US Treasury plans record debt sale The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in coming months. The announcement came amid growing fears about US government deficits and sent the yield on the benchmark 10-year Treasury note up to 2.95%, from just over 2% at end-December. The rise in Treasury yields has weighed on efforts to revive the economy. The Fed said last week it was "prepared to" buy Treasuries to help reduce private borrowing costs. The Treasury said it would sell $67bn in new securities next week, the largest ever quarterly refunding, and may also start monthly sales of all benchmark Treasury securities. See this article online.
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| Baugur on brink of administration Baugur, the Icelandic investment group that bought various UK and other retailers in the last decade, could fall into administration after Landsbanki called in its £1bn debt. The Icelandic bank said Wednesday it had asked PwC to step in and run the business, which owns stakes in retailers including House of Fraser, Hamleys toy shop and Saks, the US department store. But Baugur has filed for protection from creditors in Reykjavik. Jón Ásgeir Jóhannesson, Baugur chairman, attacked Landsbanki for delivering the company to "British vultures" - potential bidders such as retail entrepreneur Sir Philip Green or buyout firms such as Alchemy Partners. At least, says Lombard, this clears some uncertainty about Baugur's fate. See this article online.
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| Obama gets tough on executive pay President Barack Obama on Wednesday imposed sweeping restrictions on pay for executives at companies receiving public bail-outs in efforts to stem public anger at Wall Street excesses before the White House requests new emergency funds for the financial sector. Under the plans, compensation for executives of companies gaining certain types of federal assistance will be capped at $500,000 a year. They could also receive restricted stock, which could not be sold before the government is repaid. Lex says the plan is like "shutting the door long after the horse has bolted" and raises the challenge of finding capable executives to clear up the mess. See this article online.
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| Bonus cuts: Europe's turn Investment bankers across Europe are braced for cuts of at least 50% in their annual bonuses as Deutsche Bank kicks off the earnings season on Thursday. Banks around the world have slashed compensation after $1,000bn in writedowns of bad loans and toxic assets, of which about a third has been incurred by European financial institutions. A populist backlash against a wave of multi-billion dollar state bail-outs of banks has added to pressure for cuts, even at companies that have not asked for public money. Deutsche would not confirm reports that bonuses for its investment bankers would be cut by 60%. See this article online.
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| Russia abandons bail-outs Russia indicated on Wednesday it would switch from bailing out individual companies to supporting the economy through the banking sector. Moscow also plans huge budget cuts in an attempt to limit its fiscal deficit – rejecting pressure to follow the US and other western countries to try to stimulate the economy with a big boost in public borrowing. The proposals suggest that Moscow is losing hope it can stave off the crisis with public spending and is instead preparing for what might be a prolonged recession. See this article online.
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| SEC 'illiteracy' to blame for Madoff case The losses linked to Bernard Madoff may be closer to $15bn-$25bn rather than the $50bn the New York broker allegedly told US investigators, according to Harry Markopolos, a former money manager and long-time Madoff critic. Markopolos, who tried for nine years to expose Madoff, told a Congressional hearing on Wednesday that staff incompetence at the SEC was partly to blame for failure to bring a case against Madoff earlier. "I gift-wrapped and delivered the largest Ponzi scheme in history to them…Most officials "did not understand…." See text of testimony here. See this article online.
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| Madoff 'feeder' funds to be named The whistleblower who spent almost a decade trying to expose Bernard Madoff claimed Wednesday there are still a dozen unidentified "feeder" funds in Europe which gave money to the New York broker accused of an alleged $50bn fraud. Harry Markopolos told legislators that his investigation into Madoff had identified 14 feeder funds, only two of which have been made public so far. Markopolos said he and his team planned to meet with SEC inspector general David Kotz on Thursday to turn over a list of European feeder funds "so that the French and Swiss authorities can inspect these organisations." See this article online.
