Market Memorandum

The Future is Uncertain, The End is Always Near

2009-04-18T13:40:00.009-03:00

Dear Readers of Market Memorandum:

After 10 months of much-needed relax and reflexion, I was offered a job at an international company. I took it, I didn't have to ponder much about it. I stopped adding new stuff in the blog since April 8, when I formally joined that company, and for that I owe you an apology. In recent days, and I don't mean this to sound as an excuse, I have also been busy coordinating my move, sorting out some personal problems and especially, getting myself focused on this new responsibility. I am sure you do understand that.

I don't know if my new employer will allow me to carry on with this blog. Perhaps it will under certain conditions, perhaps it will not. Since the future for this space of opinion and news is uncertain, I have to say that the end to it might be closing in too. For the past three months I enjoyed doing this and some very nice readers, especially my very good friends Carlos Puyo and Hans Paul Tobler, encouraged me to kick it off. Early in December, Otto Rock and Fernanda Sofio, my sweetheart for years, helped me start with this project. At some point the blog had 400 hits a day and the readership was growing rapidly in late March. I was very pleased because it was a sincere effort to bring to all of you the news that mattered in these turbulent markets as well as data that readers might have no easy access to. I really hope you readers enjoyed this.

But this space wasn't only created to discussing market stuff. We also wrote about social issues, poetry, music. I was surprised by the very warm response of yours about some of this stuff. My sincere gratefulness to all of you who participated and shared your opinions with me and the other readers. I will be grateful forever. There were comments, especially about markets and politics, that were harsh and many times I was shocked by the rudeness of some comments. I have no reason to hold any grudges to them: when you write about sensitive stuff you have to be ready to get passionate, or maybe rude, responses from your readers, who are in the end the last destination of your writing pieces and your very judges. So, to all those who were rude at some point, my thankfulness goes too -- you guys taught me to think better the stuff I was putting in.

Well, I might also have to stop with this blog because I need to focus on my new life -- it's a new career in a new town. Blogging requires a lot of time and if you are to do this responsibly you need to give it the time it needs. It's like a little kid. I learned that from Otto Rock, whom I respect a lot. Blogging requires the utmost attention. I am not sure I am able to blog at this point.

Thanks to Fernanda, Otto, Jim, the Carioca Grouch, Anna Pérez (my very friend and a person who also found this effort useful for her work,) my friend Elzio Barreto in São Paulo, Toby Muse, and other bloggers such as Fausta, Genovieve Signoret, Miguel Octavio ... I run the risk of forgetting names. Occasional readers included lots of former colleagues at Bloomberg, Dan Shirai of LatinFinance (to whom I owe a lot professionally-wise,) my colleagues and bosses at the market intelligence companies I used to work for. Thanks to all.

One last thing. There is one person I cannot mention by name -- for work and personal reasons -- who was a constant source of inspiration when writing this blog. Since the very first time we talked, that person always allowed me to see the other side of the coin. Every story has two sides. We know that. The person's clarity and very rational points of view, the person's pursuit of objectivity and always warm speech helped to make that concept much clearer. I wanted to recall that enlightening conversation we had about Evo Morales, a chat that helped change my views radically about the situation in Bolivia. I have to thank that person for her continuous stimulus and encouragement, and the time we shared exchanging views about the world, life and things.

It's all over -- for now.

Thanks a lot,

Guillermo Parra-Bernal

New Issuance -- Telemar, Part of Brazil's Newly-Created Phone Giant, Mulls Selling 2019 Bonds

2009-04-08T09:59:00.004-03:00

The following is information on the planned sale of dollar bonds by Telemar Norte Leste, on behalf of Oi, the telecom group created with the merger of Telemar and Brasil Telecom under the sponsorship of President Luiz Inacio Lula da Silva. The sale will likely take place by the end of next week, according to anonymous sources.

The sale is part of a plan under which the company, in this case Telemar, will refinance debt incurred during the acquisition process of Brasil Telecom. The takeover transaction was valued at about 5 billion reais at the time and a greater part of it was financed by state penson funds and the BNDES development bank.

Issuer: Telemar Norte Leste SA
Ratings: Baa3 (stable)/BBB- (stable) (Moody's/Fitch)
Format: 144a/RegS Senior Unsecured Notes
Size: Dollar-Denominated Benchmark (At Least $500 Million)
Tenor: Ten Years (Due 2019)
Bookrunners: Citigroup Inc. / Banco Itaú BBA SA / Banco Santander SA / BB Securities / Banco Bradesco BBI
Use of Proceeds: Debt Refinancing, General Corporate Purposes
Roadshow: April 13-16

Lies Lies Lies ... Check This Posting by Felix Salmon on the G-20 Package

2009-04-07T12:55:00.003-03:00

We were discussing this subject of the crisis and the role of the G-20 with friends over rum and vodka last night at a Bogotá bar. We were asking whether is true this thing about the market rally and all that. It's a bear market rally. I am not that convinced that the rally will prevail, confidence will be fixed and signs of a global recovery will be seen this year (my most optimistic scenario sees it coming by the end of the second quarter of 2010.) My friends, though, are just exhilarated by the idea of Barack Obama fixing the markets and overhauling the culture of greed in America -- making America more human. They keep dreaming. I think they were drunk, not me.

Check this blog posting by Felix Salmon -- We all saw the show of these G-20 presidents gathered altogether in London, trying to show they are acting to avert the mistakes that led to failed coordination policies of the Big Three back in the 1930s. The collapse of such scheme back then led to the worsening of the global depression. I hated the meeting, I have to say: seeing U.S. President Barack Obama kissass-ing Brazil's Luiz Inacio Lula da Silva was stupid. Lula, in turn, could only say stupid things such as the crisis was triggered by the actions of ''white people with blue eyes.´´ Jesus! It was just that, show and cameras and unfortunate statements. They announced trillions of dollars in aid for the next five years and all that. But, what of all that is new money?

Felix Salmon says: ''Net-net I’m inclined to believe that any hard-and-fast statement about how much new money there really is in the G20 package is almost certain to be false: the fact is that no one knows for sure, and won’t for some time yet.´´

New Issuance -- IFC Might Sell Dollar Bonds in International Markets

2009-04-07T12:34:00.003-03:00

The International Finance Corporation, the investment-banking-like arm of the World Bank, mandated BNP Paribas SA, HSBC Holdings Plc. and JPMorgan Chase & Co. for a five-year dollar-denominated Global benchmark issue, according to people involved in the transaction. The sale might take place in ''the near future, subject to market conditions.´´ This might happen as expectations that the bear market rally we have witnessed in previous days (stocks are falling for the first time in several days today) is likely to stay for a bit longer. I have my doubts about it. In the meantime, companies are looking for windows of opportunity to sell debt or arrange new financing schemes -- and for the IFC this is probably be a good time to place a benchmark size issue in the markets at a competitive yield.

The IFC is rated Aaa by Moody's Investors Services and AAA by Standard and Poor's.

SEC Said to Be Mulling Short-Selling Curbs, According to Bloomberg Report

2009-04-03T17:44:00.003-03:00

This is the text of a story by Bloomberg News about possible curbs on short-selling. Many people in the markets reject the idea, for short-sellers can be critical to efficient liquidity allocation and somehow as easy operation of energy, commodity, currency and derivative markets.

The U.S. Securities and Exchange Commission is considering dictating when traders can bet that stocks will fall, after lawmakers said short-sellers fueled the financial crisis by driving down shares, according to two people familiar with the matter. The SEC may offer two proposals April 8 that would place more stringent limits on bearish bets than a plan backed by four U.S. stock exchanges, according to the people, who declined to be identified because the proposals remain under discussion at the agency. Since taking over in January, SEC Chairman Mary Schapiro has faced pressure from Congress to reinstate the so- called uptick rule, which required traders to wait for a price increase before executing short sales. (Click here for a link to the Bloomberg story. )

The imposition of a temporary ban on short sales in September fuelled a witch hunt on hedge funds. Apart from the igniting remarks of politicians, victims of market drops and even the Church, which has fueled more confusion and anger over the role of financial speculators on the financial system, we have seen little debate over the role of hedge funds in general, the importance and excesses of short-selling and whether the latter two are beneficial to the health of the financial markets. One investor, Fernando Meibak of Sunrise Investments in São Paulo, told this blog back in December that, for the case of bank shares around the world, the current framework that makes banks over reliant on wholesale funding and vulnerable to a downturn in investor confidence, makes financial stocks a target of short-sellers. One thing is, he said, that short-sellers manipulate the markets for profit reasons, and another is the role that short-selling plays on the correct functioning of market pricing. Market abuse is already illegal and should be punished -- not the activity of shorting per se. Short-selling is an important part of financial markets these days. It isn't an exclusive activity of hedge fund managers.

South Korea's Kexim, IDB Sign Accord to Fund $2 Billion in Projects

2009-04-02T11:28:00.005-03:00

The Export-Import Bank of South Korea and the InterAmerican Development Bank will sign an accord to co-finance public and private sector projects worth as much as $2 billion in the next three years in Latin America and the Caribbean. Kexim, as the Korean official export credit agency is known, and the IDB ''will work together to share information and identify and finance projects in infrastructure, information technology, trade finance and other areas,´´ according to a statement.

The Kexim sold bonds in international markets recently. Check our archive for the posting.

Latin Governments are Resorting to Protectionism to Cushion Their Economies From Effects of Global Crisis, According to Analysis Piece by Reuters

2009-04-02T11:04:00.005-03:00

Read this interesting analysis piece by Reuters reporter Helen Popper (click on this link to read the story.) Recent evidence found by ING Bank NV economists says Brazil, a country with a very closed economy and lots of restrictions on imports, is to benefit from shutting its borders to imports or awarding cheap credit to local companies during the current crisis. Brazil has been lending massively to companies through the BNDES, the state development bank, for expansion projects, the continuation of ongoing plans and debt refinancing efforts. Some see that as protectionist, since it may break some WTO rules -- we will soon see.

Among the few countries that aren't considering restrictions are those that used the boom of the previous years to build their cash position, reduce public debt and pursue long-term free trade accords: Colombia, Chile and Peru. Of those three, the latter two are better suited to weather the current global downturn. Colombia is struggling, partly because it has structural fiscal and external sector shortcomings.

Going back to the main purpose of the Reuters piece, Popper shows examples of recent measures by Ecuador, Paraguay and Argentina raising barriers on imported goods and tells us of the increased willingness from other governments in the region to retaliate against their partners. This should have implications for companies that, like Brazil's Embraer or steelmaker Gerdau, have some of their natural, more profitable markets in neighbouring Latin nations.

Worth reading it.

Odebrecht Raises $200 Million in Sale of Five-Year Debt, Sources Say

2009-04-02T10:25:00.003-03:00

Issuer: Odebrecht Finance Ltd.
Rating: BB (stable) / BB+ (stable)
Tenor: Five-Year (April 2014)
Size: $200 Million
Yield: 10.00 Percent
Bookrunners: Banco Santander SA / Banco Itau Holding Financeira SA
Co-Manager: Banco Espirito Santo SGPS

Accounting Rules Eased in the U.S. ... Finally

2009-04-02T10:06:00.004-03:00

The U.S. Financial Accounting Standards Board decided to ease mark-to-market rules that banks say fail to work when markets lack of buyers. Well, as University of Chicago professor Eugene Fama used to spot, in markets characterised by ''fat tails´´ there are no buyers, normally speaking. Well, the FASB identified this, a bit late -- that is the problem of regulatory and oversight agencies in general. They are always late.

The changes approved today to mark-to-market rules will allow companies to value assets in such a way that the writedowns stemming from market declines on certain investments, including asset- and mortgage-backed securities, reflect those declines in a less violent fashion. We should expect the net income results of financial companies being boosted following the changes.

CAF Sells Debt in Colombia -- Showing Resilience of Local Corporate Debt Market During Crisis

2009-04-02T08:21:00.004-03:00

Corporación Andina de Fomento, the multilateral institution created by the Andean Region nations to promote investment and lending in greater scale, sold 240 billion pesos (or about $95 million) in fixed-rate bonds on Colombia’s domestic debt markets. The Caracas-based multilateral sold 112 billion pesos in 2014 bonds at 9.60 percent, and 128 billion pesos in bonds due in 2019 at a yield of 10.79 percent. This is CAF’s third peso-denominated bond offering in Colombia -- it had sold 240 billion pesos of floating-rate debt in December. Market talk had put a CAF offering at the end of the second quarter; in a recent talk we had with one bank executive, he said the chances of issuing in Colombia were gaining momentum because of the local markets' rising demand for corporate and quasi-government debt paper amid tanking bond yields. InterconexiónEléctrica SA, the largest utility in Colombia, is expected to place almost 200 billion pesos in six- and nine-year bonds as early as this week. The Colombian debt market is, thus, the most active so far in Latin America; relative to Brazil or Mexico, offerings have been ten times bigger, the market response has been active and movements in yields have reflected the different stages of the current liquidity crisis.

The local securities unit of BBVA, the Spanish lender, managed the transaction. Demand for the CAF bond topped 300 billion pesos, according to buyers of the issue.

Pemex Issues 10 Billion Pesos of Domestic Three-, Seven-Year Bonds; First Step to See Local Bond Spreads Narrowing, People Say

2009-04-02T07:53:00.004-03:00

Petróleos Mexicanos SA, the giant oil company controlled by the Mexican government, sold debt in the domestic markets amid hefty demand for long term instruments. We had extensively talked about the health of the Mexican debt market -- which for months has only allowed for corporate paper issuances at the expense of long-term corporate bonds offerings. It seems that finally, issuances from the highest-rated companies are kicking off. Pemex's transaction was a litmus test for the depth of this market -- clearly it passed it well, according to some analysts.

Terms of the Pemex sale were: three-year floating-rate notes (FRN) linked to the benchmark interbank interest rate TIEE; the issue was priced to yield TIEE plus a spread of 100 basis points. The total issued of this tranche was 6 billion pesos. Pemex also placed 4 billion pesos of seven-year, fixed-rate bonds at a yield of 9.15 percent. The yield has an equivalent in Mexican Treasury notes rates -- the Mbonos of similar maturity plus 1.6 percentage points.) Demand for the offering topped a sizzling 24 billion pesos, and most of the bids came in from local pension funds. These funds ended up being the major buyers of the paper, according to a banker involved in the sale.

