Friday, 27 February 2009

Pemex Plans Sale of Up to 70 Billion Mexican Pesos of Bonds in Local Debt Markets

Petroleos Mexicanos SAB, the piggy bank of the Mexican government -- uhhmm sorry, the Mexican state-oil company, registered to sell up to 70 billion pesos of bonds in the domestic bond markets. The company raised $1.5 billion from the sale of debt in international markets in February. We will update this once we have more information available.

Headless Chicken? Bloomberg Seen Losing Ground to ThomsonReuters

Read this nice article, sent to me by a good friend. Comes from the Business Insider. It's called ''The Bloomberg Terminal Stands on the Precipice.´´

The Bloomberg Terminal Stands on the Precipice

Bloomberg News has been feted with gushing features about its brilliance two years in a row now. Fortune in 2007 and Vanity Fair in 2008 fawned over the financial data company’s growth, particularly its ability to hire more journalists. In an era of bankrupted newspapers, any journalistic organization hiring more people is newsworthy.

While the story for 2007 and 2008 certainly was Bloomberg, it won’t be the story for 2009. That distinction will go to its rival, Thomson Reuters. And if Bloomberg isn't careful, the story will last much longer than that.

Bloomberg is rushing headlong into expanding and improving its news operations. Its unassuming website and unwatched television networks are due for a tune up by new Internet, radio and television chief, Andy Lack. It’s a good idea to improve lagging parts of the operation; it’s just bad timing for such a move. Trust us, news sites aren’t cash cows. And ask Fox how easy it is pry the attention of people away from CNBC.

At the same time that Bloomberg directs its resources towards news operations, the part of its business that actually makes money faces rough times. Bloomberg L.P. is almost entirely built on the back of its 290,000 data terminals that cost between $1,500 and $1,800 monthly. But with financial firms cutting head count, terminal sales will likely drop. There’s no point in keeping a data terminal if there’s nobody to man it. We saw an early indication of this last year. Between June 2007 and March 2008 there were 34,000 job cuts by Wall Street banks. By the end of the year Bloomberg saw a drop in net sales of 1,100. That equates to losing almost $20 million in revenue. While the company is still minting cash, this troubling trend won’t reverse anytime soon.

Meanwhile, Thomson Reuters, who is not encumbered by terminals, just turned in a killer quarter. Net income was $656 million on $3.4 billion in revenues. It raised its dividend by 4 cents a share and its 2008, free cash flow was $1.8 billion. The company also raised its 2009 expectations. It's 2008 operating profit was $1.9 billion, compared to Bloomberg's estimated $1.5 billion, though Bloomberg has a much higher margin.

Tom Glocer, Thomson Reuters CEO, told the FT that business with Lehman Brothers was picked up by Barclays and Nomura, while the mainly fixed-income business at Bear Stearns shifted to JPMorgan Chase. He also added that as long as Citi and BofA don’t collapse (no guarantees there) revenue would continue to grow. There's a good chance the same could happen for Bloomberg. After all, Merrill doubled its terminal contract after being acquired by BofA. When Merrill sold its 20% stake in Bloomberg back to Bloomberg, the data company wrote into the contract that Merrill would have to double its terminal contracts if acquired.

However, Bloomberg only sells one product at one price. If a financial company needs to reorder its balance sheet, it might consider a new provider of information.

Thomson Reuters sells a diverse set of products at a diverse set of prices. We’ve also been told from a Thomson Reuters source that demand for their developer tools and software has gone up ten-fold. It recently closed two of its biggest software sales ever. When the market is acting as unpredictably as it is, there is a premium for great data. It can sell terminals for half the price of Bloomberg, but that's not what it does. Thomson Reuters sells data and technology.

Bloomberg, though, is stuck with its terminals. Maybe they're as addictive as heroin, but in this environment, methadone will do have to serve as a replacement. Bloomberg signs its clients up for two-year contracts, so it will still get some money even if it loses customers. Of course there are perils in this too.

From Fortune: Of course, there are occasional situations in which some customer goes out of business and Bloombergs are a casualty. In a case like that, the immediate financial hit to Bloomberg LP is mild, given that it has been paid quarterly in advance. But Bloomberg is stung nevertheless, because the customer won't be finishing out whatever remains of its two-year contract, probably won't be paying the "breakage fee" that is supposed to apply to contract terminations, and won't be signing up for a new contract.

All of that, for example, describes Amaranth Advisors, a $9.5 billion hedge fund that went calamitously out of business last fall, losing $6.4 billion for its investors. At death, it had 221 Bloombergs worldwide. Those were in effect returned to Bloomberg LP, except that the company has a policy of letting any user who loses his job have a Bloomberg at home for four months - free of charge - while he tries to get hired somewhere else.

By January, most of the Amaranth employees had indeed taken new jobs and were once again re-equipped with Bloombergs. So Grauer was then measuring his Amaranth loss as amounting to only 41 terminals, which struck him as bearable. Besides that, the electronic sign hanging near his desk and keeping tabs on net installs was proclaiming that the company was having a fine start to the year.

That sales picture could change quickly. Despite Bloomberg's ever-blooming drive to broaden its customer base - to become a staple at law firms, for example - the company is cyclically tied to the financial world.

Hmm. Have hedge funds really shown a bit of a tendency toward calamity these days? We. think. so.

Admittedly, talking about the future of Bloomberg is tough. It is a tight-lipped private organization that doesn’t have to disclose business plans. A source at the company tells us that its revenue will be fine this year, and that it doesn’t really care what people say. Though we hear from an outside source that Bloomberg is hiring more people for data sales.

If this is true, it signals a welcome shift in Bloomberg's business away from terminals (and news) towards something that can protect them from the wolfpack nipping at its heels.

Ecuador's Borja Says Dollarisation is 'Faltering.´ I Wonder What He Means -- Do These Ecuadorean Officials Want a Weaker Currency Than the Dollar?

Ecuadorean Planning Minister Diego Borja (whom I interviewed a few times in his first stint as economy minister and always seemed to be a reasonable man) yesterday said the country's dollarisation system is ''faltering.´´ The term he used, flaqueando, means more weakening than anything else. The thing is, no matter what the translation is, the connotation is negative.

The currency regime is weakening. Funny, Ecuador is running out of dollars because of the erratic signals the Rafael Correa administration sends investors, not because of the dollar weakness/strength. The recent capital flight of about $1.5 billion in the past two months is putting the future of dollarisation at jeopardy; the place is riskier than other countries at some point -- but this administration isn't interested to acknowledge that. Remittances are falling, oil -- the biggest export of this Andean nation, -- is depressed ... To us, this is nothing but the first step towards imposing capital controls.

