real rebalancing in the market Jodie Gunzberg head of commodity and real asset indices at S P Dow Jones Indices tells CNBC
Support is coming from several sources including OPEC members complying with production cuts and China demand growth with an added push from refinery disruptions in the wake of Hurricane Harvey according to Gunzberg
When we look at the index data we can see the price could move even as high as 80 85 not immediately but with their structural backwardation and shortages in the market you just can t replenish it overnight Gunzberg says
Ed Morse Citigroup NYSE C s global head of commodities research says a supply gap could emerge in the market as early as 2018 as some nations including Iraq already may be pumping at maximum capacity
If production reductions are prolonged it would only hasten the prospect of a tighter market Morse says adding that the source of the supply squeeze likely would be OPEC rather than producers outside the group since there s no room for them to do more
ETFs USO OIL UWT UCO DWT SCO BNO DBO DTO USL DNO OLO SZO OLEM OILK WTIU OILX WTID USOI
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C | Yellen s Inflation Patience Gives Duration Bulls More Ammo | Bloomberg Janet Yellen s patience when it comes to inflation is giving bond bulls more ammunition
Easy financial conditions persistent strength in the labor market and a buoyant global backdrop give the Federal Reserve faith that inflation will return to its 2 percent target and all the justification needed to continue with rate hikes Yellen said Tuesday in a defense of the central bank s hawkish policy pronouncements this month
That s spurring fixed income strategists at Rabobank and BMO Capital Markets to make the case for low long dated yields They cite the prospect that the Fed is implicitly targeting a lower inflation rate and thereby risks marginally slowing down output and price pressures down the road
Yellen s openness as regards the lack of clarity surrounding the Fed s inflation outlook whilst also highlighting a bias to hike rates gradually regardless is negative for the front end Treasuries but much less so for longer dated bonds says Richard McGuire chief rates strategists at Rabobank And potentially it s supportive given this lack of clarity lends itself to concern the Fed is getting ahead of the curve in terms of anticipating a recovery of inflation that may never materialize
The spread between 30 year Treasury yields and their two year counterparts trended lower after the central bank unveiled plans on Sept 20 to begin shrinking its balance sheet next month hitting a cycle low on Wednesday
While the Trump trade gets a tentative boost spurred by the tax plan from the White House yields on longer maturity debt remain relatively well anchored thanks to doubts over the trend of low inflation and a falling ceiling for the Fed s policy rate Market implied odds of a rate hike by year end are now at 70 percent
The Fed s apparent commitment to snub subdued core price pressures as they keep interest rate projections for 2018 intact won t derail the Treasury bull market according to Ian Lyngen rate strategist at BMO Capital Markets
The data doesn t support tightening but they are using easy financial conditions as an excuse or reason to tighten he says Specifically she essentially said she will be ignoring the post hurricane data and the lowflation prints that risks slamming on the brakes of the real economy which slows inflation
He projects the 30 year bond yield will tumble to 2 6 percent by the third quarter of next year from 2 88 percent currently
Relative to the counterfactual greater patience which implies more hawkish policy for low inflation economies modestly lowers actual inflation in the future Citigroup Inc economists led by Ebrah NYSE C im Rahbari wrote in a report Wednesday
Updates bond yield in penultimate paragraph |
C | Citigroup to settle dispute with Lehman Brothers for 1 74 billion Bloomberg | Reuters Citigroup Inc N C and Lehman Brothers Holdings Inc resolved a fight over 2 1 billion that dates to the financial crisis era after Citigroup agreed to give back 1 74 billion to the estate of the investment bank according to Bloomberg Citigroup had kept about 2 1 billion that Lehman had on deposit with it for trades following the Lehman bankruptcy Bloomberg said The dispute arose because Citigroup said it was owed 2 billion as a result of Lehman s bankruptcy while Lehman argued that the money should go to its creditors Bloomberg said Lehman Brothers Managing Director Steven Mullaney said in court papers that the pact was reasonable in light of the complexities of the litigation according to Bloomberg
Reuters was not able to get a comment from Citigroup or Lehman Brothers outside business hours |
C | Citigoup Continues To Trade In A Tight Range | Citigroup NYSE C continues to tempt and tease longer term investors as the consilidation phase of price action which began at the start of the year shows no sign of abating just yet with some key levels now building
The latter part of 2018 was one to forget for financials in general with December seeing the stock price for Citigroup fall from the highs of 66 46 per share to touch a low of 48 48 before the buyers stepped in once more Since then the price has recovered strongly to currently trade at 63 70 at time of writing However several key levels are now in place and likely to define the future for the stock First we have the volume point of control which is anchored in the 63 70 area with volume building as price agreement continues as denoted with the yellow dash line Then above and below we have two strong regions of price resistance and support The resistance area is shown by the red dashed line in the 64 50 area on the accumulation and distribution indicator and which has been tested repeatedly over the last few weeks
Equally to the downside a strong platform of support has also been built and denoted with the blue dashed line in the 62 80 area so a very tight price channel Patience is now required as we wait for bearish or bullish sentiment to be established and supported by volume on the breakaway The trend monitor continues to remain firmly bullish and for any move higher the 65 50 level needs to be breached with good volume Note also how the volumes have attenuated for both buyers and sellers since the start of the year and for any move higher we need to see rising volume and rising price to confirm the move |
JPM | Early Brexit Fallout London Financials Getting Hit Hard | by Clement Thibault
Last Friday the UK s Brexit referendum results showed the Leaves had it 51 9 vs 48 1 for Stay in the European Union Though there is likely a two year unwind period ahead filled with negotiations between the UK and the EU until the full divorce will take effect the initial fallout has been immediate and dramatic The FTSE 100 plummeted and the GBP USD tumbled to its lowest level against the USD in 31 years
Indeed London s overall standing as Europe s major financial hub is already being questioned According to Nordgold NV LON NORDNq a Russian bullion miner is reconsidering the exchange location of its primary listing Though the company now lists in London CEO Nikolai Zelenski said
If London s attractiveness will reduce which is quite likely we may look at other exchanges like Toronto
This isn t the only blow so far this year to the London Stock Exchange s standing or prestige suggests that the aggregate value of IPOs so far this year on the LSE is only a little over a third of the value of last year s IPOs over the same period 3 2B in announced IPOs this year as compared to 9B during the same period a year earlier This massive drop is believed to be one early result of the uncertainty surrounding Brexit hampering business and limiting initial public offerings because of the expected volatility
A successful high profile IPO on the LSE in the coming week such as the one that was supposed to occur in early July for Telefonica s NYSE TEF Telxius infrastructure unit and the subsequent possible offering of its UK based O2 wireless unit could have done a lot to ease market jitters and cement London s continued significance as a significant global financial market Unfortunately recent events have jeopardized this initiative
The European telecom giant is said to be and may delay or downsize the stake of its business available for purchase Should Nordgold or Telefonica decide against a LSE IPO business sentiment regarding London could take an even bigger hit and an additional turn for the worse
Existing agreements could also stumble This past March Deutsche Boerse DE DB1Gn agreed to acquire the London Stock Exchange Group LON LSE in a merger whose aim was to create the second largest financial exchange by market value According to the plan the combined exchanges will be headquartered in London which made sense at the time
Now that the UK is heading out of the EU questions are being asked as to where the combined company should be headquartered
Germany s largest association of small investors the German government to either cancel the planned 30B deal or intervene in order to insure that the country s biggest exchange does not leave Germany for non EU London Both LSE and Deutsche Boerse that Brexit will not change the merger plan but according to the UK Telegraph
The Deutsche Boerse s works council which represents employee interests said the UK s decision meant that Frankfurt should become the legal seat of the combined company instead of London
A shareholder vote on the merger will take place July 4th during a LSE shareholder meeting
While the most of the issues mentioned above will be decided in the coming months UK banking has already started to feel the pain Barclays NYSE BCS lost over 34 of its value since Friday morning closing yesterday in New York at 7 03 down from Thursday s close at 11 18
Lloyds Banking LON LLOY Group NYSE LYG shares have shed 35 9 of their value
And the Royal Bank of Scotland s NYSE RBS shares are equally depressed Its stock closed down 37 3
Non UK banks have begun planning to move their operations to the EU after the ECB warned that the UK financial industry might lose its passporting rights to the Union JPMorgan NYSE JPM Chief Executive Jamie Dimon that a Brexit could move as many as 4000 jobs from London to other financial hubs in Europe or about a quarter of the company s employees in London Major EU beneficiaries of this expected retreat out of London will likely be Dublin Paris and Frankfurt
Can the UK stop what seems to be an inevitable loss of financial business That depends Undoubtedly they ll try
Britain could attempt to reinvent itself as the new Ireland by lowering corporate taxes in order to incentivize companies to keep or set up operations in London Hefty relocation costs could also act as an inducement to maintain the status quo
Ultimately it will come down to the EU s decision regarding how it wants to conduct financial relations with the UK Will the EU harbor a grudge against the UK and try to reclaim financial activity for its own members cities Several policy makers such as Fran ois Villeroy de Galhau France s central bank governor have hinted that it might
Of course that remains to be seen Austen Chamberlain a British statesman and Nobel Peace Prize winner once said he was told of an ancient Chinese curse May you live in interesting times While the curse s origin is in question its relevance for London s financial industry certainly is not |
JPM | JPMorgan Core Bond A Fund PGBOX In Focus | JPMorgan NYSE JPM Core Bond A a Zacks Rank 2 Buy was incepted in May 1992 and is managed by Banc One Investment Advisors Corporation PGBOX seeks to maximize total return by investing primarily in a diversified portfolio of intermediate and long term debt securities PGBOX invests mainly in investment grade bonds and debt securities or unrated bonds and debt securities which the fund manager determines to be of comparable quality These include U S government obligations and mortgage backed and asset backed securities PGBOX looks for market sectors and individual securities that it believes will perform well over time
JPMorgan Core Bond A managed by carries an expense ratio of 0 74 Moreover PRSCX requires a minimal initial investment of 1 000
PRSCX has a history of positive total returns for over 10 years Specifically the fund s returns over the 1 3 5 year benchmarks 1 year 2 60 3 year 2 38 and 5 year 3 11 To see how this fund performed compared in its category and other 1 and 2 Ranked Mutual Funds
PRSCX s performance as of the last filing when compared to funds in its category was in the top 10 in 1 year top 26 over the past 3 years and in the 35 over the past 5 years
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward Pick the with the Zacks Rank |
MS | Greek bank stocks could rise 90 percent on bailout cash deal Morgan Stanley | LONDON Reuters Greek banking stocks could rise 90 percent from current levels and yield premiums over German benchmark bonds narrow if Greece and its creditors can reach a deal on releasing new bailout funds and debt relief Morgan Stanley NYSE MS said on Wednesday The broker upgraded Greek bank stocks to overweight saying current valuations did not reflect the compression in bond yield spreads that would follow a deal with Athens lenders and took an overly pessimistic view on the banks return on equity targets Passing the review would pave the way for Greek bonds to be eligible for the European Central Bank s bond purchase program the lifting of capital controls and an eventual economic recovery Morgan Stanley said in a note It won t be easy and it s likely to be far from smooth the banks analysts said However they see passing the review as the most likely outcome Sources told Reuters earlier this week that no deal was likely at a special meeting of euro zone finance ministers on May 9
International lenders have asked Greece to prepare a package of additional savings measures which would be passed into law now but implemented only if needed to make sure the country reaches agreed fiscal targets |
MS | Squeezed again by political worries Turkey stocks head for worst week in five years | By David Dolan and Seda Sezer ISTANBUL Reuters Turkish stocks fell 1 3 percent on Friday on track for their worst weekly performance in nearly five years hit by renewed political uncertainty after Prime Minister Ahmet Davutoglu said he would step down Davutoglu said on Thursday he would step aside later this month as leader of the ruling AK Party and therefore as premier following weeks of rising public tension with President Tayyip Erdogan News of his departure has prompted concern among investors who fear Erdogan will take greater control over the management of the economy potentially hampering reform and putting more pressure on the central bank for rate cuts Turkey has entered a period of rising political risk again at least for the next 6 8 months Ercan Erguzel an economist at Morgan Stanley NYSE MS said in a note The BIST 100 index XU100 the broadest measure of Istanbul stock performance was down 1 3 percent at 77 682 at 1136 GMT putting it on track for a nearly 9 percent fall this week its biggest one week drop since August 2011 Like Deputy Prime Minister Mehmet Simsek who is in charge of the economy Davutoglu is seen as sticking to an orthodox economic stance as opposed to Erdogan who has said that high interest rates lead to inflation an argument at odds with mainstream economics Key short term signals will be whether Simsek and the reformers manage to survive and ring fence their positions with the change of prime minister said Timothy Ash a strategist at Nomura International in emailed comments Any slow down in reform would be bad for long term growth and development he added SIMSEK WARNING That sentiment was echoed by Simsek in a speech in Istanbul on Friday If reforms are partial or if they do not progress at all this will of course affect growth negatively he said adding Turkey would not be able to achieve 5 percent annual economic growth on the basis of its current efforts Turkey needs more foreign investment to plug a yawning current account deficit of around 4 5 percent of GDP and finance its heavily indebted companies economists say Investors want to see reforms to boost the savings rate and liberalize the labor market Under the AK Party which was co founded by Erdogan and came to power in 2002 Turkey has enjoyed years of stellar growth going from an economic backwater at the edge of Europe to an advanced emerging market and one of the world s 20 largest economies But its star has fallen dramatically in recent years hurt by slowing growth rising debt and fears about both violence in the mainly Kurdish southeast and Erdogan s authoritarian streak In dollar terms the BIST 30 index of blue chips XU030 has grown more than four fold since the end of 2002 just after the AKP first came to power although that still underperformed other emerging markets such as Mexico Brazil and India according to Thomson Reuters data Recent performance has been less impressive Over the last five years the blue chip index has lost 40 percent of its value in dollar terms the sixth worst performance among 30 emerging market stock indices according to Thomson Reuters data
This year major blue chip decliners include tourism related companies such as national carrier Turkish Airlines IS THYAO which have been hit by a drop off in tourist arrivals after a spate of bomb attacks this year |
MS | Morgan Stanley commodities group moving to Times Square after 15 years in suburbia | By Olivia Oran Reuters Morgan Stanley NYSE MS is moving its commodities trading business which has been housed in Purchase New York for the last 15 years to the bank s Times Square NYSE SQ headquarters The physical move is part of a broader strategy shift for the once high flying team of traders as Morgan Stanley has moved away from riskier parts of the business like owning and storing oil or placing bets on the direction of commodity markets A Morgan Stanley spokesman said the move from Purchase was aimed at ensuring the commodities group was more closely connected with the company s fixed income unit and the broader institutional securities business The spokesman did not give further details but a person familiar with the matter said the firm expects to move around 150 employees over the summer Morgan Stanley initially moved its commodities business to Purchase a leafy suburb around an hour outside New York City to spread out its operations after the Sept 11 attacks The former Texaco campus also houses its wealth management division but the bulk of its other U S based trading operations are in Manhattan Post crisis regulations and a desire to take less risk have molded the bank s commodities operation into a more traditional trading business where Morgan Stanley simply stands between buyers and sellers It is also lending to energy companies and issuing derivatives that allow clients to hedge market risk In January former equities trading executive Sam Kellie Smith took charge of the bank s broader fixed income and commodities trading unit The division was previously overseen by Colm Kelleher who was promoted to become Morgan Stanley s president In November Morgan Stanley completed the sale of its physical oil business to commodity trading firm Castleton Commodities after the U S Federal Reserve pressured Wall Street banks to get out of that type of business The transaction ended Morgan Stanley s three decade history as a major player in physical oil markets The bank lost around 100 front office staff to Castleton as part of the deal
Morgan Stanley also sold its controlling stake in oil storage business TransMontaigne to NGL Energy Partners LP in 2014 |
MS | Stuck with dangerous dollar dominance | By Mike Dolan LONDON Reuters The world is getting an object lesson on the problems of having one dominant global currency and even the supposed prime beneficiary the United States can see the downside Alarming bouts of volatility in world financial markets over the past 12 months have been rooted in a fear of what happens when a world with its highest ever peacetime debt pile faces even a hint of higher interest rates Despite a constant narrative about U S households and banks paying down debts ever since the global credit crash eight years ago any deleveraging that did happen was more than offset by higher government corporate and personal debt around the globe in Europe China and across emerging markets In fact aggregate world debt is now far higher than it was before the 2007 08 crash The saga of debt is far from over says a report from Morgan Stanley NYSE MS It goes on to explain why Morgan Stanley expects demographic led shifts in savings and investment to soon push interest rates higher and transform that debt mountain into additional deadweight on world growth over next five years But the role of the U S dollar as the world s main reserve currency denominating large chunks of that debt pile is showing up as complicating factor that s added to risk of instability The first U S interest rate increase in almost a decade in December just a quarter of a percentage point was enough to trigger a convulsion in world markets that led to the worst start to a year for global stocks since World War Two Underlining cause and effect the subsequent recovery only came about once the Federal Reserve hastily made clear it was pressing the pause button precisely because of seismic events in world finance Few doubt a growing U S economy that s near full employment can absorb some normalization of interest rates from near zero and a higher dollar goes hand in hand with that But the rest of the world clearly can t The Bank for International Settlements estimates that while U S dollar dominance means it accounts for almost 90 percent of all foreign exchange transactions and some 60 percent of hard currency reserves But crucially it also accounts for about 60 percent of all debts and assets outside the United States And if the rest of the world goes into shock because of the higher cost of servicing and paying back those dollar debts the boomerang effect on U S exporters commodity firms and the wider economy just ends up tying the Fed s hands in ways made crystal clear this year already AMBIVALENCE No surprise then the U S central bank has no deep love for the dollar s prime reserve currency status even though it s been described by Europeans and others over the years as an exorbitant privilege that ensures the world lends to the U S Treasury in its own currency at low interest rates regardless of dollar strength Speaking at an event in Zurich on Tuesday on the dollar s global status New York Fed chief Bill Dudley said Americans should not be perturbed if other currencies such as the euro or China s yuan eventually eat into the dollar s share of reserves If other countries currencies emerge to gain stature as reserve currencies it is not obvious to me that the United States loses he said as long as it is being driven by their progress rather than by the U S doing a poorer job While that s far from wishing away dollar hegemony it speaks to the greater ambivalence among central bankers toward reserve status than their national treasury chiefs given how widespread use of the currency can compromise domestic policy It s that tension that risks sowing instability everywhere If the Fed can t adjust monetary policy because of fears of transmitting a self defeating shockwave around the world via the dollar then there s understandable concern that artificially low Fed policy just stores up even more debt and international accounting imbalances and undermines the very currency that s supposed to play anchor At the same event in Zurich Claudio Borio head of the monetary and economic Department of the BIS said the dollar s role could potentially exacerbate instability by allowing the United States to run larger and more persistent fiscal and current account deficits and to run looser monetary policy for longer What s more a resulting Fed easing bias spreads to developed and emerging economies as governments resist a weaker dollar for competitiveness or financial stability reasons Borio added Easing begets easing he said For Morgan Stanley this is just leads to ever higher debt and there are no painless ways out of a problem that will start to hurt significantly over the coming years only a series of less painful options including the option of consolidating debts and making them permanent or perpetual In the meantime the U S bank said the dollar itself will most likely push higher again if only because the U S economy is probably the only one that can absorb a rising exchange rate in this environment For Borio a more pluralistic system with many world currencies sharing the reserve role doesn t by itself solve any problem either There would then be no credible single anchor Hard headed cooperation and joint decision making may be the only answer
This means not just putting one s house in order but also putting our global village in order |
JPM | JPMorgan cautious on Alaska Air Group | JPMorgan NYSE JPM cuts Alaska Air Group ALK 2 to an Underweight rating We applaud Alaska s decision to temper 2019 growth in light of current fundamentals But ALK is the only name where we ve cut our 2019 forecast as has consensus and the company remains in the United crosshairs in San Francisco in our view warns analyst Jamie Baker Baker also calls ALK expensive compared to JetBlue which caught a JP upgrade earlier today Previously JPMorgan makes the case for JetBlue Jan 30 Now read |
C | Dimension board says Ultragenyx bid could be superior to REGENXBIO offer discussions to proceed shares slip 4 premarket | The board of Dimension Therapeutics NASDAQ DMTX has determined that Ultragenyx Pharmaceutical s NASDAQ RARE unsolicited cash bid of 5 50 per share could reasonably be expected to lead to a superior proposal under the terms of its merger agreement with REGENXBIO NASDAQ RGNX As such discussions will proceed with Ultragenyx Dimension says it will not comment further until the negotiations have been completed DMTX shares are down 4 premarket after Citigroup NYSE C issued a Sell rating citing a low probability of another bid topping RARE s Shares closed yesterday at 5 90 Previously Ultragenyx makes 138M cash offer for Dimension Therapeutics trumps REGENXBIO s all stock deal Sept 18 Previously REGENXBIO to acquire Dimension Therapeutics in all stock deal Dimension up 163 premarket Aug 25 Now read |
C | Citigroup targets Belt and Road to boost China revenue | By Matthew Miller BEIJING Reuters Citigroup Inc N C expects to boost its revenue growth in China by tapping into opportunities presented by Beijing s Belt Road initiative the bank s China chief said The New York based lender is one of a handful of global banks promoting its cross border capabilities to capitalize on President Xi Jinping s Belt and Road initiative The initiative unveiled in 2013 aims to bolster China s global leadership ambitions by building infrastructure and trade links between Asia Africa Europe and beyond We re seeing more and more multinational customers benefiting from Belt and Road mostly through supplying into the Belt and Road projects particularly companies in the industrial sector Christine Lam Citigroup s chief executive for China told Reuters in an interview on Thursday Lam was speaking on the sidelines of a conference hosted by Citigroup in Beijing this week Rivals HSBC Holdings L HSBA Standard Chartered L STAN and Credit Suisse S CSGN also have promoted their cross border capital markets and cash management services to leverage Belt and Road opportunities China is one of eight Asian markets that produce 1 billion or more in revenue for Citigroup The bank s local unit reported about 770 million in revenue last year representing a decline of 10 5 percent following the sale of its stake in Guangfa Bank Profits increased about 1 percent to 163 million Citigroup has banking relationships with more than 80 percent of Fortune 500 companies in China Lam said and provides services in 58 markets in so called Belt and Road countries The bank expects to book more revenue from providing services for Belt and Road related activities including mergers and acquisitions cash management trade finance and hedging Lam said Most Belt and Road opportunities are financed by government owned policy and commercial lenders with China Construction Bank Corp SS 601939 HK 0939 and Bank of China SS 601988 HK 3988 raising billion dollar funds for future investment Lam said that Citigroup is also looking to increase service to Chinese state owned enterprises and other multinationals investing overseas and has established nine China desks in locations around the world including Dubai Nairobi and Kazakhstan Separately Lam said that Citigroup has already benefited from ongoing discussions between Washington and Beijing over expanding access to China s financial markets
In February Citigroup became the first U S based bank to secure a license to act as a bond settlement agent in China s interbank bond market allowing its local unit to compete alongside Deutsche Bank AG DE DBKGn and BNP Paribas SA PA BNPP in the country s 9 trillion bond market |
