Brian Bollen's Blog

It's got nothing to do with your Vorsprung Durch Technik you know…

Bill Blain’s Morning Porridge – February 24 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Lloyds results worse than expected – poor economic outlook, further non-core asset sales, higher wholesale funding costs don’t bode well for future. But don’t they have access to cheap ECB money – only through its European subs! So perhaps that’s a positive for UK banks – surviving (just) without the messy distraction of been given too much money!

German economic confidence hits a seven-month high. I can just see it – ECB hikes European rates as a result of German overheating. They’ll love that in the periphery!

Germany and IMF are on collision course on Greek aid. Portugal now firmly in market sights as the next big event.. (well maybe not.. Greek default on PSI take-up remains nailed-on.) Analysts say Portugal’s existing package not big enough so they should go for a debt swap as well.. but austerity is driving debt/GDP higher! (Remember Keynes’s last words: 'I should have drunk more champagne…')

Harvest Festival For BNP Paribas Securities Services

BNP Paribas Securities Services (BNP Paribas) reports that it has implemented a mandate from Harvest Global Investments to launch an emerging market fund investing in Mongolia. It says this makes it the first global custodian to support foreign investments in this Asian frontier market.

Harvest, described by BNP Paribas as China’s second-largest asset manager with $37bn in assets under management, appointed BNP Paribas as global custodian, fund administrator and transfer agent in support of its Asian Frontier Equity Fund.

The fund went live in late 2011 and has since been investing in Mongolia. In so doing, Harvest became both the first Chinese and the first cross-border asset manager to take direct investment exposure in the country.

Booming Demand Pushes Farmland To Record Levels

Surging demand for commercial farmland saw prices reach record levels for the third consecutive period, says the latest RICS Rural Land Market Survey, H2 2011.

The average price per acre increased to £6,514* during the second half of the year. Farmland has now almost doubled in value in the last five years.

This dramatic jump was driven by growing interest from commercial farmers, looking to expand their enterprises in order to capitalise on the strength in commodity prices. A net balance of +53% of chartered surveyors reported an increase in demand for commercial land over the previous 12 months, while demand for residential farmland remained flat (-4%).

Schroders Shares Top 10 Tips for De-Risking

Schroders’ UK Strategic Solutions Team, led by Mark Humphreys, shares its Top 10 Tips for successful de-risking

1.            Start with the end in mind: What is the goal of your de-risking plan? A buy-out of the liabilities? Or to achieve self-sufficiency (where the scheme is run on a low risk basis with no additional contributions required)?

2.            Look to take ‘rewarded’ risks: Some risks are rewarded with higher expected returns (e.g. equity risk) and some generally are not (e.g. liability risks). Schemes should focus on reducing unrewarded risks.

3.            Protecting against liability risk doesn’t mean giving up growth: There are a range of liability-driven investment (LDI) strategies that can free up assets to invest in return-seeking strategies.

 

If she weighs the same as a duck, then she’ll float

Bill Blain’s Morning Porridge – February 23 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

If she weighs the same as a duck, then she’ll float. Witches float.. so if she floats… she’s a witch and we should burn her!

Now the hurley-burley’s done, what next in the never-ending saga of European sovereign mistakes? This morning we’ve a raft of European financials results all saying the same thing -  Greek losses realised at Allianz, Dexia, Credit Agricole, et al. As for RBS – the £2bn loss was worse than expected, suggesting that the battle’s still lost not won. More about banks later…

But first, back to Greece and the next chapter in our merry tale…

The headlines remain focussed on cautious markets, concerns about Germany, Holland and the IMF falling out over the size of the Firewall/bucket of sand to protect Spain and Italy, and the threat that blossoming German business confidence could well lose its lustre when the German parliament votes on the bailout. All foundations built on sand.

Meanwhile, Fitch downgraded Greece to CCC – temporary default.

Record Mexican Bid

By Francisco Gomez, Dealogic

On February 21 2012, Mexico’s Genomma Lab Internacional announced an all cash $1.3bn bid for the USA’ Prestige Brands.

The bid offers a 23% premium above Prestige Brand’s closing price one day prior to the announcement, slightly higher than the 21% average for the industry since 1995 and considerably higher than the 8% average premium for 2012 YTD (year to date).

This is the fourth-largest bid into the US by a Mexican corporate on record since Grupo Bimbo’s $2.5bn bid for George Weston. The deal is also the largest consumer products bid by a Mexican corporate.

