Good Morning Ladies and Gentlemen,
Happy Boxing Day to all of you - I hope that you all had a pleasant and festive Christmas Day.
In the shortened week that was, seven US banks were seized by regulators, bringing this year's total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates even more shutdowns in the coming weeks/months ahead.
Banks with $14.4 billion in total assets were closed yesterday in six US states, the FDIC said in statements on its Web site. The agency is overseeing the dissolution of banks at the fastest pace in 17 years.
Two of the closures were in California. The assets and deposits of Federal Bank of California in Santa Monica were bought by closely held OneWest Bank, which acquired IndyMac Federal Bank this year. Imperial Capital Bank was bought by City National Corp., the Beverly Hills-based parent of City National Bank, which expanded in Southern California with the purchase.
"Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve," City National Chief Executive Officer Russell Goldsmith said in a statement. "We're pleased to contribute to the increased stability of the banking system."
Federal Bank was the biggest lender seized yesterday, with $6.1 billion of assets and $4.5 billion in deposits, according to the FDIC. Based in La Jolla, Imperial Capital had assets of $4 billion and $2.8 billion in deposits.
Earlier this week, the FDIC boosted its 2010 budget by 56% to $4 billion to manage further shutdowns. The total budget will increase from $2.6 billion and the set-aside for bank failures doubles to $2.5 billion over this year, according to a proposal approved by the FDIC board. The agency staff will increase to 8,653 next year from 7,010 this year.
The budget "will ensure that we are prepared to handle an ever-larger number of bank failures next year, if that becomes necessary," FDIC Chairman Sheila Bair said in a statement. Yesterday's bank closings will cost the agency about $1.8 billion, according to the FDIC statements.
US lenders are buckling under the weight of loans tied to commercial real estate, which is plummeting in value. Prices have dropped 43% from their peak in October 2007, Moody's Investors Service said last month.
You can see there Ladies and Gentlemen, that a total of 140 banks bit the dust in 2009.
Okay, so 'The Banks' fashioned the great meltdown and we all know Lehman's and Bear Stearns were the bigger names that went to the wall.
But how have Goldman Sachs come through the crisis and how do they look going forward?
Here is a wonderful insight into Goldman Sachs that I read this week - and it certainly gives food for thought!
In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.
The building was a bargain -- and not just because the final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government's determination to avoid losing jobs in lower Manhattan after the Sept. 11, 2001, terrorist attacks.
Building a new headquarters cater-cornered to where the World Trade Center once stood qualified the firm to sell $1 billion of tax-free Liberty Bonds and get about $49 million of job-grant funds, tax exemptions and energy discounts. Henry Paulson, then Goldman Sachs's chief executive officer, threatened to abandon the project after delays in addressing his concerns about safety. To keep the plan on track, state and city officials raised the bond ceiling to $1.65 billion and added $66 million in benefits. The interest expense on the financing is about $175 million less over 30 years than if the company had issued corporate debt at the time, according to data compiled by Bloomberg.
"It was absolutely imperative that Goldman Sachs keep its world headquarters downtown," says John Cahill, who took part in the negotiations as chief of staff to then-Governor George Pataki and now works at New York law firm Chadbourne & Parke LLP. "They had the financial resources to move anywhere."
Unprecedented Aid
Goldman Sachs, which set a Wall Street profit record of $11.6 billion in 2007 and may have earned $11.4 billion this year, according to the average estimate of 15 analysts surveyed by Bloomberg, won new and larger concessions from taxpayers in 2008. This time it was the threat of a financial meltdown that prompted the US government, with Paulson as Treasury secretary, and the Federal Reserve to supply an unprecedented amount of aid to firms deemed critical to the financial system, including Goldman Sachs.
The 140-year-old company received $10 billion in capital, guarantees on about $30 billion of debt and the ability to borrow cheaply from the Fed. The Fed's bailout of American International Group Inc., and its decision to pay the insurer's counterparties in full, funneled an additional $12.9 billion to Goldman Sachs.
"What was done was appropriate because the potential costs of not doing that were probably exceedingly high," says Gary Stern, who stepped down in August as president of the Federal Reserve Bank of Minneapolis. "It certainly looked very threatening."
'Bad Deal'
That's not how the Goldman Sachs rescue looks to William Black, a professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. He says the government has been far too generous in allowing the firm to get federal backing without either seizing equity or curbing risks.
"It's just an unbelievably bad deal," Black says. "We could hire any middle-tier guy or gal at Goldman, and they would tell us within 15 seconds that the deal we have made as a nation with Goldman is underpriced by many, many orders of magnitude and that we are insane."
During the past year, Goldman Sachs's profits and compensation outstripped those of its rivals. The firm, now the nation's fifth-largest bank by assets, reported a record $8.44 billion in earnings for the first nine months of 2009 after setting aside $16.7 billion to pay employees. That comes to $527,192 for each person on the payroll, almost eight times the median US household income.
Public Anger
The company's stock is up 93% this year, above its price before Lehman Brothers Holdings Inc. collapsed. Meanwhile, the US unemployment rate hit a 26-year high of 10.2% in October before dropping to 10% in November.
The perception that Goldman Sachs has profited at the expense of taxpayers has fueled public anger -- even jabs from the television comedy show "Saturday Night Live." Rolling Stone writer Matt Taibbi described the firm this year as "a great vampire squid wrapped around the face of humanity." Conservative television commentator Glenn Beck devoted a 10- minute segment in July to diagramming Goldman Sachs's connections to the government and arguing that taxpayers were being spun in "a web of lies."
Bonus Plan
"People are just really angry; you can see it on the left and the right," says Andy Stern, president of the 2.1 million- member Service Employees International Union, who led about 200 protesters outside Goldman Sachs's Washington office on Nov. 16 to demand that the firm cancel its year-end bonuses and repay taxpayers instead. Some carried "Wanted" posters with pictures of Chairman and CEO Lloyd Blankfein.
The firm has made attempts to placate critics. On Nov. 17, it announced a five-year, $500 million program to provide education, capital and other forms of support to small businesses. On Dec. 10, it promised to pay the bonuses of the firm's top 30 executives only in stock that they can't sell for five years.
To Blankfein, the 55-year-old postal worker's son who earned $68.5 million in 2007, the firm's ability to generate profits and reward employees is a boon to society.
"Our shareholders are pensioners, mutual funds and individual investors, and they're all taxpayers," Blankfein told investors at a Nov. 10 conference hosted by Bank of America Corp. in New York. "The people of Goldman Sachs are one of the most productive workforces in the world."
No ATMs
What Goldman Sachs's workforce produces is different from what employees do at other financial institutions, leading some people to question why the firm is entitled to taxpayer support. It doesn't operate branches or automated-teller machines. Only millionaires can open checking accounts. Instead, Goldman Sachs exists to serve large corporations, governments, institutions and wealthy individuals.
It makes money for them and for itself by trading assets ranging from stocks and bonds to oil futures and credit derivatives. In the first nine months of 2009, more than 90% of the company's pretax earnings came from trading and principal investments, which include market bets, stakes in corporate debt and equity, and assets such as power plants.