Writes Alberto Bernal, strategist at Bulltick LLC in Miami: ''We think that the introduction of even stricter capital and import controls is a matter of time. We also think it likely that the government will be forced to introduce deposit redemption controls if the current trend does not ameliorate. We think that one of the key goals of the TV interview of Minister Borja was to place the blame of the current travails of dollarisation on the private banking sector, and not on the inconsistencies of the current government policy guidelines.´´ As clear as day. What seems even more absurd, not say annoying is that Borja insists that the government wants to defend dollarisation at all cost. Huh! Dollarisation goes against the principles of the Correa government. Why defend it then? defending dollarisation implies, in an environment where there is no control over monetary policy, fiscal discipline. We know that anything is possible in the axis of pro-Bolivarian countries but fiscal restraints.

But the original purpose of this blog is to talk about the Latin America private sector, their channels of financing and the challenges they face amidst the crisis -- not the typical government policy talk. Bulltick's Bernal makes a very strong point here, talking about the private sector in Ecuador: ''Ecuador's private sector still owes international creditors around $6.9 billion. Therefore, if Ecuador were to leave dollarisation, then the private sector would be left with a non-payable liability, and widespread bankruptcies and ample unemployment would likely follow.´´ If Ecuador quits the dollar, the chances that the local private sector continues to service their dollar debts would be very little. Does it sound like Argentina? Bernal says yes. ''Therefore, the only option available for the Correa administration would to 'pesify´the assets of the banking sector, which would imply an immediate bankruptcy of the financial system, because the asset-liability mismatch would prove to be violent. This is, of course, unless the President is willing to take the political cost of pesifying the deposits of the Ecuadorian population as well, an issue that would likely carry major political costs.´´


You know what I think? Correa will do it.

More Downgrades on Hybrid Capital Securities: This Time the Turn Is for Dresdner

Standard and Poor's lowered the ratings on Dresdner Bank AG's €1 billion hybrid Tier 1 capital instruments issued through a special purpose vehicle, and on the €750 million upper Tier 2 capital instruments issued through another SPV, both to CC from BB+. Dresdner Bank's hybrid Tier 1 capital instruments issued through Dresdner Funding Trust I, II, III, and IV were downgraded too. Various other junior subordinated Tier 1 instruments related to Commerzbank AG and its subsidiary Eurohypo AG were cut to BB' from BB+. Dresdner was bought by Commezbank last year -- the German bank is downsizing the operations of its acquisition, especially in Latin America (there's an interesting article on LatinFinance's daily brief today about Dresdner Kleinwort's Latin businesses.)

The issue ratings will remain on CreditWatch, meaning they can be downgraded again within the next three months and where they were placed with negative implications on Jan. 12.

Dramatic Contraction in U.S. Fourth-Quarter GDP Figures. The Obama Salvage Plan Will Only Be Felt Until End of Year

The U.S. economy, the world's largest, contracted 6.2 percent in the fourth quarter of 2008 -- a worse result than analysts were predicting. The awful results came on the back of a plunge in consumer spending (which contracted 4.3 percent from a 3.5 percent drop in the third quarter), tumbling exports and a sizeable accumulation in business inventories.

Growth was 1.1 percent for the 2008 year. Some numbers were quite bad: with unemplyment spiking towards 7 percent to 8 percent, domestic demand will conitnue to surprise on the downside. Last year, investment purchases of new equipment fell 21 percent; homebuilding plummeted 22 percent only in the fourth quarter.

President Barack Obama's economic stimulus package will only start sparking some recovery by the end of the second quarter or even during the third. Positive growth hopefully will only show by the end of the year, according to analyst reports from banks including Morgan Stanley, Bulltick, Goldman Sachs ...

Thursday, 26 February 2009

S&P Conference Call on Downgrade on Banks' Hybrid Securities

This is the text of a Standard and Poor's press release about a conference call to discuss the recent downgrades of banks' hybrid capital securities.

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Standard & Poor's Ratings Services will hold a telephone conference call on Friday, March 6, 2009, at 10 a.m. EST/3 p.m. GMT. Speakers will discuss the recent downgrades of financial institution hybrid capital securities and explain how Standard & Poor's assesses the risk of payment deferral on these instruments. The speakers will also discuss how Standard & Poor's assesses capitalization (Adjusted Total Equity vs. Tangible Common Equity vs. Tier 1) and comment on the "equity credit" that is attributed to preferred stock that banks and insurers are issuing to governments under capital-strengthening programs.

The call will be hosted by members of the Standard & Poor's New Instruments Committee (NIC): Gail I. Hessol, Scott Bugie, Michelle Brennan, and Scott Sprinzen. Upon conclusion of the prepared remarks, NIC members and financial institution analysts from Standard & Poor's U.S. and European ratings teams will join our presenters to address your questions.


Relevant articles are available on our public website: www.events.standardandpoors.com. To access them from that Web site, select Teleconferences from the drop-down menu for Type, and click on the link for this teleconference.


Please note that Standard & Poor's offers all of its broadcast teleconference calls to all interested participants on a complimentary basis. The call will begin promptly at the time indicated. Please call at least 15 minutes before the scheduled start of the call to complete the pre-call registration process.


Live Dial-in Numbers:

U.S./All Others: 1-210-839-8781

U.K.: 44-20-7108-6390

Conference ID#: 5478954

Passcode: SANDP

Replays: Recorded replays of the call are made available about an hour after the call concludes and are available until Friday, March 13, 2009.

Replay number: 1-402-220-9685

Indonesia Launches Bond: $3 Billion, Two Tranches (Five-, Ten-Year); Yields Per Tranche at 10.5%, 11.75%

Here is the data on a bond sale just launched by the Republic of Indonesia:

Issuer: Republic of Indonesia
Ratings: Ba3/BB-/BB
Format: Reg S/144A

Total Size: US$ 3 Billion

Tranche Size: $ 1 Billion | $ 2 Billion

Coupon: Fixed Rate | Fixed Rate

Maturity : Long 5y - May 2014 | 10y - March 2019

Launched Yield: 10.50% | 11.75%

Leads: Barclays Capital Plc. / UBS AG
Settlement: March 4, 2009


The Global Medium-Term Note programme of bond sales was launched by Indonesia on Jan. 29 for up to $4 billion in bond issuances. In recent weeks, especially in the November-through-January period, the decline in international reserves in Southeast Asia has been acute. In emerging market Asia (ex-China) the drop in reserves has been equivalent to 2.2 percent of gross domestic product, twice as much the decline posted in Latin America and Eastern Europe.

In the case of Indonesia, portfolio outflows were the equivalent of 5 percent of GDP in the fourth quarter. Consequently the price of five-year credit default swaps (CDS) on government dollar bonds rose by about 300 basis points in the same period.
In light of the tumble in exports and the heavy foreign debt repayment schedule, more emerging market countries are being forced to tap the international bond markets in spite of higher borrowing costs. As we saw in the past two months, Mexico sold $1.5 billion of five-year debt (a weird transaction, given the fact that Mexico and state company Pemex have flooded the market this year with a total $6 billion in issuances.)

Basically, my point here is that Mexico's decision provided us with some clues about the situation of the sovereign debt asset class. That there is still appetite for short-duration investment-grade paper seems to be one of the main conclusions. The maturities for the Indonesian bonds are five- and ten-years. And borrowing costs are quite high, though -- between 10.5 percent and almost 12 percent! Indonesia explored the MTN market because it was either ready to pay high borrowing costs for the money or it feared its external account and debt positions may put reserves further under pressure. Summarising, Indonesia needed the money.