This deal is the second-largest global consumer products deal of 2012 YTD after Kellog’s $2.7bn bid for Procter & Gamble’s Pringles business.

Mexico’s outbound volume stands at $2.0bn in 2012 YTD, compared to no deals in 2011 YTD and $350m in 2010 YTD.

Global Consumer Products sector volume stands at $7.2bn, up 98% from the $3.6bn reached in 2011 YTD, and the highest volume since 2008 YTD ($124.8bn) when Altria Group spun-off Philip Morris International for $111.3bn.

Morgan Stanley and Barclays lead the Consumer Products sector advisory ranking in 2012 YTD with $2.7bn each, followed by Goldman Sachs with $323m.

 

 

UK DCM Volume at Record High in 2012 YTD: Dealogic

UK debt capital markets (DCM) volume stands at $75.2bn in 2012 YTD, up 19% compared with 2011 YTD ($63.3bn) and the highest YTD total on record, according to Dealogic.

The UK accounts for 15% of European DCM volume so far this year, the highest proportion since 1994 (16%).

Sterling-denominated issuance accounts for 9.5% ($46.4bn) of all European debt issued in 2012 YTD, the highest proportion since 2007 (10.6%) and up from a 7% share in 2011 YTD.

Finance continues to dominate the UK sector volume ranking in 2012 with a 59% market share, the lowest proportion since 2001 YTD (49%) and down from 80% in 2011 YTD.

On February 13, BP Capital Market plc issued a €2.5bn ($3.3bn) bond, the third largest European corporate bond to be issued so far in 2012.

Barclays Capital leads the UK DCM bookrunner ranking in 2012 YTD with a 16.9% market share. HSBC and Lloyds follow with 12.5% and 8.8%, respectively.

 

The Eiger Is Alive With The Sound Of Music: March 31

The hills are alive, with the sound of music, sings Julie Andrews in the eponymous film. That is literally true every year when the SnowpenAir concert explodes into being in the shadow of the Eiger, a Swiss mountain that surely needs no introduction.

This year's annual SnowpenAir concert, the 15th, is on March 31, in Kleine Scheidegg in Switzerland's Bernese Oberland (http://www.jungfrau.ch/en/tourism/news-events/snowpenair-2012/). On the bill are internationally known names Bryan Adams and Kim (rear of the century) Wilde. Catering more to local tastes will be Swiss musicians Polo Hofer and Daniel Kandlbauer.

The concert coincides with the opening (after 17 months of planning and building) of the Alpine Sensation experience, the newest tourist attraction at the top of the Jungfrau mountain, reached by the Jungfrau Railway. Tickets are sold out, but readers might like to check out the website for easy access to details of other attractions in the area, and to begin making plans for the 2013 event.

 

 

 

Forget Greece...Bright Shiney White Thing To Make It All Better

Bill Blain’s Morning Porridge – February 22 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Pick up any newspaper, market report or blog and the consensus on the Greek second bailout is unremittingly negative. A page in this morning’s Torygraph is representative of the genre, with a host of negative comments from leading investors, analysts and commentators. (Nope… I didn’t make the cut…).

It feels like all the energy has been sucked out of the system and everyone is left deflated. Not a problem solved, but a crisis extended. As Greece continues to bubble and boil, slow-burn contagion across the rest of the periphery looks nailed on in coming months. So.. same old, same old – a new down phase of the crisis for Q2?

The PSI debt exchange is the next moment to focus on. Who fancies being the brave holdout? The Greeks have got the Collective Action Clause primed and ready to use on holdout bond holders. (The German finance minister was quoted on the wires y’day saying the March 4.3% 2012 will also be subject to the PSI – dashing the hopes of thousands of retail holders.)

It will be more interesting to see what Greece tries to enforce on holders of London Law GREECE bonds – the prospect of blocking stakes and the sheer unfairness of the ECB being able to negotiate itself a safer position last week makes that look a potential battle.  

Bear In A China Shop

John Redwood, chairman of Evercore Pan-Asset's Investment committee, on investing in China

I have been urging investment in China for the last few months. So far, it has been going well. Last autumn the Chinese market looked very cheap. It was selling on 8 times earnings and offering nearly a 4% yield. The background was persistent bearishness by most professional western commentators.

Today there are still plenty of bears in the China shop. I have just read a piece claiming that China’s low public sector debt ratio of around 20% is really over 100%, if you add in pension liabilities, possible local government losses, and possible banking losses. The commentator did not say what such draconian accounting treatment would do to the much larger western sovereign debt levels already recorded.