Taleb, 'Black Swan´ Author, Says U.S. Bank Plan Will Tank. We Agree.

2009-04-01T17:12:00.002-03:00

Last night I was chatting with an old friend of mine about the U.S. plan for its lousy financial system and he was clear -- sort of felt that he was right: ''Why do people, taxpayers, have to pay for the lousy risk-assesment strategies of these idiots?´´ I agreed with him. Then I stumbled across this story on the Bloomberg News Web iste, and I decided to reproduce it. Nassim Taleb, the author of ''Black Swan,´´says removing toxis assets from balance sheets will do little to kickstart credit and revive the U.S. economy. Sorry to say this, he is right. We expected the Barack Obama administration to be as strict with Wall Street firms as it has been with companies in Main Street (check our posting early this morning about the president's reported remarks over the future of General Motors Corp. and Chrysler Corp.)

Reach your own conclusions -- we have already done that at MM. Click here to read the story (with pictures and all the gadgets.)

Nassim Taleb Says Geithner’s Bank Plan Will Fail (Update1)
By Jeff Kearns and Erik Schatzker

April 1 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

“We’re heading in exactly the wrong direction,” Taleb said in a Bloomberg television interview. “I want an overhaul, I want something drastic. This is going to fail, this is not it.”

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets. Leaders from the Group of 20 nations meeting in London this week are unprepared to fix the global financial system because they don’t grasp how markets work or the root causes of the credit crisis that has led to $1.2 trillion in losses and asset writedowns, Taleb said.

Rare and unforeseen events are known as “black swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Taleb is a professor of risk engineering at New York University and also advises Universa Investments LP, a Santa Monica, California-based firm opened in 2007 by Mark Spitznagel, Taleb’s former trading partner.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market, Taleb said.

Subsidize Failure

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets,” he said. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”

Taleb said it’s “shocking” that the government would allow banks to estimate the value of the toxic assets that remain on their books because there is effectively no market for the securities, making them almost impossible to value.

“I don’t understand letting banks mark to market, after all this incompetence,” he said. “Why don’t we allow people to mark their house at what they think the value of their house is?"

Odebrecht Bond to Be Priced Early Tomorrow; Books Closed in America, Sources Say

2009-04-01T17:06:00.005-03:00

The Odebrecht bond put up for sale yesterday has the bookbuilding closed in the U.S.; European investors will close orders tomorrow and pricing should be ready by midday, said sources involved in the deal. We will see current market demand and pricing trends -- whether they are supportive of indications of an improvement in risk-taking.

Check This Posting on a Reuters Blog: Debt Restructuring in Europe Being Chased Out by Distressed Debt Funds

2009-04-01T10:13:00.003-03:00

Check this posting. We will yet see whether the same happens in Latin America. There are sectors in distressed financial situation and with grim prospects of debt refinancing in the short term: ethanol, meat, foods, farming companies.

Brazil and Some Details About the Fiscal Numbers for February

2009-04-01T09:24:00.005-03:00

Those who read this blog regularly probably know that I am not especially a fan of Brazil's government, its very ambiguous economic policy framework and particularly its management of the fiscal situation. This time I won't defend the awful administration of public finances by Criswell, the lousy finance minister who assured his countrymen that the global crisis would only touch Brazil marginally, be just a ''marolinha´´ -- a roller, a shallow wave. What an idiot. The economy posted its worst quarterly contraction in the fourth quarter and is going straight to recession.

Well, the thing here is, yesterday the government announced that the consolidated primary budget surplus, or the excess of revenues over expenses excluding debt payments, narrowed by 66 percent in the first two months -- amounting to about 2 percent of gross domestic product in relative terms. The accumulated result is certainly bad. I listened to some radio and specialised TV programmes predicting the fallout of Brazil and some doom scenarios. The numbers are certainly worrisome, but we have to take into account some aspects in the bottom line that should keep readers cool about the (deteriorating yet far from end-of-the-world-like) fiscal position of the Brazilian government.

The primary surplus was 4.1 billion reais in February, narrowing from 5.1 billion reais in January -- and without a doubt, a couple of disappointing monthly results. The numbers were though better than the market’s average estimate surplus of about 1.2 billion reais. Furthermore, the consolidated nominal budget deficit narrowed to 6 billion reais in February from January's 9.2 billion shortfall. All in all, a whooping 10.1 billion reais in interest payments were to blame for the sizzling back-to-back deficits. Despite the fact that the primary surplus was about half the value of February 2008's 9 billion real surplus, my guess is that, once you take a look at the figures unveiled by the central bank yesterday, there is an improvement on the margin in the interest/GDP ratio. This is consistent with recent declines in domestic borrowing costs and especially, the reduced weight (sensitivity if you like it) of currency fluctuations on debt dynamics. Anyways, taking into account the awful erosion of tax collections during the past five months and the irresponsible increase in expenses sponsored by that lousy finance minister and related to the government’s economic salvage plan, the data in my view was not that worrisome.

Nonetheless, be sure that at some point the same rating agencies that were quick to see Chile's strength and especially comfortable fiscal and external position to award the nation an increase in debt ratings, will be quick enough to spot the weakest aspects of Brazilian policy making -- which we believe is erratic and desperate in our view. We believe that at some point the rating agencies that awarded Brazil investment-grade last year will begin revising their stance -- it would surprise me if they at least don't send a warning on Brazil's deteriorating fiscal numbers.

Argentina Mourns Former President Alfonsín, Who Died Yesterday

2009-04-01T01:33:00.005-03:00

Murió Raúl Alfonsín. I am reproducing Bloomberg News reporter Eliana Raszweski's obit on the man who helped bring back democracy to Argentina.

March 31 (Bloomberg) -- Raul Alfonsin, who presided over Argentina’s return to democracy from military dictatorship and later resigned amid economic chaos, died today. He was 82. Alfonsin, who was battling lung cancer, suffered recently from pneumonia, his doctor Alberto Sadler told reporters in Buenos Aires. Dozens of people carrying candles gathered outside Alfonsin’s house in the capital.

Click here to read Raszweski's story. Alfonsin dismantled the armed forces's power structure. He created the National Commission on the Disappearance of Persons to record human rights abuses that took place under the past military leadership. One footprint of democratic values that our leaders should always use as a model. We have so many undemocratic leaders in this region that use votes and institutions created for people like Alfonsín to perpetuate in power. The Chávez, Uribes and so on won't be as fondly remembered as the old Alfonsín will. Rest in Peace, Mr. President.

Click on this link to read Otto Rock's IncaKolaNews' very touchy posting on Alfonsín. It's partly in Spanish, lo cual lo hace más sentido aún.

New Issuance: Odebrecht Becomes First Private Company in Brazil This Year to Offer Bonds in International Markets

2009-04-01T01:21:00.004-03:00

This came out yesterday, and I apologise, dear readers, I was on holiday. Bloggers have holidays too. Odebrecht, the construction giant, is offering bonds in international markets to buy stakes in some ventures and units, as well as to improve its corporate structure. This might be the first latin dollar bond sale since Digicel's very bumpy $335 million offering a few weeks back. On the use of proceeds, these Odebrecht bankers branded it as UOP for general corporate purposes -- I wish these bankers were more transparent. I wished the company was more transparent too.

Here are the details of the offering:

Issuer: Odebrecht Finance Ltd.
Rating: BB (stable) / BB+ (stable)
Tenor: Five Year (April 2014)
Size: $ 150 Million
Yield Guidance: To Be Announced
Change of Control: 101% (Ratings Downgrade)
Format: 144A/Reg S
Bookrunners: Banco Santander SA/Banco Itau Holding Financiera SA
Co-Manager: Banco Espirito Santo SGPS
Use of Proceeds: General Corporate Purposes (including equity investments in Odebrecht group units)
Timing: This Week

Finally! Obama Believes Bankruptcy Best Solution for GM, Chrysler. Now, What is the Solution for Banks Like Citigroup or Financial Companies Like AIG?

2009-04-01T01:13:00.003-03:00

Bloomberg News moved this story late last night:

April 1 (Bloomberg) -- President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said. Click here for the link to the entire story.

The thing is, my comments have to be more moderate from now on. The surprise will come on April 8. Anyways, I am surprised by the assymetry of the comments by the newly-sworn in president: he has failed to produce a similar comment concerning the situation of banks that, like Citigroup Inc. or financial services companies like AIG, had awful risk-assesment strategies and led the credit markets to the shambles they are on right now.

I ask, When this new U.S. administration will say something solid, concrete and strict about the heath of these financial companies and when the world will stop bailing out these institutions?

New Issuance -- Peru, Hana Bank, Slovenia to Tap Markets as Risk-Taking Improves

2009-03-25T12:26:00.003-03:00

In a further sign that markets are becoming more prone to take risk these days -- following the announcement of the bank rescue plan by the Barack Obama administration and prospects of faster-than-initially-expected recovery in some emerging markets, mainly Brazil, China and Chile, today we see Peru ready to sell 1o-year debt, Slovenia to sell five-year debt and Hana bank exploring a debut offering.

New Issuance: World Bank to Sell Debt for First Time This Year

2009-03-24T17:04:00.003-03:00

In a proof that risk-taking is improving, the WB is tapping markets. This came out just now.

Issuer: World Bank (International Bank for Reconstruction and Development)
Rating: Aaa/AAA/A
Format: Global
Maturity: 3 Year
Coupon: Fixed Rate
Size: U.S. Dollar Benchmark
Managers: Citigroup Inc. /HSBC Holdings Plc. /JPMorgan Chase & Co. /Royal Bank of Scotland Plc.
Timing: This week

New Issuance -- Kansas City Southern de Mexico to Offer $200 Million of Seven-Year Debt

2009-03-24T09:52:00.002-03:00

For those who kno little about this company, KCSM operates the primary commercial corridor of Mexico's railroad system. Here are details on the issue:

ISSUER: KANSAS CITY SOUTHERN DE MEXICO SA DE CV
SIZE: $200 MILLION
ISSUE: SENIOR UNSECURED NOTES
MATURITY: 2016
EXPECTED RATINGS: B2/B+
LEAD MANAGER: BANK OF AMERICA SECURITIES
JOINT LEADS: BANK OF NOVA SCOTIA / SUNTRUST
CHANGE OF CONTROLS: PUT AT 101% PLUS ACCRUED INTEREST
USE OF PROCEEDS: REPAYMENT AND TERMINATION OF THE COMPANY'S CREDIT FACILITY AND TERM LOAN; GENERAL CORPORATE PURPOSES
TIMING: TODAY

BusinessWeek Article -- on Wall Street's Crimes Against Humanity! (Jesus!)

2009-03-24T08:19:00.004-03:00

Click here on this link to read this peculiar article about Wall Street and its bankers' crimes. Columnist Shoshana Zuboff writes that, by refusing to consider the consequences of their actions, those who created the financial crisis exemplify the banality of evil.

I wonder why some people don't write about this during times of boom -- or why the media just don't publish articles like this. Must be that, during times of prosperity, every country in the world wants to have their little own Wall Street ...

Vacation Time -- Back in Early April

2009-03-23T15:55:00.003-03:00

Dear readers,

This blog will ocassionally post news and commentary during the March 24-March 31 period. In April we will be back in full fashion -- we hope so!

Thanks a lot,

Market Memorandum

Obama Unveils Plan to Buy $1 Trillion in Banks' Toxic Assets; Shares Rally Worldwide

2009-03-23T12:24:00.004-03:00

The U.S. government finally disclosed today its long-awaited plan to buy toxic assets from the balance sheets of the country's financial system. Simply as that, they are wagering their last bet on no-banking nationalisation. As Elvis used to sing, ''it's now or never.´´ Under the plan, as reported by Reuters and Bloomberg News, as much as $1 trillion in purchases of illiquid mortgage bonds and loans will be made using Treasury money.

Says Bloomberg: ''Barely two months after President Barack Obama took office, he and Treasury Secretary Timothy Geithner are staking much of the new administration’s economic credibility on the theory that removing the devalued loans and securities from banks’ balance sheets will help them start lending again and help resuscitate the economy.´´

And Reuters says: ''Public and lawmaker fury over the bonuses, and efforts on Capitol Hill to claw them back, have made many investors skittish about partnering with the government, but Treasury specified that private partners in its latest effort to revive credit markets will not face tough executive pay restrictions.´´ The story talks about the outrageous effort by financial companies to keep paying bonuses to their employees, most of whom are seen as responsible for the havoc created through the marketing and sale of asset-backed securities tied to mortgages -- the infamous sub-prime securities.

Immediately after the announcement, Reuters came up with this excellent scoop: click here to read the story and watch the video. Bill Gross, the head of the world's largest bond fund, Pacific Investment Management Co., ''gave the Obama administration's financial stability effort a much-needed endorsement on Monday,´´ saying Pimco will participate in the public-private plan. We have said in this blog extensively that Pimco is one of the much-needed engines to make this thing work -- but at the same time it faces conflicts of interest that we hope don't derail the plan as a whole. Check the previous postings by typing Pimco on the search box (your upper-left corner, right next to the Market Memorandum big title in your screen.)

The Standard & Poor’s 500 index rose 3.6 percent; the S&P 500 Financials Index jumped almost 9 percent. Yields on the 10-year Treasury notes were down 1 basis point at 2.62 percent. The Bovespa rallied 4 percent in Brazil. The world is giving the plan an early confidence vote -- we will see how markets behave tomorrow.

EMTA Says Emerging Market Bond Funds Had Outflows of $117 Million in Week Ended March 18

2009-03-20T08:25:00.004-03:00

For the week ended March 18, emerging markets debt funds saw net investor outflows of $117 million, equivalent to 0.30 percent of assets under management (AUM) -- less than the $308 million net redemptions seen in the prior week, according to EMTA. Outflows were seen across all fund types. In total, market effects (namely an appreciation of emerging market currencies against the dollar) played a positive role by offsetting the outflows: the positive contribution of $195 million related to foreign exchange-related effects helped debt fund assets to grow by $719 million from the previous week, despite the negative investor outflow, according to ING Bank NV.