Metrofinanciera Cut to CC by S&P After Debt Restructuring Announcement

Metrofinanciera, the Mexican non bank-bank (or SOFOM), yesterday announced it would carry out a debt restructuring after reporting losses of 3.05 billion Mexican pesos in 2008. Standard and Poor's lowered the long-term counterparty credit rating on Metrofinanciera SA, to CC from CCC- following the announcement. The ratings company also trimmed its long- and short-term national scale counterparty credit, senior unsecured debt and asset-backed debt ratings on Metrofinanciera. The company has 4 billion Mexican pesos of tradable debt, 5.03 billion pesos in bank obligations and 9.35 billion pesos of deb backed by a collateral (ABS or MBS and all that.) We had information that about 335 million pesos were to come due today, Feb. 26.

S&P and Fitch, another ratings company, warned for months about the likelihood of a restructuring and that such situation could eventually take the form of a distressed debt exchange, basically a coercive restructuring, not a negotiated one. Often, distressed debt exchanges take place when terms of the restructured debt are different and more damaging to debt holders than the original terms; it can also be considered a DDE when the step is ''de facto necessary even if technically voluntary,´´ according to Fitch. Watered-down terms of the debt can stem from a reduction in the principal or interest the company will pay debt holders, an extension of maturity dates, or the imposition of a ''stand-still´´ arrangement with creditors.

The construction industry in Mexico has been facing serious problems over the past 18 months. The slowdown experienced in the sector has affected certain regions of Mexico more than others. Flattening home prices over the past year, especially for the low-income segment, have created stress for some mortgage lenders ( like Metrofinanciera.) Loan concessions, albeit increasing, are slowing drastically. Housing demand may not react to the lower prices anytime soon, as unemployment climbs and exports to the U.S. decline in the back of that nation's recession.


Metrofinanciera's limited liquidity position, deteriorating cash-flow generation, and high debt burden led to this. Investors saw this thing coming -- analysts have been warning that the amount of assets on hand for additional financing would be insufficient to cover Metrofinanciera's unsecured and bank debt. Assets were 24.5 billion pesos at the end of 2008, liabilities 24.7 billion pesos and equity was a negative 194.5 million pesos. The negative patrimony stems from the heavy losses posted last year -- which compared with earnings of 363 million pesos in 2007. Provisions for bad loans rose 435 percent last year to 2.2 billion pesos, also helping widen the losses.

Paul Volcker Speaks. Raise From Your Seats. Shut Up and Listen. Reflect. Integrity Still Exists in the Financial World


This post comes as courtesy of IncaKolaNews. I am copy-pasting the post, as Otto Rock kindly asked us to. This Paul Volcker speech is an excellent piece -- all about sincerity and experience, two things that policy makers are required to have in this very difficult market moment. Dear reader, enjoy. And Otto, thanks a lot.

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This recent Paul Volcker speech has reached me via this post at BiiWii. If it were possible to agree more than 100%, I would. This is one of the smartest and most integral finance guys out there and once Geithner is done he'll get his turn at bat. When he does, things will get better.

Read it. Proof that to be finance doesn't involve selling your soul to greed. Thanks Gary for passing it on. I hope somebody else copypastes this speech in their blog.
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I really feel a sense of profound disappointment coming up here. We are having a great financial problem around the world. And finance doesn't work without some sense of trust and confidence and people meaning what they say. You take their oral word and their written word as a sign that their intentions will be carried out. The letter of invitation I had to this affair indicated that there would be about 40 people here, people with whom I could have an intimate conversation. So I feel a bit betrayed this evening. Forty has swelled to I don't know how many, and I don't know how intimate our conversation can be. But I will, at the very least, be informal. There is a certain interest in what's going on in the financial world. And I will disappoint you by saying I don't know all the answers. But I know something about the problem.

Let me just sketch it out a little bit and suggest where we may be going. There is a lot of talk about how we get out of this, but I think it's worth remembering, or analyzing, how this all started. This is not an ordinary recession. I have never, in my lifetime, seen a financial problem of this sort. It has the makings of something much more serious than an ordinary recession where you go down for a while and then you bounce up and it's partly a monetary - but a self-correcting - phenomenon. The ordinary recession does not bring into question the stability and the solidity of the whole financial system. Why is it that this is so much more profound a crisis? I'm not saying it's going to get anywhere as serious as the Great Depression, but that was not an ordinary business cycle either. This phenomenon can be traced back at least five or six years. We had, at that time, a major underlying imbalance in the world economy. The American proclivity to consume was in full force. Our consumption rate was about 5% higher, relative to our GNP or what our production normally is. Our spending -- consumption, investment, government -- was running about 5% or more above our production, even though we were more or less at full employment. You had the opposite in China and Asia, generally, where the Chinese were consuming maybe 40% of their GNP -- we consumed 70% of our GNP. They had a lot of surplus dollars because they had a lot of exports. Their exports were feeding our consumption and they were financing it very nicely with very cheap money. That was a very convenient but unsustainable situation.

The money was so easy, funds were so easily available that there was, in effect, a kind of incentive to finding ways to spend it. When we finished with the ordinary ways of spending it -- with the help of our new profession of financial engineering - we developed ways of making weaker and weaker mortgages. The biggest investment in the economy was residential housing. And we developed a technique of manufacturing class D mortgages but putting them in packages which the financial engineers said were class A. So there was an enormous incentive to take advantage of this bit of arbitrage - cheap money, poor mortgages but saleable mortgages. A lot of people made money through this process. I won't go over all the details, but you had then a normal business cycle on top of it. It was a period of enthusiasm. Everybody was feeling exuberant. They wanted to invest and spend. You had a bubble first in the stock market and then in the housing market. You had a big increase in housing prices in the United States, held up by these new mortgages. It was true in other countries as well, but particularly in the United States. It was all fine for a while, but of course, eventually, the house prices levelled off and began going down.

At some point people began getting nervous and the whole process stopped because they realized these mortgages were no good. You might ask how it went on as long as it did. The grading agencies didn't do their job and the banks didn't do their job and the accountants went haywire. I have my own take on this. There were two things that were particularly contributory and very simple. Compensation practices had gotten totally out of hand and spurred financial people to aim for a lot of short-term money without worrying about the eventual consequences.

And then there was this obscure financial engineering that none of them understood, but all their mathematical experts were telling them to trust. These two things carried us over the brink. One of the saddest days of my life was when my grandson - and he's a particularly brilliant grandson - went to college. He was good at mathematics. And after he had been at college for a year or two I asked him what he wanted to do when he grew up. He said, "I want to be a financial engineer." My heart sank. Why was he going to waste his life on this profession? A year or so ago, my daughter had seen something in the paper, some disparaging remarks I had made about financial engineering. She sent it to my grandson, who normally didn't communicate with me very much. He sent me an email, "Grandpa, don't blame it on us! We were just following the orders we were getting from our bosses." The only thing I could do was send him back an email, "I will not accept the Nuremberg excuse." There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis. So I think we have a problem which is not an ordinary business cycle problem. It is much more difficult to get out of and it has shaken the foundations of our financial institutions.

