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December 2013

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  • Competition and low rates eroding margins; Business key to broaden banking relationships
  • Litigation cost estimates for investment banks are being revised sharply upwards after JPMorgan shocked peers by revealing that it had set aside $23 billion of legal reserves, then agreed a $13 billion settlement of outstanding mortgage claims with the US authorities.
  • Just in case you thought that Abigail with attitude dinners are occasions for hot air and posturing, I would remind you of the deal, finalized this November, in which Aberdeen Asset Management purchased Scottish Widows from Lloyds Banking Group. Well, the chief executives of Lloyds and Aberdeen – António Horta-Osório and Martin Gilbert – first met at a Euromoney dinner two years ago.
  • I am a worried woman. I am starting to see bubbles everywhere, and it’s not easy to work out how to protect oneself. I am not alone. In mid-November, the cover of the respected Barron’s financial magazine had one word emblazoned on it: “Bubble?”
  • The final version of the Volcker rule is unlikely to give posterity phrases that echo through the ages in the style of the King James Bible, but the details of its wording are important to financial market participants, which helps to explain the extended bickering.
  • In my mind's eye, I have gathered some of history's greatest military strategists to discuss the state of the markets. Their conclusion is that cash should play a greater part in their portfolios.
  • Poor Ross McEwan. The new CEO of RBS came straight into the job and had to fight off attempts to break his bank up.
  • Inaugural sukuk issued; key constituent quietly leaves.
  • The debt crisis is not over. A renewed bout will spring from banks in the EU periphery.
  • But expected wave of bank consolidation not forthcoming; hampered in Argentina by high regulatory and political risk.
  • BNDES to spend $250.8 billion 2013-16; also seeks to encourage private capital inputs.
  • In our November cover story, Euromoney reported extensively on the record-breaking $49 billion Verizon bond deal. We acknowledged the scale of the achievement in selling the bonds, but questioned whether they were sold at a give-away price. The sharp spike in the price of the bonds since launch suggests this was the case. Fast forward to dinner with a leading fixed income fund in November. They were one of the cornerstone investors in the Verizon deal. They had just received a Christmas card from the telco’s senior management, thanking them for investing in the deal.
  • Strong industry growth over past decade; Adverse effect of dearth of IPOs
  • PDVSA seeks funds amid economic crisis; Hyper-inflation, shortages and unrest
  • Asia’s richest man appears to follow just three people on Twitter: the political giants that are president Barack Obama; former Mr Olympia and Conan the Barbarian Arnold Schwarzenegger; and senator John McCain. Despite tweeting only twice – once about the meaning of life and once about being content with his life’s work, Li Ka-shing has 1,429 followers.
  • “The deal has held up very well; it is trading at 17, 18, OK let’s call it 20”
  • The structural development of Asia’s capital markets is failing to keep pace with economic growth. Until that gap closes, it is unlikely the region’s markets or its financial institutions will fully realise their potential to compete more effectively with the west.
  • The fight between the US Treasury and Fannie Mae and Freddie Mac preference shareholders took a bizarre turn last month. Having filed a class-action lawsuit against the Treasury in June seeking $41 billion in damages from its suspension of dividends in August 2012, some preference shareholders in the two GSEs have now offered to buy them from the government as well.
  • Banks still dependent on ECB funding; recent run-up in shares might have gone too far.
  • There is too much bearish sentiment towards Brazil - investors shouldn't forget the long-term trends and the fundamental strengths of the economy.
  • Privatization programme back on track; stock exchange chief targets EM status.
  • OCC demands tighter standards; Cov-lite terms could spread to Europe.
  • VTB builds paper trading, considers physical; Sberbank launches Zurich financing unit.
  • One banker – although I use the term loosely – who might be wishing his mother could get him out of trouble is the Reverend Paul Flowers. This story has me spellbound. It is hard to know whether to laugh or cry. Flowers, who is now known by the sobriquet of the ‘Crystal Methodist’, was the chairman of Co-op bank which is owned by the Co-op Group, a mutual institution. Mutual institutions are owned by their depositors or policyholders and are not publicly listed on the UK stock exchange. I have to admit that until now the Abigail with attitude column has not focused its piercing gaze on the Co-op. This was a big mistake. The bank has been revealed as a cesspit of scandal and impropriety and it could well drag some big establishment figures down with it.
  • “All ABS were perceived as too risky due to the US experience in the subprime mortgage markets. But this regulation is like calibrating the price of flood insurance on the experience of New Orleans for a city like Madrid” Yves Mersch, board member of the ECB, exposes the absurdity of capital treatment of asset-backed securities in Europe (see Chain reaction: Can the need for SME finance set Europe’s securitization market free?)
  • One of Europe’s oldest and most powerful banking dynasties is embroiled in a battle over succession plans at the top of Portugal’s Banco Espírito Santo, causing a rift in the bank’s boardroom that has forced the country’s central bank to intervene.
  • The Choir: Sing While You Work
  • Five global coordinators named on deal; Investors look for detail on company activities
  • Petrobras’s business plan to develop the pre-salt oil fields anticipates that the number of rigs and drillships with drilling capacity greater than 2,000 metres will increase to 65 by 2020 from 15 in 2010. Many of these deliveries will be financed by Petrobras suppliers through the capital markets. Since 2010, Moody’s has publicly rated around $5.4 billion in project bonds associated with the operational phase of offshore drilling and production equipment to be deployed off the coast of Brazil for Petrobras. These secured bonds use special purpose vehicles, but the main ratings component is Petrobras’s long-term operating contract for the rigs or drillships. These off-balance-sheet structures enable Petrobras to use its investment-grade rating to support these deliveries without an impact on its credit rating.
  • If Petrobras is considering an equity transaction in 2014, the implosion of Eike Batista’s OGX group this year won’t be helpful for investors’ perceptions of the risk of Brazil’s oil exploration and production industry.
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