Israel Bond Pricing Sheet (From Last Night)

2009-03-20T08:21:00.003-03:00

ISSUER: State of Israel
ISSUE RATING: A1 / A
SIZE: $1.5 Billion
MATURITY: March 2019
YIELD: 5.190%
COUPON: 5.125%
TREASURY SPOT: UST 2.75% 02/15/19 Priced at 101-19+ to Yield 2.565%
SPREAD: Equivalent Treasury Yield +262.5 Basis Point Spread

IncaKolaNews Views on Recent Fed Measures and Impact on Carry Trade

2009-03-20T08:14:00.004-03:00

El Incisivo Otto

Click on this link to read Mr. Otto Rock's posting on the effects of the recent Federal Reserve measures on inflows of dollars and the trend of Latin America currencies. Agree 100 percent on Brazil. Venezuela ... uhhmm, the cash situation they face seems more serious than we imagine. It's the proto-republic of mystery ...

I insist, put IKN on your radar.

S&P Downgrades Six Brazilian Homebuilders on Financial, Demand Concerns; Cut Follows Fitch's January Downgrade

2009-03-20T07:50:00.005-03:00

Standard and Poor's cut the credit ratings of Brazil's No. 1 real estate company Cyrela Brazil Realty SA, its closest rival Gafisa SA and four other homebuilders on concern a prolonged decline in demand and financing sources as well as tougher refinancing conditions will lead to financial difficulties. In a report, analyst Reginaldo Takara said the rating actions ''reflect the difficulties being faced by the homebuilders to finance their working capital, the risks of a prolonged contracted sales slowdown, more uncertainties about the sale of the existing portfolio of projects and the trends for the industry in the medium term.´´

Cyrela, majority owned by billionaire Elie Horn, was cut one level to BB- from BB (S&P kept the rating on a stable outlook.) Gafisa, Brazil’s second-largest real estate company and one that has focused very much on high-end and commercial real estate megaprojects, was lowered to brA- from brA (there are ratings in the local scale) with a negative outlook. Gafisa, which has not issued notes abroad as far as I am concerned, has sold notes in the domestic markets. The move means that the situation for Gafisa might relatively be more challenging than for Cyrela. S&P also downgraded Rossi Residencial, MRV Engenharia e Participacoes, Tecnisa and KlabinSegall.

S&P is the second rating agency that downgrades the sector this year -- the first was Fitch, which on Jan. 21-22 reduced the ratings of six companies in the sector (click here for link on the report we did at the time.) Check this posting too, we wrote it a few days after the Fitch downgrade -- in it, LatinFinance, the magazine and specialised newsletter, warns of the dangers the sector braces for amid the weakest Brazilian economy in decades.

The fourth quarter was the end of the world for some of these companies; Cyrela saw the value of projects tumble by 66 percent. Leverage, therefore, will likely remain a factor of pressure for the industry in 2009 -- as prospect sales value falls, the weight of debt on cash usage turns bigger. Total debt excluding Housing Financial System (SFH) loans compared to the industry's Ebitda (a measure of debt-servicing capacity) was 3 times debt in September, compared with 2 in June 2008. It probably rose during the fourth quarter to somewhere close to 3.5 times. The increased use of cash to cover ''construction, advertising and operational costs´´ will affect the indicator even more. Liquidity position measured by cash to short term debt dropped to an average of 2 by December 2008, versus 3.4 in June.

Brazilian Central Bank Might Continue Aggressive Monetary Policy Front-Loading, Policy Meeting Minutes Suggest

2009-03-19T11:09:00.003-03:00

The Banco Central do Brasil released its monetary policy minutes today. According to the document, The downturn has substantially gained momentum since the fourth quarter, making it more likely that inflation slows towards or below the target for this year. The impact of the crisis is making the scenario more adverse, and weak economic conditions will ''remain in place for a longer period of time.´´ This is a worrisome statement, because it means that, despite a possible depreciation of the real and other unfavourable shocks, the likelihood of deflation at the wholesale level is growing. Brazil is already in recession -- GDP will shrink easily by a couple of points in the first quarter. President Lula is considering easing the primary surplus target to free up more money for investment as tax collections will be below target by about $20 billion. He is just buying time, not avoiding the inevitable.

Now the question is, Will the next reduction be close to 100 or 150 basis points? Probably 100 points. That is what most analysts expect.

New Issuance -- Posco Bond Guidance at 9%, Sources Says

2009-03-19T10:44:00.003-03:00

This is information on the Posco bond sale -- which was initially scheduled for the start of the week. The unexpected announcement yesterday by the U.S. Federal Reserve messed valuations and guidance for this and other bonds (the Panama case was a special one, with its size being cut and the republic getting hurt by a reduction in issuance-related cost savings.)

Issuer: Posco
Ratings: A1 (negative) / A (stable)
Tenor: Five year
Size: To Be Defined
Yield Guidance: 9 Percent +/- 5 Basis Points
Bookbuilding: Citigroup Inc. / Deutsche Bank AG /Goldman Sachs Group Inc. /HSBC Holdings Plc. /Merrill Lynch & Co.
Timing : Today

Israel Bond to Price Today After Violent Swings in Treasuries Caused by Federal Reserve Repurchase Decision

2009-03-19T02:01:00.000-03:00

One good source told us that the bond transaction involving Israel will be priced today. The bookbuilding was suspended following the dramatic movement in Treasury yields that followed the announcement by U.S. authorities of a planned $300 billion in Treasury bond repurchases.

Price guidance on the 10-year bond was around 290 basis points above the equivalent Treasury yield ( ten year bond) a few hours before the Fed announcement. No indications were given on the direction of the new price guidance -- and I don't want to risk saying where the yield is headed for -- I have no freaking idea!

Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. are handling the sale.

Colombia Swapped $1.8 Billion of TES Yesterday; Second-Round of Debt Exchange is Expected

2009-03-19T02:00:00.005-03:00

Colombia, which in the past six years became the farm of President Alvaro Uribe, swapped yesterday $1.8 billion in domestic Treasury bonds, known as TES, to stretch out maturities through 2024 and avert billions of dollars in short-term debt repayments. More debt should be included in a second round of the swap. In the past six months, the government succesfully swapped over $4 billion of maturing bonds. Nice!

CAF Lends $100 MIllion to Ecuador to Help the Nation Cope With the Impact of the Credit Crisis

2009-03-19T02:00:00.002-03:00

Corporación Andina de Fomento, the multilateral lender founded by the countries of the Andean region, approved a revolving credit line worth $100 million to Ecuador. The transaction will help ''ease financial stress stemmed from the impact of the current credit crisis,´´ CAF said in a statement. The borrower will be the nation's Corporación Financiera Nacional. No details on the credit line were disclosed.

Fed's Plan to Buy Longer-Termed Treasuries, Agency Debt Should Lead to Dollar Drop, Rising Stocks, Bond Markets Across Latin America

2009-03-19T02:00:00.001-03:00

The Federal Reserve's decision to buy long-term Treasuries might be one of the most aggressive policy steps taken by U.S. policymakers during this crisis. This, apart from sparking much-needed momentum to debt refinancing, should lead to a weaker dollar, a narrowing of mortgage rates spreads and a decline in the 30-year Treasury bond yield, and leeway to refinance the U.S. fiscal deficit. Two analysts told us in e-mailed replies to questions that the move bodes well for Latin America -- as it might propel a rally in some of the region's most traded currencies (the Brazilian real, the Colombian and Chilean pesos, etc.) and set a stable, permanent floor to some stock markets.

The Fed wrote in its statement yesterday that, in order to ''provide greater support to mortgage lending and housing markets,´´ policymakers increased ''the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.´´ Moreover, ''to help improve conditions in private credit markets,´´ the Fed decided to purchase up to ''$300 billion of longer-term Treasury securities over the next six months.´´ The 30-year yield fell from 3.8 percent on Tuesday to around 3.5 percent at the end of yesterday's session.

Bloomberg News led its U.S. market wrap close this way on Wednesday:

March 18 (Bloomberg) -- U.S. stocks and Treasuries surged and the dollar tumbled after the Federal Reserve unexpectedly announced plans to buy $1 trillion of bonds in an effort to lower consumer borrowing costs and end the recession. The Standard & Poor’s 500 Index added 2.1 percent, extending its rally since last week’s 12-year low to 17 percent. Yields on 10-year notes dropped the most since at least January 1962 after the central bank said it will spend $300 billion buying Treasury debt and up to another $750 billion on bonds backed by government-controlled mortgage companies. The dollar sank the most against the euro since September 2000.

Federal Reserve Keeps Target Rate Range Unchanged, Plans Purchasing $300 Billion of Longer-Termed Treasuries

2009-03-18T15:25:00.004-03:00

Bill Gross, the head of bond powerhouse Pimco, the same that bets against the government and manages sme portfolios for the TARF, has said buying longer-termed Treasuries isn't as good and effective a government policy as bailing out banks and repurchasing mortgage-backed notes. Maybe, I don't really know -- the thing is the Fed today announced a programme to repurchase $300 billion of long term Treasury debt. This will prop up the government debt holdings of Pimco as well as China. Ah! And Pimco will keep buying ... at good prices.

The Fed kept the fed Funds rate range between 0 percent and 0.25 percent. Please click on Link 1 for Bloomberg News' transcription of the FOMC decision, and Link 2 for the story by Reuters.

Link 1

Link 2

New Issuance -- Panama Reopens 2015 Bond; Size at $323 Million, Signalling Risk-Taking Remains Limited (Update)

2009-03-18T14:52:00.005-03:00

Issuer: Republic of Panama
Ratings: Ba1 / BB+ / BB+ (stable/stable/positive)
Maturity: Reopening of 7.25% Notes Due March 2015
Size: $323 Million
Price Guidance: $101 Area
Format: Senior Fixed Rate Global Notes
Use Of Proceeds: General Budgetary Purposes
Books: Morgan Stanley & Co. / UBS AG
Timing: Today, March 18

New Issuance -- Israel Offers Benchmark Size, 10-Year Bond on Sale Today

2009-03-18T09:22:00.003-03:00

ISSUER: State of Israel
ISSUE RATING: A1 / A
SIZE: Benchmark Size in U.S. Dollars
TENOR: 10 Year
PRICE GUIDANCE: Equivalent Treasury Yield + 287.5 Basis Point Spread
FORMAT: Global SEC-Registered Fixed Rate Notes
BOOKRUNNERS: Citigroup Inc. / Deutsche Bank AG / Goldman Sachs Group Inc.
TIMING: Today

One in Three Colombians Believe The Country is a Democracy. Urrgghh!

2009-03-18T02:00:00.002-03:00

A government survey found that 35 percent of Colombians (about one in every three) said the country is democratic. About 10 percent were clear-cut -- they said it isn't; fifty-five percent said the country is not a strong democracy. About eight in every ten said democracy is the best system of government.

Yes, people are not stupid. Yesterday the Prosecutor General, a radical Catholic man called Alejandro Ordoñez, scrapped a process against two government officials for their alleged involvement in bribing lawmakers. Ordoñez will not proceed with the disciplinary investigations against Social Welfare Minister Diego Palacio and current ambassador to Rome Sabas Pretelt de la Vega (a former Interior Minister) -- both were suspected of having bribed former congresswoman Yidis Medina to vote for an amendment to pass the re-election of Uribe. Ordoñez's decision will further taint the image of judicial institutions in Colombia.

Click on the link to read the results of the poll, in a Caracol Radio story (the story is weak and badly written, let me say to you.)

According to the DANE, the government statistics agency, more than 15,000 people were interviewed in 24 cities. President Alvaro Uribe wasn't available for comment, when sought by this blog, said one top press aide. He said we could get comments from Jose Obdulio Gaviria, Uribe's Rasputin, on the poll. We declined -- we don't like being brainwashed.

Why The World Should Be Permanently in Recession: The Cases of Russia and Venezuela

2009-03-18T02:00:00.001-03:00

God, have mercy of these two!

I am sorry Otto, I am not giving my cherry away, not yet!

Yesterday, Russian President Dmitry ''The Puppet´´ Medvedev vowed to press ahead with a rearmament program seeking to quash NATO's military expansion close to Russia's borders. The Puppet and U.S. President Barack Obama will meet early next month to discuss the economic crisis and ... uhhmmm geopolitics. Russian Defense Minister Anatoly Serdyukov went beyond remarks made by the Puppet. Serdyukov accused the U.S. of trying to push Russia out of its traditional sphere of influence -- the former Soviet Union countries -- in order to secure energy and commodity supplies. Jesus!

Then we have the President of the Bolivarian Revolutionary Pathetic Republic, formerly Venezuela (otrora a great country, now ruined by ten years of Chavismo) seizing airports and ports from regional governments -- read the opposition -- after the president's cronies passed his long-sought re-election amendment. Why I say the world should be permanently in recession? Because these stupid presidents are using the wealth of their countries to pursue nuke weapons, curtail political opposition in their countries, create alliances with allies to spark regional imbalances (the case of Venezuela and Ecuador hinders Colombia's war against the FARC and drug traffickers) and all that. Countries like Iran do the same -- annoy its neighbours and put the world under more stress.

Capitalism has bolstered these regimes that treat democracy like a tool of their leaders, have little of pluralist and much of oppressive. I know there are too many sympathisers of Mr. Hugo Chávez in this region. Shame on them -- I do wish the world was permanently in a recession to impede people like Chávez or The Puppet from carrying out their stupid projects.

Cherry

2009-03-17T15:02:00.004-03:00

The cherry is and will always be yours ...

(Otto, I am not giving it away.)

Brazilian Companies Understand Reality Better Than Government: Corporates Bound to Create Derivatives Risk Alert Mechanism

2009-03-17T12:03:00.004-03:00

This is the news of the month, or the year -- despite it is signalling only an intention to do something (good.)

Self-regulation works well if inflicted or sparked or triggered by fear (or embarrassment.) Brazilian companies finally became conscious of the danger of exposing their balance sheets excessively to toxic derivative structures such as those loans in reais that locked up lower-than-market rates betting on an ever-lasting dollar drop. Now, they are taking a first step to create a risk-alert mechanism similar to the credit risk-related one implemented by the central bank. It was an idea of companies themselves -- not President L.I.L.D.S. (a.k.a. Lula!) who in his infinite knowledge thought of it. Someone was ahead of Brazil's Messiah -- for the first time.

