MF’s Corzine Key Man Bonds Fail to Make First Payments: Corporate Finance (Source: Bloomberg)
Bond investors lent MF Global Holdings Ltd. (MF) $650 million three months ago in a bet Jon Corzine would succeed in turning the futures broker into a mini-version of Goldman Sachs Group Inc. The firm filed for bankruptcy before making its first interest payment on the debt. Investors from mutual fund manager Franklin Resources Inc. (BEN) to teacher retirement plan manager TIAA-CREF purchased $325 million of 6.75 percent senior unsecured debt, according to data compiled by Bloomberg. The bonds, due in 2016, dropped 2.5 cents to 47.5 cents on the dollar in trading yesterday after the New York-based brokerage sought court protection.
The plunge shows how quickly a financial company can falter when it loses investor confidence. Less than three months before Corzine disclosed the extent of a $6.3 billion bet on European sovereign debt, the former New Jersey governor and Goldman Sachs co-head was deemed so key to the broker’s success that bondholders demanded an extra percentage point of interest if he left for a post in the Obama administration.
MF Global Files for Bankruptcy Protection (Source: Bloomberg)
MF Global Holdings Ltd., the holding company for the broker-dealer run by ex-Goldman Sachs Group Inc. (GS) co-chairman Jon Corzine, filed for bankruptcy protection as it seeks to reorganize after making bets on European sovereign debt. Its broker-dealer unit, MF Global Inc., faces liquidation. The firm listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. MF Global’s board met through the weekend to consider options including sale, a person with direct knowledge of the situation said. The filing came as MF Global told regulators of potential “deficiencies” in some customer accounts, according to a statement by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission.
“They were trying to get a deal but at the end of the day the majority of their business is built on trust,” Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Services Group in Chicago, said today in an interview. “They had a huge position in European debt, which led to a lot of the troubles. There will be questions about that.”
MF Global Bankruptcy Leaves Star Bankers Adrift as Industry Cuts (Source: Bloomberg)
MF Global Holdings Ltd. (MF)’s bankruptcy filing is throwing into question the futures of some of Wall Street’s most experienced bankers. Jon Corzine, 64, who helped run Goldman Sachs Group Inc. (GS) from 1994 to 1999, added about 800 employees as he tried to remake the broker into an investment bank. Recruits included Michael Stockman, UBS AG’s former chief risk officer for the Americas, Richard Moore, once Citigroup Inc. (C)’s head of European fixed-income, and Jon Bass, 49, also previously of UBS, where he was a member of the investment bank’s board. MF Global sought bankruptcy protection yesterday within a week of Moody’s Investors Service cutting the New York-based firm’s credit rankings, reporting a record quarterly loss and disclosing $6.3 billion of wagers on the sovereign debt of some of Europe’s most indebted nations. The firm was one of the few on Wall Street adding staff amid about 120,000 layoffs announced by banks globally this year, according to Bloomberg Industries.
MF Global Brokerage to Be Liquidated Under Trustee as Sought by SIPC Suit (Source: Bloomberg)
Bankrupt MF Global Holdings Ltd.’s broker-dealer will be liquidated under the supervision of the same trustee who is unwinding Lehman Brothers Holdings Inc.’s brokerage, a federal judge ruled. James Giddens, the trustee liquidating Lehman’s brokerage after its parent filed the biggest bankruptcy in U.S. history, was appointed today after the Securities Investor Protection Corp. sued broker-dealer MF Global Inc., run by former Goldman Sachs Group Inc. (GS) co-chairman and former New Jersey Governor Jon Corzine. SIPC said the broker-dealer might not be able to meet its obligations to customers who have accounts with the company. “The defendant has failed or is in danger of failing to meet its obligations to its customers,” SIPC, which oversees liquidations and compensates customers for part of their losses, said in court papers. “Specifically, the defendant is unable to meet its obligations as they mature.”