C | Strategas Buy industrials banks over energy | While energy staged a bit of a comeback last week and it was the best performing sector Strategas s Chris Verrone and his team think investors shouldn t get too excited
The reacceleration in the Industrials sector is more durable as new highs have expanded and relative performance has improved while the charts from the road and rail industries show they can continue to propel this growth Furthermore
Unlike Energy the bid for laggards has not provided much relief for the bond proxies Utilities have reversed REIT s are at new relative lows and many Consumer Staples names remain under pressure Conversely the Bank stocks have firmed with both Citigroup NYSE C and JPMorgan NYSE JPM hitting new highs last week and closely tracking the action from the 2 year yield We prefer Banks over the yield proxies
Related tickers XLE XES XOP XLI XLF
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C | Citigroup to pay a fine for swap data reporting violations CFTC | WASHINGTON Reuters Citigroup Inc N C has agreed to pay a 550 000 penalty for swap data reporting violations and improve such reporting the U S Commodity Futures Trading Commission CFTC said in a statement on Monday The CFTC said Citibank and London based Citigroup Global Markets had failed to properly report Legal Entity Identifier LEI information for swap transactions and failed to correct errors in such data among other charges adding that the company had cooperated with the investigation |
C | 4 Trade Ideas For Citibank | Citigroup Inc NYSE C had a false break out in September and quickly reversed lower It paused through November before accelerating lower in December to a Christmas Eve low After Christmas it started higher though confirming a Morning Star reversal That move continued until late January when it met resistance just short of retracing 61 8 of the drop It pulled back to a higher low on a shallow dip two weeks ago and is now back at resistance
The Bollinger Bands are squeezing in often a precursor to a move The RSI is turning back up in the bullish zone with the MACD trying to turn back higher A push through resistance gives a target on a Measured Move to 77 There is resistance at 64 65 and 66 25 then 68 35 and 72 65 before 75 25 Support lower comes at 63 and 61 75 then 60 Short interest is low under 1 The stock pays a strong dividend at 2 80 but went ex on February 1st The company is expected to report earnings next on April 15th
Looking at the options chains the weekly options for February 22nd show large open interest at the 65 call strike but also at 60 50 on the put side The March options have the biggest open interest at the 65 strike by far The April options cover the earnings report and show large open interest at the 60 put strike but bigger at the 67 50 call strike
Citibank Ticker C
Buy the stock on a move over 64 65 with a stop at 61 50
Buy the stock on a move over 64 65 and add a March 8 Expiry 64 60 Put Spread 95 cents while selling an April 770 Put 68 cents to pay for most of it
Buy the April 65 67 50 Call Spread 91 cents and sell the April 57 50 Put 62 cents
Buy the March April 67 50 Call Calendar 90 cents and sell the April 57 50 Put 62 cents
Elsewhere
Look for Gold to bounce continue higher in its uptrend while Crude Oil joins it with a renewed push higher The U S Dollar Index looks to continue to mark time sideways while U S Treasuries are stalled at resistance in their move higher The Shanghai Composite is driving higher and Emerging Markets are basing after a digestive pullback
Volatility looks to remain very low keeping the bias higher for the equity index ETF s SPY IWM and QQQ Their charts showed strong weekly moves with momentum for more as the SPY breaks firmly over the 200 day SMA and the QQQ joining it Only the IWM is left to join the club and it is driving higher fast Use this information as you prepare for the coming week and trade them well
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment I or my affiliates may hold positions or other interests in securities mentioned in the Blog please see my Disclaimer page for my full disclaimer
Original post |
JPM | People s United Expands In New York To Buy Suffolk Bancorp | On Monday the regional bank People s United Financial Inc NASDAQ PBCT came up with an expansion plan in the New York State The bank is increasing its footprints in New York with the acquisition of Riverhead based Suffolk Bancorp NYSE SCNB The all stock deal is valued at 402 million The deal which is anticipated to close late in the fourth quarter 2016 is subject to certain customary closing conditions and awaits regulatory approval and Suffolk Bancorp s shareholders consent The transaction is expected to be accretive to earnings excluding one time costs with an IRR of about 17 and a tangible book value earn back within five years We are proud to welcome Suffolk County National Bank to People s United Bank said Jack Barnes President and Chief Executive Officer of People s United Financial With the 9th largest market share in Suffolk County a solid relationship banking approach and loyal long tenured customers Suffolk County National Bank s strong Long Island presence complements our previous acquisitions and organic growth in the New York Metro area Terms of the AgreementPer terms of the deal shareholders of Suffolk Bancorp will get 2 225 shares of People s United for each share Based on the closing price of People s United s common stock on Jun 24 2016 per Suffolk Bancorp share is valued at 33 55 Moreover these terms are approved by boards of directors of both companies J P Morgan Securities LLC a unit of JPMorgan Chase Co NYSE JPM acted as financial advisor to People s United while Keefe Bruyette Woods Inc served as financial advisor to Suffolk Bancorp Howard C Bluver President and Chief Executive Officer of Suffolk Bancorp will join People s United Bank as President of New York Market Bluver will provide his guidance in the integration of Suffolk Bancorp with People s United Howard s deep roots in the region his understanding of the local economy and his proven ability for growth will continue our momentum in this important market said Barnes Acquisition SpreeIn Mar 2012 People s United increased its footprints in New York with the acquisition of 56 branches from RBS LON RBS Citizens In 2010 the bank completed the acquisitions of Smithtown Bancorp Inc and LSB Corporation These acquisitions extended the company s presence in New England and New York State and were accretive to the company s 2011 earnings Further People s United s acquisition of Danvers Bancorp Inc in 2011 built a platform for growth of the company and made People s United New England s largest independent bank as well as the seventh largest bank both in Massachusetts and Boston MSA Our ViewpointOverall People s United is trying to overcome the challenging economic environment through opportunistic acquisitions and cost reduction initiatives The acquisitions reflect its strong capital and liquidity position Going forward growth in loans and deposits are expected to boost the company s financial results However recent regulatory issues and economic weakness might act as headwinds People s United currently carries a Zacks Rank 4 Sell A better ranked finance stock includes First Niagara Financial Group Inc NASDAQ FNFG with a Zacks Rank 2 Buy Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
MS | Fed move unlikely focus on leaving the door open or closed for June | Investing com With markets dismissing the possibility of a rate hike by the Federal Reserve Fed on Wednesday analysts focused on whether or not the U S central bank will choose to leave the door open or closed for a possible move at the next meeting in June
Markets and analysts were at odds with each other with federal funds rates pricing in the possibility of an increase in rates at the June meeting at only 20
However 50 out of 80 economists polled by Reuters expected the move by the Federal Open Market Committee FOMC that decides the central bank s monetary policy to come in June according to a poll published on Friday while a separate survey from The Wall Street Journal earlier in the month gave similar results with 75 betting on the move
Furthermore Boston Fed president Eric Rosengren who has the right to vote this year on the FOMC warned for a second time last week that financial markets were too pessimistic
While I believe that gradual federal funds rate increases are absolutely appropriate I do not see that the risks are so elevated nor the outlook so pessimistic as to justify the exceptionally shallow interest rate path currently reflected in financial futures markets Rosengren said
In this regard the experts at Danske Bank pointed out that the big question is whether the Fed will keep the door open for a June hike or not
In general analysts noted that they will be watching the wording of the FOMC statement released on Wednesday with particular attention to the evaluation of risks
In the March statement the FOMC asserted that global economic and financial developments continue to pose risks
Given that the pickup in core inflation has not proved durable and growth slowed in Q1 it is too early for the Fed to say that risks are nearly balanced thereby implicitly closing the door for a June hike in our view Danske Bank said in their report released Monday
Morgan Stanley NYSE MS clearly agreed in a preview note published on Friday explaining that sluggish growth and financial conditions that remain tighter than average mean the FOMC is unlikely to reinsert a balanced risks assessment
These analysts claimed that there would be no signal of an approaching rate hike at the June meeting
Indeed a weaker economic outlook caused the Atlanta Fed to have continuously ratcheted down its first quarter GDP growth forecast to just 0 3 as of the last release on April 19 from 1 7 in the first update after the last FOMC meeting
But Rabobank pointed out that part of the slowdown in Q1 GDP growth can be attributed to a residual seasonality problem that has not been solved completely
These experts insisted that only if growth did not pick up in the second quarter would the Fed desist from two rate hikes this year which was the median estimate in the central bank s most recent forecast
However Barclays LON BARC argued that they Fed officials need to see evidence that the growth slowdown in the first quarter is transitory and inflation is actually firming
Economists from Standard Chartered LON STAN also did not expect a signal for a June rate hike to come at the end of Wednesday s meeting but noted that expectations were already very low
At the margin a hawkish surprise seems more likely than a dovish one they warned |
MS | Oil pulls back from 2016 highs on OPEC output boost | Investing com Oil prices fell on Monday as rising production in the Middle East outweighed a decline in the U S output and a sliding dollar while Morgan Stanley NYSE MS warned that an emerging gasoline glut could also spill back into crude markets
Brent was trading at 46 80 per barrel at 09 33 GMT down 57 cents from its last settlement U S crude was down 44 cents at 45 48 a barrel
Analysts said rising output from the Organization of OPEC was outweighing a decline in the U S output and a sliding dollar which makes it cheaper for countries using other currencies to import dollar traded fuel |
JPM | Twitter gains while analysts fade COO departure | Twitter NYSE TWTR is making a move early today up 5 1 to recoup a couple of days of declines On Yahoo NASDAQ AABA JP Mangalindan notes analysts aren t quite as spooked as investors are by the departure of COO Anthony Noto to run SoFi A lot of what Noto put in place will continue says Altimeter Group s Omar Akhtar Other analysts expressed similar sentiments Noto s replaceable because Twitter has a deep bench says Summit Redstone s Jonathan Kees along with management alumni who might be available like former COO Adam Bain And JPMorgan NYSE JPM s Douglas Anmuth says Noto s exit isn t thesis changing Shares have gained 18 4 over the past six months Now read |
JPM | Oil Advances as Cheap Dollar Stokes Demand as Supply Tightens | Bloomberg Oil was on course for its third weekly gain this month as the cratering value of the U S currency elevated demand for dollar denominated commodities when spare crude supplies already were shrinking
Futures inched 0 4 percent higher on Friday in New York pushing the weekly advance to 3 9 percent The dollar was poised for its worst weekly performance in 10 months amid concerns about anemic U S economic growth Crude stowed in U S tanks and terminals has never been in more demand as evidenced by the record 10 week drawdown on American inventories
Oil traders are reacting to U S dollar movements Eric Nuttall a portfolio manager with Ninepoint Partners LP in Toronto said in a phone interview I m encouraged that oil is better reflecting underlying fundamentals and an under supplied market relative to last year where it seemed to ignore those improving fundamentals for much of the year
Oil traded in New York is on track for its strongest January performance in 12 years as the Organization of Petroleum Exporting Countries Russia and other major producers pressed on with supply caps amid robust demand JPMorgan Chase Co NYSE JPM expects London traded crude futures to approach the 78 level by the beginning of the second quarter
West Texas Intermediate for March delivery added 34 cents to 65 85 a barrel at 9 59 a m on the New York Mercantile Exchange Total volume traded was about 17 percent below the 100 day average
Brent for March settlement fell 3 cents to 70 39 on the London based ICE Futures Europe exchange The global benchmark crude traded at a premium of 4 50 to WTI
The Bloomberg Dollar Spot Index a gauge of the currency against 10 major peers has declined about 1 7 percent this week
Oil prices face yet another weekly gain due to the weak U S dollar said Carsten Fritsch an analyst at Commerzbank AG DE CBKG in Frankfurt
Oil market news
The crude market will remain backwardated throughout this year with prices trading between 60 and 75 a barrel Mercuria Energy CEO Marco Dunand said during an interview in Davos
Total SA PA TOTF is making a big oil discovery in the Gulf of Mexico CEO Patrick Pouyanne said at dinner with U S President Donald Trump in Davos on Thursday |
JPM | Momo 1 2 as JPMorgan boosts to Overweight | Momo NASDAQ MOMO ADRs are adding to gains today after getting an upgrade to Overweight from JPMorgan NYSE JPM Shares are up 1 2 after hours they gained 1 8 during the regular session Along with the boost from a Neutral stance JPMorgan has raised its price target to 40 from 30 implying 32 upside from today s close The ADRs are up 34 since the beginning of December Now read |
C | Fortescue Metals CEO Power to leave in February | Fortescue Metals OTCQX FSUMF says CEO Nev Power will step down in February after seven years at the helm sending shares 4 5 lower in Australian trading Power is highly regarded by investors for guiding the previously debt laden company through the commodities crash that saw iron ore prices plunge to 40 metric ton in 2015 from 150 plus a few years earlier While the to be named new CEO will inherit a strong balance sheet and modest plans for future spending the turbulent waters of iron ore price and discount volatility and the growing questioning by investors of diversification away from iron ore will still need to be navigated Citigroup NYSE C analysts say Now read |
C | U S trial set to begin for ex HSBC executive in foreign exchange scheme | By Brendan Pierson NEW YORK Reuters A former high ranking HSBC Holdings Plc L HSBA executive from Britain on Monday will become the first person to go to trial on charges stemming from a U S probe into foreign exchange rate manipulation Selection of jurors for the trial of Mark Johnson a 51 year old British citizen is scheduled to begin before U S District Judge Nicholas Garaufis in Brooklyn Johnson who was HSBC s global head of foreign exchange cash trading has pleaded not guilty to wire fraud and conspiracy charges HSBC spokesman Robert Sherman said Johnson left the bank earlier this year The case will be against Mark Johnson not HSBC he said A lawyer for Johnson could not immediately be reached The case came in the wake of worldwide investigations that have resulted in about 10 billion in fines for several large banks and the firing of dozens of traders In 2011 Johnson and another HSBC executive Stuart Scott misused information from a client that hired the bank to convert 3 5 billion into British pounds as part of the client s planned sale of foreign subsidiaries according to U S prosecutors Armed with knowledge of the deal Johnson and Scott entered into foreign currency transactions that caused the price of pounds to spike generating more profit for HSBC while hurting the client prosecutors said Transactions that are based on advance knowledge of a deal are known as front running The client was not named in court papers but a source has said it was British oil firm Cairn Energy Plc L CNE HSBC earned 3 million in total from Johnson and Scott s foreign currency transactions and 5 million from executing the deal for the client prosecutors said Scott who was HSBC s head of cash trading for Europe the Middle East and Africa lives in the United Kingdom and U S authorities are seeking his extradition Scott left HSBC in 2014 according to Sherman the bank s spokesman Scott has denied the accusations His lawyers could not be reached immediately for comment At least four other people have been charged in connection with the U S investigation of currency market rigging Chris Ashton Rohan Ramchandani and Richard Usher who worked at Barclays Plc L BARC Citigroup Inc N C and JPMorgan Chase Co N JPM respectively all pleaded not guilty to U S charges in July In January former Barclays trader Jason Katz pleaded guilty to conspiring to fix currency prices becoming the first person to admit wrongdoing
The case is U S v Johnson et al U S District Court Eastern District of New York No 16 cr 00457 |
C | Citi names co heads for EMEA trade business | Reuters Citigroup Inc NYSE C named Peadar MacCanna and Murat Demirel as trade co heads for its treasury and trade solutions TTS business in Europe Middle East and Africa EMEA
Demirel most recently served as chief financial officer at Oger Telecom Ltd and MacCanna recently was EMEA head of trade finance based in Dublin as well as head of trade business for Europe and Citibank Europe Plc
MacCanna and Demirel will be based in London and report to Ebru Pakcan EMEA head of TTS and John Ahearn global trade head TTS |
C | CitiFinancial pays 907 000 for repossessing U S military servicemembers vehicles | WASHINGTON Reuters CitiFinancial Credit Co a unit of Citigroup Inc N C has agreed to pay 907 000 to resolve allegations that it illegally repossessed 164 cars owned by U S military servicemembers without first obtaining the required court orders the U S Justice Department said on Monday The settlement resolves a suit filed by the Justice Department in the Northern District of Texas and covers vehicle repossessions that occurred between 2007 and 2010 the department said in a statement |
C | Sale of ex Trump aide Scaramucci s SkyBridge on track executive | By Svea Herbst Bayliss BOSTON Reuters The sale of former White House communications director Anthony Scaramucci s SkyBridge Capital LLC hedge fund investment firm to a consortium that includes a Chinese buyer is still on track with the closing date expected in late September the firm s chief investment officer said on Monday New York based Skybridge is still awaiting approval from one entity CIO Ray Nolte said in a video posted to the firm s website on Monday SkyBridge spokeswoman Woomi Yun in an email named the entity as the Committee on Foreign Investment in the United States The inter agency committee of the U S government reviews acquisitions by foreign entities for potential national security risks At this juncture we d probably be looking at something in September as a targeted closing date Nolte said in the video In May Scaramucci told Reuters he thought the deal would probably close in June HNA Capital U S a unit of Chinese conglomerate HNA Group and RON Transatlantic EG said in January they had agreed to purchase a majority stake in SkyBridge By selling SkyBridge Scaramucci a prominent Wall Street hedge fund investor was paving a path to the White House which he had hoped to join as an adviser soon after President Donald Trump s inauguration In July he was appointed as White House communications director but was fired a week later after an obscenity laced telephone interview with a New Yorker magazine writer Parties involved in the deal said in July that Scaramucci s exit from the Trump administration would not affect the sale SkyBridge invests roughly 10 5 billion in assets up from about 4 billion seven years ago when Scaramucci bought Citigroup NYSE C Inc s so called fund of funds business The investment team has been together for years and remains steady Nolte said
As part of the sale the investment arm has been split from the division that organizes the SALT hedge fund conference in Las Vegas a major industry event that attracts billionaire investors including Ken Griffin Daniel Loeb and John Paulson and former U S presidents including George W Bush and Bill Clinton |
C | Why Is Citigroup C Up 2 1 Since Last Earnings Report | It has been about a month since the last earnings report for Citigroup C Shares have added about 2 1 in that time frame underperforming the S P 500
Will the recent positive trend continue leading up to its next earnings release or is Citigroup due for a pullback Before we dive into how investors and analysts have reacted as of late let s take a quick look at the most recent earnings report in order to get a better handle on the important drivers Citigroup Q4 Earnings Reflected Cost Control Revenues DownCitigroup kick started the earnings season and delivered a positive earnings surprise of 3 9 in fourth quarter 2018 backed by expense control and lower cost of credit Adjusted net income per share of 1 61 for the quarter handily outpaced the Zacks Consensus Estimate of 1 55 Also adjusted earnings climbed 26 year over year Adjusted net income was 4 2 billion up 14 year over year Including the impact of tax reform net income came in at 4 3 billion or 1 64 per share Citigroup displayed prudent expense management during the quarter Moreover higher equity market revenues along with loan growth were positives However investment banking revenues disappointed as strong advisory business were more than offset by lower underwriting fees on lower market activity Additionally as expected lower fixed income market revenues amid challenging trading environment and expanding credit spreads mainly in December was on the downside Citigroup s costs of credit for the Dec end quarter were down 7 year over year to 1 93 billion This fall largely underlines reduced net credit losses of 1 8 billion and a credit reserve build of 111 million For full year 2018 adjusted net income came in at 18 billion compared with 15 8 billion recorded in 2017 Expenses Drop Revenues DisappointFor full year 2018 the company reported revenues of 72 9 billion up 1 year over year Yet it lagged the Zacks Consensus Estimate of 73 3 billion Revenues were down 2 year over year to 17 1 billion in the reported quarter The reported figure also missed the Zacks Consensus Estimate of 17 5 billion Reduced revenues from Institutional Clients Group ICG and the wind down of legacy assets in Corporate Other segments were responsible for the downside In ICG revenues came in at 8 2 billion in the quarter down 1 year over year Fixed income market revenues decreased 21 year over year leading lower total markets and securities services revenues by 11 However equity markets were up 18 and total banking revenues rose 5 partly offset by lower investment banking revenues Global Consumer Banking GCB revenues declined slightly year over year to 8 4 billion Higher revenues in North and Latin America were offset by lower revenues in Asia GCB Corporate Other revenues came in at 470 million slipping 37 from the prior year quarter The decline mainly underscores legacy assets runoff Operating expenses at Citigroup dipped 4 year over year to 9 9 billion Lower compensation costs efficiency savings and the winding down of legacy assets muted the elevated volume related expenses and ongoing investments Strong Balance SheetAt the end of the quarter Citigroup s end of period assets was 1 92 trillion slightly down sequentially The company s loans grew 1 sequentially to 684 billion Deposits increased 1 sequentially to 1 01 trillion Credit Quality ImprovesTotal non accrual assets decreased 24 year over year to 3 6 billion The company reported a dip of 17 in consumer non accrual loans to 2 2 billion In addition corporate non accrual loans of 1 3 billion plunged 32 from the year earlier period Citigroup s total allowance for loan losses was 12 3 billion at the end of the quarter or 1 81 of total loans compared with 12 4 billion or 1 86 recorded in the year ago period Solid Capital PositionAt the end of the Oct Dec period Citigroup s Common Equity Tier 1 Capital ratio was 11 9 down from 12 4 in the prior year quarter The company s supplementary leverage ratio for the quarter came in at 6 4 down from 6 7 in the year earlier quarter As of Dec 31 2018 book value per share was 75 05 up 6 year over year and tangible book value per share was 63 79 up 6 from the comparable period last year Capital DeploymentDuring 2018 Citigroup repurchased about 212 million of common stock The company returned around 18 4 billion to common shareholders as common stock repurchases and dividends Notably during fourth quarter 2018 the company bought back about 74 million of common stock and returned around 5 8 billion to common shareholders as common stock repurchases and dividends OutlookFrom a revenue perspective for 2019 in addition to the good momentum ongoing in many of the businesses management also pointed other revenue tailwinds including the absence of the FDIC surcharge as well as a smaller anticipated drag from the wind down of legacy assets in Corp Other Notably management does not expect non interest revenues to decline again in 2019 as the company has overcome the operating revenue headwinds in Consumer In addition on the expense side management noted that efficiency saving significantly outpaced incremental investments in the second half of 2018 realizing a net benefit to expenses of roughly 200 million This amount is likely to increase to around 500 600 million of net incremental savings in 2019 along with an additional 500 600 million of net incremental benefits in 2020 These net savings should offset volume driven expenses on ongoing investments in the business Moreover positive operating leverage the bank as a whole and for consumer and institutional businesses is anticipated in 2019 Management targets efficiency ratio in the low 50 range Moreover the company s primary goal is to sustainably improve the return on shareholders equity from the roughly 11 achieved in 2018 to about 12 in 2019 and more than 13 5 in 2020 Management continues to expect the net interest revenue percentage to improve further in 2019 As the mix of interest earning balances continues to improve underlying growth is expected to accelerate in 2019 resulting in modest reported growth even considering the Hilton and Visa NYSE V B gains recorded in 2018 The medium term expectations for Branded Cards are that it would operate in the range of 3 to 3 25 and Retail Services in the 5 to 5 25 specifically for 2019 Continued year over year growth in accrual businesses is expected including Treasury and Trade Solutions Securities Services Lending and the Private Bank Looking ahead management still expects a modest pre tax quarterly loss in Corporate Other in 2019 Tax rate is likely to be 23 for 2019
How Have Estimates Been Moving Since Then
In the past month investors have witnessed an upward trend in fresh estimates
VGM Scores
At this time Citigroup has an average Growth Score of C however its Momentum Score is doing a bit better with a B Charting a somewhat similar path the stock was allocated a grade of C on the value side putting it in the middle 20 for this investment strategy
Overall the stock has an aggregate VGM Score of C If you aren t focused on one strategy this score is the one you should be interested in
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising Notably Citigroup has a Zacks Rank 3 Hold We expect an in line return from the stock in the next few months |