The other day, the local media unveiled a central bank classified report that calculated the notional value of corporate losses stemmed from gone-awry derivative contracts at $30 billion. The report said banks have all counter party risks under control. So far we have no information on losses in corporate balance sheets for the fourth quarter of 2008 -- market rumours put the situation as serious for some sectors such as ethanol, food processing and soybean crushing. Remember the scandal we have reported extensively here in this blog, the one that led Sadia to put itself up for sale (even as the board doesn't admit it,) and VotorantimCelulose to acquire Aracruz -- creating the most leveraged company in the paper and pulp industry in the world!

Well, Corporate Brazil (a reason of pride for Brazil, not of shame as the Lula administration wants to portray it) is seeking to prevent future problems. That is why the Brazilian Banking Association (Febraban) led the effort of creating this risk alert mechanism with Cetip, the biggest clearing house (90 percent of derivatives transactions are cleared through Cetip.)

Locombia? Golombia? The War-Torn Country's Occasional Fiscal and Debt Bulletin

2009-03-17T11:42:00.005-03:00

Last Fort of Neoliberalism in the Americas!

Golombia: Consolidated Public Sector Posted 0.1 Percent of GDP Fiscal Deficit in 2008. Better Than Expected, But Does It Mean Colombia Has Fiscal Room For Salvage Package?

The government scored a goal last year. Government 1 - Market Skeptics 0. The consolidated public sector posted a 0.1 percent of GDP deficit in 2008, smaller than the 0.8 percent deficit forecast. It was narrower than the deficit posted in 2007 -- about 0.8 percent or so of GDP. The central government posted a 2.3 percent of GDP shortfall that was partially offset by a surplus at the state owned enterprises of 0.2 percent and a 1.1 percent surplus at provinces and municipalities. Does it mean Colombia can do the crazy things that Brazil is doing? NO. Eroding fiscal revenue will deprive President Alvaro Uribe of his second favourite weapon (the number 1 is violence and war) to stimulate the economy. Government 1 - Market Skeptics 1.

Locombia: New Debt Swap

The Finance Ministry will offer to swap tomorrow as much as $25 billion of peso-denominated fixed-rate TES and UVR-linked bonds maturing between 2009 and 2018 for new fixed-rate bonds maturing in 2012, 2014, and a new paper maturing in 2024. This new bond will lengthen the local curve to a 15-year maturity, lovely isn't it? Will the government be able to improve its debt profile? Probably yes, TES yields are falling considerably these days, so better prices should favour holdings of TES. Now, is it good for the long part of the curve? For those looking to play long TES bonds, yields might already be rather low. Despite the rally in the peso in the current month (almost a 7 percent gain), for those who want to be TES long with long maturities and are also active in other regional debt markets such as Mexico or Brazil, the Colombian yield compression is reaching its limits, according to an analyst. Anyways, amid the current monetary easing (markets are expecting another 100 basis point reduction in the Repo rate this Friday, the government should succeed in its attempt to revamp its debt profile.

This is Bad News for Latin America: Remittances Seen Falling This Year For First Time, Says IADB

2009-03-16T13:44:00.004-03:00

After almost a decade of growth, remittances to Latin America and the Caribbean are likely to decline in 2009 -- the first decline since the Inter-American Development Bank started tracking flows in 2000. Bad news. Remittances have been decreasing since the fourth quarter of 2008 -- the first quarterly decline also in nearly a decade. Migrants are either being hit by the economic recession in the U.S. and most developed economies; remittances are also being affected by swings in exchange rates -- with a stronger dollar, it is harder for migrants to send more; the effect is mixed for recipients. Says the IADB in a report released today: ''The break in the upward trend took place after the first semester of 2008. After a flat third quarter, in the fourth quarter remittances dropped to $17 billion, 2 percent less than in the same period of 2007. For the few countries that have reported data for January, totals were down by as much as 13 percent.´´

What's at stake here? A lot: remittances sent home by migrant workers provides millions of families across Latin America and the Caribbean with a source of income that was the most stable source of dollars for years. Even banks have played large on this, repackaging flows into bonds that they sold along the past three or four years. According to the IADB, Latin American and Caribbean expatriates transferred $69 billion to their homelands, 1 percent more than in 2007. It's a lot of money -- the decline will be dramatic for sure.

Exchange rates swings started to have greater influence than in the past, especially in countries that experienced sharp devaluations or have large expatriate communities in Europe. Migrant workers who sent money from Europe into their homelands were hit by the sudden drop in the value of the euro since mid-2008. Remittance senders and their beneficiaries back home were also hurt by last year’s skyrocketing oil and food prices.

Tumbling Trade, Flagging Shipping Industry Put European Banks at Jeopardy, Says S&P

2009-03-16T11:16:00.006-03:00

The flagging shipping sector is putting downward pressure on the ratings of European banks exposed to the industry, Standard and Poor's said in a report today. S&P forecasts that at some point banks will have to provision more for bad trade loans to shipping companies -- provisioning against profits means banks will therefore require more capital. "Many shipping companies are struggling following a sharp downturn in global trade and challenging funding conditions. We expect these difficulties to result in a material increase in banks' loan loss provisions,´´said analyst Harm Semder. Pressure will come from an increasing number of loan defaults, eroding credit quality at shipping firms, and weaker recovery expectations due to falling asset values -- banks' capital ratios may decline as deteriorating creditworthiness increases the relative risk-weighting under Basel II.

We have witnessed a process of deterioration in the quality of shipping and trade and logistics companies in Latin America (especially in Brazil) following a dearth of trade financing, higher borrowing costs and a decline in demand for exports and imports. The Baltic Dry Index reported a drop in shipping fees of 92 percent between May and November last year -- just when the crisis began to unleash. Let's see whether rating agencies start looking for symptoms of the same phenomenon in Latin America. Banks that might suffer with a dramatic tumble in regional commerce and the quality of shipping and trade companies include BNDES, Banco Itaú, Banco Bradesco of Brazil, Proexport in Colombia, Bladex (probably) and the Mexican Ex-Im bank.

Reuters' James Saft Renews Attacks on U.S. Policies to Keep Zombie Banks Alive -- Attacks Are Welcome!

2009-03-16T09:26:00.003-03:00

Click here to read James Saft's Reuters.com column for this week. Here is one short excerpt:

''The U.S. policy of keeping zombie financial institutions alive is so clearly failing that it is now attracting attack from inside policymakers’ circle of covered wagons.
The most interesting intervention in the banking debate in the past few weeks was an extraordinary attack by Kansas City Federal Reserve President Thomas Hoenig on what he termed a policy of “piecemeal” nationalization which leaves discredited management in place, repels new capital from the banking system and allows bad assets to fester rather than be cleared.´´

Até Tú, Eike? LLX Brings BNDES in as Shareholder -- Meaning Business Isn't Going Too Well, Right?

2009-03-16T09:05:00.008-03:00

X-Man: The days he used to talk happilly about ex-wife Luma
and his almost always money-making business ventures

The following is the text of a press release we just got, from LLX Logistica SA, the logistics arm of Brazilian billionaire Eike Batista's massive yet illiquid empire.

Rio de Janeiro, March 16th 2009. LLX Logística S.A., an EBX Group Company, hereby announces that, BNDES PARTICIPAÇÕES S.A. - BNDESPAR, a wholly-owned subsidiary of the Brazilian Development Bank (BNDES) ("BNDESPAR"), approved in a Board of Executive Officers Meeting the subscription of shares in the LLX´s capital increase. This capital increase will be effective upon the execution of an agreement among the Company´s controlling shareholder, Mr. Eike Batista, his subsidiary Centennial Asset Mining Fund LLC ("Centennial"), Ontario Teachers´ Pension Plan Board ("OTPP") and BNDESPAR.

The capital increase of R$ 600 million results from the issuance of 333,333,335 new common shares and will be priced at R$ 1.80 per share which represents a premium of 27% over the volume weighted average price of the last 60 trading days. Under this agreement, BNDESPAR shall subscribe the equivalent of 25 percent of the total newly issued shares, representing R$ 150 million, and resulting in an equity stake in LLX of 12.05 percent.

BNDESPAR will become LLX´s shareholder through the assignment of a portion of the preemptive rights of the controlling shareholder, Centennial and OTPP in favor of BNDESPAR. In consideration for the assignment of these preemptive rights, BNDESPAR has granted to the Controlling Shareholder and to OTPP a call option for the purchase of 50 percent of the shares issued by the Company paid-in by BNDESPAR under this transaction. This call option will be exercisable after a 36 months period from the date on which the capital increase is confirmed, at an exercise price of R$ 1.80 per share, adjusted in accordance with the Brazilian Extended Consumer Price Index - IPCA, published by the Brazilian Institute of National Statistics and Geography - IBGE, plus a rate of 15 percent per year ("Exercise Price").

A few questions were left open -- How will this hurt minority shareholders? Will this mean that by bringing the government Mr. Batista will overcome recent problems with his projects including the Porto Brasil? Following the move, will he be able to line up new, cheaper financing for the Açú and other logistics projects?

BNDES may turn a dangerous partner in the long run -- depending on who wins the country's presidency on 2010. The BNDES is taking control of certain aspects of the Brazilian economy amid the ongoing crisis. The bank's tentacles are now on several sectors, including food, paper and pulp, mining, real estate ... As a friend used to say, in the new Brazilian economy you either are with or against the BNDES. If you are, you will be fine -- but if you aren't, run for your life.

New Issuance: Israel Considers Tapping International Bond Markets

2009-03-16T08:59:00.003-03:00

The government of Israel mandated Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. as joint lead managers (JLM) on a potential benchmark size, dollar-denominated bond offering off of the country's SEC registered shelf.

No terms, details or timeline for the transaction were disclosed. This year emerging market sovereign issuers have issued about $7 billion of bonds -- thanks to a recovery in risk-taking and demand from specific issues of the most creditworthy nations (Brazil, Colombia, Indonesia, Mexico as opposed to Argentina, Venezuela or Pakistan.)

Venezuela Seizes Trawl-Fishing Vessels, Donate Them to Cuba -- What The Hell is Going On There?

2009-03-16T01:55:00.001-03:00

Que tipejo odioso!

The Bolivarian Revolutionary government of Venezuela (which is nothing else than an inflamatoryproto-state trying to spark serious geopolitical imbalances in the region by welcoming Russian fighter jets and vessels) banned trawl-fishing on March 14, citing no reasons. At this point, nationalisations and confiscations need no reason -- Mr. President thinks the country of 29 million is an extension of his family's farm in Barinas state. Venezuela is the first country in Latin America that is actually banning trawling -- saying it harms small fishery. Yesterday the government of President Hugo Chávez decided to take over 30 trawlers and donate them to a fishing and food joint venture with Cuba. According to Bloomberg, 70 percent of the country’s fish are provided by small fishermen, while trawlers mostly catch shrimp for export -- ah! the president was the source of that info (he is an endless source of data that always fits for his distorted view of things.)

We insist that the president will step up his policy of confiscations and nationalisations in the food and, next, the banking industries. Why? Food is scarce and inflation is rampant. He probably sees the food industry as the most likely next sector through which his enemies would try to oust him -- by hoarding food or raising prices. A Castro-fueled paranoia. Chávez's cowardice knows no limits -- he has been impoverishing his own populations by squeezing businesses and forcing the cost of goods higher through his policies. Banking, we see banking as another target, because the crisis will force banks to cut credit. And he can't afford that -- a decline in credit. But we also believe that the policy of paying for nationalisations may have to be reconsidered if the drop in oil windfalls is too dramatic and the deterioration of PDVSA finances deepens.

Bogotá is The City of Chaos These Days: Moreno, Go to Hell! Rojas Birry Faces Corruption Allegations

2009-03-16T01:54:00.005-03:00

''Hey Francisco, look: we know you are squeezed with those expensive bills of
one of your mistress and your new car, and your country house. You help us with
one contract, and we will give you a small present. But make sure you get
another mistress so she can be used as testaferra.´´

Click here on this link to read this Cambio magazine story about a corruption scandal in Bogotá. To make a long story short, you have probably read in the media about the pyramids scandal in Colombia. Some people say the tentacles of one of these pyramid scheme companies reached the presidential palace. Well, the mastermind of the largest of such companies, DMG, a crook called David Murcia, bribed thousands of influential people -- or hired them -- in order to either evade justice or get more businesses.

One of those people Murcia's organisation bribed -- or hired -- is Bogotá's Personero Distrital. Personero Distrital, uhhmm, one of those useless positions in the bureaucracies of Latin America, has no translation -- but the guy is the person who evaluates and go-aheads city contracts with public and private entities. So, summarising, this crook has influence and power. The Personero: Francisco Rojas Birry, a former senator and a representative to the indigenous communities. Don't call me a racist -- I don't freaking care if this guy is white or not. Rojas Birry (photo, centre) allegedly received $90,000 from DMG to pay old debts, Cambio reported. He used his wife, a lady with a weird name, as front woman for a car he got from ... uhhmm, we still don't know eh? ... Cambio details some of his contract dealings as well as extravagant lifestyle antics in a very good story. Funny, annoying but funny.

Am I wasting your time here? Probably yes. But I love lashing out at those idiots from the Polo Democrático faction supporting that other crook called Samuel Moreno Rojas, who happens to unfortunately be the mayor of Bogotá, a city of about 9 million people managed by Moreno like a freaking village. The city lost its appeal and a chance to attract billions of dollars in new investments (and become a hub for investment in the region) the day that idiot took office. We hope that Bogotanos continue their efforts to impeach such idiot. And for Rojas Birry, the personero, his situation is untenable -- he will probably face a political trial at the city assembly. His sorrowful wife is probably counting his days on her fingers.

A WeeLate, Right? G-20 Finance Chiefs Vow to Spend More of Our Tax Money Cleaning Up Banks' Balance Sheets

2009-03-16T01:54:00.004-03:00

Click here for Bloomberg News' story on the G-20 statement over toxic assets. Superb reporter Simon Kennedy writes.

Well, here is the nut graph of Simon's story and a very good comment from Mohamed El-Erian, the CEO of bond powerhouse Pimco. The thing is, all the efforts to write off and wipe out toxic assets have cost us between $1 trillion and $3 trillion. What else is deemed as necessary to clean up balance sheets once and for all? No one seems to know -- the truth is, there must be more rubbish to throw away.

