The Banking and Strategy Initiative

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Its Monday Again! A new Godzilla for $90 mln and The snowplough reports for Retail sales , The Week Ahead 19th May -23rd May, 2014 (US Economy and Markets )

Times Square without the Snow layers

It was definitely Asia’s week as NaMo swept India’s General Elections

Deal markets were busy trading down Astrazeneca on Monday morning even as Europe opened to another bout of misery as the bets on the Euro weakened taking markets down with them after France reported a 0% GDP growth rate for the quarter. Before we get back to the deals however, last week saw Japan report a 5.5% GDP growth in the quarter gone by, but the good news only attracted a drove of Bond investors and the resulting spike in currency put paid to stock markets’ in Japan trying to celebrate the good showing expected in the First quarter of the year. Singapore also reported a volatile 4.9% annual growth in GDP on a quarterly improvement of 2.4% on the back of a 6.7% GDP growth rate in the prior December quarter. The region was however depressed following the breakdown in Thai politics showing up in bad Economic data, finally in relief for most Economy watchers int he region mystified by the Stock markets continuous 60% climb since January despite political demonstrations on the street and a ousted Prime Minister called out by the Judges.

The Indian Markets in the meantime underlined the BJP’s new avatar getting into the hot seat with a 5% rise on the Nifty and 4.46% on the Sensex to the 7200 and 250000 mark respectively a brief respite for Emerging market funds including VWO and EEM continuing to witness outflows for the last six weeks now looking to partake of the hopes for recovery not just in India and Japan but in China and other ASEAN economies even as Chinese growth rates were again marked down by observers as policy easing failed to support a continuing negative PMI which scored a borderline 50.4 for April even in the GSE led optimistic Official series a full two pointa ahead of the HSBC score of 48

 AstraZeneca rejects Pfizer bid, AT&T-DirecTv worth $50 Bln, Credit Suisse off the hook for $2.6 Bln

Pfizer could not hold on to its Astrazeneca bid again even as AstraZeneca allowed it a peek into its expectations with a GBP 55 Bid that included 45% cash rebuffed formally by the management. According to UK law, Pfizers post commentary saying it is their final bid and that they will not be making a hostile bid is binding on the company management after AstraZeneca, acting on their own baseline expectation of GBP 58, had no problem in turning down Pfizer’s bid.

AT&T in the meantime is getting a great new video service that it is likely to use to get approval for the merger from the DoJ and the FCC as it bid $50 Bln for DirecTV. DirecTV’s video service being free from any broadband service it will definitely be easier for regulators to consider as not likely to harm competition in the market.

Banks meanwhile looked askance as Goldman Sachs warned last week it would not be so simple to deal with Credit Suisse after it signs on the dotted line pleading guilty to misleading US Tax authorities. Credit Suis Chairman has resigned though for now it seems CEO Brady Dougan will not be following him out. In the meantime, Vodafone found something in common with Standard Chartered Bank, as the bank borrowed its CFO Andrew Halford to fill up the Executive position left empty by the departure of Richard Meddings. StanChart, strong in emerging markets in Asia and Africa was let down by its failures in Korea as it reported with HSBC another quarter of double digit dip in Sales and Profits.

Emerging Market Banks make a deep negative impact as Deutsche Bank fills up the Capital Hole

HSBC profits were down as much as 30% , RoE down to 3% for Q1 even as a significant amount for the shakedown was from PingAn sale profits having been reported in the quarter a year ago. However, the bank’s executive pronouncements were primarily the reason for the street beating them up for a bad performance as the tick down in Trading in Rates and FX came as an unexpected surprise , Korea adding to its woes.

Meanwhile back in this week, Traders at Deutsche Bank are heaving a sigh of relief as the Bank manages to sign $12 bln in new capital from the first family in Qatar even as rival Credit Suisse pays up for its past sins and leaves the history behind for a cost of a $2 bln hole in its profits this year

However growth in Commercial banking and a consolidation in Transaction Banking is likely to mean HSBC is the kingmaker in Asia followed at #2 by StanChart even as Deutsche nurses its wounds back to health. HSBC also has a strong mortgage business in its UK retail markets. Both HSBC and DB continued to post great operational efficiency numbers even as Iain Mackay defended  a low 50s cost income ratio targets for HSBC and both posted decreases in Operational expenses.

Meanwhile contingent capital notes keep sharholders happy as new Tier I Capital , though not cheap at 6.74% is still at its lowest index cost for Notes that wipe out investor capital in case a low trigger is reached.In the case of Deutsche Bank this low trigger is set at 5.75% of its RWA and when Tier I Capital falls below this mark the new CC notes will suffer a temporary writedown (American Banker). The CC Notes (CoCo approved in Basel III) are in addition to the equity already signed yesterday bringing Tier I above the mark of 11%. We had earleir commented on their sad capitalised state in the last result analysis

 Zuckerberg selling down Facebook stake

Founder Mark Zuckerberg retains voting control and 22% of the stake in Facebook as he sells down almost all his holdingsof the C class shares awarded to him during the IPO with fellow promoters Peter Thiel and DST. This is the second anniversary of the IPO this week and the sales were timed with removal of further restrictions on promoter sales at 24 months.

