Thursday, 12 March 2009

Madoff Pleads Guilty. Let's See How the Financial Media is Covering This

Bernard Madoff, accused of running the biggest financial fraud in Wall Street history, pleaded guilty to swindling investors of about $60-$65 billion over the past two decades. Let's check how the financial media is covering this --

THE WALL STREET JOURNAL: (click here for link to main story on the Web) -- Lede focuses on Madoff being jailed until sentencing comes in June. Probably the lightest start of the three big wires' versions of this big story.

Madoff Pleads Guilty; Judge Orders Him Jailed

Financier Bernard Madoff pleaded guilty to swindling billions of dollars. The judge ordered him jailed pending sentencing on June 16. "As the years went by, I realized my risk, and this day would inevitably come," Mr. Madoff said.

BLOOMBERG: (click here for link to main story on the Web) -- Strong lede, focused on the distrust that Madoff's actions brought about to the global financial system; in this sense, Bloomberg is correctly stating that the size of the investment losses/swindle is significantly smaller, infinitely smaller than the loss of confidence the fraud sparked in global markets.


Bernard Madoff admitted he was the mastermind behind the largest Ponzi scheme ever, an historic fraud that swindled investors out of as much as $65 billion and made him the symbol of investor distrust in a global recession.

: (
click here for link to main story on the Web) -- The lede focused on the calls for stricter regulation that stemmed from Madoff's actions. This is an important point we have been extensively been covering for months -- whether more, tougher oversight of hedge fund and wealth management companies should come as a result of all these scandals (Madoff, the Stanford CDs sales, the Colombian pyramids, the Brazilian insider sales and derivatives scandals, the Mexico's Metrofinanciera problems, all that.)

Madoff pleads guilty to fraud, says "deeply sorry"

Bernard Madoff pleaded guilty on Thursday to charges he orchestrated the biggest financial swindle in Wall Street history, cheating investors out of billions of dollars in a fraud whose magnitude shocked the public and drew demands for stricter regulations.

Song of the Day: Acontece by Brazilian Sambista Cartola

Angenor de Oliveira, o Cartola, foi um dos maiores sambistas brasileiros. Morreu no Río há um pouquinho mais de 20 anos. Esta música foi tocada nesses días por um amigo meu, quem ría enquanto errava na letra. Foi uma delicia ouvir essa música da voz do meu amigo -- a interpretação de uma música é possivelmente o mais importante na hora de ouvir uma canção, especialmente quando você conhece pouco da historia do compositor.

Bom, isso aquí parece ser o choro de um homem que não quer falar o que ele está falando. Têm amores difíceis, amores proibidos, amores que não dão certo. Mas isso não parece ser o amor que o Cartola canta aquí.


Esquece o nosso amor, vê se esquece.
Porque tudo no mundo acontece
E acontece que eu já não sei mais amar.
Vai chorar, vai sofrer, e você não merece,
Mas isso acontece.
Acontece que o meu coração ficou frio
E o nosso ninho de amor está vazio.
Se eu ainda pudesse fingir que te amo,
Ah, se eu pudesse
Mas não quero, não devo fazê-lo,
Isso não acontece.

Pode clicar aquí para escutar a versão de Caetano Veloso no YouTube -- o video é muito brega, isso sim. Desculpe, não fiz eu!

The Most Prominent Fallen Angel in Years: General Electric Loses AAA Ratings at S&P; Now Rated AA+, Outlook Stable

We are almost done -- no triple-As during this crisis ...

Standard and Poor's today lowered its long-term ratings on General Electric Co. and units, including General Electric Capital Corp., by one notch to AA+ from AAA. This is the most prominent fallen angel we have had in the markets in years. These guys had that top credit rating since 1956! I mean, this crisis is not peanuts -- institutions such as GE are losing credibility before creditors. This is a huge (although expected) event ...