"People who know the industry and know Goldman Sachs know that it is a giant hedge fund, but it's wrapped in an investment banking wrapper," says Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston. The public "would be horrified to think that their tax Dollars were going to a hedge fund."
Repaying TARP
Goldman Sachs repaid the $10 billion it received in October 2008 from the US Treasury's Troubled Asset Relief Program, and taxpayers got a return: $318 million in preferred dividends and $1.1 billion to cancel warrants to buy company stock the government was granted. Goldman Sachs says that's a 23% annualized return for US taxpayers, according to the firm's calculation.
Other forms of support linger. By the end of September, Goldman Sachs's $189.7 billion of long-term unsecured borrowings included $20.9 billion guaranteed by the Federal Deposit Insurance Corp. under a program started in October 2008 to unfreeze credit markets, according to the firm's most recent quarterly filing. Most importantly, the Federal Reserve agreed on Sept. 21, 2008, to allow Goldman Sachs and smaller rival Morgan Stanley to become bank holding companies, giving them access to the Fed's discount window and granting them a cheap source of borrowing traditionally reserved for commercial banks.
Interest Expense
"The issue that people have focused on -- TARP and the payback of TARP money -- is insignificant compared with the way they've been able to use federally guaranteed programs and their access to the Fed window," says Peter Solomon, founder of New York-based investment bank Peter J. Solomon Co.
Those benefits, along with a drop in the Fed's benchmark borrowing rate to as low as zero, have slashed Goldman Sachs's interest costs to the lowest this decade, though its debt was higher in the first nine months of 2009 than in any comparable period except the previous two years. For those three quarters, the firm's interest expense fell to $5.19 billion from $26.1 billion a year earlier.
"You can't give a small group of firms this privilege, where they get free money from the Fed and a taxpayer guarantee and they can run the biggest hedge fund in the world," Niall Ferguson, a professor of history at Harvard University and author of "The Ascent of Money: A Financial History of the World," said at a Nov. 18 panel discussion in New York.
'Using Your Money'
That view is shared by Solomon. "Everybody thinks they're a bank, but they're a hedge fund," he says. "The difference is that this year they're using your money to do it."
Lucas van Praag, the partner responsible for the firm's communications and the only Goldman Sachs executive willing to comment for this story, denies any similarity to hedge funds, the mostly private and unregulated pools of capital that managers use to buy or sell assets while participating in the profits.
"The assertion that we're a hedge fund displays a substantial misunderstanding of our business," says van Praag, 59, a British-born former public relations executive who joined Goldman Sachs after it went public in 1999. "We are in business primarily to facilitate transactions for our clients, and over 90% of our revenue and earnings come from doing that."
Proprietary Trading
Proprietary trading, in which Goldman Sachs employees make bets with the company's own money, has contributed only 12% of the firm's revenue since 2003, van Praag says. Still, fixed-income, currency, commodity and some equity trading that takes place off exchanges blurs the line between client-driven transactions and proprietary wagers, says Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Goldman Sachs stock "outperform."
"It's coming onto my balance sheet, I'm owning it and then I'm selling it," Hintz says. "The fact that I'm taking a position means I'm taking risk, and if I'm taking risk, then I'm taking a proprietary bet."
If Goldman Sachs agrees to buy $1 billion of mortgages that a client wants to sell and then decides to keep the mortgages, it's not easy to determine whether that trade is aimed at helping a client or is a proprietary investment decision, Hintz says.
Van Praag says that Goldman Sachs, unlike some other banks, was never in imminent danger of going out of business during the financial crisis unless the entire system was allowed to implode.
'We Didn't Wait'
"We had cash and funding that would have allowed us to survive for quite a long time, even assuming that counterparties had decided to stop providing financing," van Praag says. "When markets became very difficult, we didn't wait for the government to act. We went out and raised money in the private sector."
Two days after winning the Fed's approval to become a bank holding company, Goldman Sachs sold $5 billion of preferred stock to billionaire Warren Buffett's Berkshire Hathaway Inc. and then raised another $5.75 billion by selling common stock to the public. Those deals, plus a $5.75 billion public offering in April 2009, helped raise shareholder equity to $65.4 billion from $45.6 billion in August 2008.
Goldman Sachs also cut the amount of assets it owns to $882 billion from $1.08 trillion before the Lehman collapse. The firm holds $167 billion in cash or near-cash instruments, up from about $102 billion at the end of August 2008, which it can use to pay off debts if creditors stop making loans.
'Classic Bank Run'
Treasury Secretary Timothy Geithner said in an interview with Bloomberg Television on Dec. 4 that no bank would have survived without the government's help.
"The entire US financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run -- a classic bank run," he said.
Since the government stepped in, investors have been more willing to lend money to Goldman Sachs. The premium bondholders charge to own the firm's bonds that mature in April 2018 instead of US Treasuries of the same maturity has shrunk to less than 1.5 percentage points from as much as 6.8 percentage points on Nov. 20, 2008, according to data compiled by Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The spread isn't as narrow as the 0.99 percentage point premium to Treasuries that Goldman paid on new 10-year bonds in January 2006, the data show.
'Backstopped'
At an Oct. 15 breakfast sponsored by Fortune magazine, Blankfein said that market prices prove that investors don't think the bank has a government guarantee.
"We're not exactly borrowing at the government rate," he said. "The market isn't behaving that way."
Sean Egan -- co-founder of Haverford, Pennsylvania-based Egan-Jones Ratings Co., which in October gave Goldman Sachs an AA rating, its third highest -- has a different view.
"We're in the business of doing credit analysis, and we've come to the conclusion that essentially Goldman Sachs is backstopped," Egan says.
William Larkin, who manages about $250 million in fixed- income investments at Cabot Money Management Inc. in Salem, Massachusetts, says he owns Goldman Sachs bonds partly because he thinks the company won't be allowed to go out of business.
"They would be bailed out" if anything went wrong, Larkin says. "Goldman right now is in a catbird seat because it's very important to keep them healthy."
Fewer Competitors
Chief Financial Officer David Viniar takes issue with the idea that the firm continues to benefit from an implied guarantee by the US government.
"We operate as an independent financial institution that stands on our own two feet," Viniar, 54, told reporters on an Oct. 15 conference call. "We don't think we have a guarantee."
The firm has grown more dominant in the past year, increasing its market share, Viniar told analysts on Oct. 15. It has benefited from having fewer competitors -- Bear Stearns Cos., Merrill Lynch & Co. and Lehman Brothers were all subsumed into other banks during the financial crisis -- while larger rivals such as Citigroup Inc. and UBS AG have been hobbled by writedowns and a lower appetite for risk.
"The crisis has created an oligopoly," says Solomon, who founded his firm in 1989 after leaving Lehman Brothers.
Value-at-Risk
Goldman Sachs has also increased the size of the bets it's making. Its value-at-risk -- an estimate of how much the trading desk could lose in a single day -- jumped to an average of $231 million in the first nine months of 2009, a record for the firm. At the end of September, the company estimated that a 10% drop in corporate equity held by its merchant-banking funds would cost it $1.04 billion, up from $987 million at the end of June.