Many bears claim that there will be a big housing bust in China. They concede that it will not come about as it has in the US, UK and Spain from excess mortgage credit, as many Chinese buy their properties with cash. Chinese buyers needing mortgages have on average relatively low debt to price ratios. They just think sentiment is now negative and this could turn into a crash. If property goes, so then the banks get into trouble. China, they argue, could do what much of the west did in 2008. It is true recently house prices have been falling a little. They could fall more. Banks could have larger losses. I suspect the Chinese state will act to stop this doing serious damage to the wider economy.

SGSS Appoints Werthmann

Societe Generale Securities Services (SGSS) reports that it has appointed Dirk Werthmann as senior relationship manager for Germany. He reports to Jochen Meyers, managing director for sales and relationship management in Germany and Austria.

Werthmann has almost 20 years of experience in the international banking and securities servicing industry. He will be responsible for fostering SGSS Deutschland’s key client relationships in Germany and Austria, thus supporting large and internationally active institutional clients (asset managers, insurance companies, corporates and institutional investors).

Werthmann began his career in 1993 at BHF-BANK, where he gained experience in a number of client-focused positions. In 2005 he joined BHF BNY Securities Services as co-managing director for sales & relationship management and in 2009 was appointed head of domestic sales management for Germany at BHF Asset Servicing GmbH. In 2010 he became head of sales for non-financial institutions at BNY Mellon Asset Servicing GmbH and then in 2011 was appointed head of sales for non-financial institutions at BNY Mellon SA/NV in Frankfurt.

Werthmann has a degree in Economics from the University of Stuttgart-Hohenheim.

SGSS goes on to say that its clients in Germany benefit from a comprehensive and efficient range of securities services, including clearing services, custody and trustee services (depotbank), fund administration and asset servicing, Master-KAG and in-sourcing services, liquidity management and fund distribution services, as well as global issuer services. SGSS in Germany has over 250 employees located in Munich, Frankfurt and Hamburg.

 

Commercial Property: Mind the Liquidity Gap

Jacques Gordon, global strategist at LaSalle Investment Management, on the current status of the commercial property market and the challenges posed by the liquidity gap

“Investors’ appetites grow and diminish.  How and why this happens is a mysterious process in all asset classes. In property, talk of 'risk-on' and 'risk-off' can be heard from traders as a new year unfolds. A year ago, the 'risk-on' real estate trade was the thing to do and investors of different stripes returned to real estate in larger numbers than any time since early 2008. A broadening band of private equity assets and products gained popularity after the risk off trades of 2010 and the year of nearly no trades in 2009.”

A Pyrrhic Victory… there is nothing as bad as a battle lost as a battle won…

Bill Blain’s Morning Porridge – February 21 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Short-comment this morning. If you want all the details of the agreement, the PSI offer, or even the internal note on Greek debt unsustainability, they are in the papers, the blogosphere and in tightly written analyst notes winging their way to you now. For the little it's worth my own opinion is Game-Over.

I reckon the gains European sovereign markets have posted since December looked capped with some significant reversal risk. 'Mean Reversion' is a fancy phrase technical traders use to expess the simple belief prices are too high. The bottom line is that in the absence of any real changes, and in the face of mounting bad news and inaction, I can see Spain and Italy spreads widening again. Meanwhile, Europe’s dismal economic fundamentalism will drag back equity markets and could well reverse the recent upside.

EU’s Junker sounded absolutely shattered as he announced the second Greek bailout at an unholy hour this morning. And that about sums up the outlook: tired, grey and sonambulant in the wake of a yet another 'full and final' Greek/European solution. Aside from a brief spike in the euro, markets aren’t rallying.

Palio Adapts Non-bank Finance Model For UK

Following a surge in demand for non-bank finance and an estimated £25bn of debt funding and refinancing needed for UK SME businesses between 2012 and 2016, Palio Capital Partners claims to be carving a new niche in the UK market by providing senior debt and mezzanine loans to businesses with an enterprise value of between £10m-£100m.  Following long-established success in the US where the debt financing market is valued at around $100bn, Palio says it is pioneering the model in the UK lower mid-market, where a significant credit supply gap has been created by the banks’ failure to lend to SMEs.

It says this innovative lending model has been enthusiastically received by European investors and  that the European Investment Fund (EIF), has already pledged a cornerstone investment to Palio’s Superflex Fund I LP (Superflex), taking the fund a third of the way to its first close of £100m, despite the challenging fundraising environment.