JPM | 3 Top Rated Large Cap Value Mutual Funds To Invest In | Large cap value mutual funds provide excellent choices for investors who seek returns subject to low risk While mutual funds investing in value stocks have the potential to deliver higher returns and exhibit lower volatility compared to growth and blend counterparts large cap funds usually provide a safer option than small cap or mid cap funds Thus investors may look for large cap value funds to earn in a moderate return volatile environment Value funds generally invest in stocks that tend to trade at a price lower than their fundamentals i e earnings book value Debt Equity and pay out dividends Value stocks are expected to outperform the growth ones across all asset classes when considered on a long term investment horizon and are less susceptible to trending markets However investors interested in choosing value funds for yield should check the mutual fund yield as not all value funds solely comprise companies that primarily use their earnings to pay out dividends Meanwhile large cap funds have exposure to large cap stocks that are expected to have a long term performance history and assure more stability than what mid or small caps offer Companies with market capitalization of more than 10 billion are generally considered large cap However due to their significant international exposure large cap companies might be affected by a global downturn Below we share with you three top rated large cap value mutual funds Each has earned a Strong Buy and is expected to outperform its peers in the future To view the Zacks Rank and past performance of all large cap value mutual funds investors can VALIC Company II Large Cap Value seeks higher total return than the Russell 1000 Value Index VACVX invests a large share of its assets in equity securities of large cap companies with market capitalization more than the smallest member of the Russell 1000 Index VALIC Company II Large Cap Value has a three year annualized return of 8 6 VACVX has an expense ratio of 0 8 compared with the category average of 1 1 JPMorgan NYSE JPM Large Cap Value A invests a large portion of its assets in securities of large cap companies that include common stocks and debt and preferred stocks that can be converted to common stock Large cap companies are those that have market capitalization equivalent to those listed in the Russell 1000 Value Index at the time of purchase OLVAX offers dividend quarterly and capital gains annually JPMorgan Large Cap Value A has a three year annualized return of 9 5 Scott Blasdell is the fund manager and has managed OLVAX since 2013 PNC Large Cap Value I seeks long term capital appreciation PLIVX invests the majority of its assets in equity securities including common stocks and American Depositary Receipts ADRs of domestic large cap companies The fund is expected to maintain a diversified portfolio comprising undervalued securities It may also invest in securities of companies located in foreign lands PNC Large Cap Value I has a three year annualized return of 10 PLIVX has an expense ratio of 0 98 compared with the category average of 1 1 To view the Zacks Rank and past performance of all large cap value mutual funds investors can About Zacks Mutual Fund RankBy applying the Zacks Rank to mutual funds investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward Pick the with the Zacks Rank |
JPM | Gold ETFs Shine On Brexit Woes | Time and again gold has been a safe harbor when uncertainties loom The weakness in the global financial markets had helped gold to recover its sheen in 2016 A tumultuous global economy including pressing growth issues and the global oil market turbulence lifted its safe haven demand read On top of it U K surprised the world by voting in favor of leaving the EU albeit the votes showed a narrow margin between the leave and the stay camps This has made it the biggest strategic decision in decades Polls had shown a neck and neck race between Brexit and Bremain in the run up to the referendum but the Brexit win took everyone by surprise read There is no historic precedent to Brexit As things stand now it will certainly result in added volatility in the global market which has already been reeling under pressure In fact the Federal Reserve Chair Janet Yellen sees it as having significant economic repercussions Brexit has led to a surge in demand for the yellow metal as investors rushed to safe haven assets The gold bullion ETF SPDR Gold Shares NYSE GLD LAGOS GLD has added over 24 2 so far this year as of June 24 2016 On June 24 after the referendum results were announced the fund surged4 9 reacting to the Britain EU split Meanwhile we note that the jump in gold prices this year was also supported by plunging interest rates on a global scale Earlier this month 10 year note yields dropped to the lowest level in the last three years Meanwhile government bond yields in Japan Germany and the U K also touched record lows With the Fed not expected to raise interest rates in the near term and volatility apprehended to rule the markets in the coming days gold s rally is most likely to continue read How to Play Given the flight to safety and intense buying pressure on gold investors have a long list of options in the ETF world to tap the metal s rally SPDR Gold Trust ETF This is the largest and most popular ETF in the gold space with AUM of 38 7 billion and average daily volume of around 11 2 million shares The fund tracks the price of gold bullion measured in U S dollars and kept in London under the custody of HSBC Bank Expense ratio comes in at 0 40 read iShares Gold Trust AX IAU This ETF offers exposure to the day to day movement of the price of gold bullion and is backed by physical gold under the custody of JP Morgan Chase NYSE JPM Bank in London It has AUM of 8 2 billion and trades in solid volume of more than 7 9 million shares a day on average The ETF charges 25 bps in annual fees ETFS Physical Swiss Gold Shares This product also tracks the price of gold bullion and is backed by physical bullion under the custody of JPMorgan Chase Bank It has amassed 1 0 billion in its asset base and trades in lower volume of 41 000 shares per day The product has an expense ratio of 0 39 Some Leveraged ETFsLet s look at certain leveraged ETFs to create a leveraged long short position in the underlying index through the use of swaps options futures contracts and other financial instruments Due to their compounding effect investors can enjoy higher returns in a very short span of time provided the trend remains a friend However these funds run the risk of huge losses compared to traditional funds in fluctuating or erratic markets Further their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period such as weeks or months Despite this drawback investors are seen to jump into these products for quick turns see ProShares Ultra Gold ETF AX UGL This fund seeks to deliver twice 2x or 200 the return of the daily performance of gold bullion in U S dollars It charges 95 bps in fees a year and has amassed 92 3 million in its asset base Volume is light at about 48 000 shares per day VelocityShares 3x Long Gold ETN LAGOS GLD This product provides three times 3x or 300 exposure to the daily performance of the S P GSCI Gold Index Excess Return plus returns from U S T bills net of fees and expenses The ETN has been able to manage an asset base of 81 2 million while charging a higher fee of 1 35 annually The note trades in a volume of over 688 000 shares a day Daily Gold Miners Bull 3x shares NUGT seeks to deliver thrice the daily performance of the NYSE Arca Gold Miners Index which consists of firms that operate globally in both developed and emerging markets and are involved primarily in the exploration and production of gold It is rich in AUM of 1 4 billion and sees solid average trading volume of 8 5 million shares Expense ratio comes in at 0 94 Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
MS | Morgan Stanley s quarterly profit falls by more than half | Investing com Morgan Stanley NYSE MS s quarterly profit fell by more than half hit by market volatility early in the year
But earnings still handily beat expectations as the bank slashed employee compensation
First quarter earnings fell 54 4 to 1 06 billion or 55 cents per share from 2 31 billion a year earlier
Analysts on average had expected earnings of 46 cents per share
Net revenue fell 21 3 to 7 79 billion missing the average estimate of 7 87 billion |
JPM | At Davos delegates talk down Trump but bet big on America | By Alessandra Galloni DAVOS Switzerland Reuters Since Donald Trump won the U S presidency business has been booming for Monaco based businessman Manfredi Lefebvre d Ovidio His privately owned luxury cruise operator Silversea Cruises registered an immediate pick up in bookings from its main U S market and demand has continued to grow Let s face it we should be grateful to Trump said Lefebvre d Ovidio a delegate to the World Economic Forum at the Swiss ski resort of Davos where Trump will speak on Friday The economy is strong and the American consumer is spending As the world s top policymakers and executives await Trump to address the Davos summit they are privately voicing disbelief and disgruntlement at his foreign affairs retreat on environmental issues and colorful tweeting African leaders feel insulted after Trump is said to have classified their countries as shitholes a comment he denies making Latin American leaders are criticizing his retreat from a Pacific wide trade pact And some top executives say they have declined invitations to meet with him during the summit But with the U S stock market soaring Trump s corporate tax cuts padding companies pockets and U S consumers spending again companies here are quietly applauding the U S president even as many Davos delegates see him as an unwelcome outsider On the values front it s hard to see the international elite here in Davos applauding Trump but on the wallet side of things it may be different That is the fundamental tension said Helene Rey economics professor at London Business School Some government leaders economists and bankers are warning against an overheating of the U S economy an increase to the 20 trillion national debt and a race to the bottom on tax cuts All the same firms have high hopes for the U S market Kim Fausing chief executive of Danish group Danfoss which makes air conditioning and heating systems said the company was committed to the U S market where it has a dozen factories This is a market that rules itself without too much intervention from the state so it s a very attractive market for any company Fausing said Hussain Sajwani chairman and founder of UAE property firm Damac is a friend of Trump and his main business partner in the Gulf region He is looking more favorably at the United States after Congress passed Trump s corporate and personal tax cuts We were looking at property development in the States and the previous tax brackets were not very attractive and now they re more attractive said Sajwani who owns Damac Hills a major development that includes the Trump International Golf Club in Dubai Bob Dudley chief executive of oil major BP L BP said he believed the United States was not the only good destination for oil companies But he added that the tax cut certainly makes the United States more competitive Trump s 1 5 trillion tax plan unveiled in December slashed the corporate rate from 35 percent to 21 percent and temporarily reduced the tax burden for most individuals as well In its wake several U S companies have announced plans to increase investments wages and bonuses This week JP Morgan Chase NYSE JPM unveiled a 20 billion plan to hike wages hire more people open branches and expand its business the most explicit response to the tax cuts of any major bank so far Two weeks ago when Trump said he would attend the Davos summit the assumption was that he would be entering a lion s den of hostile global elites And in the opening days speakers criticized his administration for protectionist measures such as recent import tariffs on washing machines and solar panels moves that Washington said would protect American jobs The shithole controversy helped sour the mood I m from Africa so the sentiment toward the U S president is not too positive right now said Jabu Moleketi chairman of the Development Bank of Southern Africa French President Emmanuel Macron in his keynote address decried a race to the bottom that could emerge from countries lowering tax rates and trade wars though he too plans to cut corporate tax rates over the next five years Beneath the criticism though a faint chorus of appreciation for some of Trump s policies can be heard I think he s going to address this group and say well I understand a lot of you may not like me but if you look at your wallets you should love me said Harvard University economics professor Kenneth Rogoff At an early news conference on Monday the International Monetary Fund cited U S tax cuts as one of the reasons for its upgraded forecasts for global economic growth John Tuttle head of global listings at the New York stock exchange said interest from foreign issuers was rising It s been a very good year for non U S listings In fact I would say a significant percentage north of 35 percent of the proceeds raised last year by companies on the New York stock exchange were from outside the United States Tuttle said Lefebvre d Ovidio is extra grateful to the U S administration after the recent tax cut The original tax proposal included a cruise ship tax provision but Alaska s U S senators helped strike that out on the basis it would have hurt Alaska s vital tourism revenues
We didn t even get taxed he said It was an extra |
JPM | JPMorgan downgrades Nutanix to 18 downside | JPMorgan NYSE JPM downgrades Nutanix NASDAQ NTNX from Neutral to Underweight with a 30 price target which is a nearly 18 downside on yesterday s closing price Analyst Mark Murphy says the company s transition to a software only model is already priced in Nutanix shares are down 4 5 premarket to 34 75 Previously Nutanix increases senior note offering by 100M Jan 18 Now read |
JPM | JPMorgan raises CalAmp to Neutral shares 3 5 | CalAmp NASDAQ CAMP is up 3 5 premarket after a raise to Neutral at JPMorgan NYSE JPM from Underweight The firm raised its price target to 25 from 22 implying 9 8 upside Shares have gained 53 5 over the past 12 months and gained 17 9 over the past three months Now read |
JPM | Shrinking dollar just getting started JPMorgan | The U S has been a pacifist in the currency war for too many years JPMorgan NYSE JPM Asset Management Chief Global Strategist David Kelly tells Bloomberg Other countries Japan and Europe have been trying to push their currency down We just took it I think we shouldn t For improving the U S trade position Kelly adds that he prefers a weaker greenback vs scary tariff talk The dollar today is lower by about another 0 55 depending on your favorite dollar index ETFs UUP UDN USDUNow read |
JPM | Brexit could push 4 000 plus JPMorgan jobs from Britain | By Lawrence White LONDON Reuters JPMorgan NYSE JPM could move more than 4 000 jobs out of Britain if Brexit talks result in a divergence of regulations and trade agreements between Britain and the European Union the U S banking giant s chief executive said on Thursday If they determine you can t have reciprocal trade practices reciprocal regulations It would be more than 4 000 CEO Jamie Dimon said in a BBC interview on the sidelines of the World Economic Forum in Davos Switzerland Such an outcome could represent a threat to London s future as a financial center Dimon said That 4 000 jobs figure represents the longer term total that could move Dimon said with the actual number likely to be fewer if Britain secures more favorable terms In the short term the bank will move between 500 and 1 000 jobs he said after Britain s formal exit from the EU scheduled for March 29 2019 The wide range of potential outcomes at JPMorgan reflects the changing prospects of Britain securing a deal that gives its financial businesses continued access to European markets Britain s finance minister told business chiefs in Davos on Thursday that the country is seeking such an arrangement After saying in the aftermath of the June 2016 referendum on Britain s membership of the EU that about 4 000 jobs would move Dimon said in an April letter to shareholders that it would be likely to shift far fewer jobs to European financial hubs Dimon s comments on Thursday that the total could end up being more than 4 000 represent his starkest assessment yet of the impact of a so called hard Brexit under which Britain loses access to the EU s single market It is among the highest estimates by a single financial company of the number of jobs it would move out of Britain About 10 000 finance jobs will be shifted out of Britain or created overseas in the next few years if it is denied access to Europe s single market a Reuters survey in September found |
JPM | Trump trolling forex traders now | The dollar is going to get stronger and stronger the president tells CNBC Ultimately he says he wants to see a strong dollar As for Treasury Secretary s Mnuchin s weak dollar words from yesterday Trump says they were taken out of context The greenback has erased nearly all of the day s previously sizable losses following the comments Previously Shrinking dollar just getting started JPMorgan NYSE JPM Jan 25 Previously Dollar s decline deepens after Mnuchin comments Jan 24 ETFs UUP UDN USDUNow read |
JPM | Oil Set for Weekly Gain as Crude Stockpiles and Dollar Decline | Bloomberg Oil headed for a weekly increase as U S crude stockpiles dropped further and the nation s currency weakened
Futures have climbed 3 8 percent in New York this week after reaching the highest since December 2014 on Thursday Crude stockpiles fell for a 10th week to the lowest level since February 2015 according to Energy Information Administration data Wednesday The weaker dollar has made oil more attractive to investors
Oil resumed gains this week after Saudi Arabia and Russia pledged to continue coordinated supply cuts to drain a global glut A challenge for the Organization of Petroleum Exporting Countries and its allies is expanding U S output which rose last week to the highest level in more than three decades
Oil prices face yet another weekly gain due to the weak U S dollar said Carsten Fritsch an analyst at Commerzbank AG DE CBKG in Frankfurt
West Texas Intermediate for March delivery was at 65 72 a barrel on the New York Mercantile Exchange up 21 cents at 11 02 a m in London Total volume traded was about 9 percent below the 100 day average
See also OPEC s Nightmare How Shale Drillers Won Revenge for U S Oil
Brent for March settlement added 15 cents to 70 57 a barrel on the London based ICE Futures Europe exchange after falling 11 cents on Thursday Prices are up 2 9 percent this week rebounding from the first weekly drop since mid December The global benchmark crude traded at a premium of 4 87 to WTI
U S crude inventories fell by 1 07 million barrels last week to 411 6 million according to EIA data Oil production climbed to 9 88 million barrels a day a record in weekly data compiled by the agency since 1983
The Bloomberg Dollar Spot Index a gauge of the currency against 10 major peers has dropped 1 7 percent this week heading for the biggest decline since July 2016 A weaker greenback typically increases investors interest in commodities
Oil market news
JPMorgan NYSE JPM raised its crude forecast on strong economic growth and a cold snap in the U S It predicted Brent will near 78 a barrel in the first half and average 70 this year
The market will return to balance sometime this year OPEC Secretary General Mohammad Barkindo said on Bloomberg Television
Venezuela s crude exports may get a boost from moderate near term upside in production as field maintenance ends and because of lower crude runs at the Amuay refining complex Vienna based JBC Energy said Friday |
C | Bank of Canada s silence leaves markets looking for more clues on rates | By Leah Schnurr OTTAWA Reuters The Bank of Canada s reticence to guide markets on the future path of monetary policy has left many scrambling to determine how quickly the central bank plans to raise rates after a recent hike caught many off guard Some central bank watchers also took issue with last Wednesday s interest rate increase because it came after nearly two months of policymaker silence following an initial rate hike in July which was well telegraphed to the market That lack of public speeches was one factor that had many thinking the Bank of Canada would hold off until October to raise rates again Without insight beyond Wednesday s statement which left the door open to more hikes analysts are struggling to determine how aggressive the central bank may be in tightening And markets may have read the central bank as being more hawkish than it actually is given the 2 percent jump in the Canadian dollar over the two sessions following the hike With an absence of greater communication leading up to that rate hike we ve been thrown into the lurch somewhat as to how to interpret monetary policy going forward said Scott Smith chief market strategist at Viewpoint Investment Partners Analysts are hoping a speech and news conference by Bank of Canada Governor Stephen Poloz on Sept 27 will provide clues on how fast the central bank could move from here The market has interpreted policy going forward one way but the concern is maybe the Bank of Canada hasn t telegraphed that exactly as they would like said Smith If it gets walked back all we re going to have is more elevated levels of volatility in the Canadian dollar and financial markets in general A Reuters poll of primary dealers forecast on Thursday that the bank will raise three times in 2018 a more aggressive pace than previously anticipated CA POLL The central bank could stand to be more consistent about what it will and will not communicate given its signaling ahead of its July rate hike said Dana Peterson economist at Citigroup NYSE C Where s that line between forward guidance and something that s not forward guidance Peterson said Poloz stopped giving forward guidance that provides a direct hint on the next move in interest rates in 2014 A Bank of Canada spokeswoman pointed to Poloz s comments from July in which he emphasized that monetary policy will remain highly data dependent The silence between the two meetings created a great deal of uncertainty for markets said BMO Capital Markets chief economist Doug Porter calling the lack of communication an epic fail in a research note Economists said that while the central bank is not obligated to steer markets the lack of cues on future policy underscores the challenge of forecasting rates But the surprise factor itself can be used by the central bank to enhance the effectiveness of its policy moves The bank shocked markets with a rate cut in January 2015 in an effort to jump start an economy that was being hammered by falling oil prices The bank may be also be trying to retain an element of surprise as it moves rates higher with policymakers concerned about high levels of consumer debt which is sitting at near record compared to income said Karl Schamotta director of global markets strategy at Cambridge Global Payments
If the bank is really tilting against this debt bubble that we have growing in Canada it really makes sense to scare consumers to really fire that warning shot across the bow and to indicate to consumers that rates are going up Schamotta said |
C | U S Justice Department charges ex Deutsche Bank subprime trader with civil fraud | By Sarah N Lynch
WASHINGTON Reuters The U S Justice Department on Monday charged Deutsche Bank s DE DBKGn former head of subprime mortgage trading with civil fraud in connection with conduct dating back to the 2007 2009 financial crisis
Paul Mangione the former trader is accused in the complaint of misrepresenting information about the loans underpinning two residential mortgage backed securities that were sold to investors
The government s case against the former trader filed in a federal court in Brooklyn came after the bank in January reached a 7 2 billion settlement in a related case over risky mortgage securities sold to investors
Patrick Smith an attorney at Smith Villazor LLP representing Mangione issued a lengthy statement criticizing the government for bringing the case against his client
The decision to sue Paul Mangione for civil penalties in this case is both wrong and unfair Smith said
The facts show that Mr Mangione never agreed to mislead any investor And it s unfair because Mr Mangione is being singled out for blame on two ten year old securitization transactions on which numerous other participants had more input and responsibility Smith said
The Justice Department charged Mangione for his role in the alleged scheme in its complaint saying he defrauded investors in a 1 billion security called ACE 2007 HE4 and another 400 million security called ACE 2007 HE5
The government also said he misled people about the origination practices of Chapel Funding LLC one of the bank s subsidiaries and approved offering documents that misstated information about the loans such as borrowers ability to repay and whether they complied with lending guidelines
By allegedly misleading investors about the riskiness of these securities Mr Mangione prioritized his and his employer s bottom line over principles of honesty and fair dealing said Chad Readler the Acting Assistant Attorney General for the Justice Department s Civil Division
The bank s settlement was the largest resolution for the conduct of a single entity in misleading investors in residential mortgage backed securities surpassing the 7 billion that Citigroup N C had previously paid to federal and state authorities in 2014
Mangione s attorney meanwhile said his client had no role in buying or originating the loans and no oversight of Chapel s mortgage loan underwriting operations
We will fight the allegations in this overwrought complaint Smith said |
C | European Stocks Open Higher as Risk Appetite Returns Dax up 0 35 | Investing com European stocks opened higher on Tuesday as market sentiment continued to improve after the weekend proved to be less catastrophic than initially anticipated
During European morning trade the EURO STOXX 50 advanced 0 48 France s CAC 40 rose 0 32 while Germany s DAX 30 gained 0 35 by 03 35 a m ET 07 35 GMT
Market participants had braced for additional provocations from North Korea on September 9 as the State celebrated its founding day But Pyongyang marked the anniversary without further missile or nuclear tests
In response to North Korea s sixth nuclear test the U N Security Council voted unanimously on Monday to step up sanctions on the peninsula Its textile exports are now banned and fuel supplies to Pyongyang are capped
It was the ninth sanctions resolution unanimously adopted by the Security Council since 2006 over North Korea s ballistic missile and nuclear programs
On the other hand Hurricane Irma continued to hammer Florida on Monday but it lost strength and was downgraded to a tropical storm
About 7 3 million homes and businesses were without power in Florida Georgia South Carolina and Alabama according to state officials and utilities on Monday
Financial stocks were broadly higher as French lenders BNP Paribas PA BNPP and Societe Generale PA SOGN gained 0 93 and 1 04 while Germany s Deutsche Bank DE DBKGn and Commerzbank DE CBKG rallied 0 71 and 1 17
Among peripheral lenders Italy s Intesa Sanpaolo MI ISP and Unicredit MI CRDI climbed 0 53 and 0 52 respectively while Spanish banks BBVA MC BBVA and Banco Santander MC SAN advanced 0 57 and 0 42
Lufthansa added to gains with shares up 0 71 The airliner announced on Monday that it will be discontinuing all flights to Qatar in October saying the route was found to be commercially not viable
On the downside RWE AG DE RWEG shares slipped 0 15 even after Angola LNG the country s sole liquefied natural gas export plant said it entered into an agreement to sell cargoes to RWE Supply Trading
In London FTSE 100 edged up 0 11 after British lawmakers early Tuesday voted in favour of a proposed timetable for debating Brexit legislation
Ashtead Group LON AHT was one of the top performers on the index as shares soared 5 34 after the company reported an increase in first quarter profits and revenue The construction and industrial equipment rental company also said it expects demand to rise for its fleet after Hurricanes Harvey and Irma hit the U S
Mining stocks were also higher on the commodity heavy index Shares in Rio Tinto LON RIO climbed 0 67 and Glencore LON GLEN gained 0 74 while BHP Billiton LON BLT advanced 0 85
The financial secto added to gains as HSBC Holdings LON HSBA inched up 0 01 and Lloyds Banking LON LLOY added 0 19 while the Royal Bank of Scotland LON RBS and Barclays LON BARC climbed 0 53 and 0 75 respectively
Whitbread LON WTB was one of the wort performers on the index plummeting 3 20 after analysts at Citigroup NYSE C downgraded their rating on the stock to sell
In the U S equity markets pointed to a steady to higher open The Dow Jones Industrial Average futures pointed to a 0 13 rise S P 500 futures signaled a 0 06 uptick while the Nasdaq 100 futures indicated a 0 07 gain |