Revenue generated by trading and investing, the most unpredictable part of Goldman Sachs's business, accounted for 79% of the firm's revenue in the first nine months of 2009, up from 28% in 1998. Early the next year, before Goldman Sachs's initial public offering, executives, led by Paulson, told investors the company would try to decrease the percentage.
The government is acting schizophrenically by arguing that Goldman Sachs needs taxpayer support because it poses a risk to the financial system at the same time as it's failing to do anything to curtail that risk, says Nobel Prize-winning economist Joseph Stiglitz, who teaches at Columbia University in New York.
"We say they're too big to fail, but we refuse to do anything about their being too big to fail," Stiglitz says. "We say that they represent systemic risk, but we don't regulate them effectively."
'Biggest Single Gift'
SStiglitz also points to the Fed's $182.3 billion AIG bailout as an example of how policy has been tilted to support Goldman Sachs.
"The biggest single gift was the AIG rescue," he says. "No one has ever provided a good argument for why we did it other than we were bailing out Goldman Sachs."
On Sept. 16, 2008, a day after Lehman filed the biggest bankruptcy in US history, the Fed authorized Geithner, then president of the Federal Reserve Bank of New York, to lend $85 billion to help AIG avoid a similar fate by allowing it to continue to post collateral owed on contracts and to settle securities-lending agreements. Geithner later told a Congressional Oversight Panel that the government acted because "the entire system was at risk."
$12.9 Billion
In November, the Fed created two entities: Maiden Lane II to repurchase securities that had been lent out in return for cash, and Maiden Lane III to purchase collateralized-debt obligations so AIG could cancel the credit-default swaps, similar to insurance policies, it had written on them. In the latter program, the Fed allowed the counterparties to settle contracts at 100% of their value.
Goldman Sachs was the biggest beneficiary, receiving a total of $12.9 billion in cash, consisting of $5.6 billion to cancel insurance on CDOs, $4.8 billion to repurchase securities and $2.5 billion of collateral.
If Goldman Sachs and AIG's other counterparties hadn't been paid off in full by the Fed, they might have taken losses on their contracts.
Other bond insurers had canceled agreements by paying less than par. Merrill Lynch accepted $500 million from Security Capital Assurance Ltd. in late July 2008 to tear up contracts guaranteeing $3.7 billion of CDOs. On Aug. 1, 2008, Citigroup agreed to accept $850 million from bond insurer Ambac Financial Group Inc. to cancel a guarantee on a $1.4 billion CDO.
Barofsky Report
In a Nov. 16 report on the AIG bailout, Neil Barofsky, special inspector general for TARP, said the Fed tried for two days to negotiate with counterparties, an effort that failed because the Fed felt obliged to make any discounts voluntary and because French counterparties said they couldn't legally be required to comply. Goldman Sachs refused to negotiate because it felt it was hedged if AIG failed to pay, Barofsky wrote.
"Notwithstanding the additional credit protection it received in the market, Goldman Sachs (as well as the market as a whole) received a benefit from Maiden Lane III and the continued viability of AIG," Barofsky wrote. Goldman Sachs would have been saddled with the risk of further declines in the market value of about $4.3 billion in CDOs as well as some $5.5 billion of CDSs, he added.
'Fascination With AIG'
Viniar, who held a conference call in March to answer questions about the firm's relationship with AIG, said Goldman Sachs didn't need a bailout because the firm's hedges meant it faced no significant losses if AIG failed.
"I am mystified by this fascination with AIG," he said in an interview in April. "In the context of Goldman Sachs, they're one of thousands and thousands of counterparties, and the results of any trading with AIG are completely immaterial to what we do. Always have been, and always will be."
Suspicions that the fix was in for Goldman Sachs have been fanned by the firm's political connections.
Paulson worked at the company for 32 years, the last eight of them as CEO, before becoming Treasury secretary in 2006. Geithner selected former Goldman Sachs lobbyist Mark Patterson to serve as his chief of staff at Treasury. Stephen Friedman, a former senior partner who serves on the company's board, stepped down as chairman of the New York Fed in May amid controversy over his purchases of the firm's shares in December 2008 and January 2009 after it became a bank holding company regulated by the Fed. Geithner and Lawrence Summers, President Barack Obama's National Economic Council director, worked earlier in their careers under former Treasury Secretary Robert Rubin, who was once co-chairman of Goldman Sachs. Geithner's successor as New York Fed president is William Dudley, a former chief US economist at Goldman Sachs.
Political Contributions
Goldman Sachs and its employees have donated $31.4 million to US political parties since 1989, more than any other financial institution and the fourth-highest amount of any organization, according to the Center for Responsive Politics, a Washington research group.
Regulators and lawmakers are attempting to make changes that they say will protect taxpayers in the future. One proposal being considered by the US Congress is to require financial institutions whose failure could cause a breakdown of the entire system to hold more liquid assets and a larger buffer of capital to help absorb losses.
The bill would also empower regulators to step in and liquidate a major financial institution, or merge it with another, rather than bail it out or let it collapse.
Safety Net
That's not enough for Paul Volcker, the former Fed chairman who serves as an economic adviser to Obama. Volcker, 82, has argued that the government safety net should be limited to financial institutions that provide utilitylike services such as deposit taking and business-payment processing essential to economic functioning. All risk-taking functions should be done separately, he says.
"I do not think it reasonable that public money --taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial-banking organization," Volcker said in a Sept. 16 speech at a conference in California.
Asked about Goldman Sachs in a Dec. 11 interview in Berlin, Volcker said, "They can do trading and do anything they want, but then they shouldn't have access to the safety net."
Black, the former bank regulator, agrees.
"The answer is not to give these guarantees but to make sure there are no more systemically dangerous institutions," he says. "They shouldn't be allowed to grow, and of course, that's what they're doing right now. They're mostly growing like crazy."
Ground Zero
On a cold, rainy morning in December, rust-colored beams poke above a fence that surrounds the construction pit at Ground Zero in lower Manhattan. Across West Street, workers in yellow slickers are landscaping the strips that separate the entrance to Goldman Sachs's new headquarters from the highway. In the lobby, a brightly colored abstract painting by Ethiopian- American artist Julie Mehretu, which cost about $5 million, greets employees who have already relocated.
The new building has twice as much space and costs 14 times as much as Goldman Sachs's old headquarters a half mile (0.8 kilometer) away. Two American flags the size of bed sheets dominate the stone and concrete facade of the 30-story building at 85 Broad St., constructed almost three decades ago when Goldman Sachs was a private partnership with about 2,700 employees in New York.
In 1983, the year the firm moved in, it had pretax earnings of $462 million, one-twenty-fifth of what it made in 2007.
While Goldman Sachs has outgrown its old headquarters, one thing hasn't changed: It's still getting subsidies to remain in lower Manhattan. When it built 85 Broad St., the company received about $9 million in incentives to stay, according to a press report at the time. Now, it's getting $115 million -- an amount dwarfed by the funds US taxpayers provided in the heat of the 2008 financial crisis.
