The rumours first surfaced on Monday when Huijin Investment
- the subsidiary of China’s sovereign wealth fund which owns
major stakes in the country’s banks and is charged with
investing in the China FIG sector - was in the market picking up
the stock of Agricultural Bank of China, BOC, China Construction
Bank, and Industrial and Commercial Bank of China. The
purchases, although for a paltry US$31m total across the four
lenders, caused a sharp reversal of the recent decline in their
Hong Kong-listed stock prices, pushing them up between 8% and
16%.”Fast money thinks some of the Chinese banks are in trouble,
which has been reflected in the upward surge in their CDS
spreads since July. No one believes the official figure for NPLs
at the big banks, which is supposed to be in the 1% area, but
which the hedge funds and prop traders believe is higher. There
is an underlying sense that Huijin was telegraphing the
government’s implicit support for those banks and trying to
staunch rumours of trouble which might choke off the banks’
access to wholesale funding markets,” said a regional syndicate
banker.On the day of the Huijin purchases, BOC was rumoured to be
preparing a 10-year subordinated US dollar Lower Tier 2 bullet,
structured to convert to senior with a reduced coupon should
Basel III regulatory changes deem that the paper not qualify as
bank capital. The bank was taken on non-deal roadshows by BOC
International, Citi and Deutsche Bank early last month, added
credence to the gossip.Outstanding BOC 2020s backed off 5bp on the chatter to
Treasuries plus 350bp bid. The syndicate banker suggested a new
deal would need to price 100bp back from there to clear, a level
which - if agreed to by BOC - would have repriced the entire
China bank offshore curve, as well as adding to the general
unease swirling around the sector.Former PBOC deputy governor Wu Xiaoling told Reuters in
August that the large Chinese banks face capital shortfalls of
Rmb400bn-500bn (USD63bn-USD78bn) over the next five years due to
Basel III compliance, and that: “Along with a quick expansion of
domestic loans, banks will generally face relatively heavy
pressure on ordinary capital.”But he added that with capital adequacy ratios averaging 12%
and core capital averaging 9% there was no immediate funding
pressure at the mainland’s large lenders - something doubted by
a somewhat sceptical large segment of the Asia-focused
fast-money community given the PRC banking sector’s large
exposure to regional governments and the increasingly precarious
property and shipping industries.MAYBE, MAYBE NOTMeanwhile, China Merchants Bank (CMB) is planning a USD300m
three-year CD led by ANZ and Standard Chartered, which is
dividing the market by raising the thorny issue of whether or
not it marks the reopening of the public Asia dollar offshore
primary bond space.A banker away from the trade suggested it was driven by
reverse enquiry, would involve only a limited number of
investors already in close contact with CMB, and was essentially
a cross trade being facilitated by the leads who would earn
minimum wallet on the deal.ANZ, which has almost zero presence in the Asia G3 primary
bond markets, was rumoured to have been mandated solely on the
back of providing a bilateral loan to CMB at an ultra-tight
rate, potentially wearing a loss on the loan versus its own cost
of funds.A banker close to the deal, however, sees it as a true
reopening of the Asia ex-Yen G3 public markets, and predicted
full distribution statistics following a print, which would
involve a significant number of investors and a
geographical/investor split typical of a public G3 issue. Books
have been heard around USD150m, with a further tightening of
guidance from the mid-swaps plus 300bp area likely before
pricing.
