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JPMorgan Chase’s shareholders suffered a further blow on Monday when the bank suspended its $15bn share buy back programme to preserve capital following the $2bn trading loss. With the embattled bank’s shares falling another 2 per cent on the news, investors have seen $30bn wiped off the bank’s market value since the losses in its chief investment office were revealed 10 days ago. http://www.ft.com/intl/cms/s/0/4c678268-a349-11e1-ab98-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_asia%2Ffeed%2F%2Fproduct#axzz1vTdMAajU
Facebook shares fell on Monday below the price at which they floated, inflaming a debate about who was to blame for the stock’s failure to “pop” after the social network’s keenly watched initial public offering. Some investors accused Facebook of taking advantage of enormous demand to sell at an inflated price, while other market participants pointed to a glitch in Nasdaq OMX’s IPO software as the reason that potential buyers fled. http://www.ft.com/intl/cms/s/0/9b7a360c-a33f-11e1-8f34-00144feabdc0.html#axzz1vTdMAajU
Europe’s top antitrust enforcer on Monday delivered an ultimatum to Google to put its house in order or risk hefty fines, in the most significant transatlantic competition spat since Brussels waged its legal war with Microsoft a decade ago. The US search giant now has “a matter of weeks” to make a decision on whether to change its business voluntarily to address serious competition concerns even though it says they are unjustified. http://www.ft.com/intl/cms/s/0/564a284a-a334-11e1-8f34-00144feabdc0.html#axzz1vTdMAajU
France is determined to push the idea of jointly guaranteed bonds as a new form of borrowing for eurozone countries despite Germany’s opposition, Pierre Moscovici, finance minister, said in Berlin on Monday. Speaking after a first intensive meeting with Wolfgang Schäuble, his German counterpart, Mr Moscovici confirmed that François Hollande, the newly elected French president, would include the concept as part of a package of growth measures to be debated by European leaders at an informal summit on Wednesday. http://www.ft.com/intl/cms/s/0/f9876df6-a366-11e1-988e-00144feabdc0.html#axzz1vTdMAajU
Banks are braced for a fresh attack on their profit margins, if Moody’s presses ahead shortly with plans to downgrade short-term funding ratings sectorwide. Investors see UK lenders, in particular Lloyds Banking Group and Royal Bank of Scotland, as most exposed to the risk of rating downgrades in coming weeks, with a combined £110bn of funding in short-term money markets.http://www.ft.com/intl/cms/s/0/d182b7b4-a368-11e1-ab98-00144feabdc0.html#axzz1vTdMAajU
Grexit Ahoy?
Edward Hugh, brilliant as usual, shares some insight on the Greek mess and the future of Europe. The misery has only just begun in Greece, and will probably hit other countries as well. Via A Fistful of Euros.
At the end of the day the only difference this whole process makes to the ultimate outcome may turn out to be one of timing. If Alexis Tsipras of the anti bailout, anti Troika, party Syriza won and started to form a government then the second bailout money would undoubtedly be immediately stopped. On the other hand if the centre right New Democracy wins and is able to form a government, as the latest polls tend to suggest, then the country would quite possibly try to conform to the bailout conditions, but in trying it would almost certainly fail, and then the money would be stopped. Before the last election results, it will be remembered, this was the main scenario prevailing.
Indeed reports coming out of Greece suggest that the end point may be reached more quickly than even previously thought, since the main impact of recent events is that the reform process in the country has been put on hold, meaning that slippage on implementation by the time we get to June will be even greater than it otherwise would have been.