So, one bank remains 'too big to fail' it seems!
On to the numbers on the boards during the holiday-shortened week: |
| US Markets
How the US did this week ..... |
|
 Healthcare companies were in focus on Thursday after the US Senate approved sweeping healthcare reform in Washington, while markets reached a new fresh-year high.
The healthcare bill was passed in Washington by a vote of 60-39, after months of wrangling, but must wait to be merged with the House version and passed again by both chambers.
The S&P healthcare index, which has been among the best-performing over the fourth quarter, was flat at 365.99.
Aetna rose 0.1% to $33.78 and UnitedHealth added 0.2% to $31.68, while Cigna lost 0.4% to $36.33, Humana declined 0.7% to $45.44 and WellPoint was 1.1% weaker at $59.36.
The S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite all climbed to fresh year highs. The S&P gained 0.5% to 1,126.48, while the Dow added 0.5% to 10,520.10 and the Nasdaq climbed 0.7% to 2,285.69.
Markets advanced on data showing a steeper than expected drop in jobless claims. The number of people applying for unemployment benefits last week fell by 28,000 to 452,000 in seasonally adjusted figures. Jobless claims are now at their lowest level since September 2008.
Separately, the US Commerce Department reported new orders for durable goods increased by 0.2% in November.
Shares in Apple jumped to a record high on reports the company was set to introduce a new product in January of next year. Apple advanced 3.4% to $209.04.
Gold producers were higher after the metal surged past $1,100 an ounce. Barrick Gold climbed 0.3% to $40.35 and Goldcorp added 1.2% to $40.50.
Gold was up 1.6% to $1,104.90, spurred by a lower Dollar. The greenback lost 0.1% to $1.4356 against the Euro and declined 0.1% on a trade-weighted basis.
Oil added 0.9% to $77.34, while the yield on10-year US treasuries jumped 5 basis points to 3.8%.
In the banking sector, Citigroup rose 1.8% to $3.35 after announcing on Wednesday it had repaid $20bn in bailout money to the US government. Wells Fargo, which said it had repaid $25bn in government funds on Wednesday, was 0.9% higher at $27.09.
Industrial group, Crane, announced it would acquire Merrimac Industries, a satellite parts manufacturer for $16 a share in cash. Crane advanced 2.2% to $32.21, while Merrimac surged 37.8% to $15.90.
Pharmacy services provider, Omnicare, was 0.5% weaker at $24.42. The group announced David Froesel Jr had resigned from his posts as chief financial officer and senior vice president. The company has not announced a successor.
Oshkosh gained 2.3% to $38.24, after the military trucks producer received a $54m order from the US Army. The company has received about $3.52bn in awards to date.
In the pharmaceuticals sector, Teva-KOWA announced it would acquire at least two-thirds of Taisho Pharmaceutical Industries' outstanding shares. Teva-KOWA parent, Teva, was 0.7% weaker at $55.94. |
| European Markets
What has been happening in Europe this week ..... |
 Those European stock markets that were open Thursday inched higher, tracking gains in Asia to extend their recent rally.
The FTSE Eurofirst 300 index of top European shares opened just above par and was up 0.2% at 1038.87 after midday in London.
France's CAC 40 was up 0.1% at 3,915.31, continuing its upward trend since the start of the month. Energy stocks found favour after the United Arab Emirates set up a body to run its nuclear power programme, which is expected to award some of the region's largest-ever power deals. A consortium led by utilities EDF and GDF Suez, and oil group Total, is among the bidders. EDF was up 0.4% at €41.03, and GDF Suez was up 0.9% at €29.73, while Total was up 0.7% at €45.19.
European banking stocks were lower. France's Société Générale was down 0.6% at €48.07 while Crédit Agricole fell 0.2% to €12.21. Ireland's was down 3% at €1.31 and Bank of Ireland was down 3%, at €1.40.
Markets were closed in a number of European countries including Germany, Italy, Austria, Denmark, Finland, Norway, Spain, Sweden and Switzerland. |
| The UK Market
Did it follow the Global trend ..... |
ELondon's benchmark stock index reached a 15-month high on Thursday, the last trading day before the Christmas break. 
The FTSE 100 closed 0.6% higher at 5,402.41, the highest peak since September 2008. Trading halted early at 1230GMT for the holiday period and will resume on Tuesday December 29.
Mining stocks continued to be in focus, extending the previous day's gains. Fresnillo, the world's largest primary silver producer, opened 5% higher at 785p after trumping an offer from Canada's Goldcorp to buy Canplats Resources, a Canada-based exploration company, for C$254m (£152m). Xstrata added 0.6% to £10.74 after its biggest shareholder Glencore moved towards a public listing by selling $2.2bn of convertible bonds. Anglo American was up 0.9% at £26.90.
Bank shares gained towards the end of the session, with Lloyds Banking Group up 0.8% at 49.3p. Royal Bank of Scotland rose 3.1% to 29.3p on talk that Aberdeen Asset Management was interested in buying its funds arm in a deal that could be worth up to £100m. HSBC advanced 0.7% at 719p. |
| Asia Pacific Regional Markets
Did they set the tone or follow the lead ..... |
 JAPAN
Japanese stocks fell the most in two weeks, led by makers of electronics and cars, on concern that recent gains made shares expensive relative to earnings and that profits may be hurt by rising unemployment and falling prices.
Canon, which is the world's largest camera maker and surged 8% in the past two days, lost 1.7%. Toyota Motor Corp., the world's biggest carmaker retreated 1% following a two-day, 4.6% advance. Tokyo Electron Ltd., the world's No. 2 maker of chip equipment, decreased 1.7% after reaching its highest level since September 2008 yesterday.
The Nikkei 225 Stock Average fell 0.4% to 10,494.71 at the 3 p.m. close in Tokyo. The broader Topix index lost 0.5% to 909.39, with almost twice as many stocks declining as advancing. Both gauges dropped the most since Dec. 10.
The number of shares traded on the Tokyo Stock Exchange was the lowest for a full day this year. Japan and China were the only major markets open, the rest being shut for Christmas.
The Topix gained 1.8% this week, swelling the price of stocks in the gauge to 1.12 times book value on average, the highest level since Sept. 25, according to data compiled by Bloomberg. The Nikkei added 3.5% this week.
Canon lost 1.7% to 3,950 yen, and Tokyo Electron retreated 1.7% to 5,880 yen. They were the biggest drags on the Nikkei 225. Panasonic Corp., the world's largest maker of plasma televisions, dropped 1.5% to 1,327 yen after rising to a three-month high yesterday.
Toyota fell 1% to 3,850 yen and was the biggest drag on the Topix. Nissan Motor Co., Japan's third-largest carmaker, dropped 1.1% to 787 yen, retreating from its two-day, 9.8% rally.
The Topix has climbed 5.8% this year, the lowest return among the world's 40 largest equity markets, according to data compiled by Bloomberg.