The main factor behind the GE downgrade was S&P's assessment of the stand-alone credit profile of financial services unit GECC, -- which has been under attack for, surprise, surprise, a lack of transparency. Investors fretted about GECC in recent weeks, saying it might be facing swelling losses stemming from failed real estate investments and a growing deterioration of its credit card business (delinquency rates are climbing.) S&P views CECC credit quality at a level comparable to an A rated company, compared to the A+ it indicated before. "We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe,´´ said S&P analyst Robert Schulz. "This will result, in our opinion, in rising credit losses across key segments of GECC's finance portfolio. Still, we believe that GE's industrial-based cash generation capabilities remain fundamentally strong -- even in the face of enormous global economic headwinds -- and that it will generate growing cash balances from current levels over the next two years.´´

To be sure, -- I am happy to see that rating companies' reports are finally including these, -- S&P may reexamine the (stable) outlook if, ''for example, we came to believe that GE would fail to generate discretionary free cash flow (after dividends) of around $2 billion in 2009 and significantly more in 2010 and retain a very substantial portion of this cash -– we would view a portion of this cash as available to support GECC.´´ Ha! In light of the recent sharp reduction in the dividend, such step would require net earnings below $9 billion in 2009, which the ratings company says could occur if revenues fell more than 5 percent (a very possible event,) if industrial gross margins fell 100 basis points or more (which might be possible too,) and GE had little success in managing working capital in 2009 (and we are sure investors won't let GECC get away with things.) So ... another downgrade may be on the works if these GE guys, especially CEO Jeff Immelt, doesn't get his act together now.

Says Reuters: ''S&P lowered its outlook on GE's ratings to negative in December. A month later, Moody's Investors Service took a stronger step, putting its ratings on review for possible downgrade.´´ The downgrade leaves just a few U.S. companies at the top of credit ratings rankings -- Berkshire Hathaway of Warren Buffett; Microsoft of the world's richest man, Bill Gates; Exxon Mobil, the oil giant ... I remember at the start of last year there were nine!

Que Los Cumplas Feliz, Compae IncaKolaNews!

Check IncaKolaNews, the Latin Affairs blog run by Otto Rock. Wish IKN a Happy Birthday -- the blog is on its first anniversary. We wish him and IKN well.

Keep the good work, amigo.

Market Roundup by IDEAGlobal -- Brazilian Local Yields React to Policy Front-Loading ... We Told You So!

IDEAGlobal, the New York-based economic research company, said local investors in Brazil were expecting policy makers at the central bank to overreact to the the very negative activity numbers and speed up monetary policy action with a 100+ basis-point cut. Their view grew more dovish since the past month -- as other economists including Marcelo Carvalho of Morgan Stanley were already pessimistic about the trend, let's say, four months ago maybe? Kudos for Carvalho and his team -- who says Brazil will be on a recession as early as April. Check on these postings -- (one) and (two) and (three) ... Rates were to fall, and a dramatic correction in local yields was expected.

The Copom, as the bank's body in charge of setting monetary policy is known in Brazil, trimmed the Selic target rate to a record low of 11.25 percent last night (a reduction of 150 basis points.) ''Local markets have long been anticipating an acceleration of the trend towards lower rates on the part of the Brazilian central bank, which has placed this nation in a similar situation to major fixed-income markets in Latin America, as rates along domestic curves compress against those held on U.S. dollar-denominated sovereign curves,´´ writes the shop.

IDEAGlobal says: ''the constant decrease in the offered yield on the 2017 NTN-F (inflation-linked securities with long maturities) has moved the spread between this instrument and that of the 2017 dollar-denominated Global down to positive 576 basis points, after last year’s extreme blowout in differentials.´´ A more dramatic drop in the real may hamper this spread compression trend, because the weaker the real, the bigger the perceptions of future inflation -- and NTN-Fs are inflation-linked securities. ''Inflation importation takes a hold on longer-duration NTN-F paper,´´ IDEAGlobal clarifies.

The shop's expectation is that ''domestic rates remain in a downtrend as the domestic growth picture continues to complicate, while the external front of dollar Global bonds draws little interest as the recessionary environment takes stronger hold in Latin America.´´ It recommends playing ''long Brazil’s 2017 NTN-F against short the 2017 Global bond, looking for spreads to trend towards more than 500 basis points, while stopping out of this exposure if we witness a reversal back towards spreads of 620 to 630 basis points.´´

Brazilian Securities Regulator Says Petrobras Purportedly Leaked Details of Its Quarterly Results

The CVM notified Petróleo Brasileiro SA of irregularities on its release of the fourth-quarter results report in recent days (this week.) The release of a ''relatório financeiro´´ -- sort of a leaflet with some key financial information -- was seen by the CV as a briefing of the results, which should only be unveiled until after the market closes.

One of the many irregularities in the Brazilian stock markets is the systematic leakage of price-sensitive information, transactions and the use of insider trading by key executives and shareholders. The Brazilian government is making a great effort to correct this, but the success has been limited by a restricted budget and the lack of qualified staff at the regulatory agency to detect these problems.