The system is broken. I'm not going to linger over what to do about it. It is very difficult. It is going to take a lot of money and a lot of losses in the banking system. It is not unique to the United States. It is probably worse in the UK and it is just about as bad in Europe and it has infected other economies as well. Canada is relatively less infected, for reasons that are consistent with the direction in which I think the financial markets and financial institutions should go. So I'll jump over the short-term process, which is how we get out of the mess, and consider what we should be aiming for when we get out of the mess. That, in turn, might help instruct the kind of action we should be taking in the interim to get out of it. In the United States, in the UK, as well - and potentially elsewhere - things are partly being held together by totally extraordinary actions by a central bank. In the United States, it's the Federal Reserve, in London, the Bank of England. They are providing direct credit to markets in massive volume, in a way that contradicts all the traditions and laws that have governed central banking behaviour for a hundred years.

So what are we aiming for? I mention this because I recently chaired a report on this. It was part of the so-called Group of 30, which has got some attention. It's a long and rather turgid report but let me simplify what the conclusion is, which I will state more boldly than the report itself does. In the future, we are going to need a financial system which is not going to be so prone to crisis and certainly will not be prone to the severity of a crisis of this sort. Financial systems always fluctuate and go up and down and have crises, but let's not have a big crisis that undermines the whole economy. And if that's the kind of financial system we want and should have, it's going to be different from the financial system that has developed in the last 20 years. What do I mean by different? I think a primary characteristic of the system ought to be a strong, traditional, commercial banking-type system.

Probably we ought to have some very large institutions - or at least that's the way the market is going - whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit. They ought to be the core of the credit and financial system. This kind of system was in place in the United States thirty years ago and is still in place in Canada, and may have provided support for the Canadian system during this particularly difficult time. I'm not arguing that you need an oligopoly to the extent you have one in Canada, but you do know by experience that these big commercial banking institutions will be protected by the government, de facto. No government has been willing to permit these institutions, or the creditors and depositors to these institutions, to be damaged. They recognize that the damage to the economy would be too great. What has happened recently just underscores that. And I think we're at the point where we can no longer fool ourselves by saying that is not the case. The government will support these institutions, which in turn implies a closer supervision and regulation of those institutions, a more effective regulation than we've had, at least in the United States, in the recent past. And that may involve a lot of different agencies and so forth. I won't get into that.

But I think it does say that those institutions should not engage in highly risky entrepreneurial activity. That's not their job because it brings into question the stability of the institution. They may make a lot of money and they may have a lot of fun, in the short run. It may encourage pursuit of a profit in the short run. But it is not consistent with the stability that those institutions should be about. It's not consistent at all with avoiding conflict of interest.

These institutions that have arisen in the United States and the UK that combine hedge funds, equity funds, large proprietary trading with commercial banks, have enormous conflicts of interest. And I think the conflicts of interest contribute to their instability. So I would say let's get rid of that. Let's have big and small commercial banks and protect them - it's the service part of the financial system. And then we have the other part, which I'll call the capital market system, which by and large isn't directly dealing with customers. They're dealing with each other. They're trading. They're about hedge funds and equity funds. And they have a function in providing fluid markets and innovating and providing some flexibility, and I don't think they need to be so highly regulated. They're not at the core of the system, unless they get really big. If they get really big then you have to regulate them, too. But I don't think we need to have close regulation of every peewee hedge fund in the world. So you have this bifurcated - in a sense - financial system that implies a lot about regulation and national governments. If you're going to have an open system, you have got to get much more cooperation and coordination from different countries.

I think that's possible, given what we're going through. You've got to do something about the infrastructure of the system and you have to worry about the credit rating agencies. These banks were relying on credit rating agencies while putting these big packages of securities together and selling them. They had practically - they would never admit this - given up credit departments in their own institutions that were sophisticated and well-developed. That was a cost centre - why do we need it, they thought. Obviously that hasn't worked out very well. We have to look at the accounting system. We have to look at the system for dealing with derivatives and how they're settled. So there are a lot of systemic issues. The main point I'm making is that we want to emerge from this with a more stable system. It will be less exciting for many people, but it will not warrant - I don't think the present system does, either -- $50 million dollar paydays in that central part of the system. Or even $25 or $100 million dollar paydays. If somebody can go out and gamble and make that money, okay. But don't gamble with the public's money. And that's an important distinction.

It's interesting that what I'm arguing for looks more like the Canadian system than the American system. When we delivered this report in a press conference, people said, "Oh you mean, banks won't be able to have hedge funds? What are you talking about?" That same day, Citigroup announced, "We want to get rid of all that stuff. We now realize it was a mistake. We want to go back to our roots and be a real commercial bank." I don't know whether they'll do that or not. But the fact that one of the leading proponents of the other system basically said, "We give up. It's not the right system," is interesting. So let me just leave it at that. We've got more than 40 people here but they're permitted to ask questions, is that the deal?

Changes in IFRS Standards Likely to Change Covenant Terms for Some Brazilian Local Debt, According to Andima

Changes in accounting rules due to the implementation and standardisation of IFRS guidelines in Brazil may lead to modifications in bond covenants for domestic corporate debt instruments including notes, promissory notes and syndicated loans, according to market participant groups such as Apimec and Andima. The requirement to include derivatives into corporate balance sheets as well as changes in the way some asset prices will be reassessed will have effects on the valuing of liabilities and equity; the terms of some corporate debt sold in the local markets specify limits to the issuer's leverage ratios -- which may spike when the new rules begin to apply. Creditors and debtors will have to sit down and perhaps renegotiate terms, the two associations predicted.

Some companies are starting to renegotiate terms of their bond covenants with bondholders. Unidas, the car rental company, and bondholders met to discuss an increase in leverage metrics indicators included in the bonds' covenants to better reflect the current economic environment, according to a story by Brazilian newspaper Gazeta Mercantil. Bondholders approved the changes but, there's no free lunch, amigos: the spread that Unidas will pay for the debt is 1.5 percentage points more than before, at 4 points, versus 2.5 point previously. The bonds pay yields linked to the CDI rate, the benchmark interbank lending rate.

Fiscal Leeway Determines Whether Keynesian-Like Expansionary Policies Work During Recession Times, IADB Says

The Inter American Development Bank (IADB) yesterday published a study (''Dealing with an International Credit Crunch: Policy Responses to Sudden Stops in Latin America´´) in which it assesses lessons of past crises in Latin America and the role of multilateral agencies during such market moments. The crisis ''has brought Keynesianism back to the centre stage of the global policy debate,´´ the IADB says. As Latin American and Caribbean nations unveil their fiscal stimulus packages to fend off the global recession, those policy lessons can be useful to avoid mistakes of the past.

