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 ...