BofA seeks to repay $45bn by year-end Bank of America wants to repay $45bn in bail-out funds by the end of the year, in a faster-than-expected move driven by its accelerated programme to raise capital. BofA is on track to raise more than $35bn in capital by the end of September, which it must do before repaying the $45bn it received under the government's TARP scheme. The move is unexpected because BofA was found to have the biggest capital shortfall of any US bank in recent regulatory stress tests. See this article online.
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UK braced for call to shrink Lloyds The UK government is braced for an order by the European Commission seeking the shrinking of Lloyds Banking Group as a condition for the granting of state aid. UK Treasury officials believe Brussels could insist that the bank shrink its balance sheet – possibly through asset disposals – or accept restrictions over its behaviour in the market. Lloyds acknowledged the possibility of Brussels-imposed restrictions in a prospectus issued on Wednesday as part of its £4bn ($6.3bn) placing and open offer. These could include selling non-core or even core assets. See this article online.
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Franklin Templeton eyes AIG unit Franklin Templeton Investments has emerged as the leading bidder for AIG's asset-management business, a deal that also has drawn interest from Australia's Macquarie Group and Religare Enterprises of India, reports the WSJ. The AIG Investments unit, which manages about $85bn in assets, is expected to fetch about $500m, well below the $800m some suitors proposed paying just two months ago. A deal could be completed by the end of June. See this article online.
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Funds move to halt Chrysler restructuring Three of Chrysler's secured creditors are mounting a fresh attempt to thwart the carmaker's Chapter 11 reorganisation, arguing it violates their legal rights and US government authority under the TARP scheme. The three – all Indiana state pension funds – are among a group of 46 creditors that recently appeared to back away from efforts to derail the process under which a "new" Chrysler would emerge from bankruptcy protection by July 1 under ownership of a union healthcare trust, the US government and Italy's Fiat. See this article online.
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Julius Baer to spin off funds unit Julius Baer surprised investors on Wednesday with plans to split its private banking and fund management businesses into separate listed companies. The move was seen as paving the way for the disposal of fund management, concentrated in the GAM fund of hedge funds business, and leaving the company as a "pure play" private bank. Analysts speculated that GAM Holding, the fund management group, could be a takeover target, while Julius Baer was a likely consolidator in private banking. See this article online.
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Fed spur to buy bubble-era securities The Federal Reserve will provide loans to finance the purchase by investors of bubble-era commercial mortgage-backed securities from July onwards in a move officials hope will stem a financing crisis in the commercial property industry. The initiative is part of a wider effort to kickstart trading in illiquid toxic assets – now rebranded "legacy assets". The Fed is also evaluating the terms on which it could extend financing for investors to buy bubble-era subprime and jumbo mortgage-backed securities. See this article online.
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Fresh bail-out hopes lift GMAC GMAC bonds rallied on Wednesday ahead of an expected announcement from the US government that it will invest another $7bn in the company, through which it could take a majority stake, in an effort to shore up the automotive industry. GMAC is the last of the 10 leading US banks that were deemed by the government to have capital shortfalls to reveal its plans for raising that capital. GMAC, which was told it needed another $11.5bn in capital, has been widely expected to require additional government support. See this article online.
http://ftalphaville.ft.com/blog/2009/05/21/56094/fresh-bail-out-hopes
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Singapore client sues Citi One of Singapore's richest businessmen has filed a lawsuit against Citigroup's private banking arm in the latest legal action involving private banks and their clients in Asia after last year's market turmoil. In a suit filed last week in Singapore's High Court, Oei Hong Leong claims he lost S$1bn ($687m) in 2008 because Citi allegedly gave him "inaccurate and misleading" information on his trading exposure. Citi said it would "vigorously" defend its position. See this article online.
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Chinalco set to restructure Rio deal: SMH Aluminium Corp of China, or Chinalco, China's biggest aluminum producer, may take a smaller stake in Rio Tinto to win approval for its $19.5bn investment, reports Bloomberg, citing the Sydney Morning Herald . Chinalco is open to letting Rio sell convertible bonds to other shareholders, reducing its planned stake to 15%, the Herald said. That may allow the state-owned entity to avoid breaching foreign ownership rules and placate investors concerned at not being offered stock on the same terms. See this article online.
http://ftalphaville.ft.com/blog/2009/05/21/56101/chinalco-set-to-rest
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IMF urges UK to control public finances The IMF urged the UK government on Wednesday to act faster once economic recovery was underway to rein in public finances by cutting public spending plans or raising taxes. Warning that the UK's current policy package hinged on "continued trust in the sustainability of the fiscal position", IMF officials urged the government also to specify how it planned to limit public spending, to allocate any surprise tax revenue growth to deficit reduction and to build a broad public consensus for bringing the books closer to balance. See this article online.