C | Premarket analyst action healtcare | Reata Pharmaceuticals NASDAQ RETA initiated with Outperform rating and 43 43 upside price target by Leerink Catalent NYSE CTLT initiated with Hold rating by Needham citing valuation GenMark Diagnostics NASDAQ GNMK price target lowered to 15 53 upside from 17 but Buy rating maintained by Needham citing managment comments about the ePlex annuity stream Q4 results could miss consensus if system placements skew toward reagent rental versus outright purchase Centene NYSE CNC price target raised to 90 flat from 78 by Leerink and 111 22 upside from 95 by Deutsche Bank DE DBKGn after its announced acquisition of Fidelis Care Synergy Pharmaceuticals NASDAQ SGYP price target lowered to 2 50 12 downside risk from 3 20 by Citigroup NYSE C Sell rating maintained Source BloombergNow read |
C | Exclusive Venezuela state oil firm s credit woes spread to U S unit Citgo | By Marianna Parraga and Catherine Ngai HOUSTON NEW YORK Reuters Washington s recent sanctions against Venezuelan state run oil company PDVSA have started to ensnare its U S unit Citgo Petroleum making it harder for the refiner to obtain the credit it needs to purchase crude according to six traders and banking sources Fewer oil providers are willing to sell cargoes to Citgo on open credit instead requiring prepayment or bank letters of credit to supply its 749 000 barrel per day refining network the sources said Two sources at Canadian suppliers said their companies are no longer allowed to trade with Citgo directly and have begun selling cargoes through third parties to avoid the credit risk Citgo s three U S refineries in Illinois Texas and Louisiana account for about 4 percent of domestic fuel capacity and are major suppliers of gasoline diesel and jet fuel If financial troubles raise the cost of obtaining crude its profits would be squeezed making the company less competitive Citgo had remained immune from its parent s straits until this year But U S sanctions levied in recent months against Venezuelan officials PDVSA executives and the country s debt issuance have deterred banks and suppliers from extending even routine credit the sources said Citgo s main crude supplier is Venezuela but the company also buys U S and foreign oil It has told some providers they can charge more to reflect the added credit risk We are now more conservative when dealing with PDVSA or any of its units said an executive from a trading firm with a long term business relationship with PDVSA Banks that have refused to provide credit have a very rational thinking they don t want to be exposed to sanctions It does not take too much to have banks nervous he added The U S government did not intend sanctions to affect existing private credit agreements at Citgo or PDVSA Treasury Secretary Steven Mnuchin in August said short term financing for most commercial trade between the United States and Venezuela including the petroleum flow was exempted Citgo declined to comment Venezuela s Economy Vice President Ramon Lobo on Thursday said the government is facing a series of difficulties as result of sanctions which he considered an attempt to push the country to insolvency with a financial blockade RENEGOTIATING SUPPLY DEALS While Citgo was not directly sanctioned in August it was barred by name from transferring dividends or distributing profits to PDVSA or the Venezuelan government Citgo has provided nearly 2 5 billion in dividends to its parent company since 2015 according to Fitch Ratings That restriction raised alarms among its longterm banking and trading partners in the United States As a result Citgo is trying to renegotiate its supply terms said a trader from a firm that is requiring Citgo to prepay for purchases The company is worried about a higher debt default risk as well as the sanctions Citgo also has other problems Its Gulf Coast refineries are being forced to buy more crude on the open market to offset a declining flow of oil from PDVSA From June through August PDVSA supplied only half the volume of Venezuelan crude it was to send Citgo under a 220 000 bpd supply contract according to Reuters trade flows data At the same time Venezuela increased oil deliveries to Russia s Rosneft MM ROSN to pay for loans Even Citgo s 167 000 bpd Lemont refinery in Illinois which largely processes Canadian oil is having trouble retaining credit arrangements with its traditional providers according to three traders from crude suppliers that are no longer allowed to sell directly to Citgo In August Citgo executives traveled to Canada as they typically do once a year but this time sought to assure marketers in Calgary that the firm was financially stable I don t think anyone was very convinced a source involved in the talks said SAVED BY THE SWISS Citgo has a long standing agreement to buy oil on preferential terms from Switzerland based trader Mercuria Energy without obtaining letters of credit according to four of the traders But when Mercuria is unable to provide crude to Citgo the refiner goes to the spot market where many of its providers demand prepayment or letters of credit to secure payment within 30 days of every cargo discharge The sources said traders refiners and oil firms have been rebuffed in recent weeks after seeking letters of credit from a list of banks suggested by PDVSA and Citgo which includes Citibank N C JP Morgan N JPM Credit Suisse S CSGN BNP Paribas PA BNPP ABN Amro AS ABNd and Deutsche Bank DE DBKGn This is not a credit issue nobody thinks Citgo is unwilling to pay But banks have to protect themselves from fines so they typically go beyond what the sanctions require said a banker who has been dealing with Venezuela for years The banks declined to comment on specific clients Citgo s attempt to address the credit problems has been to suggest suppliers mark up their prices three traders said But that only transfers the credit risk from the bank to the oil provider one of them said A similar tack was used by PDVSA last year before intermediaries began requiring prepayment In most cases cargoes that arrive in Venezuelan ports now wait for weeks before a bank transfer is received Minister Lobo and traders said PDVSA has started talks to change its preferred currency to euros from dollars for some business relationships an idea that has failed in previous years President Nicolas Maduro last week said the OPEC member could also use China s yuan India s rupees Russia s ruble and Japan s yen
For a graphic click |
JPM | Brexit Repercussions Hit UK Exposed Banks Tank Share Prices | After Britain s decision yesterday to leave the European Union there is a huge amount of uncertainty looming over global markets and especially over the banking sector Many banks both European and from the US use the United Kingdom as their headquarters for the services and operations that they offer throughout the rest of Europe With the UK s exit from the EU there will likely be new regulations and rules that could have negative effects on transactions across borders
As global markets and investors react to the Brexit vote these banking stocks are especially getting hammered today as the shroud of uncertainty looms
Barclays LON BARC PLC NYSE BCS
Barclays is one of the banking stocks that is taking a major beating today as its stock has been trading around 20 lower since the market opened BCS is down year to date more than 30 now and the uncertainty surrounding the Brexit is not going to help its share price moving forward
In an attempt to reassure workers that Barclays will move forward through the Brexit CEO Jes Staley released a statement in which he said Barclays has stood in service of our customers and clients for over 325 years We have been here for them through equally profound changes before And no matter what has been laid before us we have been here to help achieve their ambitions
Though taking a major hit today Barclays remains confident in its ability to serve its clients moving forward though the uncertainty created by the Brexit certainly represents an obstacle the bank will need to overcome
Royal Bank of Scotland LON RBS Group PLC TO RBS
Down more than 22 today the Royal Bank of Scotland Group PLC is certainly feeling major effects of the Brexit though it was being affected from the uncertainty of the event for quite some time RBS is down more than 34 year to date has cut more than 2 500 jobs since January and recently announced that the bank plans to cut 900 more in cost reducing measures
Being headquartered in the United Kingdom RBS does majority of its business in the area which means the bank will be incredibly vulnerable to the effects of new rules and regulations that are likely to be put in place RBS was already having a rough 2016 and the uncertainty the bank faces moving forward is not likely to be any type of positive
Deutsche Bank NYSE DB
Headquartered in Frankfurt Germany Deutsche Bank is another bank stock that is getting hammered today DB is down more than 16 on the day and down around 39 year to date The bank also announced today plans for a restructuring for the revamping of its commercial and private banking services in Germany
DB said it will be eliminating 3 000 employees in Germany by 2018 and consolidating its offices from the 723 branches it has now to 535 larger offices in 2017 Though the restructuring doesn t stem from the Brexit decision it does show that the bank was already struggling and trying to reduce costs and further regulations and costs it may face in the near future will certainly complicate things
JPMorgan Chase Co NYSE JPM
Though its headquarted in New York JPMorgan Chase Co is still being affected by the Brexit decision because of exposure it has to the area with the company s stock dropping nearly 5 today JPM is now down nearly 8 year to date as 2016 has not been a great year thus far
CEO Jamie Dixon and other top executives for the bank released a statement too to reassure its employees as it recognized that the bank will face challenges from the Brexit adding that the bank may seek to change its legal structure and its geographic positioning to comply with new regulations that are likely on their way
Bottom Line
Though leading up to the Brexit vote the leave and stay sides were relatively even in terms of voters the leave party winning still shocked many throughout the world and the global markets The banking sectors is one of if not the hardest hit group by the decision as they will likely face new regulations in the area in addition to the relative uncertainty the Brexit is casting over the area and markets across the globe |
MS | Shareholders kill 1 9 billion deal for Morgan Stanley linked fund in Australia | SYDNEY Reuters A A 2 5 billion 1 9 billion buyout of Morgan Stanley linked Australian property group Investa Office Fund IOF by local rival DEXUS Property Group failed on Friday when it received insufficient shareholder votes the target said In a filing to the Australian Securities Exchange on Friday IOF said a third property company Cromwell Property Group which bought a 9 8 percent stake in the target this week voted against the deal ahead of a meeting scheduled for Friday Combined with other proxy votes it is now clear that whilst the DEXUS Proposal has been supported by the majority of IOF Unitholders the proposal will not be passed by the required 75 percent majority of units voted Investa said The result deals a blow to the Australian M A market which has quietened in the first quarter of 2016 after recording its biggest year by total dollar value in four years in 2015 It also sends a reminder that even in cases where deals have been endorsed by the boards of both the prospective buyer and the target company small shareholders can band together to stop them going ahead IOF had been studying ownership options since Morgan Stanley NYSE MS put the broader Investa Property group up for sale a year ago Excluding the listed IOF the group was sold to sovereign wealth fund China Investment Corp CIC UL in July Cromwell bought its IOF stake after another minority shareholder a separate entity called Investa Office Management said it rejected the deal as undervaluing the company Morgan Stanley Investment Management Singapore owns 2 7 percent of IOF shares according to Thomson Reuters data A DEXUS spokesman was not immediately available for comment IOF shares were up 0 3 percent at A 4 08 just under Dexus s offer price of A 4 11 while the broader market was also up 0 2 percent Dexus shares fell 0 9 percent |
MS | U S business conditions strongest since 2014 Morgan Stanley | NEW YORK Reuters U S business conditions are the strongest since the summer of 2014 as sentiment has recovered from a weak start to the year signaling companies willingness to make capital expenditures Morgan Stanley NYSE MS economists said on Friday More investment in equipment however might come at the expense of less hiring they said The bank s business conditions index rose 3 points to 68 in April the highest since August 2014 The index is more than double its recent trough of 29 hit in February Stronger credit conditions capex plans and expectations for future activity were offset by weaker hiring and hiring plans and modest downtick in advance bookings Morgan Stanley s economists said in a report The bank s hiring plans index fell 13 points in April to 34 the lowest since a bottom hit in June 2009 during the recession while its capex plans index rose 5 points to 58 the highest since July 2015 If this signals the beginning of a sustained rebalancing it would be a positive signal for a potential recovery in productivity they wrote Stronger productivity is seen as critical for overall economic growth Productivity growth has fallen steadily since the third quarter of 2009 when it reached 9 5 percent a year after the global credit crunch In March it was revised to 2 2 percent for the fourth quarter of 2015 Economists at the New York Federal Reserve said on Friday they estimated the potential U S growth rate is currently about 1 75 percent
In the 1980s to 1990s potential U S growth was running modestly above 3 percent Actual Gross Domestic Product readings ran at above or below that potential during those two decades |
JPM | JPMorgan sees brick and mortar branches pivotal to U S expansion | NEW YORK Reuters JPMorgan Chase Co N JPM sees brick and mortar banking as essential to expanding into more than a dozen markets over five years even though customers do 80 percent of their transactions online or at ATMs a bank executive said on Tuesday Seventy five percent of our deposit growth comes from customers who use our branches Thasunda Duckett chief executive of Chase consumer banking said in an interview Customers still visit branches on average four times a quarter JPMorgan said on Tuesday that it will build up to 400 new branches to expand into 15 to 20 markets in several new states The building is part of an investment plan that includes 15 billion of new lending and nearly 5 billion in spending and is due in part to the reduction in U S corporate taxes and a more favorable regulatory environment While the New York based bank did not say which markets it intends to enter it noted that it does not have branches in Boston Philadelphia or Washington D C JPMorgan has found that people who want to open new accounts look to see which banks have convenient branches even though they will do most of their transactions electronically Duckett said branches are critical to establishing the bank s presence locally and serve as hubs for mortgage lending asset management and services to small businesses such as accepting daily cash deposits Across its established markets where it has 5 130 branches in 23 states the number of locations is slowly decreasing as the bank consolidates and uses more ATMs Duckett said Chief Executive Officer Jamie Dimon said for years that he would like to try to expand into more cities But Dimon held back because of the need to build capital for higher regulatory requirements and fund upgrades in information technology The federal tax cuts are expected to save JPMorgan the largest U S bank by assets more than 4 billion annually analysts estimate Duckett said the new branch building will be different from that before electronic transactions were popular Chase will start with higher mix of ATM kiosks in the markets than it has now And the bank will also open scaled down Everyday Express offices of ATMs and as few as two employees In 2013 to add to its Florida franchise and gain experience entering new cities JPMorgan opened three branches in Jacksonville Now it has 20 branches there
This version of the story was refiled to add the word percent to paragraph two |
JPM | JPMorgan plans expansion into Ghana and Kenya | LONDON Reuters JPMorgan Chase Co N JPM plans to expand its African presence into countries including Ghana and Kenya Chief Executive Jamie Dimon said in an interview on Wednesday You ll see us open in some countries we are not in in Africa you ll be hearing about some of that stuff Dimon told Bloomberg Television on the sidelines of the World Economic Forum meeting in Davos Switzerland Dimon said the bank would target Ghana and Kenya two countries in which local regulators have previously blocked the U S banking giant s expansion plans according to media reports at the time The announcement follows JPMorgan s unveiling of a 20 billion investment plan on Tuesday which will see it hike wages hire more and open new branches as it takes advantage of sweeping changes to U S tax law and a more favorable regulatory environment
The five year plan will see the U S bank ramp up overseas investment in addition to its domestic growth plans after it finished cleaning up troubled mortgages following the 2007 09 financial crisis |
C | Citigroup sees third quarter markets revenue down 15 percent vs year earlier | NEW YORK Reuters Citigroup Inc N C third quarter total markets revenue is running about 15 percent less than a year earlier when volatility was boosted by reactions to the Brexit vote and U S elections Chief Financial Officer John Gerspach said on Monday at an investor conference Gerspach s outlook was similar to the 12 percent decline anticipated by Barclays LON BARC analyst and conference host Jason Goldberg in a preview for the event being held through Wednesday The first speaker at the event Gerspach also said that easing of bank regulations is going more slowly than he had hoped apparently because of still vacant positions at the Federal Reserve and Treasury Department He warned that by the end of October the Federal Reserve needs to complete expected changes in its annual capital reviews known as CCAR for the banks to benefit in their 2018 evaluations The reviews determine how much capital banks may payout in stock buybacks and shareholder dividends Gerspach also said that he expects slight increases in expected credit loss rates from its North American Citi branded and store branded card business this year Collections on delinquent accounts of store branded cards have slowed this year the company has said
Citigroup shares were up 0 7 percent shortly after the market opened in New York |
C | MPs Rejected Brexit Deal Now What | Thoughts Post Brexit Vote
1 The sterling was near 7 week highs as the market began pricing in a delay This was evident in the events market PredictIt org and the derivatives market
2 The vote was as the BBC and the Financial Times predicted Historic
3 The short term specs moved to the sideline ahead of the vote and moved back in when there was no surprise My call for 1 30 looks more reasonable at dinner than it did at lunchtime
4 May is likely to survive the vote of confidence tomorrow and attempt to cobble together a broader coalition
5 A later and softer Brexit seems more likely than a no deal Brexit a second referendum or no exit However if May loses the vote of confidence all bets are off Corbyn the leader of the Labour Party does for May what Agnew did for Nixon and Quayle did Bush the elder the alternative is dramatically and recognizably judged to be worse
I joined Wilf Frost and Sara Eisen on the CNBC set at the NYSE shortly after the House of Commons delivered an unprecedented defeat to UK Prime Minister May Catherine Mann from Citigroup Inc NYSE C and Christopher Smart from Barings BDC Inc NYSE BBDC The guests generally agreed that a delay in Brexit was likely thoughts Not all made into the video clip |
JPM | After Gold Is It Turn For Platinum ETF To Shine | The weakness in the global financial markets has helped gold to recover its sheen in 2016 A tumultuous global economy including overall growth issues and Brexit fears coupled with the global oil market turbulence has lifted safe haven demand read The jump in gold prices was also supported by plunging interest rates on a global scale Earlier this month 10 year note yields dropped to 1 639 the lowest level in the last three years Meanwhile government bond yields in Japan Germany and the U K also touched record lows With the Fed not expected to raise interest rates in the near term the rally is expected to continue read Is Platinum Overlooked As per a report by the price of platinum is currently at its lowest level relative to gold in 30 years Platinum is currently trading at a discount of almost 30 as compared to gold This is surprising considering it generally trades at a premium of 34 if we see the past 10 years data While the popular gold ETF SPDR Gold Shares NYSE GLD LAGOS GLD is up more than 20 this year platinum ETF ETFS Physical Platinum NYSE PPLT Shares ETF has not gained more than 9 so far this year as of June 17 2016 But history they say repeats itself and the appreciation of gold prices over platinum is not likely to be sustainable over the long run It is widely expected that the relationship between platinum and gold will revert to the mean This could happen in two ways either platinum heads higher or gold falls However with the global stock market flooded with bouts of volatility and uncertainty and an ultra low interest rate the rally in gold prices is likely to continue read Thus it s more likely that platinum prices will surge This is also supported by the demand supply situation in the platinum market Supply for the world s third most traded metal is expected to register a 5 fall this year thanks to a decline in supply from South Africa a major supplier of platinum accounting for 70 of the global production Unlike gold platinum is used for industrial purposes The automobile industry alone is responsible for of the world s platinum demand With auto industry demand for platinum expected to increase by 2 this year demand for platinum is expected to head north As per a report from in stark difference to a surplus of 54 4 thousand ounces in 2015 this year a global platinum deficit of 195 thousand ounces is expected Considering that physical platinum is not liquid PPLT is an attractive option for investors looking to get an exposure to platinum prices see PPLT in FocusLaunched in 2010 this ETF tracks the performance of platinum s price and is quite a popular fund in the precious metals space managing assets worth 488 million The product invests in bars of platinum and holds them in a secure European facility on behalf of the custodian JPMorgan Chase NYSE JPM Bank read The product charges a decent 60 basis points a year and has an average volume of more than 46 000 shares traded a day There are also a few ETNs in the platinum space including iPath Bloomberg Platinum Subindex Total Return ETN AX PGM and the ETRACS CMCI Long Platinum Total Return ETN TO PTM However these are not as popular as PPLT as evident by AUM of 7 5 million and 20 7 million respectively Want the latest recommendations from Zacks Investment Research Today you can download 7 Best Stocks for the Next 30 Days |
JPM | Bloody Hell Brexit Wins | Friday June 24 2016Great Britain has shocked the global markets by voting to exit the European Union by a vote of 51 8 to 48 2 As a direct result Prime Minister David Cameron has stepped down from his post remarking the country needs fresh leadership Considering the markets were trading with roughly 3 to 1 odds against Brexit happening you can believe long positions are being shaken everywhere and absolutely everything besides gold is down this morning Dow 533Nasdaq 165FTSE 4 57 France 8 45 Italy 10 45 Spain 12 The British pound has fallen below 30 year lows but curiously has not plummeted as deeply as other currencies All big Wall Street banks JPMorgan NYSE JPM Citigroup NYSE C Bank of America NYSE C etc are down 6 at least A huge shifting of business relationships and consequences are immediately boiling to the surface which may take years to correctly resolve But even beyond the shakeup with Great Britain what does it mean for the future of the EU itself Shall we expect other dominoes to fall Of course if you d gone to cash the way George Soros did ahead of the Brexit vote you can wait for opportunities where new growth rises from the ashes The rest of us are going to need a long bath The last time we saw a macroeconomic force rattle the markets to this extent was when China devalued its yuan currency It took the equity markets months to recover Following Brexit we should be so lucky If the EU is serious about retaining its 15 trillion economy intact going forward we should see a lot of activity and cooperation with the remaining nations History says that is a lot to ask Nobody has gone broke yet so this really should not be compared to the collapse of Lehman Brothers Even a decoupling of other members of the EU or decoupling anywhere in the world from Scotland to Texas does not guarantee anything more than near term uncertainty Clearly it greatly increases the odds of other events causing market tumult it s up to the responsible players to be grown ups about the circumstances before them Mark VickerySenior Editor |
MS | Financial turmoil at SunEdison imperils solar projects worldwide | By Nichola Groom
LOS ANGELES Reuters In November solar energy giant SunEdison Inc N SUNE reported that its project pipeline had grown by 75 percent in just a year the result of an aggressive growth strategy
Now five months later many of those projects are imperiled as SunEdison reportedly prepares to declare bankruptcy
SunEdison s rapid growth in planned capacity from 4 5 gigawatts to 7 9 GW in 12 months according to a company press release was propelled by an acquisition spree and aggressive underbidding of rivals on projects Put in perspective a typical nuclear power plant has a capacity of 1 GW
Among the deals now in question is a solar plant under construction for the central Texas community of Georgetown SunEdison initially told officials there it would self finance the project but now wants to make alternative funding arrangements
At SunEdison s request the city last month authorized financing through Morgan Stanley N MS but the financial services firm has yet to agree to the arrangement
In February Hawaiian Electric Company N HE cited project delays in cancelling a contract with SunEdison to purchase power from three solar facilities the company was building on the island of Oahu
And last month TerraForm Global O GLBL a related company set up to own and operate clean energy assets developed overseas by SunEdison warned of delays in construction on two projects in Uruguay and a wind venture in India Another of SunEdison s Indian ventures a 500 megawatt solar plant that is one of the country s biggest forays into renewable energy has not yet broken ground Industry sources said it will likely be re bid unless another company steps in to buy it
SunEdison declined to comment on the number and status of its unfinished deals Company releases and news reports suggest the company has dozens of projects in development ranging from massive power plants to small rooftop arrays
The company has already sold off some large ventures including its portion of the massive Beacon Solar project going up in California s Mojave desert which Swiss investment firm Capital Dynamics bought last month
SunEdison and First Reserve which jointly own the huge 156 MW Comanche Solar plant underway in Colorado asked the Federal Energy Regulatory Commission in March for expedited approval to sell that project The FERC filing said the parties had identified three potential buyers
First Reserve which financed the plant but never intended to be a long term owner declined to comment
FAST GROWTH FAST DECLINE
SunEdison was until recently the nation s fastest growing renewable energy developer but the company now faces a cash crunch and 12 billion in debt according to regulatory filings Its shares have fallen about 98 percent over the past 12 months
In March SunEdison warned that it could not yet file its annual financial results for 2015 because it was investigating former executives allegations that the company s disclosures of liquidity were incorrect The company also said in filings that it faces scrutiny from regulators at the U S Department of Justice and the U S Securities and Exchange Commission over a failed deal and other issues
A SunEdison bankruptcy would rank among the largest by asset value involving a non financial company in a decade according to bankruptcydata com
A GREENER FUTURE