Mike Henebery, CEO and founder of Palio, comments:

Private Equity Add-ons Hit Record Levels

Private equity add-on deals have reached record levels as the markets endure a difficult period, Preqin research shows. There was a 44% increase in the number of deals completed in 2011 compared to 2010, and the value increased by over 50%.

For more information see: www.preqin.com/docs/press/Private_Equity_Add-On_Deals.pdf

Saxo Bank Executes World’s First Base Jumping FX Trade

I did a kind of double take when I saw the headline above. Normally the first thing I do when I see a press release come in (after stifling the inevitable yawn) is to start thinking of a headline that will persuade readers to at least take a look. In this case, I think the headline does the job it is supposed to.

The second thing I did in this instance was to begin wondering why on earth anyone would want to combine two such disparate disciplines as foreign exchange trading and base jumping. Have you SEEN the speed at which base jumpers plummet as gravity wins its inevitable victory over the human body in the air?

But of course that, presumably, is the point, to demonstrate the speed at which the technology Saxo Bank is using works, from start to finish.

What might be really entertaining for the sadistic observer could be to make it a condition of the jump that the parachute cannot be opened till confirmation has been received. I can't, though, see that one going down too well with the good burghers of the Lauterbrunnen Valley in Switzerland's Bernese Oberland where they see more than their fair share of base jumper remains splattered over their landscape. It is, apparently, a sign of girliness to be first to open your chute, no matter how near the ground you are, and how little time is left. God's Way of Improving The Average IQ, I would call that.

But back to the story, which you must all be dying to hear (no pun intended).

If life is like a box of chocolates… why do I never get the toffee?

Bill Blain’s Morning Porridge – February 20 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Absolutely fantastic sunrise this morning. Such a sky you never did see. And lots of time to admire it as 'over-running engineering works' left the train stuck for 40 minutes in No-where, Hampshire. Beautiful but fairly pointless. The guard said sorry…. I’m chilled.

We’ve got a very interesting week in prospect. Jimbo and I are just wondering how truly horrendous RBS and Lloyds results might be later this week. £2-£2.5bn of Shocking Red is our best case scenario. US economic data suggests a modest recovery is underway – not a swift spurt after recession, but slow and thin rooted - confirming the global economy is in uncharted territory.

What else? Nothing much… as if…

On the basis Europe will continue to disappoint, and the US is closed for something called Presidents Day (Nope – I’ve absolutely no idea.. I’m expecting another day of guesses passing for informed market analysis will roil markets: (the explanation is

Downhill Only Webcam Wengen

I discovered this webcam while doing some research into non-skiing membership of the Downhill Only Club in Wengen.

Looks like they are having some fantastic snow this weekend.

http://www.downhillonly.com/site/cam.shtml

Six or seven improbable things to happen before Greek bonds mature...

Bill Blain’s Morning Porridge – February 17 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

On Wednesday I wrote about the new UBS CoCo deal – saying it was over-expensive and unclear in risk-terms for the targeted retail investors. I was roundly derided as an idiot when the book attracted over $5bln demand, and the coupon was cut to 7.25% from 7.5%. Never mind the quality, they yelled…. quantity counts!  

Oversubscribed it may have been, but the lead then over-allocated it by increasing the deal size to $2bn. As the books contained lots of fast money speculators looking to immediately sell small allocations, the price collapsed as low as 96.5 at one point! Suddenly folk are asking what the real value is. The one real money account we know who actually liked the deal and subscribed for it is less than happy.

A stinker of a deal… and a sign of fin d’siecle in primary markets perhaps?  Bad deals tend to hang around sentiment for a long time, and this one may have queered the pitch for anyone who thouht to follow it... As Jim asked… “Where have all the good syndicate managers gone…” Too right mate... “We need a Hero..”

Enough gloating…  back to the festering bubbling pustule on the posterior of markets...

HFA Investor Intelligence Symposium

The Hedge Fund Association will host a symposium on investor intelligence on March 7 in New York.

“With hedge funds continuing to struggle in 2012, raising capital has never been more difficult,” says the publicity blurb. “Industry figures show that new capital coming into the industry is predominantly finding its way into the hands of funds managing more than $1bn, with very little capital flowing into funds managing less than $250m.

“If you are interested in finding out what investors are looking for, and what you can do to improve your marketing efforts, then this event should not be missed.