Financial Teasers 28 Feb 2008

Top Stories

Bernanke focuses on recession fear over inflation
Federal Reserve Chairman Ben Bernanke indicated the central bank will continue cutting interest rates in a bid to prevent a dangerous downward spiral in the U.S. economy. Bernanke's testimony to Congress was the clearest indication yet that inflation fears have not swayed the Fed from the most aggressive campaign of interest rate cuts in decades. Bloomberg/ClipSyndicate (28 Feb.) , The Washington Post (28 Feb.)

Private equity firms approach SWFs for loans
With investment banks caught in the credit crunch, private equity firms are turning to sovereign wealth funds to help finance large leveraged acquisitions. The move indicates buyout firms believe the credit squeeze will continue longer than originally expected. Financial Times (subscription required) (28 Feb.)

RBS: Fitch's plans may force investors to unwind CDOs
Fitch Ratings is considering changing its rating criteria for collateralised debt obligations backed by corporate debt to reflect lower recovery rates and higher default risks. If other ratings agencies follow those changes, the Royal Bank of Scotland Group says investors may be forced to unwind up to $150 billion of CDOs. Bloomberg (27 Feb.)

Poll finds few Americans to spend stimulus checks
Fewer than 20% of Americans say they plan to spend the rebate checks Washington is sending them to stimulate the economy, a Bloomberg/Los Angeles Times survey shows. About six in 10 respondents said the U.S. is already suffering from a recession. Half say the economy will be in about the same condition in six months, while almost three in 10 said it will be worse. Bloomberg (28 Feb.)

Local governments hit by swaps along with failed auctions
Municipalities across the U.S. followed their bankers' advice and issued auction-rate bonds in combination with interest-rate swaps. Now both markets have gone sour. "Right now, the auction rates aren't matching up very well with swaps," said James Moncur, Houston's deputy comptroller. "We are still better off than if we had done fixed-rate bonds, but the advantage is shrinking." Bloomberg (28 Feb.)

BP feels heat to deliver profits from renewable energy unit
Analysts say BP is feeling intense pressure to demonstrate that its forays into renewable energy can generate a profit for shareholders. BP has invested billions of dollars in solar energy over the past decade but the business still does not deliver a profit. The Times (London) (28 Feb.)

JPMorgan third foreign underwriter of China's bonds
China has made JPMorgan the third foreign bank authorized as a primary dealer of government bonds. HSBC and Standard Chartered also underwrite government bonds issued within the country. "We are very active in the secondary market, but for the first time now we have access to participate in the primary market," said Carl Walter, chief of JPMorgan Chase Bank China. FinanceAsia.com (28 Feb.)

Japan's Aozora willing to part with GMAC stake
Japan's Aozora Bank Ltd. would sell its stake in U.S. consumer finance firm GMAC if the price was right, the bank's new CEO said. Aozora spent $500 million on its GMAC shares in 2006 as part of a buyout group led by Cerberus Capital Management. The subprime mortgage crisis caused GMAC to lose $2.3 billion in 2007. Reuters (28 Feb.)

European trading companies prepare for dark liquidity pools
It is not yet known whether Europe will embrace the use of dark liquidity pools as the US has, but regional equity trading companies are getting ready to launch their systems. ITG, Nyfix, NYSE Euronext and Turquoise are among those preparing to enter the market within the next several months. Financial News Online (26 Feb.)

Investors wait to parse Buffett's annual shareholders letter
Observers of Berkshire Hathaway Inc. will be combing Warren Buffett's annual, plain-language letter to shareholders Friday, looking for hints about Buffett's involvement in the bond insurance business and specifics on his successor. "This is exactly Buffett's kind of market, with dislocations in the financial space," said Mohnish Pabrai, who models his portfolios after Buffett's. Reuters (27 Feb.)

Market Activity
Asian shares dip on U.S. economic outlook
Asian shares fell Thursday amid worries that the slipping U.S. economy and falling dollar could hurt the region's exporters. The gloom in equities helped fixed income assets like Japanese bonds. Gold, oil and other commodities remained near record highs on supply concerns. International Herald Tribune/Reuters (28 Feb.)

Brazil now tops index of emerging markets
Brazil is the new home to the world's largest emerging market as measured by a leading index. Shares in Brazilian companies now make up 14.95% of the MSCI Global Emerging Market index, which is weighted by market capitalization. That surpasses China's weight of 14.15% and South Korea's contribution of 13.69%. MarketWatch (27 Feb.)

InBev doubles profit on property sales, triples dividend
Belgian brewer InBev NV tripled its dividend after fourth-quarter profits more than doubled on gains from real estate sales. The world's largest brewer reported earnings rose to €900 million from €371 million a year earlier. InBev last year sold most of its Belgian and Dutch pubs to real estate fund Cofinimmo for €419 million. Bloomberg (28 Feb.)

Economics
ECB data shows biggest jump in Eurozone business borrowing
Businesses in the 15-country Eurozone borrowed at a record rate last month -- a sign the region has avoided a credit crunch that could stall growth. The European Central Bank said borrowing increased at an annual rate of 14.6% in January, indicating companies remained upbeat about the economic outlook. Financial Times (subscription required) (28 Feb.)

Chinese institutions put more into Hong Kong markets
The Chinese government is increasingly turning to Hong Kong's financial markets as it expands its pension investments and currency trading. The central bank is considering making Hong Kong an offshore center for the yuan, the Shanghai Securities News reported. The National Social Security Fund had invested $4.5 billion in the Hong Kong-listed shares of domestic companies as of a year ago, the report said. China Daily (Beijing) (28 Feb.)

Geopolitical/Regulatory

G7 ready to act together against turmoil, Japan official says
Member countries of the Group of Seven industrialized nations are ready to act both individually and collectively if financial turmoil threatens to unhinge the global economy, Japan's top financial diplomat said. Naoyuki Shinohara, vice finance minister for international affairs, also cast doubt on calls to establish a Japanese sovereign wealth fund with the country's foreign reserves. Reuters (28 Feb.)

Financial Products
European mutual fund markets face prolonged dry spell
Sharp drops in global stock markets and growing signs of tough economic times led European and U.S. investors to rush money out of mutual funds. U.S. equity funds saw $33 billion leave in January, though some returned in February. Recovery in European fund flows is expected to take longer. Financial News Online (28 Feb.)

A new challenge to mutual funds: actively managed ETFs
The rise of exchange-traded funds has worried the mutual fund industry for years. Now there's a new worry. The SEC approved a group of actively managed ETFs. They'll be the first ETFs to expand beyond a passive investment style similar to mutual fund index funds. Boston.com (28 Feb.)