Lesson 1:
Recessions are far less severe in countries with room to adopt more flexible monetary and fiscal policies, or better, those that did their homework well during the boom years. Our observation: Two problems we see here -- see the contrast between Peru and Colombia. Both did their homework relatively well (Peru fared better than Colombia.) But Peru has good leeway, Colombia has a very limited one. The IADB defends its position: ''This is not something for all nations, as success depends on economic initial conditions at the time of the crisis.´´


Lesson 2:
The study alerts that countries in which governments have saved little during the commodity boom years will have limited scope to increase spending to alleviate the upcoming recession stemming from the current crisis. Any attempt to boost spending dramatically could erode confidence in the country’s ability to repay its debts in the future. Our observation: Is saving equivalent to repaying debt? or creating sovereign wealth funds? If so, Venezuela and Brazil have a an edge over the rest of Latin countries in pulling out of the crisis via fiscal packages. But for the case of Venezuela, no one is at all convinced of its ability to pull through; in fact, some people bet on a default (to us, rather exaggerated a concern.) The IADB defends its position: ''Some nations in Lain America will be forced to cut spending in the face of the current crisis because of insufficient savings. For others, the most feasible policy will be to maintain the current level of government spending but only a few such as Chile are in a position to increase spending.´´ It doesn't mention what countries are well suited for aggressive policy steps.


Lesson 3:
Countries that were able to adopt fairly more flexible fiscal and monetary policies in the aftermath of a financial crisis had a loss in output of less than 5 percent, while nations with much less flexibility had output contractions above 10 percent. Our observation: Argentina was a case in 2002. But Brazil wasn't -- in the aftermath of the currency crisis of 2002, with little access to credit, the economy managed to grow 0.7 percent! The IADB defends its position: ''The study analyzed policy responses by 19 developing countries during the Tequila, Asian and Russian crisis in the 1990s, periods of broadening sovereign interest rate spreads and capital flow reductions that affected a large set of emerging countries at the same time.´´


Lesson 4:
Countries that adopted anti-cyclical policies definitely did better but that doesn’t mean that countries that didn’t adopt counter-cyclical policies would have performed better if they had done the opposite. Our observation: We believe aggressiveness and determination matter in these circumstances. Markets are watching that closely. Investors are endorsing Brazil and Chile packages, by betting on a rise in their currencies. Take a look at Colombia's currency and see it being smashed; Venezuela's bolivar fuerte isn't fuerte anymore. Mexico's anti-recession package is that little credible that the peso is testing new lows almost every day. The IADB defends its position: ''In some cases their economic conditions were so weak to begin with that any attempt to be a more aggressive could have made the situation worse by eroding confidence on their creditworthiness.´´

Lesson 5: Successful anti-cyclical policies during financial crises work when governments can
boost spending in a sustainable way and conduct looser monetary policy that does not fuel inflation or lead to balance-sheet problems in both public and private sectors when both have debts denominated in dollars.
To boost aggregate demand sustainably, governments need to ensure their actions won’t affect the country’s credibility and solvency. Therefore, countries need to have credible central banks that can keep inflation expectations at bay by using genuine resources to fight the crisis. Our observation: We agree. Financial stability is a condition sine qua non for a successful policy package. No matter what Brazilian Finance Minister Guido Mantega (our beloved Criswell) thinks. The IADB defends its position: Countries will need to have a reasonable level of reserves to cover payments of international obligations and provide financing for trade. Low levels of debt denominated in dollars will give central banks more flexibility to depreciate the country’s currency in order to make its products more competitive to global trade.


Lesson 6:
The IADB says Latin America and the Caribbean have improved their economic conditions since the Russian crisis, giving them some leeway, particularly regarding monetary policy, to implement measures to fight the crisis. Countries have ramped up international reserves by $400 billion since 1998 (I think it's too little in the wake of about $1 trillion in proceeds from exports of raw materials and all that in the past six-seven years.) Additionally, the countries have substantially reduced dollar-denominated debts, particularly within the banking system and the government. Our observation: Lower levels of external debt allowed Brazil to loosen monetary policy amid the credit crunch in ways that other countries were not able to do during the aftermath of Russian crisis. Moreover, loose monetary policy typically leads to currency depreciation, with a subsequent increase in exports (as it happened with Brazil in the wake of the 2002 crisis.) The IADB defends its position: The currency depreciation, which boost exports as a way out of the crisis for several emerging markets in the past, may not fully work this time because of the ongoing global recession, particularly in rich nations. Our observation: We agree 100 percent with the IADB assessment.


The Role of the Multilaterals, According to the IADB

For multilaterals, the current crisis offers an opportunity for a different approach when compared with the policy options taken during the Russian crisis, says the IADB. The prevailing view in 1998 was that emerging nations needed to reassure creditors about the solvency of their economies. As a result, emerging countries around the globe were asked to cut spending and raise interest rates, which deepened the recession. ''The bank's study of successful policy responses during past crises suggests multilaterals must take into account initial conditions from each country before supporting a certain type of policy. Countries with good initial conditions do not need to go over strong adjustment policies to signal credibility. The multilateral system can help governments by boosting their foreign currency reserves and provide financing for government with a sustainable fiscal position,´´ according to the study.

Wednesday, 25 February 2009

Industrial Bank of Korea Goes on Non-Deal Investor Roadshow; Is a Financing Window Opening Again for Emerging Market Companies?

Bank of America Corp.'s investment-banking unit and Merrill Lynch & Co. have been mandated as the sole coordinator for a non-deal investor roadshow for the Industrial Bank of Korea. The company is rated A2 /A by Moody's Investors Service and Standard and Poor's. The purpose of the roadshow is to update investors on the health of their bondholdings as well as to examine the overall status of the Korean financial system.

Dates and places for meetings: March 2 in San Francisco; March 3 in Los Angeles; March 4 in Boston, and; March 5/6 in New York City.

Para Todo Se Acabar na Quarta-Feira! Site Voz Recommends a Piece on Brazilian Malandros (Port.)

Segue uma notinha enviada por Claudia Quiñonez, do Site Voz.
''Para quem se interessa em entender o povo brasileiro, este é um texto interessante, que fala do primeiro malandro retratado na literatura brasileira. A malandragem que volta a discussao toda vez que tem carnaval (nao sei exatamente se é realmente necessaria a analogia todos os anos) e toda vez que o tal do jeitinho é empregado indiscriminadamente. Eu acho que o jeitinho, bem direcionado, é empreendorismo. E o empreendorismo aprisionado numa visao imediatista, sem espaco para florescer em um ambiente sem corrupcao e livre de burocracias em excesso, vira esse jeitinho. Solução de curto prazo onde talvez alguem supostamente se beneficie, mas no final das contas todos saem perdendo.´´
Clique no link aquí para acessar o artigo recomendado por Claudia. Está escrito em portugués ...

Indonesia Bond Sale -- New Terms Out Just Now

We had announce this sale in a previous posting at the end of January. The sale forms part of a $4 billion issuance programme of Global Medium-Term Notes. Check our previous posting on Indonesia by clicking on this link.