Investors have shunned Japanese stocks on concern a strong yen will hurt corporate earnings and the government of Prime Minister Yukio Hatoyama, elected in August, will fail to revive economic growth. The yen climbed to a 14-year high in November and has averaged 93.62 against the Dollar this year, the highest annual level since currencies began trading freely in 1971.
SOUTH KOREA
The markets were closed Friday for Christmas Day.
HONG KONG
The markets were closed Friday for Christmas Day.
CHINA
China's stocks dropped for the first time in three days, paring a weekly gain, on concern new share sales will divert money from existing equities.
Zijin Mining Group Co. and China Shenhua Energy Co., the nation's largest producers of gold and coal, lost at least 1.3% as eight companies debuted in Shenzhen's ChiNext market for start-up companies Friday. Pharmaceutical companies Joincare Pharmaceutical Group Industry Co. advanced as investors sought so-called safe havens that aren't easily affected by the economic swings.
The Shanghai Composite Index fell 12.06, or 0.4%, to 3,141.35 at the close. It added 0.9% in the past five days, its first weekly gain in three weeks. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 0.4% to 3,424.78.
The Shanghai gauge has rallied 73% this year as government spending and a credit boom helped the nation's economy recover from its steepest slump in more than a decade. The index has dropped 1.7% this month as a flood of share sales diverted funds from existing equities and the government raised down payments on land purchases.
Jiangxi Copper Co., China's biggest producer of the metal, lost 1.7% to 37.93 Yuan. Zhongjin Gold Corp., the country's second-largest bullion producer by market value, slid 2.6% to 56.21 Yuan.
Eight companies including Jiangsu Huasheng Tianlong Photoelectric Co. and Guangzhou Improve Medical Instrument Co. jumped on the first day of trading in the ChiNext market for technology-heavy start-ups.
They are the second batch of companies that have been listed on the market, adding to the first 28 companies that went public at the end of October. ChiNext has less stringent rules for listing compared with the nation's two main exchanges.
Mainland companies have raised 194 billion Yuan ($28 billion) from initial public offerings this year, 87% more than the whole of 2008, according to data .
Anhui Xinhua Media Co., the biggest publishing house in the province, said it plans to raise 712 million Yuan in an initial public offering in Shanghai to fund its expansion.
Joincare Pharmaceutical advanced 6.3% to 12.17 Yuan, rising for a fifth day. Zhangzhou Pientzehuang Pharmaceutical Co., a manufacturer of Chinese traditional medicine, gained 3.1% to 39.08 Yuan. A measure tracking health-care stocks gained 1.5% Friday, the second biggest among the CSI 300's 10 industry groups.
The following companies were among the most active in China's markets. Stock symbols are in brackets after companies' names.
China CAMC Engineering rose 3.4% to 25.70 Yuan after the company said 2009 net income may rise 30% to 50%.
Guangdong Mingzhu Group rose by the 10% daily limit to 8.55 Yuan after saying it received a 78.8 million Yuan dividend payment from Guangdong Dading Mining Co.
Shenzhen Gas, a supplier of bottled gas, more than doubled to 15.17 Yuan in its Shanghai trading debut after raising 903.5 million Yuan in its initial public offering.
TAIWAN
Taiwan stocks rose 0.11% to a fresh 18-month closing high on Friday after the central bank kept its interest rates steady, with Nanya Tech and other memory chip makers higher on hopes of a pickup in demand.
The main TAIEX share index jumped 9.05 points to 7,972.59, a level not seen since mid-June 2008, finishing the week with a rally of about 3%.
Turnover dropped to T$115.6 billion from T$142.5 billion in previous session.
Taiwan's central bank kept its key rates at a record low of 1.25% on Thursday and cemented expectations it would stay on hold well into 2010, by noting a lack of inflationary pressure and moderate pace of growth.
Nanya Technology, Taiwan's No.2 DRAM chip maker, traded seven-percent limit up, boosting the electronics sub-index by 0.29%.
Smaller rival Winbond Electronics also traded limit up while Inotera Memory was up 5.4%.
The gains come on expectation of improving DRAM demand.
DRAM supply is expected to be tight in 2010, following a reining-in of production during the sector's worst slump this year as well as rising demand in emerging markets.
Transportation shares rose 0.2% after local media reported on Friday that China's top negotiator, Chen Yunlin, mentioned the possibility of allowing the transit of goods between Taiwan and China.
Sincere rose 1.7% and U-Mine Marine climbed 0.3%.
Bucking the gains, construction shares sank 1.3% after the central bank said it would watch changes in asset prices closely, especially for property in Taipei and two other major cities.
Cathay Real Estate fell 0.77% and Kingdom Construction slipped 2.6%.
SOUTH EAST ASIA
Markets in Malaysia, Singapore, The Philippines, Indonesia and India were all closed for Christmas Day.
THAILAND
The SET in Bangkok closed the day Friday at 730.41, up 0.44% on the day.
Thailand's SET Index may rise 4.5% next week, extending its biggest gain in six years, as individual investors buy more mutual funds to meet a year-end tax deadline, Morgan Stanley's Thai partner said.
The measure may rise to as high as 760 by the end of the year, according to Bualuang Securities Pcl, which has a tie up with Morgan Stanley for Thai research. That would be the highest level since July 2008.
The SET has gained 62% this year on expectations the economic recovery will boost earnings. Southeast Asia's second- largest economy shrank 2.8% last quarter, the smallest contraction in a year, as it pulls out of the global slump.
Local individuals are expected to invest at least 5 billion baht ($151 million) in mutual funds that provide tax breaks, Tisco Securities Co., Deutsche Bank AG's partner in Thailand, said in a report on Dec. 22. The gauge Friday rose 0.4% to 730.41, the highest close since Oct. 19.
PTT's consolidation plan has been delayed from November after a court order to suspend 65 operations at the Map Ta Phut industrial estate in the eastern province of Rayong, home to the world's eighth-biggest petrochemical hub.
PTT, Thailand's biggest listed company valued at about $20 billion, runs the country's gas pipeline monopoly and controls more than 30 petroleum, gas exploration, petrochemical and refinery businesses.
AUSTRALIA
The markets were closed Friday for Christmas Day.
However on Thursday, stocks in Australia gained after copper and gold advanced in international markets. Centro Properties appoints restructuring advisors. Warrnambool Cheese receives two proposals that value the company at A$4 a share. Woodside Petroleum keels nine leases in Browse natural project.
Australia stocks rose leveraged by rising commodity stocks as the greenback weakened.
Trading was shortened on the eve of Christmas. In Sydney trading ASX 200 Index rose 1.1% or 51.6 to 4,790.90.
Of the ASX 200 index stocks, 146 gained, 36 dropped, and 18 were unchanged. Murchison Metals led gainers in the index shares with a rise of 6.3% after gold prices rose 0.7% to $1,094 per ounce and crude oil prices jumped 3.1% to $76.7 per barrel.
The Australian Dollar edged up 0.3% to 88.22 US cents.
Centro Properties Group announced Friday that it has appointed J.P. Morgan Australia Ltd. and Moelis & Company LLC as co-advisers to restructure the company. Centro Retail Trust also appointed UBS AG.