When the city of Georgetown signed on with SunEdison last year city leaders announced they had taken the final step toward a power supply entirely independent of fossil fuels
If negotiations drag on or Morgan Stanley balks at financing the deal Georgetown may have to look elsewhere for power Keeping its commitment to all renewable power by 2017 might require piecing together power contracts from other projects while it seeks a new long term solution Morgan Stanley declined to comment
I literally have a book at the office with Plan A Plan B Plan C said Chris Foster a manager at Georgetown s municipal utility We ll just flip the page if that happens
In the suburban Los Angeles community of Duarte the school district s Chief Facilities Officer Brad Patterson said he is wary but hopeful that the solar parking canopies planned for four schools will go up as planned
He said SunEdison officials told him they have lined up an investor willing to buy the unfinished Duarte project along with others underway in California school systems
Still Patterson is consulting lawyers on the district s options
HAWAIIAN TURMOIL
After the Hawaiian Electric Company canceled its contract with SunEdison it said it would consider offers from other companies to complete the three planned projects
The solar company objected saying it had already spent 42 million on construction SunEdison proposed to sell the projects back to D E Shaw Group the same investors that had sold them to SunEdison just a year earlier Projects in Utah and California are also tied up in that transaction
The Hawaiian utility has objected to such a sale over concerns that it could get bogged down in a SunEdison bankruptcy especially because D E Shaw would be a creditor in those proceedings D E Shaw had no comment on the situation
Those projects could be tied up for a long time said Hawaiian Electric spokesman Darren Pai It was important to us to keep jurisdiction of these projects in Hawaii and not have the projects involved in a bankruptcy |
MS | Stocks jump on China trade surprise buoyant banks | By Jamie McGeever LONDON Reuters Global stocks rose on Wednesday after surprisingly upbeat Chinese trade data offered hope Asia s biggest economy is finally stabilising boosting risk appetite A strong rise in European bank shares led by renewed optimism surrounding Italy s fund to shore up weak lenders and a positive reaction to JP Morgan s first quarter earnings also lifted broader indices Europe s FTSEuroFirst index of leading 300 shares posted its biggest gain in a month rising 2 1 percent to a two week high of 1 334 points FTEU3 and Germany s DAX and France s CAC also rose more than 2 percent GDAXI FCHI U S futures pointed to a rise of 0 6 percent at the open on Wall Street ESc1 China s trade data beat expectations which lent further support to risk sentiment today as reflected in the bounce in equity markets Morgan Stanley NYSE MS strategists said China reported exports jumped 11 5 percent year on year in March the first increase since June well above market forecasts and a huge improvement on February ECONCN Chinese stocks added 1 4 percent while Japan s Nikkei N225 rose 2 8 percent for its biggest daily gain in six weeks MSCI s broadest index of Asia Pacific shares outside Japan MIAPJ0000PUS added 1 7 percent marking its sixth straight gain and longest winning streak in six months Financials led the rally in Europe with the region s main banking index up more than 5 percent SX7P as investors welcomed assurances from Italy s economy minister that European authorities won t block the country s bank fund Investors also gave a thumbs up to JP Morgan s first quarter earnings Net profit fell to 5 5 billion but earnings per share and revenue beat expectations and its shares were up nearly 3 percent in pre market trading N JPM OIL AT CRITICAL JUNCTURE Oil prices however ran into profit taking after having rallied almost 20 percent in the last week Brent crude LCOc1 was down 1 5 percent at 44 02 a barrel after breaching the 200 day moving average around 43 50 on Tuesday the first time it has scaled this key technical level in almost two years U S crude CLc1 lost nearly 2 percent to 41 40 easing back from a four month high but also held above the 200 day moving average around 40 95 as attention turns to this weekend s meeting of top oil producers in Doha Saudi oil minister Ali al Naimi ruled out an output cut in comments to Saudi owned al Hayat newspaper published on Wednesday A rally in energy stocks helped Wall Street end Tuesday firmer across the board DJI SPX IXIC The S P 500 energy sector SPNY jumped 2 8 percent and the Dow industrials posted its best day in about a month The lift in energy overnight boosted oil and commodity sensitive currencies including the Canadian and Australian dollars to multi month peaks but that rally fizzled out as oil headed lower again Both currencies were down around 0 4 percent against the U S dollar which was in turn up two thirds of a percent at 109 20 yen having climbed from a near 18 month trough around 107 63 set on Monday The euro fell two thirds of a percent against the dollar to 1 1307 helping the dollar index DXY to climb two thirds of a percent to 94 584 and further away from its near eight month low of 93 627 struck recently Markets are trading risk on buoyed by better than expected China trade data In sympathy the dollar is bouncing back versus the euro and yen and in the near term we think this correction can extend further BNP Paribas PA BNPP currency strategists said Short term fair value for the euro is around 1 1243 they said
U S Treasury bond yields rose as much as 2 basis points across the curve notably at the short end while the dollar s strength helped drive gold down more than 1 percent to 1 241 an ounce |
JPM | Tide of Money Drowns Hong Kong Central Banker s Property Warning | Bloomberg Why are official warnings of the threat that rising interest rates pose to Hong Kong s red hot housing market falling on deaf ears
The Hong Kong Monetary Authority and the International Monetary Fund have both highlighted the risks But three Federal Reserve rate increases forecast for this year won t stop prices from climbing according to analysts at firms including JPMorgan Chase Co NYSE JPM and Union Bancaire Privee Prices already jumped 22 percent as the Fed raised rates five times from December 2015
On the face of it the warnings make sense
Household debt to gross domestic product is higher now than in 1997 just before a housing crash that lasted six years As HKMA chief Norman Chan points out not only is the ratio elevated it s recently rallied from its historical trend Mortgage payments amounted to 68 percent of median monthly income in the third quarter compared with an average of 45 percent between 1997 and 2016 Deteriorating affordability and record low rental yields increase the housing market s vulnerability in the event of a big shock
Last month Chan urged vigilance on the risk of faster than expected rate increases and talked of abnormally low mortgage rates Financial Secretary Paul Chan warned last year of a dangerous situation in property
Yet many factors suggest that despite Hong Kong s link to U S monetary policy via a pegged exchange rate rising rates alone won t kill off the property boom any time soon Here are some of them
Lots of Liquidity
Even as the Fed raises borrowing costs an abundance of liquidity flowing into Hong Kong has enabled banks to keep a lid on local rates A booming stock market is attracting ever larger amounts of Chinese money through the stock connect and mainland home buyers account for as much as a fifth of property demand according to Mark McFarland chief economist for Asia at Union Bancaire Privee
Hong Kong s property market appears to be in a similar state of mind to the period immediately before the handover in 1997 where optimism equity market gains and inflows pushed property prices up in a feedback loop said McFarland referring to the year the city returned to Chinese control Now like then it would take an external shock to derail the market he said
Low Impact Increases
David Ji head of research and consultancy for Greater China at Knight Frank LLP says for every 25 basis point increase in rates monthly payments will climb by only about HK 124 16 for a HK 1 million mortgage with a 25 year term This is not a huge dent Ji said Thanks to the HKMA s curbs on banks mortgages as a percentage of home values have dropped to 58 percent the lowest level in 16 years At the same time the average duration of home loans increased to more than 26 years in 2017 from just over 18 years in 2001 according to data from mortgage broker mReferral
Inflation s Role
Persistently low yields on bank deposits are encouraging investors to look for higher returns to offset inflation according to JPMorgan s Cusson Leung head of property research for Greater China If consumers feel that bank savings deposits are losing their purchasing power on the back of rising inflation they may well deploy that money to buy a hedge property Leung wrote in a January report Gains in Hong Kong s consumer prices are forecast to accelerate in 2018 and 2019 from last year s levels according to a Bloomberg survey of analysts
Bargain Hunting
Hong Kong s 14 year bull market for property means any decline in prices is seen by many as an opportunity to buy leading to shorter and shallower corrections said Deutsche Bank DE DBKGn AG s Michael Spencer
It comes down to having people accustomed to the idea that Hong Kong is a very expensive market and a 10 to 15 percent correction looks like a bargain even with interest rate hikes said Spencer the bank s Asia chief economist |
JPM | Big banks cut price research puts the squeeze on small brokers | By Tom Pfeiffer and Simon Jessop
LONDON Reuters Big banks have been offering deep discounts on the research they offer fund managers since the start of new European market transparency rules this month raising doubts over the future of smaller securities firms
Companies providing such research must now give a transparent breakdown of their charges for their work under the MiFID II rules that went live on Jan 3 so reports that were previously bundled in with other services can less easily be used as an inducement to sell other products
The result brokers and asset managers say is that fund managers are reducing their budgets for external research by 20 40 percent with some dropping about a quarter of their brokers and planning to do more of the analysis themselves
In response some of the big investment banks have offered massive discounts on bundles of research to maintain relationships that can be profitable in other ways
Research priced a year ago at hundreds of thousands of pounds is now being offered for 5 10 percent of that said Neil Robson a partner at law firm Katten Muchin Rosenman which advises funds and broker dealers on regulatory compliance
Managers who agreed fees last year will be smarting that they are paying too much In most cases it will be renegotiated said Robson pointing to discrepancies in what different brokers are charging for different kinds of research
JP Morgan N JPM has offered some clients online access to its written stock research for 10 000 a year but will charge considerably more for additional services such as conversations with analysts said a source familiar with the offering
Other banks are asking for up to 50 000 for similar access according to the head of research at a major European bank
SQUEEZED OUT
You re likely to end up with a bar bell distribution of bulge bracket banks and true specialists with middle sized brokers squeezed out because they can t afford to subsidize equity research the head of research said
Another big European bank views some of the deals on offer as price dumping and plans to collect email evidence to send to Britain s FCA financial markets regulator a source at that bank told Reuters
A person familiar with the FCA s thinking told Reuters that the regulator could deem research priced substantially below cost as a breach of the rules but it would be likely to depend on the details of each case
More of a concern would be if banks were charging a below cost price as an all in fee including personal time with analysts rather than only for written research the source said
A JP Morgan spokesman declined to comment Five of its investment bank rivals contacted by Reuters declined to specify a floor price for written research
The FCA is expected to let some time pass before taking any action on the fallout from MiFID However Russell Napier co founder of independent research provider Electronic Research Interchange ERIC said that some research firms could go bust before that
It s dangerous for the regulator to stand back and let quite a lot of independents go bankrupt because there s a risk you form an oligopoly in the provision of research he said
CHANGING BUSINESS MODELS
In a sign of the strains on some firms such as falling research revenue rising compliance costs and pressure to cut broking commission small stockbroker Arden said last week that it was willing to merge with a rival after turning around its business saying the broking industry was in need of further consolidation
Some brokers have shifted to a model of free research paid for entirely by their corporate clients as part of a broader advisory relationship They also plan to write less detailed reports about non corporate clients in the same sector partly in an attempt to secure advisory work from them
Whether that is viable will depend partly on how strictly regulators interpret the MiFID rule allowing free research for non corporate clients provided that it brings only a minor non monetary benefit to the issuer
SP Angel a UK based brokerage with six analysts covering three sectors said it moved to a free research model paid for by corporate clients three months ago
The big boys have been trying to undercut everyone else said partner and head of research John Meyer We didn t want fund managers switching us off
Meyer said that SP Angel s work risks being dumbed down now that MiFID bars brokers from issuing free research that contains investor recommendations on non corporates
Fund managers are also voicing fears of a hit to the quality of research and corporate access to financial markets
If fund managers drop brokers that handle only a small number of their stocks to cut costs then the brokers will come under pressure from corporate clients said Nick Burchett Cavendish Asset Management s head of UK equities
Without that access companies will look elsewhere to find someone who can put them in front of investors he said
1 0 7186 pounds |
JPM | New Ocado ecommerce deal turns screw on bearish hedge funds | By Simon Jessop
LONDON Reuters Hedge funds which have bet on a fall in the share price of Ocado LON OCDO will have taken a hit after the online retailer unveiled a new international technology deal which sent its stock up by more than a fifth
Canadian retailer Sobeys SOBEF UL has agreed to use Ocado s e commerce technology to expand its online business It follows a similar deal in November between Ocado and French rival Casino that also helped to boost Ocado s shares
Ocado was a favored as a short bet amongst hedge funds throughout 2017 partly because of divergent views among investors over whether the company is a food retailer or a technology provider able to command a high valuation
Short selling occurs when a fund borrows shares and sells them hoping to buy them back at a later date for a lower price before returning them and booking a profit
According to market data provider Astec Analytics around 10 percent of the company s shares are held by short sellers
The number of Ocado shares out on loan had fallen by around a quarter from a mid November high of around 85 million before the Casino deal was announced to around 60 million heading into the weekend data from Astec Analytics showed
But a number of hedge funds were still heavily invested with around 60 percent of the shares that had been put up for loan by pension funds and other long term investors actually out on loan to hedge funds the data showed
Regulatory filings up to the close of business on Friday showed 10 funds had short positions in Ocado shares in excess of 0 5 percent of its issued share capital the level at which British finance industry regulator the Financial Conduct Authority requires disclosure
Funds also have to make a public announcement for every 0 1 percent increase or decrease above that level
The biggest position heading into Monday was held by Discovery Capital Management with 3 1 percent the FCA said
Other big holders included GMT Capital Corp with a 2 3 percent short position Marshall Wace with 1 7 percent and JPMorgan NYSE JPM Asset Management with a 1 1 percent position the FCA data showed
The shares have surged from 2 38 pounds in November to close last week at 4 13 pounds a rise of some 74 percent David Lewis at Astec Analytics said
Short sellers who had made substantial sums on the rollercoaster like performance of the company s share price have been hurriedly closing out of their positions as the shares recover
With so many shares out on loan any positive news has the potential to spook funds into trying to buy back the shares fuelling share price gains in what is known as a short squeeze
At 1445 GMT shares in Ocado were up 20 percent
If every fund with a short position in Ocado tried to exit the trade at the same time it would take around 24 7 days based on the average daily traded volume in the shares the Astec Analytics data showed |
JPM | BOJ to sound cautious optimism on inflation keep policy unchanged | By Leika Kihara TOKYO Reuters Japan s central bank is set to keep monetary settings unchanged on Tuesday and offer a cautiously optimistic view on the inflation outlook nodding to expectations that a strengthening recovery and a tightening job market may prompt firms to lift wages But Bank of Japan Governor Haruhiko Kuroda will seek to dispel market speculation of an early withdrawal of stimulus by reminding investors at his post meeting briefing that inflation remains distant from his 2 percent target analysts say The yen s recent gains if they persist may also keep BOJ officials from openly debating a future exit from crisis mode policies as a weak currency and a rise in exports have been among the key drivers of Japan s recovery I don t think the BOJ is worried about current dollar yen levels Its key concern is the risk of triggering a big market reaction when it starts to signal a hike in its yield targets said Hiroshi Ugai chief Japan economist at JPMorgan NYSE JPM Securities The BOJ probably wants to spend more time looking at wage and price developments so I doubt Kuroda will send any signals on the future policy path this time he said At the two day meeting ending on Tuesday the BOJ is seen maintaining a pledge to guide short term interest rates at minus 0 1 percent and 10 year bond yields around zero percent It will also likely keep intact a loose pledge to buy government bonds so its holdings increase roughly at an annual pace of 80 trillion yen 722 billion NO COMPLACENCY Brightening global growth prospects are offering fresh communication challenges for policymakers The BOJ the Federal Reserve and the European Central Bank are all grappling with how to exit extraordinary policy steps without scaring investors accustomed to years of massive cheap money Japan got a taste of the challenge when a cut in the BOJ s bond buying pushed up global yields and Kuroda s positive remarks on the economy drove the yen to a four month high With exports booming from robust global demand the BOJ is seen slightly raising its growth forecast for the fiscal year beginning in April from a projection of 1 4 percent made three months ago according to sources familiar with its thinking In the quarterly review the central bank will roughly maintain its price forecasts for coming years and stick to its view that inflation will hit 2 percent by March 2020 they say Sources say the nine member board may also debate offering a slightly brighter view on inflation expectations than the existing assessment which currently describes expectations as being on a weak note Japan s economy expanded for the seventh straight quarter in July September and business confidence hit a 11 year high on robust exports and capital expenditure Core consumer prices rose for the 11th straight month in November and the percentage of households expecting inflation to accelerate hit a nearly two year high in January adding to signs Japan may be emerging from two decades of deflation
But BOJ policymakers are hardly complacent and warn that an index of consumer inflation that strips away the effect of fresh food and energy still at 0 3 percent must accelerate more before any debate on withdrawing stimulus could begin |
JPM | JPMorgan rolls out 20 billion investment plan after tax gains | By Sweta Singh and David Henry Reuters JPMorgan Chase Co N JPM unveiled a 20 billion investment plan on Tuesday to hike wages hire more open new branches and expand its business as it takes advantage of sweeping changes to the U S tax law and a more favorable regulatory environment The bank joined several other U S companies that have already announced spending plans after the federal tax overhaul was signed into law in December bringing lower corporate rates and other changes In the most explicit use of tax savings announced by any major bank JPMorgan said it would raise wages for 22 000 employees by an average of 10 percent to between 15 and 18 per hour hire 4 000 employees and add up to 400 Chase branches The five year plan comes after Chief Executive Jamie Dimon s push to ramp up investment in businesses as the bank has finished the majority of work needed to clean up troubled home mortgages and comply with tougher capital requirements following the 2007 2009 financial crisis The largest U S bank by assets will also increase small business lending by 4 billion and increase loans to customers seeking affordable homes by 25 percent to 50 billion Analysts expect JPMorgan to save about 4 billion a year on taxes because of the new law but have worried that banks would quickly compete away the savings to take business from one another Dimon has acknowledged some of that will happen but to varying degrees and at different rates in the bank s assorted business lines He had set the stage for Tuesday s announcement in a post earnings conference call on Jan 12 when he said new spending would eat into the bank s tax savings but enhance future growth It isn t like a giveaway he said on the call Some analysts have described the bank s aggressive moves in credit cards and commercial lending as examples of a strategy Dimon is pursuing to use financial strength to take business from competitors JPMorgan is first or second in market share in many of its businesses That has made Dimon think that regulators would not allow it to make acquisitions to become bigger out of concern for risk to the financial system In a statement on Tuesday Dimon said having a healthy strong company allows us to make these long term sustainable investments The bank will also increase community based philanthropic investments by 40 percent to 1 75 billion over five years it said JPMorgan employed 252 539 people worldwide at year end some 134 117 of which work in Chase consumer businesses which include the branch small business and mortgage operations that are the focus of the new spending and hiring
JPMorgan s shares were down 0 03 percent 114 30 shortly after the market opened in New York The stock had risen nearly 37 percent in the past 12 months through Monday outperforming the S P 500 index s 25 percent increase |
C | Mexico airport seeks at least 2 billion on international road show sources | Reuters Mexico City airport authorities are meeting with international investors this week in a bid to raise upwards of 2 billion through a U S dollar denominated debt issue to help finance a new 13 billion airport people familiar with the matter said While maturities have not yet been fixed the two people said bonds are likely to mirror last year s 2 billion September bond issue which included a 10 year and a 30 year bond IFR a Thomson Reuters service reported last month that the roadshow would include stops in London Boston New York and Los Angeles adding that Citigroup NYSE C HSBC and JP Morgan would act as global coordinators One of the sources said airport authorities also visited Singapore and Hong Kong last week to discuss the issue The airport project unveiled in 2014 by President Enrique Pena Nieto is slated to serve some 68 million passengers annually by the time it opens in 2020 and make Mexico City a regional hub |
C | Markets Rebound As Beijing Pledges Support | Equities are rebounding on Tuesday after recovering from Monday s China inspired sell off Soft data from China sent stocks reeling in the previous session as traders were unable to shake off slowing growth fears Today s bounce comes following a pledge of more supportive measures from Beijing to stabilise the slowing Chinese economy The move has boosted sentiment sending Asian markets higher and European and US futures northwards With risk back on the table equities are back in favour whilst the yen is moving lower
The gains in Asia and the move higher in European US futures come despite declines on Wall Street overnight as US earning season kicked off Whilst tech stocks led the S P 500 lower financials outperformed thanks to Citigroup NYSE C Citigroup reporting EPS above expectations and saying the trading environment was starting to improve was enough to impress the bulls
Pound Higher Ahead of Brexit Vote
The pound is moving higher in early trade ahead of the Brexit vote in Parliament It will take a small miracle for Theresa May to get this deal over the line Brussels have stood firm refusing to offer anything other than warm words to Theresa May as she heads to the Parliamentary show down With no further reassurances over the Irish backstop there has not been the change in tide that Theresa May needed
The broad expectation is that Theresa May will lose the vote and by a significant majority With this we could expect a knee jerk sell off in the pound until the next steps or Plan B are given
Plan B is unlikely to mean a no deal Brexit Renegotiation and an extension of Article 50 is looking much more likely The extension is significantly more pound friendly than a no deal Brexit An extension boosts hope of further negotiations with Brussels a different agreement such as the Norway style or it could result in eventually no Brexit All of these of possibilities beat crashing out of the EU with no deal which explains why the pound has perked up over the past few sessions
Whether the pound can perk up after a large defeat for Theresa May depends on how quickly Plan B is put forward and also how the opposition party acts An aggressive push from Labour towards a general election or second referendum would also impact on the pound
Original post |
JPM | This Big Bank Is Flashing An Epic Breakdown Alert | JPMorgan Chase Co NYSE JPM pulled back last week as yields have fallen sharply on the horrible jobs report Remember that since Dodd Frank banks are not able to make the same money they used to and must now rely on loaning money And that means higher interest rates are very important for bank stocks The lower interest rates go the lower financial stocks will go
As noted on the chart below JPM is showing weakness having fallen into a key trendline As long as this trendline holds the stock is not in freefall But if it closes below that line a breakdown will occur that will take JPM to 59 30 then 53
Watch this line carefully as it s an epic level that every investor should be following |