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The Spanish government called for investor calm on Thursday as shares in Bankia, the country’s second-largest bank by domestic deposits, tumbled nearly 30 per cent and Moody’s conducted a sweeping downgrade of other lenders. Further fuelling the sense of unease among eurozone banks, the government in Cyprus announced it would underwrite a €1.8bn capital raising by Popular Bank of Cyprus that analysts said could force the tiny island nation to seek bailout assistance from Brussels. http://www.ft.com/intl/cms/s/0/1c0fd102-a046-11e1-90f3-00144feabdc0.html#axzz1vC4kvAGM
Facebook set the share price for its initial public offering at $38, giving the social-networking company a $104bn valuation and propelling it into the ranks of the top 25 US public companies. Mark Zuckerberg, the 28-year old founder and chief executive, raised $1.1bn, leaving him with a stake valued at $19bn, firmly establishing him as one of the richest men in the world.http://www.ft.com/intl/cms/s/0/e7b43504-a051-11e1-88e6-00144feabdc0.html#axzz1vC4kvAGM
An oil tanker belonging to Iran’s state-owned shipping line has been switching flags and using multiple companies to transport crude from Syria to Iran, illustrating how Tehran is helping to sidestep international efforts to choke the finances of Bashar al-Assad, Syrian president. Documents obtained by the Financial Times show the vessel, operated by the Islamic Republic International Shipping Lines, sailed from Syria to the Gulf of Oman and then Iran, using different flags and changing owners. http://www.ft.com/intl/cms/s/0/9704c760-9abe-11e1-9c98-00144feabdc0.html#axzz1vC4kvAGM
The US said it “welcomed” the evolution” of debate in Europe towards growth on the eve of a G8 summit that could see Angela Merkel, Germany’s chancellor, isolated as other world leaders push her to help stimulate the economy in Europe. In a move to make the G8 less formal and more productive, Barack Obama will host the group – whose economic policies could sway his re-election prospects this autumn – away from the media at the presidential retreat of Camp David, Maryland. http://www.ft.com/intl/cms/s/0/0668fb34-a038-11e1-90f3-00144feabdc0.html#axzz1vC4kvAGM
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Shareholders in Europe’s listed companies will be given a binding vote on pay while those who invest in banks will gain powers to set a cap on bonus levels, under plans being drawn up by senior EU officials. The initiative from Michel Barnier, the EU’s top financial services regulator, would hand bank investors the voting power to curb “morally indefensible” pay and limit the gap between the lowest and highest paid. Banks would also be forced to disclose their top 20-30 earners. http://www.ft.com/intl/cms/s/0/35bcd8f6-9ea8-11e1-9cc8-00144feabdc0.html#axzz1v0L4fkM1
Greece is heading for a fresh general election after its political parties failed to form a national unity government because of opposition from the anti-bailout Syriza coalition. President Karolos Papoulias, who chaired three failed meetings with political leaders in as many days, was unable to bridge differences between Syriza and the two pro-euro parties, the centre-right New Democracy and PanHellenic Socialist Movement (Pasok). A caretaker government will be chosen on Wednesday to oversee the election, expected on June 17. http://www.ft.com/intl/cms/s/0/5aa74018-9e88-11e1-a24e-00144feabdc0.html#axzz1v0L4fkM1
The leaders of France and Germany on Tuesday joined forces to urge Greece to reaffirm its commitment to membership of the eurozone, after François Hollande flew to Berlin for talks with Angela Merkel, German chancellor, within hours of being installed as French president. Both spelt out their concern that Greece should remain a full member of the common European currency, while promising to consider new measures to revive economic growth in the country. But they also agreed that Athens must carry out the austerity programme it has agreed with the European Union and the International Monetary Fund. http://www.ft.com/intl/cms/s/0/fa18437e-9ecc-11e1-9cc8-00144feabdc0.html#axzz1v0L4fkM1
Much more reading below.