UBS AG and J.P. Morgan Australia will work "in a collaborative basis" during the assessment phase to be completed by mid-2010.
"The objective of the assessment phase is to identify the means by which the enterprise value of the Centro group can be maximised and to separately identify and analyse execution risks," said the company.
Centro Raises $2.2 billion in Convertible Bonds
The Times reported Friday Glencore has raised $2.2 billion in convertible bonds from private equity companies and sovereign wealth funds. The company currently has $9.3 billion in debt as noted on its Web site.
According to the report, the bonds will convert into stock, valuing the trading company to $35 billion if it seeks an IPO.
Glencore bonds were purchased by equity firms First Reserve and BlackRock Inc and the Government of Singapore Investment Corporation.
Glencore own 34.5% in Swiss mining company Xstrata and 9.7% in Russia based United Co. Rusal. The company is likely to list its shares in a public offering in either London or Hong Kong.
"This transaction, in which Glencore is opening up its equity capital to outside investors, marks an important milestone as we embark on the next stage of our corporate development," said the company.
DEXUS Property Group led the decliners in the S&P ASX 200 index with a loss of 2.3% followed by losses in Elders Ltd of 2.3%, in IOOF Holdings Limited of 2.2%, in Abacus Property Group 2.2% and in GPT Group 1.6%.
Murchison Metals Limited led gainers in the S&P ASX 200 index with a rise of 6.2% followed by gains in Gunns Limited 5.1%, in Extract Resources Limited of 4.6% and in Carnarvon Petroleum Limited of 4.5%.
Other Movers
BHP Billiton plc added 1.3% to A$42.47 after the mining company said Chinese and Japanese copper smelters remain locked in talks over copper treatment and refining charges with the company after agreeing a 38% cut with Freeport-McMoRan Copper & Gold Inc.
Centro Properties Group climbed 6.1% to A$0.26 after it appointed advisors for restructuring.
DEXUS Property Group fell 2.3% to A$0.82 after the completion of US property sales of $177 million, as part of the A$600 million property sale program announced in April. The company also sold A$115 million of Australian property since June 30, 2009.
Gunns Limited the forest management and development rose 5.1% to A$0.91.
IOOF Holdings Limited the offering a range of financial products dropped 2.2% to A$6.04.
Murchison Metals Limited gained 6.2% to A$2.38.
Warrnambool Cheese and Butter Factory Company Holdings Limited surged 23.6% to A$3.40 after the company received two takeover proposals. The offers valued the company at A$160 million. The company rejected both offers and asked shareholders not to take any action.
Woodside Petroleum Ltd advanced 0.3% to A$47.50 and the company said it will issue 31,211,631 to institutions and additional 28,646,808 to retail investors at a price of A$42.10 each.
Separately the company also agreed to a deadline of April 2010 to decide how it plans to develop its natural gas project at Browse field in exchange to keep the nine leases in the field.
NEW ZEALAND
The NZ Markets were closed Friday for Christmas.
For Thursday though, the NZX 50 drifted lower in light trading, in a shortened Christmas Eve session. Pan Pacific Petroleum led gainers as the price of crude oil rose. Carpet maker Cavaliar Corp. was the biggest decliner.
The NZX 50 fell 4.36, or 0.1%, to 3205.20, snapping two days of gains. Within the index, 18 stocks fell, 16 rose and 16 were unchanged. Turnover was $36.6 million, making it one of the weakest trading sessions this year.
Pan Pacific gained 8% to 54 cents. New York crude rose for a third day after US Energy Department figures showed a bigger-than-expected decline in stockpiles.
Crude oil for February delivery traded at US$77.35 a barrel in early Singapore trading. Oil has soared about 75% this year.
PGG Wrightson, the nation's biggest rural services company, rose 3.5% to 60 cents. The company has completed its rights issue, raising $180.7 million. The fund raising allows Wrightson to repay some $200 million of bank debt early.
"It is an excellent result for PGW to have successfully completed the rights issue before the New Year," said chairman Keith Smith.
NZX Ltd., the stock exchange operator, fell 1.3% to $2.28. The exchange, which may end up competing with the ASX for the local electricity futures market, yesterday warned against foreign ownership, saying home jurisdictions are better placed to meet industry requirements.
Freightways Ltd., the courier and logistics group, rose 4.6% to $3.40. The company is rated 'outperform' based on the consensus of seven analyst recommendations compiled by Reuters.
Australia & New Zealand Banking Group climbed 2.6% to $28 and Westpac Banking Corp. rose 1.6% to $31. New Zealand's four biggest banks yesterday announced they have settled their tax case with the Inland revenue Department for about $2.2 billion, agreeing to pay about 80% of the disputed amount and saving themselves some $550 million combined.
Allied Farmers fell 6% to 12.5 cents. The shares have tumbled 62% in the past six months. Shares on issue now exceed 1.9 billion, compared to 37.7 million before the firm purchased the financial assets of Hanover Finance and United Finance.
The "sheer weight of supply" is a risk overhanging Allied Farmers, Stephen Wright, private client adviser at ASB Securities, said yesterday.
Nuplex Industries rose 1.4% to $2.94. The shares tumbled 34% in 2009, a year when it was forced to sell stock at a deep discount to shore up its balance sheet.
Ebos Group, the medical supplies distributor, rose 2.8% to $5.80 and Skellerup Holdings gained 2.1% to 49 cents.
Telecom Corp. fell 2% to $2.45 and trucking firm Mainfreight Ltd. declined 1.7% to $5.65. |
| Global Commodities
'Food for thought' or 'a Grain of truth' ..... |
 Crude oil rose more than $2 a barrel following the latest US weekly inventories data while white sugar prices reached a fresh peak.
Nymex February West Texas Intermediate was $2.27 higher at $76.67 a barrel, while ICE February Brent added $1.99 at $75.45 a barrel.
US crude stocks dropped 4.9m barrels last week, far above the consensus forecast for a decline of 900,000 barrels.
The decline in stocks was due in part to low imports, down 65,000 b/d to just 7.71m b/d last week, after fog affected vessels in the Houston Shipping Channel.
Distillate stocks (including heating oil) fell 3.1m barrels, well above the consensus forecast for a decline of 1.9m barrels. Colder weather boosted heating oil consumption with distillate demand averaging 3.67m b/d over the past four weeks. The year-on-year decline in distillate demand eased to 3.9%, a clear improvement since the start of winter.
Nymex January heating oil traded 6.1 cents, or 3.1%, higher at $2.0082 a gallon.
Technical analysts said short-term momentum for crude oil prices appeared to be strengthening with WTI back above the 100-day moving average following Opec's widely expected decision to maintain current production levels at its meeting in Angola this week.
White sugar prices hit a fresh all-time high with Liffe March white sugar up 1.8% to a record $688 a tonne while ICE March raw sugar added 0.3% at 26.57 cents a Pound.
Carbon prices continued to recover after falling sharply on Monday on disappointment at the outcome of the UN climate summit in Copenhagen. European Union Allowances for December 2010 delivery, rose 2% to €12.97 a tonne.