Issuer: Republic of Indonesia

Ratings: Ba3/BB-/BB
Size: U.S. Dollar Benchmark (At Least $500 Million)
Coupon: Fixed Rate
Maturity : May 2014 / February 2019
Leads: Barclays Capital Plc. / UBS
AG

Read James Saft's Column on Drug Legalisation and Taxes -- A Few Days Ago Three Latin Presidents Lashed Out at U.S. War Against Drugs

Brazil's Cardoso (left) and Colombia's Gaviria. Both have admitted their past
with maconha, or bareta, as pot is known in their respective countries.
Now they want it legalised. They only dared to say this after they left office.
The U.S. war on drugs, apart from intimidating great minds, has only
sparked chaos and more instability in Latin America.

Here is James Saft's Reuters column for this week. Click here for link to the story. Saft says he half-jokes when he says one decent exit to resolving U.S. fiscal woes would be legalising marihuana and other drugs, taxing trade and saving on interdiction, domestic law enforcement and the prison and court system.

Recently, three former Latin America presidents (Colombia's Cesar Gaviria, Mexico's Ernesto Zedillo and Brazil's Fernando Henrique Cardoso) lashed out at the results of the U.S. war on drugs in an article originally published by the WSJ. Part of the group of people who signed the article too includes Colombian politician and former presidential candidate Antanas Mockus -- the architect of the revival of Bogotá in the late 1990s. Click here for the link to a Tribuna Latina story (in Spanish.) The ex-presidents argued in the WSJ article that the U.S.-sponsored (or -imposed, maybe?) policies based on manual and chemical crop eradication, interdiction and criminalisation of consumers had not been effective, but have instead contributed to violence, political and judicial corruption and the flourishing of mafias linked to drug-trafficking. The three musketeers fell short of recommending across-the-board decriminalisation and legalisation, but advised treating addicts as patients of the public-health services rather than criminals, focusing on the health effects of cannabis, and mounting educational campaigns to partly mend the mistakes of the ongoing policy framework.

Speaking from the other shore, the consumer countries' point of view, Saft asserts: ''Drug legalisation, just like for alcohol, is essentially a moral and political decision about which reasonable people can disagree. It’s also, to put it mildly, not very likely.´´ But he stresses that the war on drugs costs billions of dollars, entices violence and crime, sends to prisons thousands of people that cost the state billions of dollars a year, but more importantly and ''seemingly never get us much closer to victory.´´ He finishes his idea with a fine touch: ''The waste and misery involved must make it rival the sub-prime bubble as a misallocation of resources.´´

Inca Kola News Again: Readers Wll Find Its Morning Piece on Venezuela's Currency Insightful and Very Solid

Inca Kola News ended third in last year's
Web Log Awards for best Latin blog

Inca Kola News does it again. After admitting IKN's latest postings were too mining-focused and perhaps they were becoming too much a sleeping material, the author decided to write about Venezuela's (beleaguered currency, my comment) bolivar fuerte. Excellent decision! Click here for the link to the story.

IKN argues that a devaluation might be on the cards, that dollar assets remain strong and that market worries of a collapse of the currency system might be overstated. True. IKN also defends Hugo Chávez's decision to seize $12 billion from international reserves for his off-budget Fonden fund -- the least transparent Sovereign Wealth Fund in the world, -- saying it doesn't hurt the country's financial position. Plausible thesis, but hard for some of us to swallow:
We've recently had a whole bunch of blog-based Venezuelan 'experts' doing mutual handwringing sessions over that supposedly polemic withdrawal of reserves. These people seem to miss entirely the real point while preaching to their own little choirs. Venezuela's reserves are in good shape.
We at MM may form part of that selected group of blog-based Venezuelan ''experts,´´ -- as IKN dubs skeptics on the country's currency system, -- and we are happy to contribute ideas to the debate. Our purpose is not siding a priori with any party on this but bringing elements for a further discussion of the issue that you can judge a posteriori. In a recent chat with Samuel Malone, a U.S.-born economist now at Universidad de los Andes in Bogotá, I realised how dogmatic has this issue of the bolivar became among markets people -- investors, company executives, analysts, journalists, professors, politicians.

Malone developed a very interesting model for the Venezuelan black market currency in the stock-flow tradition of Rudi Dornbusch, the late MIT professor; Malone compares his findings with a group of five other models in finding the determinants of the black market dollar in Venezuela. The model (obviously no model is perfect) has the lowest RMSE (root mean square error) of all the sample of different models he picked for his paper. He found strong correlations between the trend for the black market dollar and the level of international reserves (or government dollar assets), the pace at which the black dollar exchange rate depreciates and the lagged premium. The model also shows the black market rate is very sensitive to changes in the differential rate of expected profits from purchasing black market dollars.
Shortcomings of the model include the lack of a PDVSA cash holdings proxy (in general, my experience covering this market suggested that people were very attentive to the financial situation of PDVSA and such worries affected the quotation of the black market rate.) I assume its inclusion would just make the model too complicated for the author's purposes.

I apologise to readers because Malone's speech and our chat took place the same day, almost a month ago, and I lost track of key details. Nevertheless, I took down some notes and managed to piece them together.

Malone identifies a few policy dilemmas: 1) Money creation has caused inflation. However, the Hugo Chávez administration has committed to transfer programs (the so-called Misiones) that keep the oil windfall flowing into the economy. Soaring money supply coupled with a fixed exchange rate stoked excessive growth in imports. 2) Growing demand for imports ''creates a drain on the government’s international reserves, especially as seen during 2007´´ and 2008, he says. 3) The government has sell debt (remember the famous and almost no transparent colocaciones especiales, or the at-some-point very successful PDVSA bond sale) to soak up excess bolivares from the domestic market. While this worked temporarily to lower the parallel market rate, it hasn't lowered the drain on foreign reserves. Venezuela keeps wasting too much money in imports -- no matter how fast reserves growth, now with the oil price decline that situation will tend to worsen unless demand is put the brakes effectively.

Yet, 4) the increased debt sales boosts government liabilities. This translates into higher spreads on both domestic and foreign debt -- no matter whether the oil price is high or low. The higher borrowing costs are then passed on the domestic firms and individuals, Malone says, which discourage the undertaking of investment. Then add the impact of the price controls and the exchange rate system shortcoming and you will have what you have now: under- or simply dis-investment (I know this word doesn't exist in the dictionary, but it exists in mine and you should be able to understand it as destruction of value.) Thus, volatile reserves and exchange rates, including the parallel market rate, contribute to high spreads. Also, volatile oil prices contribute to volatile base money, which implies a volatile sovereign asset. In Malone's opinion, the government’s goal of keeping the fixed exchange rate regime and capital controls is unsustainable in the medium term. That oil bought Chávez some extra time is different. Common sense, which doesn't necessarily goes hand in hand with economics thinking, tells us there is something wrong happening there, not simply the tantrum and unwillingness of the opposition to work for the country. Malone likens Venezuela to a Dutch Disease economy combined with an unsustainable exchange rate regime. The element of indebtedness and sovereign risk creates the conditions for high inflation, low investment, and falling productive capacity in the non-oil traded sector. He said this crisis can morph into one of increasing probabilities of default. I disagree with that -- Venezuela still has $70 billion in dollar assets at disposal. Professor Malone says there is still room left to correct these imbalances, but the room to maneuver is falling dramatically now that oil is on the low $40 a barrel.

