The Banking and Strategy Initiative

Chillin' out till it needs to be funded

US Morning Report: The Pound winds down, Stanchart pays with $15B in Market Cap and Facebook gets ready for extreme supply

The Pound Sterling fell to more comfortable levels in Asia and for once London did not have to go against the grain of the trade in the pre US open markets, as the Euro wound down from an uncomfortable 1.24 levels. Meanwhile The Euro took a liking to the Pound trade also to keep the 1.24 levels going but is probably a step away from climbing down to 1.22 levels again before audit reports on Spanish banks and the subsequent political brouhaha dies down and Liquidity comes into the European trade from EFSF/ESM for Italian and Spanish bond buying in December 2012.

StanChart(STAN:LON) has fallen 17% on the India and Hongkong bourses, forcing London to open near GBP13 levels as it kept falling to 1122p (FTSE /LSE scrips are quoted in pence(p)) a couple of hours before the US markets open. FTSE 100 is up almost 3% without the Standard Chartered stock which started the day in Asia down 6% on news that the NY Deptt of Financial Services had questioned more than $250 B in hidden trades with Iran. The bank has claimed 99% of the trades as legitimate though it has not responded to allegations that its Indian outsourcing unit did not do any due diligence on the transactions. SCB was using the U turn provisions earlier to clear Iran trades as that allowed offchore trades to be completed. The U turn was pulled by the State in 2008.

SCB’s woes closely mirror AML investigations into HSBC in US which the bank has settled thence.  The $250B in transactions were commited by the New York branch over a decade and the branch may be denied its license to operate as a bank in New York though that is unlikely impact its global business. The Iran weightlifters did the nation proud in London in the meantime while Financial sanctions have blocked all payments completed with the Central Bank of Iran as agent or counterparty. Famously, the Group Director for StanC at London had replied to a cautionary warning from New York thus:

“You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

Knight Capital has managed a $440 mln cash infusion from a club of other brokers and investors over the weekend as trading losses almost wiped it out on Saturday, the frequent cry being that the kill switch for the truant trades was never found. The investors include TD Ameritrade eyeing the big power-broker market making business of Knight and Blackstone.

Meanwhile the Facebook scrip is set for its biggest challenge ever trading so much below its issue price that any rescue action in the face of new supply of stock hitting the boards is out of the question. 440 mln shares of Facebook were issued but much more are adding to supply at the current prices, giving free rein to those who think the stock can be had at much more reasonable levels. Its business growth  continues well but FB does not quite have any revenues to speak of from the mobile platform nor any future outlook with robust revenues from the new platform far reaching in its popularity even as advertising revenues on the Facebook platform do keep growing, almost like LeBron James and the US Basketball champions going down in the first half to Argentina but making it back from the netherworld. Next week on August 15, 10% more of Facebook’s outstanding equity is released in the market to be supplied to shorts and then regular tranches in mid October, November and December with more than a 1.3 B shares in supply on November 13 sure to be the litmus test for the new age equity issued by the company. Facebook would likely try to stem the supply by buying it from employees before they hit the market but that would be suspect for using up IPO cash where the shares were issued at $38. By january 2013 supply of Facebook shares outstanding would be 8 times that introduced in the IPO.

Buoyant Europe markets and Job openings data at 10 AM are likely to keep markets going north in the rest of 2012 and DJIA futures are trading up 2/10ths of a percent at 13174. Meanwhile mining giant Xstrata is expecting to avoid mayhem on FTSE trading with face saving revenues of $24 B for the first half and over $6.4 bln in profits.


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