Financial Teasers 29 Feb 2008

Top Stories

Private equity boss: U.S. may face "lost decade"
Tim Collins, head of Ripplewood Holdings, said the U.S. economy may suffer a "lost decade" similar to what Japan went through in the 1990s. Collins said the Federal Reserve, which has repeatedly cut interest rates, is "running out of policy alternatives" in its attempt to avoid a long recession. Telegraph (London) (28 Feb.)

Emerging markets boost issuance of depositary receipts
As liquidity in developed countries dried up, Brazil, Russia, India and China began issuing record numbers of depositary receipts. "Emerging market companies can benefit more from listing depositary receipts than those in developed countries because of the signal it sends to foreign investors that they are willing to observe more rigorous disclosure," said Deborah Pretty of Oxford Metrica. Financial News Online (29 Feb.)

Merrill Lynch to close First Franklin mortgage lending unit
Deterioration in the mortgage markets has prompted Merrill Lynch & Co to shut down the majority of its First Franklin subprime mortgage lending division, which may result in the loss of up to 500 jobs. Merrill is likely to retain the firm's loan servicing business. CNBC/Reuters (28 Feb.)

Trading, not supply and demand, is driving price of oil
Normally, the price of oil is driven by supply and demand, but these days supply is up yet the price of crude has bounced to $100 per barrel. Some analysts blame speculators and predict investors are in for an unpleasant surprise. Bloomberg/ClipSyndicate (29 Feb.) , Spiegel Online (28 Feb.)

Next president not likely to open lands to oil drilling: The oil and gas industry continues to push for drilling access to U.S. lands, but policies banning that access are not likely to change after the election. Barack Obama, Hillary Clinton and John McCain, the leading presidential candidates, all oppose opening the Arctic National Wildlife Refuge to oil development and want to keep most federal waters closed to drilling. Reuters (28 Feb.)

Weak dollar, high oil prices boost gold to record in Asia
Record oil prices and a weakening dollar sparked demand for gold, boosting it to a record in Asia as investors seek a hedge against inflation. "The U.S. dollar is falling precipitously and that's a major boost for gold," said Wallace Ng, Fortis Bank's chief trader for precious metals in Asia Pacific. "We saw funds continue to pile into gold." Bloomberg (29 Feb.)

Market Activity
South Korean banks plan to use Malaysian bond market
The global credit squeeze has prompted several South Korean banks to look to the Malaysian bond market to raise funds. Malaysia has recently developed a corporate debt market that has grown increasingly mature and more attractive to foreign issuers. Financial Times (subscription required) (28 Feb.)

AIG posts record quarterly loss of $5.29 billion
The American International Group, the largest insurer in the world by assets, on Thursday posted the largest quarterly loss in its 89-year history: $5.29 billion. Analysts say the insurer's woes point to broader problems in financial services, which will likely result in more bad news.
The New York Times (registration required)/Reuters (29 Feb.)

Economics
Fed, ECB take different stances on inflation
The Federal Reserve is likely to cut interest rates yet again in March, while the European Central Bank is expected to keep its benchmark rate at 4%, as it has done throughout the credit crunch. The ECB stance shows it worries more about inflation than about economic growth. The divergence has helped the euro surge against the dollar. The Economist (subscription required) (28 Feb.)

Bernanke avoids saying "recession" but still implies it
Analysts listening to Federal Reserve Chairman Ben Bernanke's testimony to Congress this week say that while he avoided voicing the word "recession," he came as close as he dared. The Fed, concerned with overreaction in the markets, has remained cautious about predicting that economic conditions in the US could worsen. Bloomberg/ClipSyndicate (29 Feb.) ,
Reuters (28 Feb.)

Jobs data, GDP figures add to U.S. recession concerns
Two separate government reports, one on jobs and the other on gross domestic product, signal trouble in the U.S. economy. Data from the Labor Department show an increase in first-time claims for unemployment benefits to a level that some consider to be near-recessionary. Meanwhile, GDP in the fourth quarter rose at a mere 0.6% annual rate. Reuters (28 Feb.)

India's economy cools slightly on monetary tightening
Economic growth in India cooled to a rate of 8.4% in the third quarter, according to official data, which was in line with a forecast that put growth at 8.7% for the year that ends in March. India's economy has cooled in the past year because of tighter monetary policies and an increase in the country's currency against the U.S. dollar, which has hurt export earnings. Forbes/AFX News Limited (29 Feb.)

Geopolitical/Regulatory
Bush concerned about slowdown, but says recession not imminent
President George W. Bush is keeping a rosy outlook on the economy, saying the country is not headed for a recession. "We'll see the effects of this pro-growth package. Why don't we let stimulus package 1, which seemed like a good idea at the time, have a chance to kick in?" Bush said. Many economists say that if the country isn't already in a recession, it will be soon. Forbes/Associated Press (29 Feb.)

Democrats, Republicans spar over preventing more housing woes
Washington is divided over how best to keep the housing crisis from spreading. The Bush administration rejected a Democratic proposal that the government to buy up delinquent home loans to rescue homeowners and mortgage lenders. Meanwhile, Senate Republicans blocked a Democratic bill that would have allowed bankruptcy judges to change mortgage terms and provided funding for homeowner counseling. The New York Times (registration required) (29 Feb.)

FASB to consider rules on off-balance-sheet vehicles
The Financial Accounting Standards Board plans to re-examine the way banks deal with off-balance-sheet financing vehicles, a source of billion-dollar bank losses. The agency will consider whether accounting rules, disclosure requirements or faults in compliance were to blame.
Reuters (29 Feb.)

Financial Products

Investor demand spurs State Street to launch derivatives system
With more institutional investors interested in the alternatives world, State Street plans to launch an enhanced derivatives processing system later this year. The growth in high-alpha products has created a challenge for traditional managers launching the products, forcing custodian banks to improve their operations. Financial News Online (28 Feb.)

Ethics
Rogue broker triggers $141.5 million loss for MF GlobalMF Global Ltd. said a commodities broker named Evan Dooley made early morning trades on wheat contracts that caused $141.5 million in losses for the brokerage firm. The losses sent MF Global's stock down almost 28%. According to the company, an entry-order system failed to block Dooley's unauthorized trades. The Commercial Appeal (Memphis, Tenn.) (free registration) (29 Feb.)

Conrad Black denied bond, must report to prison Monday
The Seventh Circuit Court of Appeals has denied Conrad Black an appeal bond, dealing a major blow to the former media mogul. Last year, the former chief executive of Hollinger International was convicted of fraud and obstruction of justice. Black, who has consistently maintained his innocence, must report to prison on Monday. Chicago Tribune (free registration) (28 Feb.)