When I asked him why the government kept the controls in place, he said this: ''There are a number of political economy reasons to do this. Macro economically speaking, I am afraid I don't know them.´´

Cemex Must Raise $2 Billion Before April to Avert Downgrade. Asset Sales Likely Step if Bond Sale Fell Short of Goal

Cemex SAB announced yesterday it may tap international bond markets soon with a dollar-denominated, benchmark-size issuance. Bankers at Citigroup Inc., HSBC Holdings Plc. and Banco Santander SA are arranging investor meetings in New York City, London, the U.S. West coast and Europe to sell the idea -- and the paper -- to potential buyers. As we mentioned yesterday in a posting about investor inflows into emerging markets, the demand for this issuance possibly exists, it should be there. The problem might be the amount raised -- and the borrowing cost that investors will charge. For now, investors are focused on figuring out what cost of borrowing would be ideal -- based on the spread of the company's credit default swaps and market debt prices for competitors, according to a corporate debt analyst based in Mexico City. Given that, the note would be priced to yield at least 9 percentage points above Treasuries of comparable maturity, the analyst estimated. Oil company Pemex sold bonds at 8.125 percent; Petrobras of Brazil followed suit, but at a yield above 8 percent too. Different industries, yes, different terms, yes -- but different refinancing and liquidity conditions.

Standard and Poor's recently put Cemex's ratings under review for downgrade, citing the company's tight debt refinancing calendar for 2009 and 2010. Fitch downgraded Cemex yesterday to BB on concern the company's total adjusted net debt to EBITDAR ratio will remain above five times this year and about four times during 2010 (Fitch's definition of adjusted debt includes the perpetual debt instruments issued by Cemex, which are treated as equity under Mexican GAAP, as well as operating leases.) The ratings companies allege leverage metrics are worsening due to slowing activity in three key markets for the cement producer: the U.S., Spain and the U.K. These markets make up for about three-fourths of Cemex global revenue. S&P argues the company will have to divest some of its assets to make good on debt payments; such asset sales might be hampered by declining values and the paralysis of credit markets. The company has debt maturities of approximately $4.1 billion, $3.8 billion and $7.8 billion during 2009, 2010 and 2011, respectively.

The company is certainly making an effort to cover the shortfall in funding for the 2009 and 2010 maturities schedule. On Jan. 27, Cemex and banks agreed to reschedule $2.3 billion of short-term bilateral loans that fall due this and next years into terms that will result in $607 million maturing in 2009, $536 million in 2010 and about $1.2 billion in 2011. The company was also able to extend the maturity of $1.7 billion of a $3 billion obligation that was due in December 2009 until 2011. But if the company fails to raise the money (about $2 billion) before April, S&P will cut the BB+ rating -- that is our interpretation. As of Dec. 31, Cemex had total adjusted debt of $23 billion and cash and marketable securities of $993 million.

REITs, Real Estate Companies in Developed Markets Seen Tapping Equity Markets to Cut Debt, According to Julius Baer

Julius Baer, the Swiss wealth management bank, says REITs (Real Estate Investment Trusts) in Australia (Westfield), the UK (British Land, Hammerson) and Singapore (CapitaMall) have begun to tap the equity markets in an effort to de-lever. In the U.S., numerous companies are paying part of their dividend in stock to protect cash holdings. Low valuations will spark a recovery in U.S. REITs by the second half . Asian REITs look attractive -- the problem is the unstable business environment there, said the bank.

''As fewer buyers are in sight due to the shortage of bank loans, as institutional investors are faced with redemptions and as leveraged investors remain absent from the market, an accelerated price decline is in the cards,´´ says the bank in its February Investment Policy report. ''In the direct market, price declines have not reached the bottom, but the sector should be halfway through the downtrend.´´ It finalises with an interesting comment about bond markets: ''Stabilising bond markets could be supportive for global real estate stocks as a near-term catalyst.´´

Earlybird, Feb. 25, 2009


Seré yo, maestro? David Murcia, head of Colombia's biggest investment scam.
He now points his fingers at President Alvaro Uribe, who he alleges
sponsored his company. Los pájaros les disparan a las escopetas ...

These are the headlines:

U.S. -- Obama Says Pulling Country Out of Recession Requires 'Bold Action´(click here for link to Bloomberg story): U.S. President
Barack Obama, delivering his first address to a joint session of Congress, said the credit crunch must be fixed now or the country risks ending up paralysed. One interesting comment he made about the economic crisis was what he described as a short-sighted attitude that infected Main Street, Wall Street and Washington. ''We have lived through an era where, too often, short- term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election.´´ His comments came at a moment where the world was looking for an aggressive, encouraging speech by the president. Early reactions to the speech were positive. The speech also coincided with remarks made by Federal Reserve Governor Ben Bernanke that bank nationalisations aren't either the policy solution nor the focus of the recovery plan. Markets should react today positively to these two stories.

U.S. -- Merrill Hit By Unexpected $500 Million Charge (click here for link to Financial Times story): Ineffective internal controls at
Merrill Lynch & Co. caused the firm to understate its 2008 losses by more than $500m, the investment bank said in its annual report. Then, Bernanke says banks will do what they have to do without imposing them additional controls. BS. Well, at least they won't nationalise banks such as Merrill that fail to do their homework properly.

BRAZIL -- Carnival Ends; Petrobras to Invest $2 Billion in Nigeria in Five Years (click here for link to Estado story): Petroleo
Brasileiro SA, the state-controlled oil company, will invest in Nigeria, a country with worse political risk instability than Colombia, $2 billion by 2014. Well, that $174.4 billion five-year plan is big enough to pay for this and other investments.

COLOMBIA -- Defense of Pyramid Scheme Owner Will Ask Judge to Summon President Uribe (click here for Tiempo story link):
Gimme a break! The defense lawyer of David Murcia, owner of the DMG pyramid investment company, alleges President Alvaro Uribe urged Colombians to invest in DMG. Well ... I wonder who of these two have more credibility.