* China trade surplus narrows* Futures off: Dow 21 pts, S&P 3.7 pts, Nasdaq up 0.5 ptsBy Chuck MikolajczakNEW YORK, Oct 13 (Reuters) - U.S. stocks were set to open
lower on Thursday as earnings from JPMorgan and soft economic
data in China highlighted worries about a slowing global
economy, giving investors reason to pause after the recent
run-up.JPMorgan Chase & Co slipped 2 percent to $32.55 in
premarket after the first major U.S. bank to announced
third-quarter earnings fell 4 percent as the European debt
crisis pushed investment banking clients to the sidelines.China’s trade surplus narrowed for a second straight month
in September, as both imports and exports were lower than
expected, reflecting global economic weakness and domestic
cooling.”(JPMorgan) is kind of a lead into earnings, a little bit
better than expected, but it really wasn’t a knock your socks
off number either, so it’s not going to sway the market too
much,” said Peter Jankovskis, co-chief investment officer at
OakBrook Investments LLC in Lisle, Illinois.”You probably are seeing a little bit of profit taking, but
nothing too dramatic.”The S&P 500 is up about 12 percent from its intraday low
hit last week on Tuesday and had its largest seven-day rally
since March 2009.S&P 500 futures fell 3.7 points and were below fair
value, a formula that evaluates pricing by taking into account
interest rates, dividends and time to expiration on the
contract. Dow Jones industrial average futures shed 21
points, but Nasdaq 100 futures were up 0.5 point.Economic data showed initial claims for state unemployment
benefits dipped 1,000 to a seasonally adjusted 404,000, the
Labor Department said, from an upwardly revised 405,000 the
prior week. Economists polled by Reuters had forecast claims
rising to 405,000 from the previously reported 401,000.The Commerce Department said the U.S. trade gap for August
totaled $45.61 billion, down slightly from a revised $45.63
billion in July. Analysts had expected the deficit to widen to
$45.8 billion in August.Google is reporting third-quarter earnings after
the close and investors will be looking to see how the slowing
economy is impacting its advertising business.A report on Wednesday that Akamai Technologies Inc
was close to being acquired by Google has no merit, a person
familiar with the matter said. Akami shares were up 3.6 percent
to $24.20 in premarket trade.The CEO of AOL Tim Armstrong has been pushing the
idea of a sale to Yahoo to top shareholders, which
could see the company save $1.5 billion, according to sources
with knowledge of the discussions. AOL advanced 4.3 percent to
$13.72 and Yahoo shed 0.4 percent to $15.71 in premarket.Pratt & Whitney, a unit of United Technologies Corp , has agreed to buy Rolls-Royce Holding’s share
of the International Aero Engines consortium in a $1.5 billion
deal.Bloomberg reported, citing people with knowledge of the
matter, that DuPont Co is seeking buyers for its
polyester-film joint venture as well as its powder-based paint
business.
Close to 12.6 billion pounds ($19.8 billion) has been raised
from assets owned by the former Lehman Brothers European
operations, or Lehman Brothers International Europe (LBIE),
accountants PricewaterhouseCoopers (PwC) said on Thursday .”We remain hopeful of making a first, interim distribution
to creditors at some stage during 2012,” said Tony Lomas, a
partner at PwC, administrators of the European unit since Lehman
collapsed in 2008 in the biggest bankruptcy in U.S. history.In the last six months alone, PwC has raised some 1.8
billion pounds in cash from the unit’s assets.PwC said the potential range of cash recovered, after costs,
was between 7.5 and 12.5 billion pounds.Claims from unsecured creditors alone, however, could stand
at between 16.2 billion and 52.5 billion pounds.With many claims still to be processed it is difficult to
estimate the total claims that will be paid out, as not all
claims will necessarily be accepted.Many claimants have not yet provided the proof of debt they
must submit to be considered eligible creditors.Costs of the administration include what PwC itself is paid.
Since Lehman’s collapse, it has clocked up a 403 million pound
bill.PwC has also been working to settle claims not just by
LBIE’s own creditors but for clients that had assets parked with
the bank. It has released 13 billion pounds of these to date.Citigroup also struck a deal this year with the failed
European arm of Lehman to release over $2.5 billion worth of
assets held in its custody business to add to what can
eventually be returned to creditors and clients.LBIE still has reams of court cases pending, including ones
that will reach Britain’s Supreme Court, which will continue to
be a drag on how quickly it can pay out creditors and on how
much money they get.