JPM | 4 Emerging Markets Bond ETFs On The Radar Now | Emerging market bond ETFs are getting a lot of attention amid renewed concerns over global economic growth potential Brexit from the European Union and a roller coaster ride of oil prices read Given the turmoil in the global markets and low yield all over the world income starved investors are chasing better returns On Friday June 10 2016 10 year note yields dropped to 1 639 the lowest level in the last three years Meanwhile government bond yields in Japan Germany and the U K also touched record lows as of June 10 2016 In such a situation investors craving for a steady current income is not surprising One space that offers solace is emerging market bonds because of its solid yield Fading hope of frequent Fed hikes this year has injected fresh optimism into the emerging markets Although the Federal Reserve Chair Janet Yellen stated earlier this month that the U S economy was making progress she remained silent on the timing of the impending interest rate hike This coupled with shockingly downbeat job data for the month of May has led to speculations that a June rate hike is in all possibility off the table read Emerging market bond ETFs offer compelling yields Additionally these funds look more attractive thanks to the recent struggles encountered in the U S and other developed nations Also emerging market bonds and their related ETFs provide investors greater protection to capital gains than emerging market equities Keeping this in mind we highlight four emerging market bond ETFs that often offer high yields see iShares JPMorgan NYSE JPM USD Emerging Markets Bond AX EMB This ETF tracks the performance of J P Morgan EMBI Global Core Index It currently holds 310 securities with average years to maturity of 11 10 and an effective duration of 7 08 years Mexico Russia and Indonesia are the top three countries About 56 of the bonds are rated BBB or higher The fund has amassed 6 9 billion in its asset base and charges 40 bps in fees per year It trades in a good volume of more than 1 3 million shares a day on average and has a good yield of 4 34 in annual dividend The ETF has gained about 1 6 in the last 10 days as of June10 2016 PowerShares Emerging Markets Sovereign Debt ETF TO PCY This 88 securitiy ETF includes bonds issued in approximately 22 emerging market countries and tracks the DB Emerging Market USD Liquid Balanced Index The fund has an asset base of 3 2 billion and charges 50 bps in fees The fund s effective duration is 8 67 years while its years to maturity are 14 55 Around half of the bonds are rated BBB or higher The product yields 5 26 annually and has added 1 9 in the last 10 days as of June 10 2016 Market Vectors Emerging Markets Local Currency Bond ETF This fund tracks the J P Morgan GBI EMG Core Index It holds 222 securities in its basket with a modified duration of 4 92 years and average years to maturity of 7 22 In terms of country exposure Poland 9 5 Mexico 8 7 and Brazil 8 5 occupy the top three spots About 72 of the portfolio is focused on investment grade bonds with BBB or higher ratings EMLC is a popular ETF in the local currency emerging bond space with AUM of over 1 5 billion and average daily volume of 777 000 shares It charges 47 bps in annual fees and has gained 2 2 in last 10 days as of June 10 2016 Additionally the product has an excellent dividend yield of 5 52 per annum read
SPDR Barclays LON BARC Capital Emerging Market Local Bond ETF This product tracks the Barclays EM Local Currency Government Diversified Index In total the fund holds 298 securities with an average maturity of 7 40 years and modified adjusted duration of 5 36 years In terms of credit quality it focuses on bonds having Baa or higher ratings with almost 85 weight South Korea 12 6 and Brazil 11 9 take the top two spots EBND has AUM of 177 8 million and average daily volume of 65 000 shares Expense ratio comes in at 0 50 The fund is up over 1 8 in the last 10 days as of June 10 2016 and has a 4 38 30 Day SEC yield |
JPM | Hunting For Income Among Bank Stocks | As I mentioned last week with danger lurking among MLPs and real estate income investors are increasingly looking elsewhere And that includes a tried and true dividend generator the banking sector
But beware Not all of them represent good income investments
Large banks are now over regulated and could be caught up in an international crisis
Meanwhile small and medium sized banks face some headwinds
For example credit scoring risk management asset and liability management and other banking essentials all require a substantial investment in IT systems and the people who manage them And those investments aren t cheap putting a dent in smaller banks smaller profits
Furthermore local banks are subject to the vagaries of that particular locality The bankruptcy of a single large employer can cause credit difficulties among that employer s staff as well as its suppliers and service providers
However for larger banks the economies of scale aren t there They tend to involve themselves in investment banking business which involves a level of risk management that many banks have failed to master Just look at JP Morgan Chase NYSE JPM s losses in 2012 on the London Whale trading business
The standard benchmark for bank profitability used to be a 10 return on equity Nowadays regulators usually force banks to hold more equity than before reducing returns
With long term interest rates around 2 a 10 hurdle rate is now far too high And it implies an equity risk premium of 8 rather than the historically normal 4 to 5 So if you benchmark banks at a 7 return on equity some bank stocks are undervalued
You want a nice cushion in a bank s earnings to ensure that when problems arise the bank doesn t fall into trouble
The Top Contenders
As income investors we re interested in a high dividend yield Accordingly I ve looked at all the banks with a dividend yield of 4 or more
Many such banks have very low returns on capital Indeed some pay dividends in excess of net income So I ve further limited our search to banks with a net return on equity of 7 or more
Surprisingly this rules out more than half of the high dividend banks indicating that the sector is failing to earn an adequate return
Some of the largest banks also tend to repurchase shares further limiting our options This is a shareholder hostile tactic in an industrial company and even more so at a bank where adequate capital in a recession is the key to survival
The two highest yields on U S bank stocks are foreign behemoths HSBC Holdings LON HSBA and Lloyds Banking Group LON LLOY both of which yield more than 5
However Lloyds return on capital is a measly 1 while HSBC Holdings has a return on capital that only just meets our 7 criterion Given the additional risk of holding these foreign behemoths I suggest passing on them
The highest dividend available on a bank that meets our criteria is the 4 8 from PacWest Bancorp NASDAQ PACW PacWest is based in California where it has 80 branches It also has one branch in North Carolina
It has a return on equity of 7 9 and assets of 21 billion Its 0 50 quarterly dividend is covered about 1 4 times by earnings and it s trading at a reasonable 1 1 times book value and 14 7 times earnings
There are three other banks with dividend yields above 4 and returns on capital above 7 that also appear potentially attractive
Oritani Financial Corp NASDAQ ORIT has an attractive return on capital of 10 6 and yields 4 2 covered 1 8 times It has assets of 3 3 billion 25 branches in New Jersey and two lending offices in New York Oritani trades on a price to earnings P E ratio of 12 9 times and at 1 3 times net asset value
TrustCo Bank Corp NY NASDAQ TRST has an attractive return on capital of 10 2 and yields 4 covered 1 6 times TrustCo has assets of 4 7 billion and 145 offices in New York New Jersey Vermont Massachusetts and Florida It trades on a P E of 14 9 times and at 1 5 times net asset value
Park National Corp NYSE PRK has a very attractive return on capital of 11 2 and yields 4 covered 1 4 times It has 116 offices and 140 ATMs in Ohio and northern Kentucky Park National trades at a P E of 18 1 times and at two times its net asset value
Finding solid income investments in today s current market environment can be daunting but it s not hopeless Know where to look and tread carefully |
MS | Banks fall out of love with emerging markets | By Gareth Gore IFR Emerging markets are fast losing their shine for the world s biggest investment banks Faced with falling fees from fewer deals and bleak prospects ahead many have put the brakes on a decade long expansion with some cutting jobs and shutting offices Subdued deal activity has meant there are fewer dollars for banks to fight over fees in the first quarter were 18 percent down on a year earlier at just under 3 billion according to data compiled by Thomson Reuters and Freeman Consulting It s the second worst start to any year since the crisis after 2012 But unlike in 2012 when activity quickly snapped back after a poor start to the year bankers fear activity will remain subdued for a prolonged period Many are overhauling their operations to ensure they remain profitable in a more sluggish environment EM is tough at the moment the whole sector is facing challenges recessions politics sanctions oil prices said Chicco di Stasi head of emerging markets at UBS A lot of investors are staying on the sidelines appetite is quite low EM once offered investors a bit of extra yield but dislocations in other markets such as high yield and contingent capital means they can find similar yields elsewhere without political and other risks that come with EM he said It has created illiquidity The Swiss bank one of the top EM fee earners last year has responded to the slowdown by restructuring its business It plans to create a new EM financing division that will bring together debt equity and loan bankers who currently sit in different parts of the business Di Stasi hopes what he calls the EM financing hub will spawn more cross product and creative solutions to help UBS win a bigger share of the fewer deals coming to market OFFICE CLOSURES Others have responded by closing overseas offices flying in bankers only as and when required in a bid to bring down costs Deutsche Bank DE DBKGn has shut most of its Latin America offices while Barclays LON BARC has reduced its Asia physical presence from 12 to five countries Both have shut investment banking operations in Russia The moves mark a shift in the attitude of banks toward EM For years many threw money at regions such as Asia despite high costs and low returns A trebling of the fee pool to over US 17bn in the decade running up to 2014 and a promise of more to come helped justify that But fees could fall below 13 billion this year if current levels of activity persist putting pressure on bosses to cut costs Almost all global banks earn less in EM fees than they did before the crisis Thomson Reuters data shows Less than 10 years ago every investment bank was talking about expanding in the BRIC countries said Riccardo Orcel deputy CEO of Russian bank VTB MM VTBR We have now got to a point where almost everyone is retrenching According to bankers although the longer term potential remains for EM the cost of continuing to operate during leaner times is just too much at a time when group wide returns are suffering Global banks have gradually realized they can t serve clients across every geography and product it requires too much capital and infrastructure said Orcel The retrenchment of global banks is playing into the hands of some local players which have no option but to stay put Although VTB has cut its presence outside Russia it says it has won some big mandates at home that previously would have gone to larger global rivals EM focused HSBC L HSBA says it too has benefited from the pullback of rivals Last year it was the top EM fee earner globally pulling in 500 million It was 10th in 2007 Asia is our heartland and we still see strong opportunities in the region said Stephen Williams head of capital financing for Asia Pacific at the bank The competitive environment is certainly moving more in our favor BARREN QUARTERS The problem for banks that rely mainly on investment banking fees in EM is that deals are notoriously lumpy making a barren few quarters very painful indeed Those with more diversified operations in EM including for instance retail banking say they feel less pain If you have a broad set of businesses with cross selling potential then you can make local investment banking presence work but if you are reliant on a couple of investment banking products local presence can be costly said Enrico Minniti head of corporate and investment banking for Central and Eastern Europe at UniCredit MI CRDI UniCredit has a significant retail presence in countries such as Hungary Romania Russia and Serbia with 2 500 branches across Central and Eastern Europe Still banks are trying to hang on where they can If banks exit markets when business experiences a cyclical drop their prospects for participating in future transactions are substantially diminished said Vikas Seth EM investment banking head at Credit Suisse S CSGN We have to work harder and be more creative to originate and close transactions in this challenging environment It isn t all bleak While equity fees fell by a third in the first quarter and loan and advisory fees slumped more than 25 bond fees rose Chinese ECM follow on activity was strong too although most of the resulting fees went to domestic Chinese banks the top 10 global EM fee table year to date includes the six Chinese banks that dominate local ECM transactions largely bypassing global players Yet some bankers are optimistic activity will snap back Even in the medium term some see fresh fees coming out of commodity restructurings continued outbound deals from China the opening up of Argentina and big ticket IPOs coming from big clients such as Saudi Aramco One deal could be the difference between profit and loss
Things will come back said Gergely Voros EM investment banking head for EMEA at Morgan Stanley N MS You can t look at your business on a one year horizon Long term there are many opportunities and we have to remain in position to act on them |
MS | Brocade to buy Ruckus Wireless in 1 5 billion deal | By Abhirup Roy
Reuters Network gear maker Brocade Communications Systems Inc O BRCD said it would buy Ruckus Wireless Inc N RKUS in a 1 5 billion deal aiming to tap into the growing demand for Wi Fi access over large areas such as offices and stadiums
Ruckus which counts the Marriott group and the Angel baseball stadium in Los Angeles among its customers makes controllers and access points that help businesses offer high speed Internet to their customers
Based on Friday closing prices the deal values Ruckus at 14 43 per share a premium of 44 percent
Ruckus shares were trading at 13 in morning trading on Monday while Brocade dropped 15 percent to 9 04
Net of Ruckus s cash on hand the deal value is about 1 2 billion the companies said
Macquarie Research analyst Rajesh Ghai said the deal made sense as the companies offered complimentary products and would provide Brocade with some more ammunition to expand into the services industry
Ghai added it was unlikely that a second bidder would emerge
Ruckus stockholders will get 6 45 in cash and 0 75 share of Brocade common stock for each share held The cash portion of the deal will be funded with cash on hand and a new loan the companies said
The reaction of Brocade s stock and their decision to offer a high mix of stock in this transaction despite clearly having enough cash for the deal opens up the door for a competitive bidder BTIG wrote in a note to clients
San Jose based Brocade also raised its share buyback program by 800 million taking the total remaining under the existing program to about 1 7 billion
The company said it expected the deal to add to its adjusted earnings by its first quarter of fiscal 2017
Chief Executive Selina Lo will continue to lead the Ruckus business reporting to Brocade Chief Executive Lloyd Carney
Evercore was Brocade s financial adviser and Paul Hastings LLP was legal counsel Morgan Stanley NYSE MS was financial adviser for Ruckus and Sullivan Cromwell LLP provided legal advice
Up to Friday s close Brocade shares had fallen 9 5 percent in the past 12 months while Ruckus shares had dropped about 22 percent |
MS | Disney expands search for new CEO COO Staggs leaving | By Lisa Richwine
LOS ANGELES Reuters Tom Staggs the veteran Walt Disney Co executive who had been widely seen as the media company s next CEO will step down on May 6 as the board expands its search for a successor to Bob Iger Disney said on Monday
The unexpected move came little more than a year after Staggs had been promoted to chief operating officer and about two years before Iger Disney s chief executive and chairman is due to retire
A source with knowledge of the situation said Staggs 55 had learnt he was not guaranteed the CEO job and that the board was going to broaden its search for a new leader Staggs and the company mutually decided he should step down said the source who requested anonymity because the reasons were not announced
Disney which operates television networks theme parks and a movie studio said in a statement that the board aimed to evaluate a robust slate of candidates
Iger has led Disney to record profits and executed successful acquisitions of Pixar Marvel Entertainment and Star Wars producer Lucasfilm Ltd But he recently acknowledged subscriber declines at Disney s sports network ESPN raising concern among investors about how the channel would adapt to online streaming technology that is rapidly drawing viewers away from traditional TV
Disney s board may have decided the company needs a new CEO with more experience in technology to navigate that change Edward Jones analyst Robin Diedrich said in an interview
How do you transition to that five 10 15 years out said Diedrich who recommends buying Disney shares There may be a need there for someone who has more experience with that consumer trend that is certainly here to stay
Facebook NASDAQ FB Chief Operating Officer Sheryl Sandberg who sits on the Disney board has been seen as a potential CEO candidate Facebook declined to comment
Iger 65 has insisted that he would retire from Disney in June 2018 though the board previously convinced him to extend his contract twice after he announced plans to leave
Disney s shares fell 1 5 percent to 97 18 in after hours trading on Monday
The company promoted Staggs to COO in February 2015 from his post as head of Disney s theme parks and resorts and following a previous stint as chief financial officer While Disney never referred to him as the heir apparent his move into the No 2 job put him in the lead to ascend to CEO One of his biggest projects was the building of Shanghai Disneyland which is scheduled to open in June
Staggs will remain employed by Disney as a special adviser to Iger through the company s fiscal year which goes through September Disney said He joined Disney in 1990 after working in investment banking at Morgan Stanley Co NYSE MS
CFO Jay Rasulo who had been seen as Staggs chief rival for the top position said last June that he would step down |
MS | Morgan Stanley aims to double custom loans for wealthy clients | By Olivia Oran Reuters When a founder of a tech startup wants to buy a home but has all his money parked in illiquid stock or a pro athlete wants to buy a Porsche but has not yet received his guaranteed payout Morgan Stanley NYSE MS wants to be the lender they turn to In fact the bank wants to double the size of these custom loans to 10 percent of its loan book up from about 5 percent today Eric Heaton president of Morgan Stanley s U S banks told Reuters in an interview The idea is to strengthen ties with wealthy individuals so they will be more inclined to use Morgan Stanley for other services whether that is managing their investments selling a business or taking one public Morgan Stanley has been lending more since acquiring the Smith Barney brokerage business from Citigroup Inc NYSE C It had almost 200 billion worth of loans at year end quadruple its size three years earlier Until recently Morgan Stanley has not focused much on what it calls tailored lending because it s a niche business only 20 000 of the bank s more than 3 million clients qualify for such loans by having a minimum of 10 million in investable assets Morgan Stanley first focused on the simpler less lucrative business of lending against wealth clients investment portfolios as well as mortgages and merger financing It is now turning to tailored loans because they have high profit margins and perhaps more importantly because it s a good way to encourage wealthy clients to do more business with Morgan Stanley This isn t a one off initiative to grow the bank it s an important piece said Heaton Though he declined to give a timeframe for reaching the 10 percent target Morgan Stanley has been laying the groundwork for some time In 2014 it hired Marcus Mitchell from Deutsche Bank AG DE DBKGn to oversee its tailored lending build out A year ago the bank started making loans with museum quality art as collateral More recently it began lending against stock in privately held companies and is now looking toward other offerings including loans against private aircraft Tailored lending is just one component of Morgan Stanley s broader lending goals Management has set its focus on loans as a key source of revenue growth as the bank struggles to generate a return on shareholder capital of 9 to 11 percent by 2017 That goal set by Chief Executive James Gorman has been elusive because of hard luck in other businesses particularly fixed income trading Morgan Stanley is not the only bank facing these challenges Although most rivals have been producing better returns near zero interest rates have broadly weighed on profits because they diminish the money banks can earn investing idle cash in securities That means competition to lend to the most attractive borrowers is stiff And when it comes to tailored lending risks can be hard to manage said Portales Partners analyst Paul Gulberg This type of lending carries idiosyncratic risk he said Your risk is against mispricing something because you are working with products that are very unique HIGH MARGINS Morgan Stanley says it hires outside appraisers to assess values of one of a kind items it lends against The bank believes tailored loans are worth the risk partly because they tend to have higher margins than traditional loans like mortgages Mitchell said in an interview Mitchell would not say what margins Morgan Stanley earns on tailored loans but because clients often need financing in a pinch and because the loans have unique risk profiles banks have more leeway in charging higher rates A private banking executive at another firm said that very unusual tailored loans can deliver margins of eight percentage points but that the types of loans Morgan Stanley is offering likely have much lower margins By comparison mortgages tend to have a margin of around 1 percentage point analysts said Morgan Stanley currently lends out about 50 billion of its 149 billion in deposits within wealth management and is targeting 60 billion by the end of 2017 Tailored loans account for roughly 4 5 billion of that compared with 21 billion in mortgages Morgan Stanley is also looking to expand into other types of lending For instance late last year it began extending loans to private equity funds that need cash for investments between the time investors commit capital and deliver hard cash
These so called capital call subscriptions come with a special risk too that investors may not send the money they promised Heaton said the risks are low and the business is profitable |
MS | U S weakens retirement advice rule responding to industry | By Suzanne Barlyn and Lisa Lambert WASHINGTON Reuters A new U S rule aimed at protecting retirement savers from profit hungry brokers turned out to be much weaker than an initial proposal after the Obama administration bowed to pressure from the financial services industry The rule announced by the Department of Labor on Wednesday sets a so called fiduciary standard for financial brokers who sell retirement products requiring them to put clients best interests ahead of their bottom line The language is tougher than an existing rule that only requires brokers to ensure products are suitable However the Labor Department did compromise with the industry on a range of provisions Unlike the draft proposal the final rule does not restrict brokers from pushing proprietary products splitting revenue with creators of funds they promote or recommending risky high fee investments in alternative assets and certain annuities Brokers also got more time to implement the changes which they said were costly and difficult The rule will now take full effect on Jan 1 2018 compared with an eight month compliance deadline in the Labor Department s initial proposal Nonetheless brokers will now be covered by a fiduciary standard said Massachusetts Senator Elizabeth Warren a consumer advocate who helped shine a national spotlight on the proposal last year There s no doubt there is some risk Warren a Democrat said in an interview On the other hand the Department of Labor was not looking to put all proprietary products out of business Warren said The goal is to make sure there is adequate regulation said Warren adding that she now believes there will be Democratic presidential front runner Hillary Clinton issued a statement in support of the new rule saying it will stop Wall Street from ripping off families and save seniors billions However Knut Rostad an investor advocate who chairs the Institute for the Fiduciary Standard said he was disappointed that the final rule was not tougher calling it a major defeat for investors period Some leading Republican lawmakers also expressed continued opposition to the rule saying it would prevent low and middle income Americans from saving for retirement or getting access to advice Several major brokerage firms said they needed time to review the implications but that they generally supported the idea of a best interest rule Industry trade groups reiterated concerns that the rule could have negative effects But several Wall Street analysts who cover brokerages insurers and mutual fund companies affected by the rule said it turned out to be much less onerous than initially feared Shares of brokerage mutual fund and life insurance companies showed little reaction to the news The Labor Department meaningfully softened the rule Morgan Stanley NYSE MS insurance analysts said characterizing it as good news for those companies impacted Wednesday s announcement caps a fierce six year battle involving the Labor Department Wall Street and many U S lawmakers The Department received more than 3 000 letters about the rule and took part in more than 100 meetings It first issued a proposal in 2010 but rescinded it the following year in response to an enormous industry backlash A second proposal issued last year also faced criticism Firms have said the rule would raise compliance costs and therefore fees and force them to get rid of Main Street clients and small businesses that offer 401 k plans The Labor Department said complying with the rule would cost the brokerage industry up to 31 5 billion over the next decade but produce even bigger gains for investors Some lawmakers said the Labor Department should hold off until the U S Securities and Exchange Commission finalizes its own fiduciary rule which it has been crafting for years SEC Commissioner Michael Piwowar expressed opposition to the final rule on Wednesday PRIORITY FOR OBAMA President Barack Obama had made a new fiduciary rule a priority for his administration In a speech at AARP headquarters last year he said Wall Street brokers were bilking retirees out of billions of dollars in savings through hidden fees and that he intended to ensure the industry put clients interests first If expecting retirement advisers to act in their clients best interest sounds like it s pretty obvious and it s pretty obviously the right thing to do it s because it is Jeff Zients director of the White House s National Economic Council said in a call with reporters Although the final rule did include the best interest provision it made plenty of concessions For example the draft listed types of assets that advisers could recommend to steer retail investors away from certain high risk products The final version eliminates that list mostly in response to the financial industry s concerns the Labor Department said Brokerages and lawmakers were also concerned about an earlier requirement that brokers sign contracts with clients at initial meetings The document was to include investment projections fee disclosures and other detailed information The contracts are required in the final rule but can be as short as a paragraph signed later and tucked into paperwork that customers sign when opening new accounts Labor Secretary Thomas Perez said The final version also loosened guidelines on pay allowing advisers to collect common types of compensation such as commissions and revenue sharing where brokerages receive payments from mutual fund companies to help promote products |
MS | Asia forex gloom lifts on dollar retreat and dovish Fed Reuters poll | By Sumanta Dey
BENGALURU Reuters Emerging Asian currencies are set to weaken further in the coming year but not as much as thought a few months ago as expectations the U S Federal Reserve will raise interest rates more cautiously hold back the dollar a Reuters poll showed
Still with many Asian central banks continuing to ease policy the consensus from over 60 analysts polled by Reuters this week was for regional currencies to weaken 2 6 percent by this time next year with the Malaysian ringgit leading the pack
With the Fed delivering a dovish message Asia FX may continue to perform in the short term We reckon however that the strength is unlikely to hold through the year and expect some weakness to return analysts at Citi wrote in a note
China s yuan has been one of the main sources of global financial market turmoil since last August when the People s Bank of China devalued it in an attempt to support economic growth as risks of a sharp slowdown began to mount
The year got off to a volatile start for emerging markets with the Chinese currency sliding again but since then Asian currencies have found their footing