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| BofA to sell jets, helicopter Bank of America is selling three corporate jets from its fleet, as well as a helicopter acquired through its purchase of Merrill Lynch, the company said Wednesday. The bank is also believed to be trying to sell one of its corporate apartments in New York. The dramatic downsizing came on a day when BofA's share price dipped below $5 for the first time since 1990, raising questions about whether the bank would need yet another infusion of federal funds. BofA received $25bn in public funds last year, and another $20bn last month in order to complete its purchase of Merrill. See this article online.
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| US 'played hardball' with BofA Federal officials pushed Bank of America hard to complete its acquisition of Merrill Lynch even as credit losses mounted at the troubled investment bank, reports the WSJ. By December, as Merrill's losses were soaring, BofA Chief Executive Ken Lewis told US Treasury secretary Hank Paulson and Fed chairman Ben Bernanke he was having second thoughts. But Paulson and Bernanke "forcefully urged Mr Lewis not to walk away" and later cast doubt on the extent of federal support he could rely on if he did abandon the deal, the paper said. See this article online.
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| Ford in talks to sell Volvo US car-maker Ford, seeking to raise cash to avoid a US federal bailout, is in preliminary talks to sell its Volvo Car unit to Geely Automobile, a Chinese maker of compact cars, reports Bloomberg. Ford will likely get less than the $6.4bn it paid for Volvo in 1999, said people familiar with the discussions. Ford has also approached two other Chinese automakers, Chery Automobile and Chongqing Changan Automobile, they added. See this article online.
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| Goldman keen to repay Treasury Goldman Sachs wants to repay the $10bn it received from the US government last October in order to free itself from restrictions imposed with the capital, David Viniar, Goldman's chief financial officer, said Wednesday. Repayment would also send investors a "very good signal", he added. Banks that received money under the US Treasury's bank recapitalisation programme are subject to restrictions on executive compensation and certain capital requirements. Additional limitations may come as President Barack Obama imposes new rules curbing executive pay for companies accepting government funds. See this article online.
http://ftalphaville.ft.com/blog/2009/02/05/52065/goldman-keen-to-repa
| Japan hits at 'Buy American' A proposed 'Buy American' provision in Washington's forthcoming stimulus bill would breach WTO principles, Japan's prime minister claimed Wednesday, in an escalation of international opposition to the US plans, reports the FT. Taro Aso's condemnation in Japan's parliament came before the US Senate voted Wednesday to soften provisions of the plan after President Barack Obama expressed concern the original language could trigger a trade war, reports Reuters. Senators, on a voice vote, approved an amendment requiring the Buy American provisions be "applied in a manner consistent with US obligations under international agreements". "Smoot Hawley, anyone?, asks the FT's Clive Crook. See this article online.
http://ftalphaville.ft.com/blog/2009/02/05/52064/japan-hits-at-buy-am
| Lazard cuts workforce Lazard on Wednesday said it had cut 10% of its staff as a steep drop in fees generated by its advisory and asset management businesses halved its net income. The investment bank, which suffered a 40% drop in annual net income, has cut its headcount to roughly 2,200 – mirroring 2006 levels – by shedding back-office workers and professionals in slower-growth areas. It will take a $60m charge in the first quarter to reflect the costs of those job cuts. Q4 net income fell to $61.2m, or 50 cents a share, from $122.6m, or $1.04 a share, a year ago. Lazard, which helped close InBev's $52bn acquisition of Anheuser-Busch in the fourth quarter, said it expected a resurgence of M&A activity to aid growth. See this article online.
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| Investors shrug off Macquarie warning Macquarie Group on Thursday warned that its full year profits would fall sharply but investors nevertheless sent shares of the bank up 3% to A$23.57 in the belief its balance sheet remains relatively strong. The Australian investment bank warned its full-year profits would plunge to A$900m ($580m) after raising its estimate for full-year asset write-downs and impairment charges by A$900m to A$2bn. Macquarie also warned that operating income could fall by 15% in the year through March. Since its record result of A$1.8bn last year, Macquarie has successively lowered expectations for the 2008-09 result. See this article online.