* Traders believe widening trading band may be on agenda* Widening trading band may help ward off yuan criticism* Yuan at 6.3805, up 3.28 pct so far this yearBy Lu Jianxin and Jacqueline WongSHANGHAI, Oct 13 (Reuters) - The yuan slipped on the dollar
on Thursday after China’s central bank set a sharply weaker
mid-point which traders said signalled two-way trading as well
as displeasure with the U.S. Senate’s approval of a bill
pressing it for greater yuan appreciation.China was not expected to let the yuan pull back too much
after the currency’s 3-plus percent appreciation against the
dollar this year. While China will resist U.S. pressure, traders
say it is not likely to let the relationship deteriorate in a
currency or trade war where both sides only stand to lose.Instead, the People’s Bank of China appears to be using the
occasion to test the waters for a possible widening of the
yuan/dollar trading band by permitting the yuan to hit the lower
end of its daily trading limit many times since last September.Letting the yuan fluctuate in a wider range could help ward
off criticism that the exchange rate system is too rigidly
managed.In the event that China’s foreign trade encounters problems,
a wider trading range will also enable the PBOC to let the yuan
depreciate, traders said.”Given its dominance in China’s domestic market, the PBOC
could easily check the yuan’s recent volatility but it has not
done that,” said a trader at a U.S. bank in Shanghai.”So the central bank is probably testing waters for a wider
yuan/dollar trading range. Such a widening is good for China
under the current unstable global economic conditions.”Spot yuan weakened to 6.3805 in late morning
trade from Wednesday’s close of 3.3585. It has still appreciated
3.28 percent since the start of this year and 6.99 percent since
it was depegged from the dollar in June 2010.The PBOC set its mid-point against the dollar weaker at
6.3737 compared with Wednesday’s 6.3598. The central bank uses
the reference rate, from which the dollar/yuan exchange rate may
rise or fall 0.5 percent each day, to signal the government’s
intentions for the yuan.TRADER SURPLUS NARROWSThe U.S. Senate approved a controversial bill on Tuesday
aimed at forcing Beijing to push the yuan higher against the
dollar, which supporters argue would reduce a U.S. trade deficit
with China of more than $250 billion.Although the fate of the bill is uncertain, it has drawn
sharp rebukes from Beijing. The central bank argued that a
stronger yuan would not on its own reduce the bilateral trade
imbalance nor save American jobs.Offering China ammunition to resist U.S. pressure on the
yuan and reflecting global economic weakness, data on Thursday
showed China’s trade surplus narrowed in September for a second
month in a row as growth of exports and imports both fell below
forecasts.”The shrinking trade surplus and easing imported inflation
may reduce some pressure for Beijing to quicken the pace of yuan
appreciation,” said Du Zhengzheng, analyst At China Development
Bank Securities in Beijing.”With exports growing at a slower-than-expected pace, I
think Beijing could slow down the pace of nudging up the yuan in
the coming months for fear of hitting its exports too much,
especially when external demand is weakening.”But the main direction for Beijing’s yuan regime reform
would not be changed, which is to widen the trading band and
guide two-way movements.”In a sign of possible changes ahead, the official China
Securities Journal said on Thursday that the time might be ripe
for China to widen the yuan’s trading band.In line with the spot market, one-year dollar/yuan
non-deliverable forwards (NDFs) rose to 6.3900 bid
in late morning trade from 6.3710 at the close on Wednesday.They implied yuan depreciation of 0.26 percent in 12 months,
compared with depreciation of 0.04 percent they implied on
Wednesday.