Tuesday, 24 February 2009

S&P Downgrades the Ratings of Hybrid Capital Securities Issues for 45 U.S. Banks

Standard and Poor's lowered issue ratings on 45 U.S. financial institutions, including the majority of rated U.S. banks following a review of its ratings on the hybrid capital securities of the lenders. S&P didn't change any of the counterparty credit ratings on the banks. The following is a list of parent companies whose hybrid capital issues (and in some cases, the hybrid capital issues of their subsidiaries) were downgraded, and the rating changes:

(To / From)

American Express Co. BBB BBB+

BancorpSouth Inc. BB+ BBB-

Bank of America Corp. BBB+ A

BBB A-

Bank of New York Mellon Corp. A- A

BB&T Corp. BBB+ A-

Capital One Financial Corp. BB+ BBB-

Citizens Republic Bancorp Inc. BB- BB

Cullen/Frost Bankers Inc. BBB- BBB

Doral Financial Corp. CCC CCC+

Fifth Third Bancorp BBB- BBB

First Citizens BancShares Inc. BB BB+

First Horizon National Corp. BB- BB+

BB BBB-

First Midwest Bancorp Inc. BB+ BBB-

General Electric Capital Corp. AA- AA+ / AA AA+

Huntington Bancshares Inc. BB BB+ / BB+ BBB-

iStar Financial Inc. BB- BB

JPMorgan Chase & Co. BBB+ A-

KeyCorp BB+ BBB

Marshall & Ilsley Corp. BB BBB-

National City Corp. BBB BBB+

National Rural Utilities Cooperative Finance Corp. BBB BBB+

Nelnet Inc. BB- BB

New York Community Bancorp Inc. BB- BB

Northern Trust Corp. A- A

Old National Bancorp BB BB+

PNC Financial Services Group BBB BBB+ / BBB+ A-

Popular Inc. BB- BB

Provident Financial Processing Corp. BBB A-

Regions Financial Corp. BBB+ A- / BBB BBB+

Sky Financial Group Inc. BB BBB-

SLM Corp. BB- BB

South Financial Group Inc. (The) BB- BB

State Street Corp. BBB+ A-

Susquehanna Bank PA BB BB+

SVB Financial Group BB BB+

TCF Financial Corp. BB+ BBB- / BB+ BBB+

Textron Financial Corp. BB- BB+

U.S. Bancorp A A+

Union Planters Preferred Funding Corp. BBB BBB+

Valley National Bancorp BBB- BBB

Webster Financial Corp. BB- BB+ / BB BBB-

Wells Fargo & Co. A A+

Wilmington Trust Corp. BB+ BBB-

Zions Bancorp. BB+ BBB-

The following issues were downgraded, but remain on CreditWatch:

(To / From)

B.F Saul Real Estate Investment Trust

BB-/Watch Pos BB/Watch Pos

Bernanke Says Bank Nationalisations Only If Necessary. Majority Stakes Not Needed to Make Bankers Do What They Have to Do. Uhhhmmm ...

Here is an excerpt of a Bloomberg News story on Federal Reserve Governor Ben Bernanke's response to insisting rumours about massive bank nationalisations in the U.S.

Federal Reserve Chairman Ben S. Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders. The Treasury will buy convertible preferred stock in the 19 largest U.S. banks if stress tests determine they need more capital to weather a deeper-than-forecast recession, Bernanke told lawmakers in Washington today.

The shares would be converted to common equity stakes only as extraordinary losses materialize, he said. “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said at the Senate Banking Committee hearing.

The Fed chairman’s remarks eased concern among some investors that the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalization. The Standard & Poor’s 500 Banks Index climbed 13 percent, the most in more than two weeks, to 66.88 at 3 p.m. in New York. “Today at least there seems to be a growing sense of relief that nationalization was de-emphasized and put into perspective,” said Marshall Front, who oversees $500 million as chief executive officer of Front Barnett Associates in Chicago. “There’s a bit of relief that that’s not going to happen.”

Cemex, Facing Cash Problems, Wants to Sell Debt. Issuance May Add to $6 Billion Already Raised by Mexico, Quasi-Government Companies in 2009

ISSUER: CEMEX SAB
GUARANTORS: CEMEX MEXICO; NEW SUNWARD HOLDING B.V.
RANKING: SENIOR UNSECURED NOTES
RATINGS: TBC
SIZE: US$ BENCHMARK ($500 MLN OR MORE)
MATURITY: INTERMEDIATE
COVENANTS: HIGH YIELD
LEADS: CITIGROUP INC. (GLOBAL COORDINATOR) / BBVA / HSBC HOLDINGS PLC. / RBS PLC. / BANCO SANTANDER SA
USE OF PROCEEDS: REFINANCE EXISTING DEBT
COC PUT: 101%
ROADSHOW: LONDON/NEW YORK/WEST COAST/BOSTON/NEW YORK

First Warning to BRICs: S&P May Cut India's Credit Ratings to Junk. Banks Already Suffer the Consequences of It

India’s credit rating might be cut by Standard and Poor’s to junk, citing the ''not sustainable´´ government pre-electoral spending plans to help fend off the impact of the global recession on the world's biggest democracy. S&P lowered its rating outlook on India, one of the BRICs, to negative from stable while affirming the country's BBB- long term credit rating, the lowest level in the investment grade. The government last week said it would pursue a budget deficit of 6 percent of gross domestic product, twice as much its target for the year. Tax cuts were also announced hours after the S&P announcement -- signaling the government is more interested in reviving the economy at any cost than anything else. Given the gravity of the global recession, governments will try to lift spending restrictions -- remember the case of Brazil that we have treated extensively in this blog, -- at a time investors begin monitoring fiscal numbers more closely.

Furthermore, S&P also revised the outlook on the counterparty credit ratings for ten Indian banks to negative from stable: Axis Bank; Bank of Baroda; Bank of India; Canara Bank; HDFC Bank Ltd.; ICICI Bank Ltd.; IDBI Bank Ltd.; Indian Overseas Bank; Indian Bank; State Bank of India; Syndicate Bank; Union Bank of India. We wish them good luck.

Changes to Basel II Would Require Banks to Hold More Capital Against Trading Risk. Too Late?

The Basel Committee's proposed changes to Basel II for financial institutions worldwide would require banks to hold more capital than they do now against their trading books. Standard and Poor's says the changes will be more consistent with underlying market risks. S&P analyst Thierry Grunspan says the proposed regulatory capital requirements for market risk are likely to be less procyclical than current rules. But, are these changes coming too late, or not?

Yes. But evidence shows that market participants tend to forget lessons from previous crises during liquidity boom periods. So, better to prevent than regret -- as the old Colombian idiom says. In general, market participants see the proposed changes as positive because they will force banks to engage into more prudent risk management, improve dealing with specific risks about complex markets like derivatives and structured finance, treat illiquidity risk more carefully. The reckless days of disgruntled risk management for extreme market movement risk, which was underestimated in the current regulatory framework according to Grunspan, might be over. ''Due to the underweighted regulatory capital requirements for the trading book under current rules, returns on equity on banks' trading activities were artificially high,´´ he says, adding this ''may have given some banks an incentive to develop their trading books excessively.´´

Thus, if changes to Basel II are implemented, the new regulation should discourage banks from taking on risk in a benign market environment by accumulating large trading positions that turn out to be hard to manage when market conditions deteriorate. The changes would be effective Jan. 1, 2011 if implemented. They feature three major changes to Basel II's Pillar 1, some recommendations for Pillar 2, as well as expanded requirements for public disclosures by financial institutions under Pillar 3, according to S&P.