Financial Teasers 4 March 2008

Top Stories

Demand prompts Korean banks to tap subprime market
Banks in Korea are responding to demand for riskier but potentially lucrative loans by tapping into the subprime loan market. The country's largest lender, Kookmin Bank, is planning to launch a subsidiary to handle subprime loans. Other banks are discussing ways to enter the market. The Korea Times (03 Mar.)

Ambac opts not to split as it completes recapitalization
Troubled bond insurer Ambac has decided to remain one company rather than split its municipal bond insurance business from its structured finance business, sources say. The insurer is completing a recapitalization of as much as $3 billion.
Bloomberg/ClipSyndicate (04 Mar.) , Financial Times (subscription required) (04 Mar.)

Buffett withdraws bond insurer offer, says U.S. in recession: Warren Buffett said the U.S. economy has already entered a recession by a "common sense definition," although his long-term view is that the economy will be fine. The billionaire investor also said he has withdrawn his offer to guarantee $800 billion in municipal bonds currently backed by FGIC and Ambac. "We tossed our hat into the ring, and they tossed it right back," he said. CNBC (03 Mar.)

Dubai says Citigroup rescue requires "a lot more money"
Sameer al-Ansari, CEO of Dubai International Capital, said that despite investments by Kuwait, Abu Dhabi and Prince Alwaleed of Saudi Arabia, rescuing Citigroup would require "a lot more money." Citigroup suffered a fourth-quarter loss of $9.83 billion. DIC has invested in India's ICICI Bank and HSBC Holdings. Reuters (04 Mar.)

Gold, platinum hit record highs as dollar continues fall
After reaching a record high of $992 an ounce, gold futures closed on Monday with significant gains. Oil also hit a new high. "Technical strength, a weak dollar and a continued bid into commodities are spurring gold and oil higher," said Zachary Oxman, a Wisdom Financial senior trader. Bloomberg/ClipSyndicate (04 Mar.) , MarketWatch (03 Mar.)

HSBC says selling U.S. business would be "irresponsible"
Stephen Green, chairman of HSBC, has rejected a proposal from Knight Vinke to sell its struggling U.S. Household business, which suffered $11.7 billion in losses on bad debt in 2007. "Would we walk away from Household leaving bondholders high and dry?" Green asked. "This is as unreasonable as it is unrealistic." HSBC's group pre-tax profits rose 10% to $24.2 billion nonetheless. Telegraph (London) (04 Mar.)

Standard Chartered buys American Express Bank
Standard Chartered has purchased American Express Bank for $823 million, the London-based banking group announced Monday in Hong Kong. Standard Chartered said the acquisition will help with its expansion goals and "add capability, scale and momentum in the strategically important financial institutions and private banking businesses." People's Daily (China) (03 Mar.)

Gazprom cuts Ukraine's gas supply to force debt settlement
Gazprom has slashed its natural gas supply to Ukraine in an effort to get the country to pay its bill. Ukrainian officials say an unseasonably warm winter has reduced demand, giving them time to negotiate with the state-controlled Russian company. International Herald Tribune (03 Mar.)

China SWF seeks more foreign fund managers
Wang Jianxi, deputy general manager of China Investment Corporation said the fund is in talks with dozens of foreign fund managers in an effort to gain favorable returns from its overseas investments. Wang said he believes the risk of stock market fluctuations can be eased through long-term investments. People's Daily (China) (03 Mar.)

Market Activity

Trading of City Pacific shares halted after drop
City Pacific requested that trading of its shares be temporarily halted after a stock crash wiped out more than half of the Brisbane property group's value. Concern is mounting that City Pacific's First Mortgage Fund may not be able to repay a $240 million debt facility by the May 31 deadline. The Sydney Morning Herald (04 Mar.)

CEO says FirstRand won't meet earnings targets
Paul Harris, CEO of FirstRand Ltd., said inflation and higher interest rates will keep the South African bank from reaching its full-year earnings targets. South Africa's interest rates and inflation are at their highest levels in four years, stifling consumer spending. Harris also offered a cautious outlook for the upcoming year. Bloomberg (04 Mar.)

Economics

Europe's growing economy helps ECB work on inflation issues
The European Central Bank is bolstering its defence against calls for cuts to interest rates with signs that economic growth in Europe is healthy, fueled partly by demand for exports in emerging markets. Now, the central bank is starting to feel pressure to raise rates to curb predicted inflation. Bloomberg (03 Mar.)

European officials concerned about soaring euro
Finance officials throughout Europe say the advance of the euro against the dollar is worrisome as it may further a slowdown in the economy. The euro hit a record $1.5275 on Monday and has increased 16% against the dollar in the past year. Bloomberg (04 Mar.)

Reserve Bank of Australia boosts interest rate to 7.25%
The Reserve Bank of Australia has increased interest rates by a quarter of a percentage point, resulting in the highest official cash rate in nearly 12 years. The country's banks will likely pass on the rate hike and then some to consumers as the banks face higher borrowing rates due to the global credit squeeze. The Sydney Morning Herald (04 Mar.)

U.S. companies significantly increase savings
American companies, unlike consumers, have drastically built up their savings, offering a bright spot in the dismal U.S. economy. Now, economists and analysts are speculating about what the corporations plan to do with the money, and how that might affect the sputtering economy. The New York Times (registration required) (04 Mar.)

U.S. consumer bankruptcy filings soar 15% in February
The American Bankruptcy Institute said consumer bankruptcy filings were up 15% last month to 76,120. A steeper increase is expected as the subprime mortgage mess continues to plague consumers. "February's bankruptcy spike -- the highest single month since the 2005 (bankruptcy) law changes -- forecasts the start of more to come for the balance of 2008," said the institute's executive director, Samuel Gerdano. Reuters (03 Mar.)

Geopolitical/Regulatory

Financial turmoil forces many to rethink risk rules
The US housing meltdown and ensuing global financial turmoil has forced banks and regulators to reconsider risk guidelines drafted by some of the top banking minds in the world. Some of the Basel II guidelines were set to be phased in soon in the US. The basic tenet is that banks, not regulators, should be allowed to decide how much risk the banks can take on, but the current financial situation is causing many to rethink fundamental assumptions. The Wall Street Journal (free content) (04 Mar.)

Venezuela looks to OPEC in battle with Exxon Mobil
Rafael Ramirez, Venezuela's energy minister, plans to ask OPEC to discuss Exxon Mobil Corp.'s pursuit of court orders freezing the assets of Petroleos de Venezuela SA. "We are interested in explaining in detail what they pretend to do against us," he said. "They could do the same against Algeria, Saudi Arabia, any other country within OPEC." Chakib Khelil, president of OPEC and the Algerian Energy Minister, said OPEC will discuss the issue. Bloomberg (03 Mar.)

Financial Products

CDOs come back to bite Merrill, Citigroup
After lagging behind other investment banks in the sale of collateralized debt obligations, Merrill Lynch worked to get on top of the market. By 2007, it was there, with Citigroup Inc. a close second. But when the CDO market collapsed last summer, it turned out Merrill Lynch and Citigroup had set themselves up for a big fall. Bloomberg
(03 Mar.)