The commitment, made three weeks before G-20 leaders gather in London, comes as investors demand faster action in the face of turmoil that’s showing few signs of abating. The Standard & Poor’s 500 Financials Index has dropped 35 percent this year and a lack of lending is pushing the global economy deeper into its worst recession in six decades.
''Markets are looking to policy makers around the world to move from the recognition and design stages to implementation, and to do so in a coordinated, or at least correlated, fashion,´´ Mohamed El-Erian, the co-chief executive officer of Pacific Investment Management Co. in Newport, California, said in an interview. ''Tackling toxic assets is a necessary condition for sustainable progress.´´

Brazilian Corporate Profits Plunged About 50 Percent in Fourth Quarter as Financial Expenses, Value of Dollar Soared

2009-03-16T01:54:00.000-03:00

Economática, a São Paulo-based economic research company, said net income at 85 listed Brazilian companies tumbled 50 percent in the fourth quarter, pressured by a surge of 363 percent in the cost of borrowing and the rise of 22 percent in the price of spot dollar.

Financial expenses rose to 9.1 billion reais in the quarter from about 2 billion reais a year earlier. The stock of debt for all those companies surged 50 percent (without taking into account inflation for the year) to 188 billion reais ... this should make us think that the derivatives situation is probably worse than we are imagining.

Bernanke Speaks in a 'Rare TV Interview:´ Warns Wall Street Bankers Their Days of Lavishness Are Over

2009-03-16T01:53:00.002-03:00

Ay! I screwed up!

Ha! Ben Bernanke, the U.S. Federal Reserve Governor and, as the WSJ puts it, ''the self-professed 'Main Street´ guy who once worked construction and waited tables in a poncho´´ sent a dart to some on Wall Street, saying "the era of this high living, this is over now.´´ Click here for the link to the WSJ story. Well, Great Ben: every time there is a Wall Street-triggered crisis, politicians love blaming bankers for national disgrace. The Gecko character in that old Michael Douglas film was created so he would symbolise the hateful side of Wall Street. But everyone wants to be like those bankers (and earn what they earn.) So there must be something wrong in the American way of life, and the way citizens see their bankers -- people love their lifestyle. They all wanna be as rich as a Wall Street banker. The funniest thing is, once the crisis was a problem in the savings and loans sector, the other was excess leverage, the other time was the dotcoms, now the problem was that another market innovation led to excesses. The only way to stop these bankers from making money and derailing equilibrium in the system is paring innovation in credit markets. Is it affordable Ben? No. Neither is a problem of more regulation and scrutiny over bankers' pay nor it would be solved through strict self-regulation. The problem is quite complex, more complex than we ever imagined -- the system is going through a serious problem of confidence -- but confidence can't be restored by making bankers the occasional scapegoat. The government is badly responsible for all this mess too.

Chile Delivers Another Massive Rate Reduction; Currency Should Rally Slightly

2009-03-13T10:08:00.004-03:00

The Banco Central de Chile, commanded by economist José de Gregorio, delivered a 250 basis point cut in the benchmark overnight lending rate to 2.25 percent (in line with market forecasts.) That is what a responsible country does when it has the firepower to do it, namely fiscal ammunition, low debt, etc. This is the third rate reduction this year -- 100 basis points in January, 250 basis points in February, and 250 basis points this month.

We have been insisting on markets' preference for countries with an aggressive package of anti-recession policies. We have seen how well the Brazilian real and the Chilean peso fared compared to the Colombian and Mexican pesos (and we insisit these two countries were late to act against the crisis.) The Chilean peso has gained momentum in recent weeks, following the announcement of a $4 billion fiscal stimulus package at the end of last year. One important thing to highlight here is that the Chile has more fiscal room to implement counter cyclical policies than Brazil. The peso therefore might rise to levels close to 580 to the dollar, from 594 pesos now.

Brazil Retail Surged; Hey, Slow it Down -- Consumers Have Longer Lagtime to Trim Spending During Crisis

2009-03-13T09:53:00.004-03:00

The government reported today that January retail sales in volume terms increased 1.4 percent on a seasonally-adjusted, month on month basis, and 6 percent year-over-year. According to a Bloomberg survey, it was about twice as fast the increase expected by a survey of economists. In general, analysts were expecting January retail sales in volume terms to post a 0.2 percent decline month-on-month and a 2.7 percent increase on a year-on-year basis.

While this might mislead people by telling the downturn in the retail industry was not as bad as initially expected, we have to remember that the process of adjustment in the industry tends to be quicker than with consumers. I don't know where I read this a few days ago (probably it was from ING Bank's Zeina Latif) that the lagtime for consumers to slow demand tends to be close to six months, and for companies to be less than three months. Some investors, on the other hand, might expect the central bank to be more careful when cutting interest rates. We don't think so -- we insist on our call, that the bank will be pressured to keep cutting rates by large amounts so the Selic target might be below 10 percent before June.

The risk of inflation spiking is big, but, who cares? Activity is plunging, confidence remains very weak and the president thinks he will be able to avert a recession. Expect more political noise, little congressional action and more unreasonable government spending events (that on the political risk side) in coming months.

Korea's Posco Considers Bond Offering When Market Conditions Improve

2009-03-13T09:42:00.003-03:00

Posco, the South Korean steelmaker that recently privately-placed $550 million in bonds to fund its Brazil investments, is considering selling debt again in international capital markets. The company mandated Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc. and Merrill Lynch & Co. -- yes the guys with the bonus problems -- to arrange a road show with investors between March 16-18. A bond transaction should be launched following the roadshow, subject to market conditions, according to a good source. The modality (senior unsecured, guaranteed, terms, duration, etc.) is yet to be defined. My understanding is that the bonds won't be offered in the U.S. -- therefore they will have FSA registration or will be listed in Luxembourg. We will keep you updated.

Posco placed the yen-denominated bonds in December to a group of investors led by Japan's Sumitomo Mitsui Financial Group -- which ended up being the sole buyer of the Samurai bonds with a three-year maturity.

IncaKolaNews' Mixed Bag of Links -- Today's Recommendation

2009-03-13T09:38:00.002-03:00

Click here to read IncaKolaNews's take on blog postings. Nadie como el viejo Otto Rock para poner todo en el contexto crudo de quein conoce bien lo que pasa en esta región.

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

2009-03-12T12:22:00.003-03:00

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.

MADOFF PLEADS GUILTY

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.

REUTERS: (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

2009-03-12T11:36:00.005-03:00

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.

Acontece
(Cartola)

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

2009-03-12T11:06:00.006-03:00

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!

2009-03-12T11:00:00.003-03:00

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!

2009-03-12T10:35:00.006-03:00

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

2009-03-12T10:16:00.003-03:00

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.

Brazil Cuts Interest Rate to 11.25 Percent (Update)

2009-03-11T19:24:00.002-03:00

Check this Bloomberg News story by reporter Andre Soliani. Very good reporting with all relevant data.

SeekingAlpha Says Copper Price Drop is Hammering South America Producers. Will We See a Chile-Peru Copper Cartel?

2009-03-11T09:17:00.003-03:00

Click here to read SeekingAlpha's posting on copper producing countries in South America. Says Paul Harper, the smiley guy who writes this blog:

''With global copper prices sinking from a 2008 high of $4 per lb, down to today's miserly, $1.25 per lb, it is hardly surprising that the two major copper producing countries in South America are looking at ways to buoy up their operations. Last week, Peruvian president Alan Garcia dropped some strong hints that Peru and Chile should coordinate on copper production, in order to achieve greater control of prices on international markets.
“I believe that as countries with a strong mining presence in the world we must work in a joint manner, because when brotherly countries produce and compete with the same metal, the only thing we achieve is a fall in the price of copper, and we are both losers,” said Garcia.´´

S&P Reaffirms Chile Ratings -- and Sends Warning Over High Corporate Debt Ratios

2009-03-11T06:32:00.003-03:00

Everyone keeps saying Chile is the safest country in the region it sounds like a fragment of a Psalm. It became creed. Chile, is true, is a hell of a safe place to invest your money -- but it also has problems, do you know? Standard and Poor's reaffirmed its A+ ratings on the Andean nation, saying its ''record of disciplined fiscal management, which has brought greater economic stability and predictability, supports´´ (the ratings.)

Yet, constraining the ratings are Chile's narrow economic base and high private-sector external debt, said S&P. Although Chile's overall international investment position has improved in recent years, the country's private sector's reliance on external funding makes the country vulnerable to the impact of the global credit crunch.

Unfortunately, we don't have available data on Chile's corporate debt stock, or interest payments, or refinancing needs. We will have them for the next posting -- hopefully it won't be too late by then.

LatinFinance Has Interesting Story on Brazilian, Peruvian Banks' DPR Sales This Year

2009-03-11T06:00:00.006-03:00

Magazine LatinFinance's daily newsletter today moved an interesting story about booming sales of bonds backed by Diversified Payment Rights (which is nothing else than a securitisation of future flows) in Latin America in recent weeks. The newsletter says on today's edition that, for regional banks, it has become ''the obvious option´´ the ''securitisation of future flows, including remittances, exports, and foreign direct investment (FDI) flows, through issuing DPR bonds.´´

The step indicates a departure from common practice in recent years, when the world abounded in liquidity and issuers were able to place unsecured debt instead of guaranteed paper. It reflects that conditions for corporates are becoming much tougher by the day -- remember our recent postings on Cemex and Digicel. Potential issuers such as Colombia's Ecopetrol (which is considering the sale of $8.1 billion of debt in coming months and has embarked on a $3 billion refinery upgrading project alone) will face more investor scrutiny; companies like Petrobras will face tougher refinancing conditions; and companies like PDVSA will have access to credit closed (unless the Chinese want to break the market rules.) LatinFinance says: ''The boundary between bonds and loans becomes blurred with MT100s, since they are typically privately placed with a small group of investors.´´

According to LatinFinance, Brazilian banks sold around $2.3 billion in DPRs alone, (also known as MT100s,) and ''several Peruvian banks including BCP, BBVA Continental, and Interbank also deployed the structure.´´ Among the banks that are considering tapping the markets through DPRs are Interbank (the fourth largest Peruvian bank) and Brazil's Banco Bradesco (which is a very active issuer in the DPR and private placement markets.) For those who know little about the structure, we recommend visiting a 2005 posting by Ambac in which the structure is explained with details. Here is the link.

Pimco's Gross Boosts Holdings of Government Debt to Highest in Two Years

2009-03-11T01:55:00.007-03:00

Bill Gross, manager of the world's largest bond fund, the $800+ billion Pacific Investment Management Co., boosted its holdings of government bonds to the equivalent of 15 percent of its Total Return Fund -- the largest percentage since 2007. The TRF has a size of about $140 billion. A sign of the times -- suggar daddy offers a safe haven ... hopefully not for long.

On the other hand, the strategy might suggest the California-based fund is also concerned over the return of inflation in a few months. Good news? definitely -- after all the recession being endured by the U.S. shouldn't turn into depression, which at this very moment can only be a good news. Government debt offers investors protection against accelerating inflation.

By the way, we still don't have a picture of Bill Gross. Apologies.

Click here to read Bloomberg News story on Gross.

WSJ Opinion Column on Biotechnology: When Governments Irresponsibly Want to Impose Controls on Markets ...

2009-03-11T01:55:00.005-03:00

The same evil we fear will happen to the financial industry if the path of nationalisation is chosen is clearly haunting the U.S. biotechnology and health insurance industries -- if the Barack Obama administration begins to flirt with price controls and rationing. The Wall Street Journal says:

The U.S. is the last major pharmaceutical market without universal price controls, and as such has been the world's main financier of new drug discoveries. In a world of government-run and -priced health care, biotech innovation will also be as much at risk as traditional drug development. The biggest price we may pay for a health-care system run from Washington are the therapies we never get as a result.

Click here to read the entire article.

Bloomberg News columnist Amity Schlaes also wrote about this issue (her article is quite complicated though.) Click here to read her article.

The Market Memorandum's Official Wednesday Lunch Break Readings

2009-03-11T01:55:00.003-03:00

Hi -- we tend to change the name of this section to the Weekend Reader, or the Authorised Reading List or any stupid name we come up with. Today we offer you a variety of links, with articles ranging from literature to modern culture to sex to economics. We hope you enjoy it.

HARVARD MBAS FIASCO: Harvard MBA fingerprints are only screwing up. Click on the link to read the story.

IS THE AMERICAN DREAM DEAD?: No, so long as the porn industry has access to bailout funds, says Larry Flint. No no no ... writer David Kamp asserts the American Dream can still give citizens a decent chance to scale the walls and achieve what they wish.

ARE MALES FUNNIER THAN FEMALES?: I certainly am not as funny as most women I know. Read the article to find a few theories about that.

Cemex Downgraded by S&P; Cash Flow Generation Prospects Seem to Be the Main Concern For Now

2009-03-11T01:54:00.005-03:00

Standard and Poor's downgraded Cemex's debt ratings to B- from BB+, a cut of five notches. Let's first see what S&P defines as a BB-rated and a B-rated credit and then we continue with the analysis of the ratings company's decision:

BB: An obligation rated 'BB' is less vulnerable to non-payment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial , or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

B: An obligation rated 'B' is more vulnerable to non-payment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

So S&P still 1) trusts on the ability of Cemex to refinance its obligations; 2) believes that serous financial conditions are impairing the issuer's ability to refinance its obligations, and; 3) is sure that conditions have turned even more challenging since Monday's announcement that it was pulling the bond sale and began a refinancing process with its main lenders. The decision to downgrade Cemex reflects S&P's concern that free cash flow generation won't be enough to meet debt payments and operational commitments satisfactorily. The cash flow deficit might jump to as high as $2 billion this year. Says S&P: ''We remain concerned that depressed asset prices and the dearth of credit around the world will put additional hurdles to its refinancing efforts and asset sales, making the company's access to new funds will either take longer than initially expected or smaller than originally estimated.´´ The translation into English is mine. Apologies.