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Ft.com
Fears that the eurozone’s firewall will prove insufficient to shield Spain and other embattled countries against the effects of a possible disorderly Greek exit from the currency union hit European financial markets on Monday. Spanish and Italian 10-year borrowing costs shot up to their highest levels this year and European stock markets suffered their biggest one-day drop in three weeks. German 10-year bond yields fell to a record low, widening the premium Madrid pays to borrow compared to Berlin to a new euro-era high. http://www.ft.com/intl/cms/s/0/517e01a6-9ddf-11e1-9a9e-00144feabdc0.html#axzz1uofkmjQk
Citic Securities, China’s largest broker, has agreed to buy algorithmic trading technology from Progress Software, a Nasdaq-listed company, in the latest sign that rapid automated trading is spreading from western markets to Asia. A race has been under way in the US and Europe among banks and brokers using algorithms to attract business from institutional investors. Such algorithms are either built internally or bought from technology companies. http://www.ft.com/cms/s/0/d7e9b3a8-9da2-11e1-838c-00144feabdc0.html#axzz1uofkmjQk
Wsj.com
Asian stock markets, the euro and commodities fell Tuesday on renewed fears that Greece could leave the euro zone after coalition talks Monday failed to produce a government. Both Japan’s Nikkei and Korea’s Kospi slipped 1.4%, while Australia’s S&P ASX 200 dropped 1%. In Hong Kong, the Hang Seng Index was down 0.4%, while the China Shanghai SE Composite fell 0.5%. The euro was down 0.7% late in New York to $1.2824 as fears of a Greek exit from the euro zone became the main concern of investors. The single currency continued to fall in Asia, down 0.1% to $1.2822.http://online.wsj.com/article/SB10001424052702304192704577404932277664936.html?mod=WSJEurope_hpp_LEFTTopStories
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Ft.com
JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office. The futures of the trading unit – a subset of the CIO that incurred the losses – and people who work there are under question, with departures possible in the next 24 hours, people familiar with the matter said.http://www.ft.com/intl/cms/s/0/adc55f24-9d06-11e1-9327-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fproduct#axzz1uofkmjQk
Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. http://www.ft.com/intl/cms/s/0/680d8532-9d11-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority. The vote for the CDU slumped to just 26 per cent, according to the first exit polls, by far its worst result in the state in the post-war period, and a serious setback for the German chancellor. http://www.ft.com/intl/cms/s/0/8edb6b32-9d18-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
All you need to read and some more below.
Why shorting Spanish and Italian Bonds is the Right Trade
Guest post by Peter Tchir of TF Market Advisors.
I continue to believe that longer dated Spanish and Italian bonds are poised for a significant sell-off. At this stage everyone knows the problems the two countries are facing. Spain’s economy seems to be doing worse than Italy, but Italy has a heavier debt burden.
Over the past few weeks, more and more investors are coming to the conclusion that either debt restructuring or a currency conversion or both are real possibilities. The short lived success of LTRO is very concerning. It demonstrates that liquidity has its limits when solvency is the real risk.
So my first premise is that the risk of restructuring or currency conversion is real. It is not imminent as politicians and central bankers continue to do what they can to avoid that outcome, but virtually everyone now believes that this is a potential, if not inevitable outcome. That has changed in the past few weeks and has not been fully digested.
The other key premise is that the ECB is unlikely to intervene in a meaningful way anytime soon. That seems to have been confirmed yesterday by Mr. Draghi himself. From conversations I had, the unintended consequence of the ECB’s tough stance during the Greek debt negotiations has meant that countries no longer welcome ECB intervention with open arms. If restructuring is on the table, having a party that is unwilling to take a loss yet holds all the cards when it comes to future financing of the banks, it is an awful situation. Greek post-PSI bonds trade poorly at least in part because of the ECB’s stance on its position. The ECB’s secondary market purchases of Greek debt turned out to be disastrous for Greece in their attempt to restructure and create a workable debt load. This has not been lost on Spain and Italy. The desire to retain flexibility in any future negotiations is incompatible with inviting the ECB to buy more bonds. That is one reason that the EFSF and ESM are supposed to assume that role. Though in typical EU fashion, rather getting those entities ready to assume secondary market purchases when the markets were calm, they dragged their feet and aren’t quite ready. The EFSF will eventually be ready to buy bonds. They will be the preferred buyer because they can be made to take a loss. That may become an issue as countries providing the guarantees that let EFSF function may decide it isn’t in their best interests to be the patsy at the negotiating tables.
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