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US investors win on board nominations US shareholders scored one of their biggest victories in many years on Wednesday when regulators proposed new rules allowing them to nominate company directors. The SEC has considered the controversial rule three times in the past five years, but failed to pass it. This time the five-member commission voted 3-2 to propose the rule, which would allow large shareholders such as pension funds to nominate up to a quarter of a company's board members. See this article online.
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Downgrades loom for Spanish banks Bad debt problems at Spanish banks and cajas, the regional S&L institutions, have triggered at least one skipped interest payment on a mortgage-backed bond this week and prompted warnings of imminent downgrades by credit rating agencies. Caja Madrid, Spain's fourth biggest financial group, on Wednesday confirmed the cancellation of more than €1m ($1.4m) in interest owed to junior holders of MBS issued in 2006 and 2007 by special purpose vehicles. See FT Alphaville on Spanish banking pain. See this article online.
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Moody's cuts Korean bank ratings Moody's on Wednesday lowered its ratings for four South Korean lenders, including Kookmin Bank, citing rising bad loans and weak financial positions. The downgrade was part of the agency's wider reassessment of banks globally. So far, Moody'[s has only put most Asian lenders on review for possible downgrades. The financial strength ratings for Kookmin, the country's largest lender, Woori, Shinhan and Hana were lowered from "C" to "C-" with stable outlooks. See this article online.
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M&A turns to Depression-style barter It is the oldest form of commerce: trading what you have for what you want without exchanging money. Businesses turned to bartering during the 1930s Great Depression. Now, some companies are again swapping assets instead of shopping for them. Last week, both Centrica, the UK energy group, and pharmaceutical group GlaxoSmithKline agreed deals that involved swapping fixed assets, shares or products for stakes in other businesses. See this article online.
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Oil trader regrets boozy lunch A former Morgan Stanley trader who hid from his bosses a potential $10m loss on trades made under the influence of alcohol after a long lunch has been handed a two-year ban by the London City watchdog. David Redmond, a trader in the commodities team at Morgan Stanley, returned from a three-and-a-half hour lunch in February last year and put on a series of trades in the oil futures market that left the bank at risk of a $10m loss. Redmond in fact made a profit from the deals but was nonetheless sacked after the bank discovered his actions. See this article online.
http://ftalphaville.ft.com/blog/2009/05/21/56087/oil-trader-regrets-b
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Overnight markets: Mostly down Asian stocks retreated on Thursday, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the US Federal Reserve projected a deeper recession. Futures on the S&P 500 Index lost 0.3% as the gauge sank 0.5% on Wednesday. Asian markets (Thurs)
03:15 BST
Nikkei down 125.46 (-1.34%) at at 9,219.18
Topix down 9.24 (-1.24%) at 877.06
Hang Seng down 68.19 (-0.39%) at 17,475.84 US markets (Wed)
S&P500 down 4.66 (-0.51%) at 903.47
DJIA down 52.81 (-0.62%) at 8,422.04
Nasdaq down 6.70 (-0.39%)) at 1,727.84
European markets (Wed)
FTSE100 down 13.84 (-0.31%) at 4,468.41
Eurofirst 300 up 3.76 (0.43%) at 875.85 Currencies
04:10 BST
€/$ 1.3764 (1.3613)
$/¥ 94.5300 (95.8400)
£/$ 1.5737 (1.5477) Commodities
04:00 BST
Brent Crude (ICE) down $0.41 at $60.18
Light Crude (Nymex) down $0.61 at $61.43
100 Oz Gold (Comex) up $1.00 at $938.40
Copper (Comex) up $3.90 at $210.85 10-year government bond yields (%)
04:20 BST
US 3.19 (3.23)
UK 3.58 (3.49)
Germany 3.42 (3.42)
Japan 1.43 (1.42) Sources: FT, Bloomberg See this article online.
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