The downgrade decision is, thus, purely speculative. Although it is supported by a series of facts: one, that the company faces $1 billion in debt maturities by April and it may generate free cash flow of less than $1.3 billion on average during this year. Two, that it also faces $2.4 billion in maturities in the fourth quarter; its main markets (U.S., Spain and Mexico) are in deep crisis. We will see how the renegotiation talks go ... and after that we will learn with anticipation whether S&P and the other rating agencies will continue slashing Cemex's ratings.

Earlybird, March 11, 2009

2009-03-11T01:54:00.004-03:00

The headlines for today are:

U.S. -- Schools Are Seeking to Separate Boys From Girls; The Excuse, Behavioural Problems (click here for the link to the NYT story): Single-sex classes are being tried as an experiment to address sagging test scores and behavioral problems. We hope this is not the start of some ambitious Democratic Party-sponsored reform to U.S. lifestyle.

BRAZIL -- Statistical Outlier Probably Helped Exaggerate GDP Decline in Fourth Quarter Data (click here for the link to the Valor Econômico story): The use of a statistical resource that was ignored for 13 years was probably the reason behind the steepest-ever drop in Brazilian GDP numbers. The factor was added after some exceptional numbers were found in the data that comprises the GDP survey (for example, the 27 percent drop in car sales reported in November was an atypical number) and therefore, the outlier had to be included in the elaboration of the GDP series for the quarter. Bottom line -- the numbers will have to be revised -- we hope the Brazilians don't end up copying their Argentine statistical agency colleagues ...

BRAZIL -- Minister Mantega Finally Does the Math Homework: GDP Number for 2009 Hardly Will Top 4% (click here for the link to Estado story): Thank God! Unfortunately it will take a recession to prove that Finance Minister Guido Mantega is always wrong -- when it comes to forecasting, formulating economic policy, debating macroeconomic issues, etc. He is the cabinet equivalent to Dunga -- that infamous defensive midfielder, a winning World Cup player in 1994 who is now the coach of Brazil's football team.

VENEZUELA -- Bingo! Chávez Offers Support to Cuba, Endorses FARC's Armed Struggle. Is There Anything New Here? (click here for link to Espectador story): I have to apologise for my awful news judgment. There is nothing new here. But I put it on the Earlybird because ... it's funny. President Hugo Chávez does both things -- but the world knows it. Is this the new CIA Modus Operandi? How boring! We will end up missing those days of cover operations, double dealings with allies and foes, etc.

Brazil Posts Record Economic Contraction in Fourth Quarter; We Wonder What the Next Stimulus Measure Will Be

2009-03-10T09:38:00.004-03:00

The Brazilian economy contracted the most on record in the fourth quarter as companies and individuals reacted to the global credit crisis by paring new investment, cutting jobs and curbing on spending. The $1 trillion economy shrank a seasonally-adjusted 3.6 percent in the fourth quarter from the previous three-month period. Most analysts consulted by Reuters and Bloomberg missed the number. The decline was the biggest since the government started calculating the current series in 1996. The number for the year-on-year comparison wasn't that bad: a 1.3 percent expansion from the year-ago period. The full year expansion for 2008 was 5.1 percent, versus 5.7 percent in 2007.

Well, there are already signs of panic in the market: some analysts are already calling for a cut of as much as 200 basis point in the Selic benchmark rate target tomorrow. There will be intense political pressure on the central bank to slash rates rapidly. But the fiscal situation is deteriorating rapidly -- so we should expect some moderation from the bank's policy makers. President LILDS, ''o Lula,´´ will probably rush to announce more tax breaks, exemptions and measures aimed at avoid the unavoidable. Brazil's on recession -- there's nothing the president can do about it.

South Africa is Considering Going to the Bond Market, First Time Since 2007

2009-03-10T09:31:00.004-03:00

We got a note from an investor yesterday in which the Republic of South Africa announced it is contemplating a potential bond issue in the coming months.

The government is currently in discussions with investors to gauge potential demand and appropriate pricing levels for a benchmark size, ten-year bullet bond in the current environment. ''RSA is a judicious issuer that comes to the international markets no more than once a year and has not come since 2007,´´ said the note. The number of dollar- and Euro-denominated South Africa bond issues in the past 12 years was limited to eight. Bookrunners might be led by Standard Bank (of South Africa, obviously.)

Demand for sovereign debt primary offerings has shown resilience this year, despite the rout in markets and limited risk-taking. The government probably has some margin to wait until the dust settles and markets price new issues better.

Cemex Announced Plans to Restructure $14.5 Billion of Debt. Bond Sale Scrapped

2009-03-10T09:12:00.004-03:00

Cementos Mexicanos SA, the famous Cemex and No. 3 cement producer in the world, kicked off a $14.5 billion debt restructuring effort with banks. It also scrapped a plan to sell a dollar-denominated benchmark size issue as conditions in capital markets deteriorated. We heard from a source that the issue had lost considerable appeal by Thursday, when the size has been chopped and yield talk was reaching 16 percent to 18 percent.

Cemex said yesterday in a statement that it will seek to meet all its obligations while it carries out the renegotiation talks. Completion of the renegotiation may require consent from all lenders. The company's main lenders include Banco Santander (reputation tarnished by the Madoff scandal and profit generation is at jeopardy following the pronounced recession in Spain,) HSBC Holdings (which stock plunged 24 percent yesterday in Hong Kong,) Royal Bank of Scotland (recently nationalised by the U.K. government), BBVA (well, another Spanish giant suffering in its home market) and Citigroup (well, the jewel of the crown as you imagine. Nearing nationalisation, the Citi empire is falling apart.) Negotiations, therefore, will be marked by intense pressure on both sides: on one hand the company feeling the pinch of a possible downgrade or default; on the other, banks trying to cut their exposure to highly-leveraged companies like Cemex.

Cemex is also considering selling assets in an effort to ''quickly achieve maximum financial flexibility.´´ This may hamper the ratings situation as you know -- the risk of selling assets in such an environment is catching low prices for them. A ratings downgrade is almost certain in such event -- asset sales.

The loan restructuring announcement followed recent warnings by rating agencies that the company faces a downgrade if it fails to refinance more than $4 billion to $6 billion in obligations due this year. The company has struggled to obtain refinancing for short term loans used to buy rival Rinker Group last year. The cost of such acquisition was between $14 billion and $15 billion -- and the timing of the purchase couldn't have been worse, as the markets were beginning to experience the hangover of five years of economic boom and feast.

Columna en el Diario Perfil (Argentina)

2009-03-10T01:55:00.002-03:00

Esta columna fue publicada el sábado pasado, 28 de febrero, en el diario Perfil, de la ciudad de Buenos Aires.

NACIONALIZACION BANCARIA
No Juguemos con Fuego

Guillermo Parra-Bernal

La actual crisis financiera ha desatado un debate alrededor de la conveniencia de permitir que el Estado regule de forma más efectiva y cerrada los sistemas financieros mundiales. Ideas desde la creación de una entidad reguladora de bancos a nivel mundial a las nacionalizaciones bancarias en masa se discuten día tras día. Mientras que la crisis aflige a los países desarrollados –cuatro de las cinco economías más poderosas del mundo están en recesión–, y sus efectos comienzan a sentirse cada vez con más intensidad en nuestros países, sería importante reflexionar: ¿qué es lo que esta crisis traerá como enseñanzas para América Latina, que por décadas sufrió más frecuentemente que ninguna otra región en el mundo el colapso de sus sistemas financieros?

Ahora, pareciera que nuestra banca está protegida del chaparrón internacional gracias a nuestro acertado manejo de las crisis pasadas. La regulación bancaria por años se especializó en países como México, Brasil, Colombia o Perú en reducir la excesiva dependencia de la banca doméstica por el crédito en dólares, profundizar la bancarización y capitalizar a las instituciones para mantener sus niveles de solvencia arriba de los estándares internacionales. De una forma conseguimos el objetivo: llegamos a una crisis en la cual más de dos docenas de bancos han sido nacionalizados en varios países ricos, donde más de un billón de dólares se han perdido en salvar esas instituciones y en impedir que la crisis se profundice, y no hay una señal de que el sistema financiero latinoamericano esté en problemas.

La idea de crear un banco malo en los Estados Unidos para separar los activos bancarios sólidos de los tóxicos ya se ejecutó en México y en Colombia a mediados y fines de los años noventas, con bastante éxito. Los brasileños tienen uno de los sistemas financieros más rentables y mejor capitalizados del mundo entero. Pero, ojo, no cantemos victoria. Estamos lejos de sentirnos seguros, porque existen problemas en la regulación de nuestros mercados de capitales locales que exigen mucha atención y prontitud en su manejo. El rápido desarrollo del mercado bancario y de capitales latinoamericano durante los últimos cinco años no estuvo exento de lunares. Hubo gravísimos escándalos financieros como el de las pirámides en Colombia; o el de las exageradas posiciones en derivados financieros de grandes empresas en México y Brasil el año pasado. Qué pasó? Claramente, la acción vigilante del Estado no fue la más eficiente. Pero más grave aún es la falta de compromiso por parte de los gremios bancarios y financieros por implementar códigos de auto regulación claros y convincentes.

Si lo analizamos bien, lo que pasó en los EE.UU. con las hipotecas de alto riesgo y la fuerte especulación bancaria se hubiera evitado si la auto regulación hubiera sido más efectiva. Los conflictos de interés eran obvios y graves. Nuestros gobiernos, que ven en esta crisis una oportunidad para hacerse a mayor control de la cuestión económica en sus países, se resisten a ver la auto regulación como una forma efectiva de controlar el sector financiero sin intervenirlo. Por eso, sería ideal que los fondos de capital privado, los fondos de cobertura, los bancos de inversión y otras instituciones especializadas se agruparan y le ofrecieran a la sociedad un código de buen comportamiento. En nuestros países, donde la transparencia y la probidad son bienes escasos, esos esfuerzos serían valorados enormemente.

Digo esto porque la ola de estatismo que estamos viviendo puede llevar al traste años de desarrollo y profundización financiera. Veo con preocupación que se use la crisis en nuestra región como una herramienta de obtención de réditos políticos. En Brasil, el presidente “Lula” recientemente firmó un decreto que le permite a los bancos estatales adquirir rivales privados sin necesidad de seguir los protocolos típicos del sector en el caso de una adquisición. La agenda política, en este caso, se impone a la agenda de desarrollo del país. En la Argentina la presidenta Fernández acabó con los fondos de pensión privados alegando la necesidad de canalizar ese ahorro hacia inversión. Los americanos, que se vieron obligados a intervenir varios de sus bancos, saben del riesgo que una medida como una nacionalización conlleva en el largo plazo.

No juguemos con fuego.

Brazil Sales of Stocks, Bonds, Notes and Asset-Backed Securities Dropped 85 Percent in February

2009-03-09T01:55:00.009-03:00

Initial public offerings of equity and fixed-income tumbled 85 percent to 3 billion reais in February 2008 from 19.3 billion reais in the same month of 2007, according to Andima. No note or bond sales were carried out in February. No IPOs either. Sales of shares in funds of residential and commercial mortgage-backed securities (RMBS/CMBS known in Brazil as CRIs) and of shares on funds of asset-backed securities (FIDCs in Brazil) dropped 66 percent and 92 percent respectively.

Some improvement is forecast by analysts, provided that risk-taking gains momentum. Oi, the telecom giant created by the acquisition of Brasil Telecom by Telemar, requested shareholder approval for a sale of 3 billion reais in domestic debt. Petrobras was heard sounding out the local markets for a local issue. A total of 713 million reais in local issuances from Anhanguera, Banco Votorantim and ETEO are on the pipeline, according to the Tradable Securities Commission.

Derivative-Related Losses in Brazil Probably Reached $30 Billion. Investors are Wondering Who Will Come Next on the Press Release

2009-03-09T01:55:00.008-03:00

Market participants in Brazil told us Friday that the central bank estimated that losses based on the current value of derivative contracts at listed and privately-held companies reached $30 billion last week (some of these people sent e-mails to their customers warning them about this.) According to a story by O Estado de São Paulo (click here for the link), banks are facing almost no or no risk at all -- which is remarkable.

Beware of Bloomberg News story -- it's wrong. What the reporter says makes no sense at all. It should read:

''The value of total losses in outstanding derivative contracts at listed and privately-held companies swelled to $30 billion (72 billion reais) at the end of last week.´´

No me sorprende ...

Many more companies will likely have to file for judicial recovery or bankruptcy to avert running out of cash or defaulting on their derivative-related debts. And again this will help put more pressure on the currency -- following a couple of months of relative stability. We reiterate our call on sectors that are likely to be piling up more of the losses: ethanol and sugar cane producers, food processors, meat packers, soybean crushers ...

Emerging Market Debt Trading Volumes Plunged 33 Percent in Fourth Quarter. Corporate Debt Trading Amost Halved

2009-03-09T01:55:00.005-03:00

The Emerging Markets Traders Association (EMTA) published last week its volume survey for the full year. In the fourth quarter, volume totalled $823 billion -- or about $13 billion a day. This number contrasts with $19 billion a day in the same quarter of 2007. Behind this drop, no surprises, the credit crisis seems to be the main culprit. But other aspects should be taken into account: new sales and offerings almost came to a halt: new issuance tumbled to $2.27 billion, from $13.7 billion in the previous quarter. And the third quarter had already been a very weak one. Brazilian sovereign bonds were the most actively traded asset class among emerging market paper with $32 billion changing hands over in the quarter -- bringing the annual total to $193 billion. The Brazil 2040 bond was the single-most actively traded security in the market with a volume of $80 billion for the year, or 41 percent of full sovereign activity for the credit.

Corporates suffered tremendously. Trading of corporate debt dropped 34.4 percent from the previous quarter. The year-on-year decline was 64.3 percent. Full-year corporate trading totalled $391 billion, compared with $663 billion in 2007.