That happened in part when Beijing tried to calm investors by fixing the yuan higher in rapid succession along with better economic data in developed economies particularly the United States that swung sentiment back in favor of riskier assets
But the closely managed yuan also known as the renminbi is expected to fall further Median forecasts from a poll of 65 strategists are for it to ease to 6 58 per dollar by end June and 6 70 by end March in 2017 about 3 percent weaker from 6 47 on Thursday
Only last month the consensus was for it to fall more than 3 5 percent in 12 months
Beijing has had to burn through almost half a trillion dollars to support the yuan since the middle of last year Policymakers have insisted they see no reason for the yuan to depreciate further which has helped stem huge capital outflows and calm investors
Morgan Stanley NYSE MS strategists noted a one off devaluation is unlikely considering the potential risks likely far outweigh the rewards adding that would likely trigger aggressive currency depreciations by other emerging countries
With economic growth in China likely to slow to between 6 5 7 0 percent this year coupled with an over inflated housing market some strategists have yet to completely write off the risk of another sharp down move on the yuan
An improved outlook for the Chinese yuan is usually a proxy for currencies of other Asian countries which trade heavily with the world s second largest economy
Prospects for the Indian rupee and South Korean won have also improved on growing expectations the Fed will deliver fewer rate increases this year Federal Reserve Chair Janet Yellen s comments last week that the U S central bank should proceed cautiously in adjusting policy have caused a broad based retreat in the dollar
Minutes of the Fed s March policy meeting released on Wednesday also showed widespread concern at the U S central bank over its limited ability to weather a global economic slowdown
Near term there are no reasons for a stronger dollar said Esther Reichelt foreign exchange strategist at Commerzbank DE CBKG
The baseline scenario of the Fed envisages that the dollar does not appreciate any further In the market s opinion Yellen has thereby confirmed that a stronger dollar will keep the Fed acting cautiously until it feels more certain about its inflation outlook and that takes time
The Indian rupee trading around 66 50 a dollar on Thursday would fall around 2 percent to 67 60 by end June and further to 68 00 in a year the poll showed Analysts had predicted USD INR at 69 00 in 12 months in the March survey
The Malaysian ringgit will likely lead losses and fall 6 percent to 4 17 per U S dollar by end March 2017 from Wednesday s close of 3 914 while the Philippine peso Taiwan dollar and Singapore dollar are seen weakening about 4 percent
For other stories from the FX poll |
JPM | Wells Fargo brings on three to lead government relations | When the going gets tough the tough beef up their D C lobbying staff Wells Fargo NYSE WFC this year has brought on former HUD executive Beth Zorc as Head of Public Policy and Financial Services Roundtable Executive Director Eric Hoplin as Head of External Relations Shannon Aimone formerly with JPMorgan NYSE JPM has been named Head of Political Programs Now read |
JPM | Nigeria sues JP Morgan for 875 million over Malabu oilfield deal | By Libby George and Julia Payne LONDON Reuters Nigeria has filed a claim against JP Morgan Chase NYSE JPM for more than 875 million accusing it of negligence in transferring funds from a disputed 2011 oilfield deal to a company controlled by the country s former oil minister A spokeswoman for JP Morgan dismissed the accusation on Thursday saying the firm considers the allegations made in the claim to be unsubstantiated and without merit The suit filed in British courts relates to a purchase of the offshore OPL 245 oilfield in Nigeria by oil majors Royal Dutch Shell LON RDSa and Eni in 2011 At the core of the case is a 1 3 billion payment from Shell and Eni to secure the block that the lawsuit says was deposited into a Nigerian government escrow account managed by JP Morgan The lawsuit said JP Morgan then received a request from finance ministry workers to transfer more than 800 million of the funds to accounts controlled by the previous operator of the block Malabu Oil and Gas itself controlled by former oil minister Dan Etete The lawsuit said that JP Morgan then transferred the funds to two accounts controlled by Etete without sufficient due diligence to make sure the money did not leave accounts controlled by the Nigerian government Reuters was unable to reach either Etete or Malabu for comment MILAN CASE The filing seen by Reuters was made in London in November on behalf of the Federal Republic of Nigeria and says that JP Morgan acted with gross negligence by allowing the transfer of the money without further checks It said JP Morgan should have known that under Nigerian law the money should never have been transferred to an outside company If the defendant acted with reasonable care and skill and or conducted reasonable due diligence it would or should have known or at least suspected that it was being asked to transfer funds to third parties who were seeking to misappropriate the funds from the claimant and or that there was a significant risk that this was the case the filing said Late last year a Milan judge ruled that Shell and Eni must stand trial in Italy where Eni is headquartered for a separate legal case in which Milan prosecutors allege bribes were paid to Etete and others as part of the same oilfield deal including sums that went to Etete s Malabu nL8N1OK25L Both Eni and Shell have repeatedly denied any wrongdoing in relation to that case Malabu has never commented on the case and Reuters has not been able to contact it nL8N1HI1NA Shell last year said it knew some of its payment to the Nigerian government as part of the deal would go to Malabu to settle its claim on the block but that it was a legal transaction nL8N1HJ4EN nL8N1OK25L There are also ongoing investigations regarding the deal in Nigeria and the Netherlands where Shell is based nL8N1O53PS nL5N1FG757 The license for the offshore block was awarded to Malabu in 1998 under then President Sani Abacha but Shell finalised a deal for the block with the Nigerian government in 2011
A British court in a judgment late last year that agreed to return to Nigeria 85 million in frozen funds related to the deal said that Malabu was controlled by Etete nL8N1N244M |
JPM | JPMorgan s Dimon gets 5 4 pay boost to 29 5M for 2017 | JPMorganChase NYSE JPM CEO Jamie Dimon received 29 5M in total compensation for 2017 up 5 4 from 2016 according to a new SEC filing Dimon s pay package included 23M of restricted stock tied to performance a 5M cash bonus and 1 5M salary the CEO s second biggest package since taking the job in 2005 trailing only the 49 9M in compensation for 2007 JPM posted record adjusted profit of 26 5B for 2017 and its shares rose 24 during the year better than the 20 gain for the S P 500 Financials Index Now read |
C | British banks set to close record 762 branches this year | By Lawrence White and Andrew MacAskill LONDON Reuters Banks in Britain are set to close a record 762 branches this year depriving more customers of access to in person financial services as lenders cut costs by pushing business online The number of branches shut or earmarked for closure so far this year is more than the 583 closed in 2016 and is the most on record according to a Reuters analysis of bank announcements academic studies and government data Banks and building societies in Britain have been shutting branches at a rate of around 300 per year since 1989 a trend which has accelerated in recent years as lenders respond to pressure on profits by slashing costly brick and mortar outlets Royal Bank of Scotland L RBS is set to close 244 branches this year Lloyds Banking Group L LLOY will shut 195 while HSBC L HSBA and Barclays L BARC will close 117 and 90 to 100 respectively That will leave Britain with around 8 000 bank branches by the end of the year according to a Reuters calculation of the bank s statements compared with 17 831 in 1989 according to data from the University of Nottingham The accelerating pace of closures has caused concern among lawmakers and campaigners who say it is often the most vulnerable customers and businesses that bear the brunt as banks consolidate branches in big cities Reuters reported in June last year that Britain s largest banks are disproportionately closing branches in the lowest income areas Politicians in a subsequent parliamentary debate said the findings showed the quiet scandal of branch closures which research has showed can also halve lending to small businesses in impacted areas Bank executives say they are responding to changing patterns of customer behavior and that they are providing alternatives for those who can t or won t bank online BANKING ACCESS A spokeswoman for Co Operative Bank set to shut 10 branches this year said for example its customers can do everyday transactions in any of 11 500 Post Office branches in Britain Barclays also said it provides banking access via some Post Office outlets as well as offering some pop up branches and video banking services while a spokeswoman for banking industry body UK Finance said banks are investing in new ATMs and mobile bank branches to reach more rural communities Some newer competitors are also bucking the trend by growing their branch network Swedish lender Handelsbanken ST SHBa which operates more than 200 branches in Britain said in February it will keep expanding to take advantage as rivals scale back Metro Bank L MTRO has opened 48 outlets since it started in July 2010 and plans to open a further eight to 10 this year with a goal of growing to 110 by 2020 a spokeswoman said The bank s strategy however in common with most rivals is to target major towns and cities meaning gaps left in rural areas by the retreat of major lenders are unlikely to be plugged in the near future Nationwide in April this year offered a crumb of comfort to such areas opening a community supported branch in the Somerset town of Glastonbury which last year lost its remaining bank branches It said it may open more such outlets depending on the support of local communities Despite such measures campaigners have been wondering how many bank branches will be left given the UK has around 25 per 100 000 adults according to data from the World Bank and Citigroup NYSE C compared with just 17 in the Nordic countries which are seen as pioneers in the transition to mobile and digital banking Derek French a former banker who founded the Campaign for Community Banking Services said last August the campaign would close because he did not want to mislead the public into thinking they could do anything about bank branch closures
There s no hope of changing anything French told British newspapers We re realists |
C | European companies seek help dealing with activist investor threat | By Clara Denina Ben Martin and Maiya Keidan LONDON Reuters European companies are being told by their advisers to open up and engage more with existing shareholders to fend off the increasing threat from activist investors who force strategy changes to push up a target s share price Activist investors are mostly hedge funds managing tens of billions of dollars of capital The largest ones are from the U S and having had success in North America and benefiting from a stronger dollar they are flush with cash and looking for opportunities further afield According to JP Morgan activist investors have launched 119 campaigns in Europe in the 12 months to June 2017 compared to 100 a year earlier and 62 five years ago That has pushed corporate management teams across Europe to ask investment bankers for help preparing defenses in case an activist crops up on their shareholder register We have seen a significant increase in calls from clients seeking our advice on how to prepare for when these investors knock on the door especially after the activists stakes in Nestle and Clariant Huntsman became public said Hernan Cristerna co head of global M A at JP Morgan New York based fund Corvex is pushing for Swiss chemicals company Clariant S CLN to abandon its proposed merger with U S peer Huntsman N HUN Third Point led by billionaire hedge fund manager Dan Loeb took a 3 5 billion stake in Nestle S NESN in July and has started calling for an overhaul Though there are several well known European activists such as TCI Fund Management and Cevian most of the world s largest funds such as Third Point Elliott Management and ValueAct are American Their success has crowded the U S market Europe is seen as tempting as financial and political uncertainties have diminished UK companies are thought to be particularly attractive targets due to corporate governance rules which give shareholders more influence and the often large number of minority investors Anglo Australian miner BHP Billiton L BLT has spent the past five months trying to fend off demands for a shake up by Elliot Management On Tuesday BHP said it was looking at options to exit its U S onshore shale business conceding to one of Elliott s demands TACTICS Often activist investors initially engage with target companies quietly discussing possibly strategy changes with them Some firms welcome them as they can help secure wider support from shareholders or insiders for major change But mostly the funds are seen as a threat especially when they start publicly calling for changes and criticizing companies who will not adopt their recommendations More companies in Europe feel the need to have a discussion with their advisers on activism no one wants to fend off an activist attack in the public eye JPM s Cristerna added Bankers said they advise clients to engage with existing shareholders to potentially dissuade them from supporting an activist attack They also look at companies assets and advise them if any could be sold to improve shareholder returns These pre emptive moves might explain why the success rate of activist campaigns in Europe has been falling since 2014 According to data from industry tracker Activist Insight in 2017 just 32 8 percent of campaigns have been at least partially successful compared to 43 2 percent in 2016 Among those that emerged as clear victors this year in Europe is Nordic hedge fund Accendo Capital Managers which became the largest shareholder in fiber optic manufacturer Hexatronic Group ST HTRO and whose stock has risen almost 80 percent since the initial investment Others have achieved a more complicated victory such as British hedge fund TCI which became embroiled in aero engine maker Safran s PA SAF offer for Zodiac Aerospace PA ZODC We got most of what we asked for TCI partner Jonathan Amouyal told Reuters in May after Safran cut its offer At the same time TCI has yet to make any tangible impact at Volkswagen DE VOWG p where it is pushing for change Volkswagen stock has fallen 2 14 percent since the hedge fund launched its activist campaign CULTURAL DIFFERENCE U S bankers said that as campaigns targeting European firms increase they are looking to cash in on advisory work European institutional investors are less comfortable with the concept of activism from a cultural perspective particularly when it s a U S hedge fund coming over said Chris Young head of contested situations at Credit Suisse SIX CSGN in New York In the U S activists are often treated like rock stars they get a lot of favorable press coverage and that s not the case in Europe he added Citigroup N C this week announced it had hired Muir Paterson to head the bank s global team of bankers advising companies on activist shareholders We had teams in the U S dealing with activist issues and we also have now people in Europe working closely with their U S colleagues because more often than not these activists are the same Severin Brizay head of EMEA M A at UBS said For the funds themselves this can also bring benefits Harlan Zimmerman a senior partner at Anglo Swedish activist firm Cevian Capital said some European companies are becoming more willing to engage with activist investors With the proliferation of activism companies and their advisers have gained a much better understanding of the spectrum of activism and how to engage with activists of all sorts he said
There s no longer a stigma from having certain activists involved and on a board In fact some boards see it as a validation and helpful to realizing their own objectives for the companies |
C | Nine years on another Lehman Brothers bankruptcy | By Tom Hals WILMINGTON Del Reuters Two affiliates of Lehman Brothers the U S investment bank that collapsed in 2008 and fueled an economic crisis filed for Chapter 11 bankruptcy late on Thursday a reminder of the complexity of unwinding a global financial institution The two affiliates Lehman Brothers U K Holdings Delaware Inc and Lehman Pass Through Securities Inc were put into bankruptcy as part of a deal that will generate 485 million cash for the Lehman estate according to court documents The affiliates own residential mortgage backed securities real estate and stock in First Data Corp N FDC which helps process credit card transactions among other assets according to papers filed in the U S bankruptcy court in Manhattan Affiliates of Brookfield Asset Management Inc of Canada TO BAMa are buying stakes in the Lehman affiliates which were put into bankruptcy to carry out the deal Administrators have spent years winding down Lehman s holdings and have distributed around 147 billion to creditors according to court records More than 100 people still work for Lehman and the case remains one of the largest U S bankruptcies even after the distributions to creditors The estate holds 7 billion of assets much of it cash as it works through hundreds of remaining creditor claims and legal disputes Lehman is currently in the midst of a trial already 42 days long seeking 2 billion from Citigroup Inc N C over disputed derivative claims Citigroup has denied it owes the money to Lehman
The memory of Lehman s dramatic failure has sparked regulatory efforts to prevent another damaging collapse On Friday the U S Federal Reserve finalized a rule aimed at making it easier to wind down large banks |
C | Citigroup Kicks Off Earning Season With A Whimper | Normally we see JP Morgan kickoff earning season but this time Citigroup NYSE C gets to kick things off Citigroup reported a beat on fourth quarter EPS at 1 61 higher than the 1 55 analysts consensus Revenue missed with a 17 1 billion print much lower than the eyed 17 6 billion consensus
Citigroup shares are lower by 1 4 in the premarket trade as Wall Street focused on the steep 21 decline in fixed income markets They noted it reflected a challenging trading environment characterized by volatile market conditions and widening credit spreads particularly in December
CEO Michael Corbat noted A volatile fourth quarter impacted some of our market sensitive businesses particularly Fixed Income However our ICG accrual businesses Treasury and Trade Solutions Securities Services Private Bank and Corporate Lending continued their strong performance And in Global Consumer Banking we had good underlying growth in U S Branded Cards and solid performance from our franchise in Mexico where we have been investing For 2019 we remain committed to delivering a 12 RoTCE and continuing to improve our operating efficiency during the year
US Stocks are poised to open much lower with the Dow set to open lower by 200 points
Original post |
C | Souring Sentiment Across Global Equity Markets Yesterday | Weak China data pushes Wall Street lower
China s December trade data was weak across the board souring sentiment across global equity markets yesterday The US financial sector was buoyed by mixed earnings from Citibank NYSE C UK Parliament votes on the Brexit deal today
US30USD Daily Chart
Source OANDA fxTrade
The US30 index fell for a second straight day yesterday after weak trade numbers pressured manufacturers
The 61 8 Fibonacci retracement of December s drop is at 24 308 while the 55 day moving average has edged lower to 24 398
US producer prices are expected to echo the decline in consumer prices reported last week Prices are seen falling 0 1 m m in December the first decline in four months
DE30EUR Daily Chart
Source OANDA fxTrade
The Germany30 index slid for a second day yesterday pressured by the China data and today s UK Brexit vote
The 55 day moving average at 11 089 continues to cap the index near term
Euro zone trade data for November is due today It s expected to show a narrower surplus of E13 7b from E14 0b in October
UK100GBP Daily Chart
Source OANDA fxTrade
The UK100 index fell for a second consecutive day yesterday as the uncertainty surrounding today s UK Brexit vote impacted sentiment
The index failed to maintain a foothold above the 55 day moving average after closing above it last Thursday The average is now at 6 924 Momentum indicators emitting bearish signals
The general consensus is that the Brexit deal will be rejected as it stands unless Europe offers better terms for the Irish border The vote is scheduled for 7 pm GMT
Original post |
JPM | What Does The Current State Of Global Growth Imply For Gold | Global economic growth stumbled in May What does it imply for the gold market
The JPMorgan NYSE JPM fell from 51 6 in April to 51 1 in May the second lowest reading since the end of 2012 It means that the global economy continued its subdued start to the year The rates of growth in all industry output and new orders in 2016 have been among the weakest in the last three years so far
The weak expansion resulted from the stagnation in manufacturing production and the slowest activity in the service sector in three months
Broken down by region emerging markets once again led the slowdown as they contracted slightly while developed economies slowed to the second lowest in just over three years
Importantly the U S economy was not immune to sluggish growth The final Markit U S Composite PMI Output Index dropped from 52 4 in April to 50 9 in May The decline was caused by a slight contraction in manufacturing production and slower activity of service providers
The final declined from 52 8 in April to 51 3 in May Although it signaled a further expansion the reading was only marginally above the 50 0 threshold Actually the service sector reported one of the weakest expansions since the recession And what is also worrisome is that the degree of optimism about the business outlook plunged to a new post crisis low
A similar service index from the also dropped from 55 7 percent in April to 52 9 percent in May the slowest pace since February 2014 The data showing weakness in services followed a terrible May job report and it undermines the confidence that the payroll report will rebound soon
The service sector has been so far the bright side of the U S economy now although it is still expanding it shows surprising weakness
Summing up the global economy is slowing down The U S economy is no exception here The weakness in the service sector casts doubts on the economic rebound in the second quarter It goes without saying that sluggish economic growth in the world and in the U S economy is music to gold bulls ears as the shiny metal usually shines in such an environment
Disclaimer Please note that the aim of the above analysis is to discuss the likely long term impact of the featured phenomenon on the price of gold and this analysis does not indicate nor does it aim to do so whether gold is likely to move higher or lower in the short or medium term In order to determine the latter many additional factors need to be considered i e sentiment chart patterns cycles indicators ratios self similar patterns and more and we are taking them into account and discussing the short and medium term outlook in our trading alerts |
JPM | Banks Gear Up To Fight For Key Position In Saudi Aramco IPO | The race to get a piece of what could very well be the largest IPO in history is heating up as investment banks around the world are beginning to fight for position in the upcoming Saudi Aramco initial public offering
As part of a planned transformation in the domestic economy Saudi Arabia s state owned oil company will soon offer less than 5 of its value to the public If Deputy Crown Prince and head of Aramco s Supreme Council Mohammed bin Salman is correct the IPO will value the company at 2 trillion and global investment banks are desperate to get in on the action
Also read
For banks being on this Aramco deal is a game changer for the league tables said one senior executive at a European bank reports Lebanese news outlet
This week Saudi Arabia released its National Transformation Plan a 110 page document that lists goals and policies the country plans to reach over the next four years This is just a small part of the larger Vision 2030 plan to wean the kingdom off its dependency on oil announced by Prince Mohammad a few months ago
Saudi Arabia appears to be remaining consistent in its desire for new economic development and part of its stipulations with banks looking to work on its IPO is that they must be interested in financing large infrastructure projects down the road Future business also appears to be the motivation for many of the interested banks
The Aramco IPO of itself is not that interesting to us in terms of business The fees won t be great but it s about what other business will result a senior source at a big investment bank anonymously told The Daily Star
While we do know that JPMorgan NYSE JPM a longtime banker for the Saudis has worked on the IPO it is expected that dozens of international and local banks will meet with the kingdom over the next few weeks
Saudi Aramco has yet to finalize its plans for the IPO and several plans currently sit in front of the company s Supreme Council However we do know that the kingdom intends on maintaining its ability to determining oil and gas outputs for the time being
If Prince Mohammad s valuation is correct just over 1 of Aramco would cause the largest IPO of all time meaning that the company should be shattering
records soon Investors around the world should keep their eyes on this offering as it develops |
JPM | Tracking Recession Risk | Recession Risk Rises
In last weekend s newsletter I discussed the rising risk of recession as presented by JPMorgan s NYSE JPM risk model
Following the release of the employment data and other rather dismal economic data JP Morgan issued a note courtesy of ZeroHedge suggesting the probability of a recession beginning within 12 months has moved from 30 on May 5th to 36 today
Our preferred macroeconomic indicator of the probability that a recession begins within 12 months has moved up from 30 on May 5 to 34 last week to 36 today Table 1 bottom row and Figure 1 blue line This marks the second consecutive week that the tracker has reached a new high for the expansion
But it is not just the employment data that is suggesting the risk of recession in the U S has risen markedly in recent months
While many of the more mainstream economists were cheering the March and April bumps in the manufacturing data as a sign the manufacturing recession had come to an end I warned you the extremely warm winter weather had skewed the seasonal adjustments and payback would come
As shown in the chart below that payback has now occurred By comparing the Economic Output Cycle Index EOCI to both GDP and the Leading Economic Indicator Index we see a clearer picture of what is currently happening in the economy The EOCI is comprised of the CFNAI Chicago PMI LEI NFIB ISM and Fed regional surveys
With real economic activity still operating at levels normally associated with recessions central bank interventions have been successful at dragging forward future consumption Unfortunately when you drag forward future consumption today you leave a void in the future that must be filled Eventually you reach the point where that future void can not be filled
It is at that point that recessions will eventually take hold One of the clearest warning signs of that inevitability can be found in the productivity and capacity utilization reports As shown below the downturn in capacity utilization rates and weak productivity growth have historically only been witnessed during recessionary periods
But we clearly aren t in a recession
True but that is only because we have not yet gotten the annual revisions to the economic data Given the weakness in profits and revenues a reflection of real economic activity those revisions will likely be negative
GDP Nowcasts NY vs Atlanta
My friend and proud new father Salil Mehta recently penned an interesting piece of analysis comparing the competing GDP NowCast measures of the New York and Atlanta Federal Reserve branches To wit