Gold gained $7.30 to $1,094 an ounce on the New York Mercantile Exchange after the Dollar declined.
Commodities have traded inversely with the Dollar for much of this year, and the trend was firmly in place on Wednesday. Commodities become cheaper for foreign buyers when the Dollar falls. Gold also benefits as a hedge against a weak greenback.
Record-low interest rates have sent the Dollar falling since March. But in recent weeks investors have been buying Dollars on the belief that the Federal Reserve might be forced to raise interest rates sooner than expected as the economy improves. That has put pressure on commodities prices.
The housing report was a reminder that the economic recovery will like be slow, keeping short-term interest rates about where they are now, near zero.
Other metals followed gold higher Wednesday. March silver jumped 16 cents to $17.19 an ounce, while March copper futures added 6.55 cents to $3.2035 a Pound.
January platinum rallied $29.90 to $1,426.80 an ounce. Palladium also rose. |
| Global Currencies
In for a Penny, in for a Pound ..... |
The Dollar ended lower against the Euro Thursday, continuing its recent retreat against the common currency but trimming its losses after better-than-expected jobs data helped restore confidence in the US recovery.
The Dollar, which rallied broadly earlier in the month, gained modestly against the British Pound and ended little changed against yen and the Canadian Dollar.
Thin trading flows and the expectation of continued unsettled market conditions next week after the Christmas holiday left market watchers unsure of the near-term direction in the major currencies.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.841 from 77.912.
The Canadian Dollar initially strengthened but then relinquished its gains against its US counterpart in illiquid and erratic trading Thursday; the US Dollar was at C$1.0480 early Thursday afternoon from C$1.0487 late Wednesday.
Overnight, the Euro gained on the Dollar after Greece unveiled a deficit-reduction plan, easing some economic concerns in the Euro zone. Greece's parliament had approved a budget for next year, aimed at reducing the fiscal deficit to an estimated 9.1% of gross domestic product from 12.7% this year.
The Euro has been under pressure over investor concerns that Greece might default on its foreign debt, as its deficit ballooned and servicing costs rocketed.
During trading on Friday, the Japanese yen advanced slightly against the Euro. As of now, the Euro-yen pair is trading at 131.40, compared to 131.64 hit late New York Thursday. On the upside, 131.2 is seen as the next target level for the Japanese currency.
Japan's CPI for December and the unemployment report for November released Friday likely influenced the yen.
Sterling rose against a broadly softer Dollar on Thursday, clawing back some ground after hitting two-month lows earlier in the week, but extended losses against the Euro in holiday-thinned trade.
Sterling was up 0.2% at $1.6010 after touching a session high of $1.6023. A next target could be a break above the 200-day moving average around $1.6025, traders said. The Euro was up 0.8% at 89.92 pence after briefly rising to 90.11 pence, its highest since 14 December, according to Reuters charts.
Sterling has been weighed down this week since a disappointing revision to third quarter UK growth figures, and as minutes from the latest Bank of England policy meeting were perceived as leaving the door open to further monetary easing.
South Africa's Rand climbed to a one-week high as higher prices for gold and platinum, the country's biggest exports, boosted earnings prospects for the world's biggest producer of precious metals.
The currency of Africa's biggest economy gained as much as 1.8% to 7.4732 per Dollar, the strongest intraday level since 17 December. The Rand traded 1.7% stronger at 7.4818.
The Dollar's weakness against other currencies on international markets overnight and a slightly lower Dollar-Yuan central parity rate led China's Yuan higher against the US Dollar late Friday afternoon.
On the over-the-counter market, the Dollar was at CNY6.8272 around 0930 GMT, down from Thursday's close of CNY6.8280. It traded between CNY6.8271 and CNY6.8282.
The central parity rate was set at 6.8283, down from 6.8285 Thursday. |
| China
Key news eminating from China this week ..... |
 China raised its 2008 growth estimate to 9.6% from 9% and said this year's quarterly figures will increase, narrowing the gap with Japan, the world's second-biggest economy. Gross domestic product was 31.405 trillion Yuan ($4.6 trillion) last year, the statistics bureau said at a briefing in Beijing . That compares with a previous 30.067 trillion Yuan and the World Bank's estimate of $4.9 trillion for Japan. China's expansion will be more than 8% in 2009, according to government officials, and the nation is poised to overtake Japan next year, International Monetary Fund projections show. Friday's figures result from an economic census which showed a bigger contribution from services and continue a pattern of China revising up preliminary growth estimates. For 2009, revisions will mainly affect the value of the year's gross domestic product, with a "very small" impact on the growth rate, said Peng Zhilong, the head of the bureau's national economy calculation department. This year, the Chinese economy grew 8.9% in the third quarter from a year earlier, 7.9% in the second and 6.1% in the first. The government has pledged to maintain a "moderately loose" monetary policy in 2010 to sustain a rebound driven by a stimulus package and record lending. The pace of growth is attracting more investment. Foreign direct investment climbed 32% in November to $7 billion from a year earlier. Luxury carmaker Bayerische Motoren Werke AG said last month that it will build a new factory worth 5 billion Yuan in China to tap an auto market set to overtake the US as the world's largest. Friday's figures showed a 13.1 trillion Yuan contribution from services in 2008, compared with 12 trillion Yuan previously. The census, intended to give a better picture of the economy's make-up, focused on industry and services rather than agriculture. Gross domestic product figures for 2005, 2006 and 2007 will also be revised as a result of the census, Peng said. China's economy was 4.4% bigger in 2008 than originally estimated, Friday's figures showed. In comparison, a previous census in 2005 showed the statistics bureau had under- estimated the size of the 2004 economy by 17%. Besides the census, China routinely carries out a first and second check of each set of annual figures for gross domestic product, issuing revisions where necessary. In April last year, the bureau raised the growth figure for 2007 to 11.9% from 11.4%, citing larger estimates for the contribution from service industries such as telecommunications and retailing. In January this year, it raised the estimate again to 13%. *********************************** Only a year ago, Beijing pundits were betting on how long it would take for the management of China Investment Corp, the country's sovereign wealth fund, to lose their jobs. The fund appeared to be paralysed by the financial crisis. Its reputation was also in tatters after its initial high-profile, loss-making investments in Morgan Stanley and US private equity firm Blackstone. Now, in a stunning turnround, the fund has performed so well by most accounts over the past year that speculation in Beijing this winter centres on the timing and size of another cash injection for CIC from China's $2,273bn in foreign exchange reserves. People who deal closely with the fund say they are impressed by the maturity and capability of an organisation that has barely existed for two years and is the subject of much political infighting and international scrutiny. "They're certainly acting as if they're about to get more money," says a person who works closely with the sovereign wealth fund. "They have had two years of growing pains building their network, their trading desk and setting up the back office systems, but now they have an aggressive and impressive team in place and are ready to ramp up investments." People close to CIC say that by performing so well the fund has gained the upper hand in a bitter turf war with the State Administration of Foreign Exchange , the organisation that manages the bulk of the country's reserves, and is believed to have lost billions in public and private equity markets after it tried to emulate the more aggressive investment style of the newly-established CIC. "CIC is a highly political place with international bankers