European Central Bank chief Jean-Claude Trichet said the debt crisis had become systemic and must be tackled decisively.Slovakia is the only country in the 17-member currency zone that has yet to approve giving new powers to the European Financial Stability Fund. The expansion was agreed by euro zone leaders in July but must be ratified by each country.The EFSF is Europe’s main weapon to respond to a debt crisis that threatens the European common currency, the region’s banks and potentially the global financial system.The government of Slovak Prime Minister Iveta Radicova fell on Tuesday after a small party in her ruling coalition refused to back the plans. The outgoing government still expects to be able to enact the measure as a caretaker administration by the end of this week with support from an opposition party.”There is an assumption that the EFSF, one way or the other, will be approved by the end of the week,” Finance Minister Ivan Miklos told parliament ahead of the vote.The failure in the Slovak parliament underlines the difficulty of forging a united response to the worsening debt crisis in a currency zone where all 17 member states must act in concert, and voters are increasingly angry at the growing costs.Leaders are struggling to find a response that would protect euro zone banks if Greece defaults on its debts.For now, Athens needs an immediate infusion of cash within weeks just to meet state payrolls. A loan programme has been held up while the European Union and IMF assess whether Greece is doing enough to get its finances in order.After a weeks-long review of Greece’s finances, inspectors from the European Union, IMF and European Central Bank, known as the troika, said an 8 billion euro loan tranche should be paid in early November. It still requires approval by euro zone finance ministers and the IMF.MORE REFORMS NEEDEDThe troika warned that Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year.”It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly,” the troika said in a statement.It said additional measures were likely to be needed to meet debt targets in 2013 and 2014, and a privatization drive and structural reforms were falling short.Germany, the euro zone’s biggest economy, said a decision on whether to make the aid payment was still open.A German Finance Ministry spokesman said the troika’s verdict showed “both light and shadows”:”We’ll wait and look at the report, analyze it and then decide what will happen with the sixth tranche.”That money would anyway only buy Greece and its euro zone partners a small amount of time.Germany and France, the leading powers in the 17-nation euro zone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until October 23.After Athens admitted it would not meet its deficit target this year, there is a growing acceptance that a second Greek bailout agreed in July with private bondholders’ participation may need to be renegotiated. A rush is now on to beef up the currency bloc’s rescue fund and bolster its banks.Europe’s top financial watchdog warned that the euro zone’s sovereign debt crisis threatened global economic stability.Trichet issued the dramatic warning as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, amid growing fears that Greece will default on its massive debt.”The crisis is systemic and must be tackled decisively,” Trichet told a European Parliament committee in his final appearance before retiring at the end of the month.”The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”NEW BANK DATA SOUGHTEuropean banking regulators meanwhile asked banks across the continent to provide updated data on their capital position and sovereign debt exposures to help reassess their need for recapitalization.European Commission President Jose Manuel Barroso said the EU executive would present proposals for bank recapitalization and other aspects of the crisis response on Wednesday.Industry sources said the EU banking regulator had demanded lenders achieve a core capital ratio of at least 7 percent in a new round of internal stress tests, and banks that failed to reach that mark would be asked to bolster their capital.That would mean some 48 banks would be required to raise a total of 99 billion euros in capital, according to a Reuters Breakingviews calculator using data from previous stress tests. Greek banks would need nearly a third of the total.For a comprehensive deal to come together, the bloc’s leaders must resolve differences over how to recapitalize banks, whether to force a Greek debt restructuring or stick to the existing voluntary deal with private bondholders, and how to use the euro zone’s rescue fund.Europe’s inability to draw a line under the crisis has caused growing international alarm, with Japan weighing in on Tuesday after the United States and Britain pressed EU leaders to take decisive action.Tokyo said it would consult with Washington before it considers buying more euro zone bonds. Finance Minister Jun Azumi urged Europe to restore market confidence in the run-up to a Group of 20 finance leaders’ meeting in Paris this week.Interbank lending rates in Europe continued to rise amid growing concern over European banks’ ability to operate, despite the prospect of massive ECB liquidity support.Some European banks voiced concern at the prospect of being forced by governments to raise additional capital that some say they do not need, possibly by taking public money. One senior banker said that could lead to legal challenges in Germany.Germany’s BDB banking association said Europe should look at recapitalization on a case-by-case basis rather than taking a blanket approach apparently envisaged by Berlin and Paris.The director of the association, Michael Kemmer, also told ARD television that politicians should stick to a July agreement on private bondholder involvement in a rescue plan for Greece, which called for a 21 percent writedown.German Finance Minister Wolfgang Schaeuble and the chairman of euro group finance ministers, Jean-Claude Juncker, have said that figure may no longer be sufficient and the talks may have to be reopened.Speaking on Austrian television late on Monday, Juncker refused to rule out a mandatory debt restructuring for Greece, which many market analysts and economists say is bound to happen in the coming months. Many analysts see the rush to recapitalize European banks as a prelude to an enforced write-down of 50 percent or more on their Greek debt holdings.