New sales of corporate debt enjoyed a quick revival at the start of this quarter, with sales by Pemex, Petrobras (which are quasi-sovereign debt but, well, they also are within the corporate bond class) and banks in South Korea. On the contrary, sovereign activity has been quite good (Indonesia, Brazil and Colombia were among the countries that issued new debt this year.) Digicel, the wireless operator that covers part of Central America and the Caribbean, had to trim its offering by $150 million to a total $300 million, with the book expected to close tomorrow and at very disadvantageous terms (please check the posting we moved on Friday night.) The Cemex bond might be put off -- the company may fail in its attempts to refinance billions of dollars of debt (about $4 billion to $6 billion) coming due this year. Activity in this asset class will pick up, if so, slowly, say analysts such as Ann Milne of Deutsche Bank and David Spegel of ING Bank. Risk taking though has shown some signs of improving; but in the short term, more companies will be forced to rework their offerings to better reflect the market moment. Those with the means will pay much more in interest than they did five or six years ago. About $60 billion of corporate bonds and loans have to be refinanced this year in the year (I think the number comes from ING Bank.) About $27 billion have to be refinanced by Brazilian companies alone.

Fitch Says Corporate Downgrades, Defaults Surged in 2008. No Surprises But .. What Will Come Next?

2009-03-09T01:55:00.004-03:00

Fitch Ratings downgraded 20 percent of its rated corporate finance issuers last year, up from 8.6 percent in 2007. Contrary to the expectations of the ratings company -- which in April said it didn't expect much downgrading activity despite the downturn in global economic activity, -- actions turned increasingly negative as the credit crisis unfolded and the economic environment worsened.

The trend is worsening quickly and badly. The speed of credit deterioration was more pronounced than any previously recorded by Fitch. ''The ratio of downgrades to upgrades, which was in negative territory early in the year, moved from 2-to-1 in the first quarter to 13-to-1 in the last quarter,´´ Fitch said in a report. Investment-grade companies saw downgrades jump year-over-year to 19.2 percent from 8.7 percent in 2007. Upgrades dropped to 4.7 percent from 10.5 percent in the same period. Speculative-grade issuers (junk rated companies) saw downgrades increasing to 22 percent from 8.2 percent in 2007; upgrades plummeted to 12 percent from 22 percent a year earlier.

Fitch recorded a global corporate issuer default rate of 1.3 percent in 2008, up from 0.11 percent in 2007. In another sign of the times, fallen angels (or those companies that lose their investment-grade ratings) topped rising stars by a margin of nearly 2-to-1. One thing I remember from that old Fitch study in April was that they expect global defaults to rise to 2 percent or so at some point in 2009 -- we could expect a higher ratio given the quick deterioration in cash reserves, global exports, the plunge in most currencies against the dollar and the very restricted availability of credit. Add to all these the little appetite by banks and investors to refinance existing bonds and loans.

Brazil Will Finally Curb Actions by the MST ... Finally ... Finally ...

2009-03-09T01:54:00.002-03:00

Finally, the Workers' Party realised that it was in power -- six years after.

The government is asking the Federal Supreme Court (STF) to reinstate a decree passed in the administration of former President Fernando Henrique Cardoso that helped quell land invasions by the MST by almost 66 percent in 2002. Read this story in O Estado de S. Paulo. Why? Because it can't contain the MST -- which 25th anniversary is simply transforming into more invasions and poverty for the already-battered farming industry in Brazil.

The biggest test for the Luiz Inácio Lula da Silva administration in his first term was posed by the growing unrest of social movements that supported him. But things got out of control, partly because the president and his ruling Workers' Party were too lenient on those groups -- the most prominent of them being the Landless Peasants' Movement (MST.) Here are the consequences of such leniency. We have anticipated growing risk of unrest as the global recession cuts agribusiness revenues, sparks more rural unemployment and deprives farmers of money that would otherwise be funneled to ease demands by the MST and peers.

Will the STF support the government in this one?

Digicel Issue Faced Significant Troubles; Cemex Sale is Likely to Sink

2009-03-06T23:14:00.005-03:00

Digicel appeared to have sold $300 million of 2014 bonds -- $150 million less than initially offered, with a coupon rate of 12 percent. The three-year non-callable issue has a first call at 112 (quite high.) The issue might be priced at 89.679 to yield 15 percent at maturity; One source told us affiliates are to purchase $50 million to $75 million subject to a six-month lock-up. At least, says the source, the Digicel bond will trade next to existing bonds.

We also hear rumours that Cemex's bond plan of a benchmark size issue is facing significant obstacles to go through. The company is said to be reassessing the plan. Bookrunners (HSBC, RBS and Santander among others) might have to buy most of the issuance in case it hits the marketplace. We hear that yields would be close to 18 percent to 20 percent (not the 13 percent to 15 percent initially calculated.) One investor told us the issue won't pull through at this very moment -- he says Cemex is a very risky credit.

Brazil Said to Be Considering Reducing Primary Surplus. Reaction? Negative

2009-03-05T12:11:00.003-03:00

O Estado de S. Paulo, Folha de S. Paulo and other prominent newspapers in Brazil reported yesterday that the government is considering cutting the primary surplus target for this year to 2.8 percent of gross domestic product from 3.8 percent of GDP. We assume the government is seeking to maintain investment spending programmes under President Luiz Inácio Lula da Silva's Growth Acceleration Package -- the $220 billion Frankenstein he announced couple of years ago. Well, there's no free lunch -- now that the central bank has started to reduce interest rates in a significant manner, the government cannot loosen fiscal limits, so no surprise if the central bank at some point stops the monetary front-loading. We are sure there is no consensus among government officials over the feasibility and convenience of such move, which by the way must be an idea of Guido Mantega, the Brazilian finance minister, and his Workers' Party ideological friends.

As the economic slowdown eats out tax collections in significance and political pressure for more state aid to fend off a recession mounts, attaining the target without streamlining programmed expenditures would be quite hard. Markets will react to this very negatively -- pushing debt costs higher, and making it harder for the government to finance its consolidated fiscal shortfall. As Goldman Sachs Group Inc. economist Alberto Ramos puts it, this announcement may fail to spark a reactivation in private investment (says Ramos that ''the corporate sector might fail to believe that higher fiscal spending will lead to higher growth and would therefore not increase investment spending.´´ To me, simply, 'if the government is investing on my behalf, why then should I invest? I better pay more dividends, or hoard cash.´)

Bottom line -- the excesses are beginning to surpass any possible limits that were thinkable or feasible a few months ago. In Brazil, fiscal policy is all about making permanent spending commitments, and those who covered that country for years know that no fiscal expansion in Brazil has only short-term impact (there is a tendency to create long-term spending programmes.) Once the economy recovers, you can't dismantle them -- they are politically-rewarding. One more reason for credit agencies to backpedal on their decision to award investment-grade ratings to a country with such difficult -- and unresolved -- structural problem.

China Offers a Short-Covering Bounce for Latin Debt, Says IDEAGlobal

2009-03-05T12:07:00.004-03:00

In a short note called ''China Creates a Short-Covering Bounce,´´ New York-based market resreach company IDEAGlobal analysts say:

Latin American ''debt credits weren’t of much note in their overall returns yesterday, as local equity and currency markets in Latin America carried much more luster, nonetheless, the trading session produced an oversold bounce that countered recent expanded pessimism. U.S. equity indices demonstrated leadership in setting the directional tone for the global financial markets, as the major gauges all rose by over 2.3 percent. However, the core propellant for the recovery was exogenous to the inner workings of the U.S. markets, though non-surprising in its origin in China.´´

NR Finance Plans Sale of 3.9 Billion Pesos of 18-Month Bonds in Mexico; Maturities Remain Constrained Due to Credit Crunch

2009-03-05T11:55:00.004-03:00

NR Finance, the Mexican car financing unit for Nissan Corp. and Renault SA, plans to offer 3.9 billion Mexican pesos in bonds in domestic markets this week. The proceeds from the sale of the 18-month so-called certificados búrsatiles is to help repay maturing debt in May. Bondholders of the maturing debt will be goven the chance to replace their bonds with the new issuance; in case they refuse, they will be repaid fully by NR Finance. The situation for car loan companies is getting tougher as the credit crunch extends -- and credit conditions in Mexico continue to be challenging. Yet, the corporate debt market, as we have mentioned a few times here, is staging a steady recovery, especially the segment of commercial paper, which has experienced a good revival this year.

S&P Reaffirms It: Peru, Where 40% of Its Citizens Live With $2 or $3 a Day, is a First-World Country ... Uhhmm ...

2009-03-03T11:47:00.007-03:00

Poor but happy? No, that's unfair

Brother blog Inca Kola News yesterday posted a note about contrasts in telecom data for big Latin economies, and mentioned something about Peru that both our blogs have been insisting on for a while: the definition of an investment-grade country is either an incomplete and biased set of information about the supposed creditworthiness of a country (it assesses non-payment risks for one creditor, but nor for others -- citizens and taxpayers are ignored) or simply crap.

In a market comment today, Citigroup Inc. (one of the least creditworthy banks around the world these days) lauds Standard and Poor's decision to reaffirm Peru's investment-grade rating and stable outlook. Says Citigroup, citing S&P analyst Sebastián Briozzo, ''the government’s reaction to the global economic crisis has been appropriate, while the credit quality of the country’s assets has not showed any meaningful change.´´ The bank adds its assessment of the move: ''Positive: In our view, there is a rising probability that recently upgraded credits in Latin America may lose their investment-grade ratings in 2009. Nonetheless, we believe Peru is likely to maintain its investment-grade status unless the global recession extends beyond 2010, requiring additional government spending to contain social tensions.´´

''Social tensions´´ ... In a country where most people live on $2 or $3 a day social tensions are the rule, not the exception. Otto writes -- his post was about wireless phone penetration in markets seen as foes of capitalism: ''And what's that one coming up the rear? Oh yeah, it's that investment grade country ... y'know, the one with 40% of people living on $2 per day. The one that is made out to be the new spearhead of modern society.´´ If one policy in the crisis makes a government effectively responsive to it is the degree of importance it gives to reducing inequality and buffering an increase in poverty during times of ''financial stress.´´

Peru will continue to be a member of the first world for some people, but not for its citizens. That is bad.

Reuters Columnist James Saft and His View on Bank Nationalisations in the U.S.

2009-03-03T09:30:00.005-03:00

Here's the man

This is James Saft's column for this week.

''Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences. It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred ...´´

For the full story, please click here.

Cuba Cabinet Shuffle Isn't Surprising: Check Previous Postings. Castro Deals a Blow to Wishful Thinkers By Reasserting Power of Armed Forces

2009-03-03T08:27:00.007-03:00

Cuban President Raúl Castro, facing one of the most serious economic times in the Caribbean island since the early 1990s, shuffled his cabinet yesterday. The wide-sweeping, ambitious cabinet reorganisation can be interpreted as a further step by the younger Castro to reasserting the power of the Armed Forces in his government while pursuing efficiency and pushing his brother's closest allies away.

Check our previous two Cuba postings (Cuba 2 and Cuba 3, published one or two days after the 50th anniversary of the Revolution.) There's been lots of wishful thinking seeking to present Raul Castro’s presidency and his recent reforms as a new chapter in the economy and political life of Cuba. The policies so far implemented (boosting access to mobile phones and hotels and giving out land to private farmers) will hardly make a difference in terms of economic life or political freedom for Cubans. Raul and the men who control Cuba are the men of the revolutionary generation. Vice Presidents Jose Ramón Machado Ventura and Abelardo Colomé are old-guard. Why would you expect a new departure from three men well into their 70s?

Although the whole reshuffle was expected, some of the specific changes were surprising. Longtime Fidel Castro loyalist Felipe Pérez Roque, foreign minister for 10 years, was ousted and replaced by his deputy -- showing Raúl is in full control of bureaucracy at the ministry. One change in the ministry's focus I might dare say is clearly a different attitude towards the U.S. embargo. Now that the U.S. is beginning to show some willingness to talk with the Cubans, the presence of Pérez Roque would be uncomfortable. We wonder what will happen next to diplomats in allied countries such as Venezuela and Bolivia.

In another important change, Vice President Carlos Lage was replaced as secretary of the council of ministers by an army general who was Raúl Castro's chief of staff at the defence ministry. However, he retained his most important post. Lage's departure from the council leaves the Cabinet in the hands of members of the armed forces. Says The Nuevo Herald: ''Cuban exile leaders in Miami fear that the dozen personnel moves announced on Cuban television's midday newscast after the sports and weather reports show Castro is closing ranks and consolidating power.´´

Fears justified. The political and economic scenario may be different within three to five years, but not even closer to the scenario painted by wishful thinkers who believe Cuba is moving towards more political openness, a Chinese-like economic system and less state intervention. While it is possible that maybe at that point there is going to be a new discussion in Cuba, it is unrealistic for now to think the final caretaker of the Revolution will change the premises of the Cuban economy and political system in the next 18 months to three years. There may be a business upturn five years from now, when the revolutionary generation had already stepped down or died, replaced by a generation mostly led by soldiers. The latter is the one that that is taking over Cuban politics this week. In my view, the military-led entrepreneurial revolution isn't that bad at all. It calls for efficiency and productivity, it does believe in private initiative (obviously restricted) but it is quite corrupt.

I say efficiency because the moves signal Raúl Castro is ready to run a leaner government. With the shuffle, the Foreign Trade, Foreign Investment, and Economic Cooperation Ministries will be merged. The Food Ministry and the Fishing Ministry will be combined too. ''Several of the people named to top posts are unknown technocrats, which shows Castro is trying to streamline the country's bureaucracy and put the best people forward,´´ the Nuevo Herald said in its report.

Independencia in Trouble; Second Meat Company in Brazil to Face Worrisome Credit Events

2009-03-03T02:00:00.002-03:00

Independencia Alimentos, which not long ago sought state financing aid from state development bank BNDES (Brazil's equivalent to a hospital of ailing companies) last week filed for reorganization proceedings under Brazil's bankruptcy law. The company stopped operating last week (we apologise for not having written about it, but the work burden has been absurd these days!) Under the bankruptcy-like filing, Independencia must submit a reorganization plan within 60 days, and once a regional court accepts the case all actions and claims -- except for certain secured creditors -- are subject to a 180-day stay.

Although Brazil's corporate sector is far from facing a systemic crisis, domestic bankruptcy filings soared 146 percent last year -- especially during the last four months. In industries such as food processing, which for years benefited from strong external demand and easy credit (most these companies sold billions of dollars in bonds since 2005,) defaults will continue to rise. Refinancing and non-payment risk will probably be more concentrated on the ethanol, food processing and agribusiness sectors, investors in the corporate bond market told us recently. Three ethanol distillers filed for protection in the past six months. Meatpackers, poultry producers and other food manufacturers will see consolidation through mergers and acquisitions, some of them state-sponsored as the BNDES seeks to avert foreign takeovers of some of these ailing companies.