http://ftalphaville.ft.com/blog/2009/02/05/52062/investors-shrug-off-
| P&G looks to exit pharmaceuticals Procter & Gamble is working with Goldman Sachs to identify potential buyers for its pharmaceuticals brands or find other ways to exit the business. The consumer goods group has been shifting its focus on high-growth businesses and to divest non-key assets. It completed the $2.95bn sale of its Folgers coffee business to JM Smucker late last year. The company's healthcare division, which includes its pharmaceuticals business, had $14.6bn in sales and $2.5bn in net earnings in 2008. P&G's shares hit a 52-week low of $52.21 on Monday after it reported disappointing Q2 results and lowered its full-year sales guidance. See this article online.
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| Kazakh devaluation triggers sell-off Evidence of deteriorating economic conditions in central and eastern Europe fuelled a broad-based return to risk aversion in currency markets on Wednesday after Kazakhstan devalued its currency and Russia's credit rating was downgraded. Kazakhstan's central bank said it had widened the trading band for the tenge, allowing the currency to fall by 18% against the dollar to 150 tenge, in response to weaker oil prices and the impact of the global economic crisis. Kazakhstan's devaluation triggered a wave of selling of emerging market currencies. See this article online.
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| Baltic Dry Index jumps 15% The Baltic Dry index, the benchmark for freight costs for dry bulk commodities such as iron ore, coal and iron, on Wednesday jumped almost 15% to 1,316 points. the biggest daily increase in almost 25 years, on signs of a recovery in the raw materials trade. Shipping brokers said that demand for the largest vessels, known as Capesizes, is slowly recovering as Chinese steelmakers buy more iron ore from Australia and Brazil after running down their ore inventories. The index is still well below last year's all-time high of 11,793 points, but has recovered 98.5% from its December 22-year low of 663 points. See this article online.
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| Wall Street stops the dancin' Under growing pressure to curb its extravagant ways, Wall Street is staying close to home, cancelling remote conferences and junkets - which means more bad news for the struggling hotel business, reports the WSJ. Goldman Sachs called off its big Miami hedge-fund conference scheduled for early March, telling clients that hosting the upmarket event there could cause image problems for the firm. Morgan Stanley, meanwhile, told brokers this week it is cancelling paid trips for top-producing brokers who are used to getting shuttled to places like Florida, California or overseas. The firm axed planned trips to Monte Carlo and the Bahamas this spring. See this article online.
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| Overnight Markets: Mixed Asian stocks were mixed on Thursday, although mining and shipping companies gained as China stepped up economic stimulus efforts and the Baltic Dry Index the benchmark for freight costs for dry bulk commodities saw its biggest one-day gain in 25 years. Futures on the S&P500 Index fell 0.4% after dropping 0.8% Wednesday after disappointing earnings at Kraft Foods, Sara Lee and Walt Disney. Asian markets (Thurs)
05:15am GMT
Nikkei down 25.85 (-0.32%) to 8,013.09
Topix down 1.16 (-0.15%) 791.62
Hang Seng: up 350.81 (2.69%) at 13,414.70 US markets (Wed)
DJIA down 121.70 (-1.51%) at 7,956.66
Nasdaq down 1.25 (-0.08%) at 1,515.05
S&P500 down 6.28 (-0.75%) at 832.23 European markets (Wed)
FTSE100 up 64.14 (1.54%) at 4,228.60
Eurofirst 300 up 19.51 (2.46%) at 19.51 Currencies
05:17 GMT
€/$ 1.2830 (1.3019)
$/¥ 89.27 (89.58)
£/$ 1.4443 (1.4403) Commodities
05:20 GMT
Brent Crude (Mar09) up $0.17 at $44.32
Light Crude (Mar09) up $0.17 at $40.49
100 Oz Gold (Feb09) up $3.10 at $905.30
Copper (Mar09) up $25.00 at $3,410.00 10-year government bond yields (%)
US 2.92 (2.86)
UK 3.77 (3.74)
Germany 3.36 (3.35)
Japan 1.34 (1.33) Sources: FT, Reuters See this article online.
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