tripping over each other to get in the door and tell them how great they are," says another person close to the fund. "What's most impressive is that with such a small staff they've managed to separate the wheat from the chaff and make smart investments." The fund has boosted its staff to about 400 people, including 180 working in Huijin, the fund's domestic arm which holds controlling or sizeable stakes in most of the country's largest banks and other financial institutions. Below Lou Jiwei, CIC chairman, is a team of experienced Chinese professionals who include Gao Xiqing, chief investment officer, and Jesse Wang, chief risk officer. Most have worked both on Wall Street and within the Chinese bureaucracy. One of these is Hu Bing. An intense, intelligent man who was educated in the US and worked for the now-defunct Lehman Brothers, Mr Hu returned to China earlier this decade to work for the Chinese securities regulator, where he eventually headed its securitisation department. Mr Hu, as head of the fund's private market investment department, is in charge of overseeing the offshore investments in distressed assets, real estate, infrastructure and private equity. Another former New York-based banker is Fan Gongsheng, head of the fund's public market investment department and known as Ken Fan to most westerners he meets. Like Mr Hu, Mr Fan speaks excellent English. He is often referred to internally as the "king of liquidity" as he oversaw the bulk of the fund's $110bn offshore portfolio during 2008 when the fund was mostly in cash. Bankers who deal closely with CIC credit his department with the decision in November 2008 and March 2009 to very quickly convert large portions of its US Dollar liquid assets into liquid non-Dollar assets, such as Japanese government bonds and German Bunds. "Those were very smart trades because they caught the top of the Dollar bounce each time," says one western banker who deals closely with the fund. Mr Fan is also a favourite target of international fund managers hoping to receive one of the large external mandates he is responsible for. But the CIC managing director who is probably most sought after by international visitors is Zhou Yuan. A senior UBS banker in China from 1994 to 1998, Mr Zhou now heads CIC's Strategic Investment and Concentrated Holding division. Mr Zhou is in charge of the fund's large positions in public companies such as Blackstone, Morgan Stanley and Noble Energy Analysts say such high-calibre recruits are the crucial element in CIC's successful turnround. In fact the strategy has been so successful that Safe has started to emulate it. Last week Pacific Investment Management Co said Zhu Changhong, one of its managing directors in charge of hedge funds, was leaving the US to return to China and join Safe as head of its Reserve Management Department. *********************************** A Chinese mining company has withdrawn from a deal with Nevada mining company Firstgold after the Obama administration objected on national security grounds, Firstgold's chief executive said on Monday. "They basically let me know it was a tough call, but they felt they would not have success with the appeal and didn't feel it was in their best interest to push forward," Terry Lynch, Firstgold's chief executive, told Reuters. China's Northwest Nonferrous International Investment Company had struck a $26.5m deal with Firstgold to buy 51% of the company and help develop the Relief Canyon mine near Lovelock, Nevada. The companies were told last week by the Committee on Foreign Investment in the United States that the deal raised national security concerns because of its proximity to US military installations, Mr Lynch said. The interagency panel headed by the Treasury Department was expected to send President Barack Obama its recommendation on Monday that the deal be rejected. But Mr Lynch said Northwest's withdrawal meant the deal was dead so Mr Obama would not have to decide the issue. "It's terribly disappointing. I understand Northwest's position. They're just a mining company looking to grow their mining portfolio globally. They had no idea that there was going to be such a political firestorm. This is way more than they bargained for," Mr Lynch said. Firstgold owns several mining properties in Nevada it hopes to develop. The Relief Canyon mine is within 60 miles of Fallon Naval Air Station, which the Navy uses for tactical aviation training. *********************************** China's Shanghai Futures Exchange will temporarily raise margin requirements to 9%, and the daily trading limits to 6% on the days around the New Year vacation. Margins for copper, aluminum, zinc, deformed steel bar, steel wire, gold, natural rubber and fuel oil will be raised from the end of trading on Dec. 30. Daily limit will be increased from the start of trading on Dec. 31, the exchange said in a statement on its Web site. The measures are being taken to avoid volatility and control risk around the holiday period, the statement said. Margins for aluminum, zinc and gold will return to 7% and limits to 5% at the end of trading on Jan. 4, it said. Margins for copper, deformed steel bar, steel wire, natural rubber and fuel oil will return to 8% and limits to 5% at the end of trading on the same day, it said. |
| Summary
The coming week looks like ..... |
The final stock-trading week of the year promises to test investors' temperaments -- whether they take the long view, looking to the past for a sign of what's to come, or prefer to take direction from more recent trends.
Those investors with shorter horizons are likely to welcome the New Year with a lot more cheer than their more long-term-minded counterparts.
As the countdown to 2010 begins, the wrap on the last decade in stocks is a gloomy one. Barring an unlikely 30% gain in the next four trading days, the S&P 500 is on track to post its first 10-year price drop since the 1930s.
But amidst the inevitable headlines on stocks' "lost decade," a more optimistic view tied to recent gains has emerged.
The benchmark indexes managed to notch new closing highs for the year Thursday, clinging to the slow-but-steady pace that has bumped the indexes higher for much of this month.
These gains have added to a surge that started in March, built on expectations that huge government stimulus programs would help economies around the world recover. They've kept rising as enough subsequent data, including the past week's reports on existing home sales and jobless claims, have backed up those hopes to a small extent - but I still firmly believe the rally for 2009 has been too much too soon!
That being said, this 2009 rebound could spill into the New Year, partly because investors sitting on gains may hold onto shares in the hopes of recouping more 2008 losses - which in its own right is a tad 'greedy' because I would have thought that by now - especially at year's end - those investors would have been looking to lock-in those gains.
In addition, some uncertainty that has hung over the US market in recent weeks evaporated Thursday, with the Senate passing a landmark healthcare bill. The $871 billion, White House-backed bill requires most American to have health insurance or pay a penalty and forces most employers to offer coverage. But it does not contain the robust government-run health plan included in the House version of the legislation, and opposed by most Republicans.
Trading is likely to be even lighter than it has in recent sessions, as many investors take off for the week between the Christmas holiday and the New Year's break.
Under these conditions, any surprises or disappointments in the economic data could provide for more pronounced swings for stocks.
You'll have junior people manning the desks and that means the reaction to any data point will be exaggerated.
All told though, next week should be rather quiet on all fronts with the only notable event happening in the US. The Treasury Department will sell a record-tying $118 billion in notes next week in the final round of note auctions for this year. It will sell $44 billion in two-year notes, $42 billion in five-year notes and $32 billion in seven-year notes, all matching the amount offered a month earlier.
I will be back next Saturday with a review of 2009 and the first Newsletter of 2010 but in the meantime, I would like to wish you all a Happy, Healthy and Prosperous New Year ahead. |
As always, I will keep you posted with major developments as/when they occur in the week ahead.
Market Newsletter Written By
Adrian Page
Managing Director
Financial Page International | |
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