The US Economy is due to recover from the snow

Retailers led by Kohls reporting a 3% dip in Same store sales last week and Urban outfitters on Monday are still suffering from the extended white winter in the US and the street despite expecting the clip in sales beat most retailers down post earnings even as JC Penney made a strong greater than 5% jump in same store sales in Q1 to get a A grade on its report card. While JC Penney gets ready to compare reports with Home Depot on Tuesday ( as it sold better in the Household goods etc category than men and women’s apparel) Target reports on Wednesday. Mark sand Spencers (UK) and TJX also report on Tuesday while The Fresh Market compares itself with the best on Thursday along with a rush of earnings from Best buy, DollarTree, Gap and the Footlocker on Friday. Canadian Toronto Dominion Bank reports Thursday.

Housing starts crossed back over the million mark ( as we told you they would) in the Friday report even as the Treasury budget surplus of $106 bln reported last Monday emboldened the US budget makers. The Treasury borrowing program expands from this week as investors keep coming back to bonds.

The much avowed Primaries for the US senate fights are limited to Republican fights in Georgia , Kentucky and others as the Democrats led by a feisty Allison Grimes in Kentucky fight to keep the Senate before the US presidential primaries for 2016 take over the media juggernaut,. Another giant killer for Democrats is Mark Pryor , who fights tom Cotton in Arkansas. Allison Grimes is the Secretary of state in Kentucky and is looking to wipe out the ill-favored Mitch McConnell. While Michelle Nunn has already bagged the Dem nomination in Georgia, Sen. Mary Landrieu in Louisiana and Sen Kay Hagan in North Carolina have very close battles in the 2014 Senate race too. Republicans need to win back 6 seats to take the Senate again even as incumbents try disowning the Whitehouse before Election day. Obama’s last term is mired in controversy from the NSA to suspended immigration reform and not so great reports from the mis-launch of Obamacare, which however remains a big positive for the Democrats

The Housing Market index in the meantime still shows a low 30s in the actual traffic sub-component at 33 and New home sales are expected to lag behind in April and May. The CPI report on Thursday looked week with a low 0.3% rise below expectations but is pretty healthy considering its at 1.8% for the year. Janet Yellen would be heaving a sigh of relief too as subdued inflation continues to worry with the annual inflation within the 2% Fed inflation target. The 200k rise in Jobs hardly enough to keep up employment, the data neglecting the nearly 20 mln unemployed and showing a steady 800k improvement in the long term unemployed figures

FOMC minutes will be released in the middle of the week and Existing Home Sales reported Thrusday as the mortgage rate dip continues to attract new business back to health. The surge in Housing starts was led by a robust growth in the midwest even as Ford handed over the reigns from Mullaly to Mark Fields.

US equities fended off fears of an imminent correction with a bounceback on Friday which continued in late afternoon trading on Monday allowing the Dow back up over 16,500 and the S&P at 1875, equities on the look out for fatigue in bond buyers as the run to safety continues to perk up US bonds and Gold prices. April’s Foreign buying report for US assets saw a minimal $4 Bln gain as most of the ingress remained in US Bands and US equities successfully fended off the selldown

Meanwhile good earnings reports by big studios were followed by a $90 mln open for Legendary’s Godzilla in the US hoping to cross $400 mln in Global business soon. \

The successful NFL draft set expectations (as we skipped the last Monday report, ears in that Music Hall in New York) for a big season with a deep draft allowing 3rd and 4th round picks big kudos during signing week.

Indian Pacers upset Miami Heat in the first EC finals while Spurs battle Thunder tonight in the Western Conference in the NBA.

The Hack-worthy lister and other news from Big brother

companies, Chinese state hackers found worth hacking include Blackberry(RIM), Google, Intel, and non tech websites to spy on senior executives including a hotel reservation aggregator iBahn, US Steel, Westinghouse and even Alcoa (for aluminium price 😉 Th ehackers posted the job for Unit 61398 of the People’s Liberation Army. Closer home, Vietnam is in a naval standoff with China waiting to be backed by the US and even Japans transformation planned by Shinzo Abe includes strengthening Japan’s Defense Capabilities as a key US ally in Asia to help its trade ties with the world’s biggest customer, USA

China in the meantime has also cornered Russia into signing a new lower price for Gas supplies in a higly followed conference in Shanghai that started yesterday.


New York Times first woman editor, Jill Abramson reportedly left her job at the Times over pay. Mother’s day allowed this unhealthy skew of people reports as everyone of import seems to be a lady and some more beating GOP candidates even ahead of the primaries and another waiting to sign up for the job to be the First Woman President of the United States!

Bankers, however seem to have avoided the churn with Andy Halford taking duties at SCB and Peter Sands, intact not to mention Lloyd Blankfein with $29 mln under his belt, Jamie Dimon who survived with the exodus of Mark Cavanagh and a media that continues to talk insistently about the dip in trading business even as Wall Street merrily looks to jump up trading volumes despite record levels on the Dow.

Dow will be keeping things a little dull in the new year and the China story also remains stuck at the top despite growth figures being continually pummelled down ( i know this sentence definitely needs a strong editor) with another low likely on the latest flash PMI reports midweek with the clamour on the real estate bubble increasing even as the sector continues to get a major chunk of the monthly $300 bln in new credit approvals/disburals

European transnationals come back into prominence too as Europe looks to rerate equities on their outstanding performance in the coming weeks after a secular rise with improving macro put paid by the French GDP reports, the resetting of expectations from growth in Germany  and others to follow. Portugal exited the Euro system bailoiut without much damage but the celebration continues to misprice Sovereign and High Yield/CLO/LL business to record lows in Europe. Here’s hoping for Portugal and Ireland too.



This entry was posted on May 20, 2014 by in Amitonomics, Banking, Bonds, Dealbook.


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