Bonds

Bank rhetoric partly to blame for attempts to ban CDS

13 Jul 2009

Calls to outlaw them most recently by US lawmaker Maxine Waters appear unlikely to succeed. But they re affecting the larger debate over CDS regulation. If banks had been more forthcoming earlier about default swaps true nature, they might not be in such a bind now.

Sorry CIT, you’re not too big to fail

13 Jul 2009

The $76bn US business lender finances everything from donuts franchises to daycare centres. Its faulty funding model has forced it to seek government loan guarantees which don t seem forthcoming. The lesson: only the biggest of reckless lenders get helping hands.

California’s promises might trade at a discount

1 Jul 2009

The Golden State is short on cash so it plans to issue IOUs instead. The last time it did so, most banks accepted the scrip at face value. This time, in light of the state budget woes and economic crisis, banks may demand a discount hurting anyone paid with these promises.

Fed leaves punchbowl but signals last call nears

24 Jun 2009

The US central bank left its target rate unchanged. But it signalled that the economy may be nearing a bottom. Its comments hint that it may change its bias toward tightening sooner rather than later. If it wants to avoid a damaging runup in commodities, it can t wait too long.

B&B’s CDS holders edging back from the brink

22 Jun 2009

The deferral of coupons on Bradford & Bingley s subordinated debt briefly saw traders take risky punts on whether its credit default swaps might pay out. But now it looks like the staterun UK bank s CDS will pay after all. If so, the CDS market will breathe a sigh of relief.

Buy China policy is worrying

17 Jun 2009

Plans to favour homegrown goods in China s $586bn stimulus won t do much to return Chinese industrial firms to rude health. Such rhetoric is more likely to merely fan protectionist flames elsewhere. Countries with bloated export sectors shouldn t throw stones.

Sainsbury’s fundraising shows canny opportunism

17 Jun 2009

The UK retailer is placing shares and convertible bonds to raise £450m. The move capitalises on the market recovery and warm sentiment towards boss Justin King. But Sainsbury s predatory expansion plans also indicate that its risk profile may have turned up a notch.

US plan for securitisation risk misses the point

16 Jun 2009

The market could benefit from some changes. But forcing lenders to keep 5% of what they securitise is a red herring. Subprime lenders, as well as plenty of banks that have failed, did have skin in the game. But that didn t keep them from taking outsized risks.

Bond spat is chance for Dubai to prove maturity

16 Jun 2009

The row between investment bank Shuaa Capital and statebacked Dubai Banking Group over whether the former's $400m fundraising was a mandatory convertible seems farcical. A fair and speedy resolution to the spat could give Dubai s standing as a financial centre a needed boost.

GM default swaps highlight debt recovery divide

15 Jun 2009

Senior lenders, unlike unfortunate counterparts at Chrysler, are rightly being made whole. CDS on their debt will pay next to nothing. Subordinated lenders, by contrast, are set to take a drubbing. So they ll collect under CDS contracts. That reflects the risks each group took.

Dollar diversification fears overblown – for now

11 Jun 2009

Worries that foreign buyers would snub the US Treasury s 30year bond auction after Russia, China and Brazil said they wanted to reduce dependence on the dollar proved misguided. Central banks flocked to buy the bonds. Treasury may be relieved, but it shouldn t relax.

Oil, bonds highlight risk of imperfect recovery

10 Jun 2009

Huge deficits and zero rates are keeping depression and deflation away. But the oil price has been swept up by the rising liquidity tide and bond yields have risen in a fearful response to free money. The two together could make for a more painful recovery than the market hopes.

Setanta learns cost of combining hope and promises

9 Jun 2009

The upstart Irish payTV broadcaster has to find £30m by next week to avoid administration. It might just manage something, but the £500m owed to content providers looks crippling. The recession and a halflost auction have been just too much for the company.

US should end bank debt guarantees

9 Jun 2009

With the likes of Goldman and JPMorgan and even stumbling Citi now issuing debt without Uncle Sam s backing, there s little justification for FDIC backing bank bonds. But the TLGP has attractions as a bailout tool. Officials should avoid that siren song and shut it down.

The LBO club doesn’t look so chummy anymore

4 Jun 2009

Not long ago, the government was probing private equity firms for acting too clubby. As the brewing battle over Clear Channel s proposed debt exchange suggests, however, it could soon be more like open warfare in the land of the leveraged.

Devaluations loom in eastern Europe

4 Jun 2009

A failed Latvian debt auction is a clear market no to the attempt at devaluationfree restructuring. Latvia probably can t hold out, and Estonia and Lithuania are likely to follow. Baltic woes are bad for Swedish banks and for other frail eastern European economies.

Devils remain in derivatives plumbing details

3 Jun 2009

JPMorgan, Goldman and others responded to US Treasury boss Tim Geithner s sabrerattling with promises to reduce risk and improve transparency in the nearly $600 trillion market. But much depends on how their broadbrush plans which still invite wrangling are implemented.

Lacroix woes point to luxury goods consolidation

28 May 2009

Christian Lacroix s request for creditor protection underscores what can happen to the luxury sector s overleveraged smaller players in a downturn. It also highlights the pressures on the whole sector. Consolidation is needed but don t expect a rush of deals just yet.

UK bank lending decline is no cause for panic

28 May 2009

The UK corporate sector is borrowing less. But it s not clear that the fall is due to banks withholding credit. Demand has fallen too. What matters is that the banks stick to their commitment to make credit available to suitable borrowers should demand pick up.

Derivatives volume collapse doesn’t mean less risk

19 May 2009

For the first time since the market revved up ten years ago, the notional amount of all derivatives fell by 13.4% in the second half of last year. That doesn t mean less risk, though. The market value of the remaining contracts jumped, as did their gross credit exposure.