Earlybird, March 3, 2009

2009-03-03T02:00:00.000-03:00

Well, after a week or so, there you go:

MARKETS -- German Real Estate Companies Face Heavy Debt Repayment Calendar (click here for link to Bloomberg News' story): Germany’s real estate companies are braced for a heavy debt repayment calendar this year, with short-term maturities that are as much as 18 times their market value amid a declining value of their assets.

BRAZIL -- Lula Condemns MST Killings; Groups Says It Reacted to Violence (click here for link to Estado story): The biggest test for the Luiz Inácio Lula da Silva administration in his first term was posed by the growing unrest of social movements that supported him. But things got out of control, partly because the president and his ruling Workers' Party were too lenient on those groups -- the most prominent of them being the Landless Peasants' Movement (MST.) Here are the consequences of such leniency. We have anticipated growing risk of unrest as the global recession cuts agribusiness revenues, sparks more rural unemployment and deprives farmers of money that would otherwise be funneled to ease demands by the MST and peers.

VENEZUELA -- Crime Gets Out of Control: More Than 400 Deaths Registered in Caracas Last Month (click here for link to El Nacional story): President Hugo Chávez won the first round but not the fight. And his inaction to combat crime and urban violence will at some point erode support for him and his Bolivarian Revolution -- now that oil revenues are dwindling and he is urging Venezuelans to prepare for harder times.

COLOMBIA -- Ingrid Betancourt Was a Pain, According to Late Guerrilla Leader Raúl Reyes (click here for link to Espectador story): Ha! Well, the Americans let the cat out of the bag. Now are the guerrillas, complaining about Betancourt's behaviour in the jungle. Who will be next? Check yesterday's MM posting on the Ingrid Betancourt revelations -- and see that all that glitters ain't gold.

U.S. -- Bad Bank Idea Gets Revamped; Policy Makers Back to the Idea of Buying Bad Assets Jointly With Private Investors (click here for link to WSJ story): The Barack Obama administration may create multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis, people familiar with the matter told the WSJ. The venture comes from the ''bad bank´´ plan that would have required the government alone to buy up $1 trillion in toxic assets. The government jettisoned that idea after ''running into the thorny issue of pricing,´´ says the WSJ.

LATIN AMERICA -- Investment Funds Are Luring Customers, Fending Off Massive Redemptions (click here for link to Valor Econômico story): Latin American equity funds raised $800 million in the week ended Feb. 26, the only asset class in the emerging markets funds universe that averted net redemptions and withdrawals, according to EFPR. Well, potential for profit? Perhaps. That Latin America is de-coupled from the rest of the world? No way! Brazilian funds lured money for the fifth straight week. And they will probably keep luring more money after the Bovespa yesterday dropped 5 percent.

Panama Gets Nod by Obama Administration on Free Trade Agreement. Is This Also Good News for Colombia, Korea?

2009-03-03T01:59:00.003-03:00

U.S. President Barack Obama gave a boost to a free-trade agreement with Panama yesterday by urging lawmakers to pass the accord and set benchmarks for future trade agreements. Does this mean Colombia and South Korea will get their respective accords passed too? It well could mean that, says Bulltick LLC. In a report, the first detailing Obama's position on trade, according to Bulltick, the government ''stated its intention to rework provisions of the North American Free Trade Agreement with Canada and Mexico to make it more socially and environmentally conscious,´´ the shop says. This is interesting. We here at MM doubted the Colombia FTA would even be considered or bolstered before 2010.

Buffett Says U.S. Economy ''In Shambles.´´ He Says Recovery May Take Longer Than Expected

2009-03-02T20:17:00.006-03:00

Check graph on http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=%24indu&CP=0&PT=0

Click here for the link to Bloomberg News' story on Warren Buffett's annual letter to shareholders. Good news is that he sees good opportunities in the market -- and he will buy. Markets unfortunately didn't react to his overly-optimistic message: The Dow Jones Industrials fell below 7,000 for the first time since 1997 today. Please see the graph above -- spooky!

Bancolombia Expects to Conclude Subordinated Bond Placement This Week as Colombian Corporate Bond Sales Thrive Amidst Crisis

2009-03-02T19:47:00.007-03:00

Bancolombia, Colombia's largest bank, said its board approved the sale of up to 1 trillion pesos (about $440 million) in peso-denominated subordinated notes. Proceeds from the sale will be used for general corporate purposes. The bonds might have maturities between four to 15 years, we heard from a market participant who deals with corporate issuances. We believe this is a sale aimed at bolstering capital (we were just told the placement will likely be a sale of Tier 2 bonds. its first-ever.) The sale should be concluded this week, the source told us.

Although the bank seems to be well capitalised, it ramped up provisioning of bad loans in the second half as the quality of loan portfolios deteriorated across the board. The company said on its full year earnings report courtesy of PRNewswire that ''during 2008, allowances for loan losses increased to 2.13 trillion pesos (4.8 percent of gross loans and financial leases), maintaining the level of coverage, measured by the ratio of allowances to past due loans, close to 135 percent.´´ The number is considerably high but good, giving Bancolombia a good coverage in case delinquencies spike. ''The delinquencies ratio -- loans overdue more than 30 days -- increased slightly to 3.6 percent by the end of the quarter ended December 31, 2008 from 3.5 percent the previous quarter.´´ This might mean that either they turned more stringent in their credit policies or are only catering to the most creditworthy consumers and companies. Results for the foruth quarter were also affected by the higher level of provision charges -- net provisions totaled 474.7 billion pesos in the three months ended in Dec. 31, marking an increase of 95 percent fromt he third quarter of 2008 and and a 125 percent jump from the last quarter of 2007.

Click here on this link for the release of full-year results.

In a recent posting (click on this link to read it,) we highlighted the growing activity in the domestic corporate debt market. Although the economy seems rather battered by the impact of the global downturn and the decline in demand for commodity exports, the corporate debt market looks increasingly resilient. Food companies such as Alpina have made their debut in the local markets. In contrast, Brazil has only seen one significant debt sale. In other countries like Mexico, the sale are most focused on commercial paper -- a market for debt with maturities of less than a year.

Why Don't You Just Shut Up Once and For All? Chavez May Lose Voice Due to Long Speeches

2009-03-02T18:51:00.003-03:00

A doctor did what Spain's King couldn't: tell Hugo Chávez to stop talking. Click here to read a Reuters report on this.

Digicel Plans to Sell $435 Million of 2014 Senior Notes: New Issuances

2009-03-02T17:51:00.005-03:00

Digicel, the Bermuda-based telecommunications company that provides wireless phone services in the Caribbean and Central America, plans to sell senior unsecured notes in international markets. The sale may take place as early as March 4. The relevant info follows (the numbers come from people involved in the sale:)

ISSUER: DIGICEL LTD
FACE AMOUNT : $435 MILLION
ISSUE: SENIOR UNSECURED NOTES
MATURITY: 2014
CALL: NON-CALLABLE FOR FIRST THREE YEARS (PAR + COUPON FIRST-CALL PRICE)
USE OF PROCEEDS: ACQUISITIONS, GENERAL CORPORATE PURPOSES
RATINGS: B2 (MOODY'S) / B- (FITCH) /
BOOKRUNNERS: CITIGROUP INC. / CREDIT SUISSE GROUP / JPMORGAN CHASE & CO.

We Recommend Shunning Shares of Ingrid Betancourt. The Revelations of the Three Americans Finally Break an Absurd Code of Silence

2009-03-02T17:02:00.005-03:00

Ingrid Betancourt was the symbol of Colombia's cruel war for years. The former senator was abducted by the FARC guerrillas for about seven years, kept in captivity under miserable conditions. Her release took place last July, in a successful counter-intelligence operation launched by the government of President Alvaro Uribe. Her release was nothing but spectacular and fanned optimism over the decay of the FARC and the possibility that Colombia would someday finally be in peace.

That infamous symbol is over, thank God!

On Friday, three U.S. contractors who were also retained by the FARC for 1,976 days after their plane was shut down by the guerrillas (they refuse to be called spies but they probably were spying on the FARC's drug operations) released a book in which they thrash Mrs. Colombia War Symbol, a.k.a. Ingrid, accusing her of hoarding and stealing food, complain about her attitude to her peers in the camp and tell a tale of cruelty, envy and arrogance. As AP Bogotá-based writer Frank Bajak said in his story, the Americans revealed that ''she was haughty and self-absorbed, stole food and hoarded books, and even put their lives in danger by telling rebel guards they were CIA agents.´´ What a national heroine we have in this country!

But here comes the funny thing. As if it were a sort of an offense against Colombian sovereignty, politicians, clerics, children, the poor and the rich -- everyone -- came to the attack of the three Americans (as if they hadn't been kidnapped and put under the same suffering of the national heroine for long years) to defend our brave former senator. Colombians alleged that the Americans had broken a slient, tacit, Biblic-if-you-fancy code that states ''kidnapping jungle experiences die in the jungle.´´ Pure BS. It seems that Colombians are afraid of the revelations about their lives in the jungle -- I don't know what kind of secret code was that or where it did come from.

The truth is, that code exists no more, thanks to the bravery of these three spies who seem freer and less inclined to worshipping false idols like Betancourt than 44 million people. Looks like life in a FARC camp is pretty much a season of ''Big Brother,´´ that horrendous reality show were contestants love stabbing one another in their backs, cheating their couples outside the house where the show is filmed, intriguing for and against others ... well, I can only say I laughed when I read the news.

Since we write about markets here, I will put this on market terms: Colombians, please sell your holdings of Ingrid Betancourt shares sooner than later. I urge the rest of the world to do the same. Stop believing in her. If you once were sympathetic to her mother, the former beauty queen and pedantic longstanding member of Bogotá's oligarchy, Mrs. Yolanda Pulecio, shun her stock quickly too, before they tank like Citigroup Inc.'s stock. Those two are the reflex of a fetid Colombia -- and I don't mean their suffering should be overlooked, but carefully assessed, put into perspective. Truth is, Ingrid Betancourt's irresponsible attitude during the aftermath of the breakdown of peace negotiations in Feb. 2002 led to her abduction. Her irresponsible attitude put the country and then-President Andrés Pastrana at a crossroads.

Betancourt would do something good to the world by sending back that prize she won, the Príncipe de Asturias. She should renounce to a nomination for the Nobel Peace Prize. That would be a shame for the country she says she loves so much -- but put on dire straits the day she decided she had to be kidnapped by the FARC to make a point.

''I watched her try to take over the camp with an arrogance that was out of control," Keith Stansell, one of the contractors, told AP before the book was published. "Some of the guards treated us better than she did.´´

Betancourt didn't respond to calls made by this blog seeking comment. She was in the Seychelles again, one associate of hers told us, helping her mother cope with the inexorable test of age and bitterness.

''Que viva Ingrid ... pero bien lejos,´´ one upset Colombian boy responded to me while I was sadly though firmly writing these lines against Colombia's sovereignty.

We won't advise you, dear reader, to buy shares of Northrop Grumman (the employer of the spies) nor laud the contractors' attitudes. Probably the book they wrote is worth only for their bitter criticism of Betancourt. But one things is for sure -- the tacit code of secrecy invented by some stupid Colombian person not interested in letting the rest of the world learn about the atrocities of life in a kidnapping camp is over.

Brazil Fiscal Policy Shows Signs of Slippage; Debt/GDP Ratio Up, Primary Surplus Down. Will Lula's Counter Cyclical Policy Efforts Pay Off?

2009-03-02T14:03:00.006-03:00

The Banco Central do Brasil Friday unveiled its monthly fiscal report, and numbers were horrible -- worst than most market participants actually expected. The consolidated public sector posted a 5.2 billion real primary surplus (the difference between revenues and expenses without including debt payments. The number provides investors with a gauge of the country's willingness to accumulate long-term cash to reduce debts.) The number came below most market forecasts -- and was way smaller than the surplus posted in Jan. 2007 -- Goldman Sachs Group Inc. estimated the year-on-year decline at $13.5 billion!

The decline in the primary surplus reflects, according to the central bank report, a dramatic drop in government revenues (tax collections, tax breaks, lower royalty incomes, etc.) and a 16 percent jump in spending. We have extensively covered this issue in MM; we have also lashed out at the evident excesses of the economic salvage package. The primary surplus for the 12 months ended in January tumbled to 3.6 percent of gross domestic product -- below the 3.8 percent target for 2009. On the other hand, the consolidated nominal fiscal deficit (which includes interest payments -- yes Brazil runs a huge deficit!!!) widened to 2 percent of GDP from 1.5 percent in December. Just in one month an increase of half a point of GDP is at the very least quite worrisome.

Public debt jumped to 36.6 percent of GDP at the end of January from 36 percent of GDP in December. The government, with its push to avoid the inevitable through the irresponsible use of fiscal policy instruments, is undoing the good things it did for six years. We insist that from now on investors will be more stringent in their assessment of countries' fiscal situation. Brazil has a serious structural fiscal problem -- the government seemed to have forgotten that -- especially Finance Minister Guido Mantega, whose dream has always been the resurrection of Keynesian-like economics in a country where the state, given its huge size, crowds out the private sector in the competition for funding, tries to intervene in every single aspect of the private economy and, to add insult to injury, charges the highest tax rates in the hemisphere. We work four and half months of the year for only to pay the government our tax bill.

So we reiterate this, once again: The number and the policies are negative for the country, both short- and long-term. The data is reinstilling concern that the fiscal policy framework will undergo a serious test of faith along 2009. That markets have been misreading this or overlooking the date is a problem, but a change in their stance towards a more stringent one is a matter of time. Goldman Sachs is forecasting a drop in the primary surplus to 2.7 percent of GDP this year! Oh! Minister Mantega, a.k.a Criswell: Rating agencies will have an eye on these very ... awful numbers.

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

2009-02-27T19:58:00.004-03:00

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

2009-02-27T19:40:00.004-03:00

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

Jay Yarow|

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?

2009-02-27T18:20:00.005-03:00

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

2009-02-27T12:38:00.003-03:00

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.