As it turns out the public benefits from seeing probability and uncertainty in action as these two competing measures provide sometimes uncontrollably differing signals throughout a quarterly cycle The New York statistical product is more nascent only 8 irregular readings so far but already we have some initial empirical insights into these products precision when the markets use them jointly
With just one of the bank s current Q2 GDP nowcasts we would have expected the 90 confidence interval of the relatively buoyant 2 45 nowcast to extend on the low side to 1 0 However when we combine the insights from both banks nowcasts here 57 days prior to report release this 90 confidence interval only extends on the low side to 1 8 This low side on the confidence would have been even lower at 1 5 if both nowcasts were perfectly identical correlated random variables Which they are not At some point still the accuracy of the unconventional analytical approach of these nowcasts will produce an error larger than would be expected generally between the advance estimate and the final annual revision And the Federal Reserve themselves do not consider the nowcasts to be by themselves a superior model most of the time
To start see this graphic below which includes all of the paired nowcasts between the two banks since April 8 21 days prior While Atlanta provides nowcasts daily in the blue shaded region we see all 3 nowcasts paired between the two banks for Q1 We notice that the Atlanta nowcast increased through April 29 0 days prior while the New York nowcast dropped Both converged to 0 7 This was higher than the 0 5 first advance reading shown as an x and lower than the 0 8 preliminary second reading shown as a triangle The typical initial error on the day or the advance GDP release is given on the link above a lot worse at 0 9
New York started providing nowcasts for Q2 on April 8 113 days prior Atlanta however didn t join until April 29 92 days prior We see this data in the red shaded region along with the 5 8 3 later nowcasts from both banks For April 29 there was a 1 0 difference between the 0 8 New York nowcast and the 1 8 Atlanta nowcast By the most recent nowcast of June 3 falling only slightly due to the May labor report disaster of 38k with 59k downward revisions to prior months we see that both nowcasts are near 2 45 Over Q2 this time the New York nowcast has continuously increased It is worth noting that on this day New York provided a Q3 nowcast as well Doesn t forecasting Q3 in Q2 violate the definition of a now cast Given that the time to Q2 release is still fairly high at 57 days the joint confidence interval tends to still be large though a little smaller than at 92 days Given only two quarters of joint nowcasts it is difficult to gauge the shape of the confidence yet it should centered as shown below around the most recent nowcasts
We can imagine that as we progress towards the Q2 release date that the low side of the 90 confidence would fall more along the New York nowcast versus the Atlanta nowcast We can see something near 1 8 as this low side of the growth nowcast and a risk to market participants who might be expecting a 2 GDP growth Which would be an achievement we have not had in a year And nonetheless the typical revision from these advanced estimates to the final revision the annual revisions is more than 1 implying just focusing on matching to the advance reading is partly a meaningless given that all the Big Data in the world between two banks still can t provide a more accurate read on what is really happening And in fact even as they tinker and evolve the models it is certainly going to lead to a wild miss at some point
Long Time Since Last 1 Down Day
Since the bottom of the market in February the markets have been lofted higher as the yield chase continues However there are a couple of issues that suggest the risk of a near term correction have risen markedly
First while asset prices have risen there has been a negative divergence in both relative strength and volume Such negative divergences tend not to last long
Secondly as noted by Jason Goepfert via Sentiment Trader
It s been a long time since we ve seen a big down day Like we discussed on Tuesday the S P hasn t had many large up days during the past several months but it hasn t seen a single large down day for two months
The past few days have been enough to push stocks far above trend The S P is now 2 standard deviations above its medium term 50 day moving average a signal commonly used as an overbought indication
Like the lack of 1 down days a push like this so far away from the trend has the potential to be a signal of buying exhaustion increasing the potential to see a correction that pushes the market back toward its average
When combined with dumb money back at extremes shown below the potential for a correction is high particularly given the magnitude of the advance from the February lows The market currently has many of the markings of a melt up phase in stocks following a rough start to the year as prices have seemingly become detached from reality
I agree with Jason s conclusion
There have been an abnormally large number of disagreements among the indicators and studies we look at That has reduced any kind of edge in our niche usually a good sign to reduce exposure and wait for a better setup It s hard to ignore some of the bullish factors outlined in reports over the past several months but when many of our indicators have been at an optimistic extreme and there is a wide spread between Smart and Dumb Confidence it s risky to add exposure Bottom line I m sitting on my hands and risking a runaway breakout |
MS | Turkish tourism and economy struggle due to bombings Russia chill | By Nevzat Devranoglu and Ece Toksabay ANKARA Reuters Suicide bombings in Istanbul a row with the Kremlin and hard times for the Russian middle class all these factors spell trouble for Turkey s tourist industry and its wider economy Nowhere is the mood gloomier than among shopkeepers in Istanbul Turkey s cultural gem and scene last weekend of the second suicide attack on tourists in the city this year There s zero business now said one clerk at a clothing store near the medieval Galata Tower a top destination for foreign visitors Everyone is nervous chimed in his friend a few hours after the attack blamed by the government on Islamic State which killed three Israelis and an Iranian in Istanbul s most popular shopping district Their feeling that business already bad can only get worse is understandable In January an Islamist militant blew himself up near the fabled Blue Mosque killing 12 people from Germany which traditionally accounts for the largest number of visitors to Turkey Economists forecast that tourism revenue will tumble by a quarter this year costing the country around 8 billion The risk is that better off tourists such as Germans will choose to take their holidays elsewhere while Russians Turkish tourism s number two market will be forced to stay away due to an economic crisis at home and political tensions following Turkey s shooting down of a Russian warplane in November Overall visitor numbers to Turkey fell a relatively modest 1 6 percent last year according to Tourism Ministry data But the signs are not good before the May to October peak season when Turkey usually earns around 70 percent of its tourism revenues BIG SPENDERS Unfortunately for Turkey tourists from the richest countries who tend to be the biggest spenders are also the most easily spooked by security worries Security concerns have the biggest impact on high income tourist groups who are most likely to change their plans to visit said Mehmet Besimoglu an economist at Oyak Investment German travel group TUI has reported a 40 percent drop in summer bookings for holidays in Turkey and the picture for Britain the number three market is uncertain British holiday company Thomas Cook said more of its customers were opting to holiday in Spain as well as the United States and Cuba Fewer wanted to go to Turkey it added Altogether Turkey has suffered four suicide bombings this year bringing the death toll to more than 80 The other two claimed by an offshoot of the Kurdistan Workers Party PKK struck the capital Ankara which relatively few tourists visit The violence is not new Islamic State has also been blamed for bomb attacks last year that killed more than 130 people While these were in Ankara and near the Syrian border the effect on tourism which accounts for about 4 5 percent of the 800 billion economy and provides more than one million jobs has already been felt Last year for instance the number of Italians visiting Turkey decreased by 27 percent while Japanese dropped off by nearly 40 percent Now economists say the drop off in tourism is so pronounced it could have a broad economic impact They estimate an 8 billion fall in revenue would knock more than half a percentage point off economic growth which the government is targeting at 4 5 percent for this year With tourism accounting for more than half of Turkey s current account earnings last year this would also spell trouble for the central bank s hopes that the deficit can be brought down from a yawning 4 5 percent of gross domestic product in 2015 Some economists believe tourism could prove an even bigger drag on the economy If terrorist attacks continue and things get worse the impact could be as high as one percentage point being deducted from economic growth said Muammer Komurcuoglu economist at Is Invest That would be unwelcome news for President Tayyip Erdogan and the ruling AK Party which is keen to show the economy is on track despite the insecurity RUSSIAN CHILL Prime Minister Ahmet Davutoglu has announced a plan to offer emergency support to the tourism sector including a 255 million lira 87 million grant and a facility to allow firms to restructure their debt It is unclear whether that will help Turkey is no longer able to rely on Russians seeking sunshine and southern beaches as a back up due to the combined effects of economics and politics Middle class Russians have been hit hard by an economic crisis caused by the weak price of oil the country s main export earner and Western sanctions imposed over the Ukraine crisis One result has been a dive in the Russian currency which has made foreign holidays including in Turkey much more expensive Two years ago Russians needed just over 15 roubles to buy a Turkish lira now they need almost 24 On top of that has come the chill in relations between Ankara and Moscow President Vladimir Putin signed a series of punitive economic sanctions against Turkey including a ban on charter flights in retaliation for its shooting down of the Russian warplane near the border with Syria The biggest impact from the sanctions would be to tourism the European Bank for Reconstruction and Development has said Numbers of Russian tourists declined by nearly a million last year to 3 6 million That could get even worse this year said Ercan Erguzel an economist at Morgan Stanley NYSE MS
Based on our talks with sector representatives we have the impression that number of Russian tourists may even fall to below 1 million in 2016 in the most extreme scenario he said |
MS | BOJ newcomer Sakurai flags support for bold easing | By Leika Kihara and Stanley White TOKYO Reuters Bank of Japan s BOJ new board member Makoto Sakurai on Friday flagged strong support for Governor Haruhiko Kuroda s aggressive monetary easing and argued the case for bold policy measures to tackle deflationary challenges But he also said the central bank should not expand stimulus recklessly to quicken the timing for achieving its 2 percent inflation target indicating that there was no pressing need for immediate measures Monetary policy steps should not be deployed recklessly in small installments Sakurai said When you need to take steps you obviously want to do something effective so you need to take bold steps he said in his inaugural news conference The former think tank executive also said the central bank needed to develop new policy tools to use in case it needs to loosen monetary policy further The more policy options the BOJ has the easier it will be to achieve its price target so it s important to develop new means he said without specifying what those options might be While little was previously known about Sakurai s views on monetary policy his remarks suggest he would support Governor Kuroda s aggressive easing stance Sakurai would probably support Kuroda when the governor decides to ease again to achieve his price target said Naomi Muguruma senior market economist at Mitsubishi UFJ Morgan Stanley NYSE MS Securities That said his stance arguing against reckless easing stands in contrast to Kuroda s approach of doing whatever it takes to hit 2 percent inflation The BOJ took the controversial step in January of setting negative interest rates after nearly three years of printing money at a rate of up to 80 trillion yen 712 billion a year in a bid to rescue his floundering efforts to lift Japan clear of two decades of deflation and stagnation Sakurai s addition to the BOJ board could mean Kuroda will have a more compliant board which critics say might limit debate on his policies and leave the bank vulnerable to government pressure to bankroll public debt The former think tank executive also said that while Japan s economy faces various risks the central bank can spend some time scrutinizing the effect of its past easing steps including January s decision to deploy negative interest rates While risks to the economy have heightened from six months ago the BOJ must scrutinize whether such risks have heightened enough to derail Japan s economic fundamentals he added suggesting that he saw no immediate need to top up stimulus Economic indicators are mixed and some indicators are showing positive signs We need to monitor the situation to assess the state of the economy but we don t have to do this in a hurry Sakurai said
The government last month named Sakurai a 69 year old think tank executive with ties to advocates of aggressive monetary policy easing to succeed former International Monetary Fund economist Sayuri Shirai whose term ended on March 31 |
MS | California sues Morgan Stanley over mortgage losses | By Jonathan Stempel Reuters The state of California sued Morgan Stanley NYSE MS on Friday accusing the bank of hiding the risks of complex mortgage debt and other securities it sold causing big losses for the state s public pension funds CalPERS and CalSTRS Kamala Harris the state attorney general said Morgan Stanley concealed or downplayed the risks of toxic residential mortgage backed securities and structured investment vehicles it marketed from 2004 to 2007 sometimes encouraging credit rating agencies to award unjustifiably high ratings She said the bank s conduct reflected a culture of greed and deception that fueled the 2008 financial crisis and caused the California Public Employees Retirement System and California State Teachers Retirement System to lose hundreds of millions of dollars California accused Morgan Stanley of violating the state s False Claims Act and various state securities laws It seeks a variety of damages plus civil fines The lawsuit was filed in the state superior court in San Francisco Morgan Stanley said it believes the lawsuit has no merit The securities at issue were marketed and sold to sophisticated institutional investors and their performance has been consistent with the sector as a whole it said It is also worth noting that the alleged victim in this case elected not to pursue its own lawsuit against the firm CalPERS had previously recovered hundreds of millions of dollars in settlements with agencies such as McGraw Hill Financial Inc s Standard Poor s and Moody s Corp s Moody s Investors Service over alleged inflated ratings Among the securities over which CalPERS sued was Cheyne a structured investment vehicle that failed in 2007 A large portion of Friday s lawsuit challenges Morgan Stanley s conduct in marketing the Cheyne SIV Shares of Morgan Stanley closed up 52 cents at 25 53 in Friday trading on the New York Stock Exchange
The case is California v Morgan Stanley et al Superior Court of California San Francisco County No CGC16 551238 |
JPM | Big pharma is getting ready to spend tax reform dollars on big deals | There s a lot of anticipation for big ticket pharmaceutical mergers and acquisitions to take off in 2018 That s in large part because of the tax reform that passed in 2017 which frees up cash companies have overseas and lowers the corporate tax rate We d love to use the cash to buy and partner to expand our pipeline Eli Lilly chief financial officer Josh Smiley told Business Insider The first two weeks of 2018 have been slower that some might have expected but one analyst expects there s much more to come There s a potential for another round of change within the pharmaceutical sector given there s this much money overseas and that s got a chance to be repatriated GlaxoSmithKline US pharmaceuticals president Jack Bailey told Business Insider Every year the biggest names in the pharma industry head to San Francisco to the JPMorgan NYSE JPM Healthcare Conference And almost every year a couple of big industry deals get announced at the event This year the expectation of M A was especially pronounced That s in large part because of tax reform in the US which in addition to offering companies based in the US a lower corporate tax rate allows them to repatriate some of the cash they have overseas and put it to use The life sciences is one of the industries with the that d be eligible for repatriation There was a big big expectation that there was going to be some big M A announced UBS senior healthcare analyst Jerome Brimeyer told Business Insider On Sunday biotech giant Celgene NASDAQ CELG acquired Impact Biosciences in a And the Danish pharmaceutical company Novo Nordisk CO NOVOb for the biotech company Ablynx which was rejected Based on the conversations Brimeyer s heard in San Francisco this week the deals announced this year far have been underwhelming There was almost a disappointment that there wasn t more M A Brimeyer said That disappointment won t last forever he said I think given tax reform there s much more to come I think that s going to be an important factor for the performance of biotech and pharma this year Cash waiting to be used It s something that s on company s radars Brimeyer said especially as they think of ways to use that repatriated cash Other options besides acquiring companies with new medications in the works include share repurchasing programs increasing dividends and in some cases paying down debt Eli Lilly chief financial officer Josh Smiley told Business Insider that the company has about 9 billion in cash overseas that will be repatriated over the next few years While an estimated 3 5 billion will be paid in taxes to the US the remaining money will ideally be used to build up the treatments Lilly has in the works We d love to use the cash to buy and partner to expand our pipeline Smiley said Ultimately the hope is to have one third of Lilly s pipeline of medicines that are in development coming from outside the company But the changes that tax reform brings doesn t necessarily mean there s going to be an across the board flood of new deals since some major pharmaceutical companies aren t based in the US to begin with You can t just say OK it s going to trigger M A in pharma I think it s going to be very company specific GlaxoSmithKline US pharmaceuticals president Jack Bailey told Business Insider The cash could also be used for other purposes such as internal investments and dividends he said What we do know is there s a potential for another round of change within the pharmaceutical sector given there s this much money overseas and that s got a chance to be repatriated Bailey said So I think it s going to be fascinating to watch much like the pricing and reimbursement legislative actions and regulatory actions |
C | Libor tracking investments hit U S exchanges complexity a worry | By Trevor Hunnicutt NEW YORK Reuters Investors who place wagers on the direction of interest rates got a new set of U S listed investment products on Wednesday but their complexity may prove an obstacle to them gaining broad acceptance VelocityShares Long LIBOR Exchange Traded Notes and VelocityShares Short LIBOR ETNs track an index designed to mimic changes in the U S dollar denominated London interbank offered rate Libor a widely used but potentially soon to be extinct interest rate benchmark Libor reflects banks estimate of what they would be charged to borrow money and is used to price financial contracts worth 350 trillion ranging from home loans to credit cards and derivatives Banks have been fined billions of dollars for trying to manipulate the benchmark in a multi year scheme that reached its zenith in 2012 Last month the head of Britain s financial markets regulator said a Libor substitute must be in place for use by the end of 2021 The U S Federal Reserve is developing a home grown benchmark as an alternative VelocityShares said the products can help investors get exposure to rate moves without having to tie up capital buying bonds Investors cannot invest directly in Libor But VelocityShares is looking to give them a proxy with the new ETNs which rely on Eurodollar futures contracts That could prove an obstacle as Eurodollars are not something a lot of retail investors know about said Jared Dillian an independent investment strategist Things that are difficult to price Wall Street is really good at pricing them and no one else really knows where the value is he said Nick Cherney head of exchange traded products for VelocityShares owner Janus Henderson Group plc said the appeal of the product was its ability to track interest rates and that the ETN could follow a different benchmark should one eventually replace Libor as an industry standard He said the notes are debt market analogs to products that bet on or against equity market swings based on the CBOE Volatility Index ETNs are unlike their exchange traded fund cousins debt obligations of their issuer and do not provide investors the same legal protections The new notes are guaranteed by Citigroup Inc NYSE C while VelocityShares markets the notes and come with a 1 5 percent annual fee Citigroup declined to comment about the ETN s launch The ETNs can lose value over time regardless of the direction of Libor
It s going to be a big wealth transfer from the unsophisticated to the sophisticated said Dillian |
C | U S labor market tightening autos weigh on manufacturing | By Lucia Mutikani WASHINGTON Reuters The number of Americans filing for unemployment benefits fell to near a six month low last week pointing to a further tightening in the labor market that could encourage the Federal Reserve to lay out a plan to start unwinding its massive bond portfolio A weakening automobile sector is however adding a wrinkle to an otherwise brightening economic picture Other data on Thursday showed manufacturing output fell in July as motor vehicle production tumbled Auto manufacturers are cutting back production amid weak sales that have created an inventory glut Today s data were constructive towards our expectation of another robust rise in real GDP growth in the third quarter and further labor market improvement said Dana Peterson an economist at Citigroup NYSE C in New York The readings support our conjecture that low inflation notwithstanding the conditions for the Fed to announce balance sheet unwind are ripe Initial claims for state unemployment benefits dropped 12 000 to a seasonally adjusted 232 000 for the week ended Aug 12 the Labor Department said That was the lowest level since the week ended Feb 25 when claims fell to 227 000 which was the best reading since March 1973 Claims have now been below 300 000 a threshold associated with a robust labor market for 128 weeks That is the longest such stretch since 1970 when the labor market was smaller The unemployment rate is 4 3 percent The four week moving average of claims considered a better measure of labor market trends as it irons out week to week volatility fell 500 to 240 500 last week Labor market strength was corroborated by a survey from the Philadelphia Fed showing manufacturers in the mid Atlantic region sharply increased hours for workers in August amid a jump in new orders and unfilled orders Job market buoyancy is probably sufficient for the Fed to outline a proposal to begin offloading its 4 2 trillion portfolio of Treasury bonds and mortgage backed securities at its next policy meeting in September Concerns about persistently low inflation could however prompt the U S central bank to delay increasing interest rates until December Minutes of the Fed s July 25 26 policy meeting published on Wednesday showed policymakers appeared increasingly cautious about weak inflation with some urging against further rate hikes The Fed has increased borrowing costs twice this year The dollar DXY was steady against a basket of currencies in midday trading while prices of U S Treasuries rose marginally U S stocks fell as investors worried about President Donald Trump s ability to pursue his pro growth economic policies Trump on Wednesday disbanded two high profile business advisory councils after a number of chief executives quit in protest over his remarks blaming violence in Virginia last weekend on anti racism activists as well as white nationalists LABOR MARKET STRENGTH Last week s claims data covered the survey week for the August nonfarm payrolls The four week average of claims fell 3 500 between the July and August survey periods suggesting another month of solid job growth Payrolls increased by 209 000 jobs in July The economy has added 1 29 million jobs this year and the unemployment rate has fallen five tenths of a percentage point In a second report on Thursday the Fed said manufacturing output edged down 0 1 percent in July as the production of motor vehicles and parts tumbled 3 6 percent Manufacturing output increased 0 2 percent in June The drop in motor vehicle production the third straight monthly decline came after a sharp slowdown in sales U S auto sales peaked in December 2016 at a seasonally adjusted annual rate of just over 18 million vehicles according to data from WardsAuto The annual sales rate had slumped to around 16 7 million vehicles as of July Excluding motor vehicles manufacturing output increased 0 2 percent in July The sector accounts for 12 percent of the U S economy The manufacturing rebound continues to blossom but the motor vehicle sector is not going to share in the gains until the middle of 2018 said Michael Montgomery an economist at IHS Markit in Lexington Massachusetts The outlook for manufacturing is encouraging While a third report from the Philadelphia Fed showed its index of factory activity in the mid Atlantic region slipped to 18 9 this month from 19 5 in July manufacturers reported robust demand for their products The survey s measure of new orders surged to 20 4 from 2 1 in July Firms also reported that shipments continued to rise As a result workers put in more hours The average workweek index increased to 18 8 in August from 3 8 in the prior month
A survey this week from the New York Fed also painted an upbeat picture of manufacturing conditions in New York state |
C | Oil major Total s shares rise as analysts welcome Maersk Oil deal | By Sudip Kar Gupta PARIS Reuters Shares in Total rose on Tuesday on the back of upbeat analyst comments regarding the French oil major s 7 45 billion takeover of Maersk Oil Total was up 0 8 percent in early session trading among the top performers on France s benchmark CAC 40 index The credentials of this deal and the deals in Brazil and Uganda last year suggest that Total is able to realign the portfolio in a manner that is not value destructive Citigroup NYSE C analysts said in a research note Over the last year Total has expanded its holding in Uganda s Lake Albert oil project by snapping up most of Tullow Oil s stake and has agreed to buy some assets in Brazil from Petroleo Brasileiro Citigroup kept a buy rating on Total while UBS increased its rating on Total to buy from neutral Ion Marc Valahu a fund manager at Geneva based firm Clairinvest said he thought the price paid for Maersk Oil was a reasonable one for Total I think it s positive It s not too expensive said Valahu whose firm owns some Total shares Total s shares remain down by around 10 percent since the start of 2017 impacted by pressure on crude oil prices O R Yet Total expects Maersk Oil its biggest oil deal since buying Elf in 2000 to generate financial synergies of more than 400 million per year in particular by combining assets in the North Sea It also said the acquisition would boost earnings and cash flow Deutsche Bank DE DBKGn analysts also gave a positive reception to the Maersk Oil takeover nudging up their price target on Total to 51 euros from 50 and keeping a buy rating on the stock
This looks a good deal The addition of material production offering modest 5 year growth with scope for sizeable synergies at a price which is both accretive to annual free cash flow and earnings shouldn t be scoffed at they wrote |
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