U.S. District Judge Paul Engelmayer appointed Giddens at SIPC’s request. When broker-dealers are liquidated, customer accounts often go to other firms. Barclays Plc took over accounts from Lehman’s brokerage.
Emerging-Market Stocks Fall, Paring October Rally; Russian Ruble Weakens (Source: Bloomberg)
Emerging-market stocks fell, paring the benchmark index’s biggest monthly gain since May 2009, as China’s premier vowed to maintain property curbs and investors speculated European leaders may struggle to end the debt crisis. The MSCI Emerging Markets Index dropped for the first time in seven days, losing 1.5 percent to 995 at 4:34 p.m. in New York. The Hang Seng China Enterprises Index fell 1.1 percent and Brazil’s Bovespa index tumbled 2 percent. Benchmark equity indexes in Russia and South Africa dropped more than 1.5 percent, while the ruble weakened 1.4 percent against the dollar as oil and metals prices declined. China’s Premier Wen Jiabao said the government will “firmly” maintain restrictions on real estate. The world’s biggest holder of foreign-exchange reserves can’t play the role of “savior” for Europe after the region’s leaders agreed last week to boost their bailout fund, China’s official Xinhua news agency said yesterday.
The MSCI index has surged 13 percent this month, including a 9.8 percent jump last week, on speculation policy makers will take steps to maintain global growth. “There is more uncertainty about the implementation of the EU rescue plan,” Benoit Anne, head of global emerging markets strategy at Societe Generale SA, said in a phone interview. “There’s been growing concern about the next phase and about the EU’s ability to follow up with the delivery of the plan.”
Stocks in U.S. Decline Amid Growing Concern About European Crisis Funding (Source: Bloomberg)
U.S. stocks slumped, giving the Standard & Poor’s 500 Index its biggest decline in almost a month, amid concern European leaders will struggle to raise funds to contain the region’s sovereign debt crisis. Stocks extended losses in the final hour of trading after Greek Prime Minister George Papandreou said he will put the European Union’s new agreement on financing for Greece to a referendum. Morgan Stanley and Citigroup Inc. (C) dropped more than 7.5 percent, following the biggest weekly gain since July 2010 for financial shares in the S&P 500, as European banks retreated. Alcoa Inc. (AA) and Chevron Corp. (CVX) tumbled at least 4.1 percent to pace declines in commodity shares.
The S&P 500 dropped 2.5 percent to 1,253.30 as of 4 p.m. New York time, erasing its 2011 gain and capping the biggest decline since Oct. 3. The benchmark gauge for U.S. equities rose 11 percent in October, the best month since 1991, snapping a five-month retreat. The Dow Jones Industrial Average lost 276.10 points, or 2.3 percent, to 11,955.01 today.
U.S. Raises Borrowing Estimates on Spending, Lower Revenue (Source: Bloomberg)
The U.S. Treasury Department raised its estimate for fourth-quarter government borrowing by $21 billion to $305 billion, reflecting in part lower revenue and higher spending. The estimates set the stage for the Treasury’s quarterly refunding announcement later this week. Officials on Nov. 2 will reveal their plans for sales of longer-term notes and bonds during the current quarter. “The increase in borrowing relates to lower receipts, higher outlays and changes in the cash balance assumptions partially offset by higher net issuances of state and local government series securities,” the Treasury said in a statement today in Washington, revising upward the fourth-quarter projection of about $285 billion made three months ago. U.S. Treasury officials also project borrowing of $541 billion from January through March of next year. That projection is the highest since the October-to-December 2008 period.
Consumer ’Scared to Death’ But Still Spending (Source: Bloomberg)
Americans’ urge to shop is overriding anxiety about the economy. While household-sentiment measures are at levels typically observed during a recession, an increase in spending during the third quarter boosted growth to the highest level of the year, Commerce Department figures showed Oct. 27. The schism partly reflects consumer ire with the government’s failure to reduce 9.1 percent unemployment or stem rising deficits, said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. “Emotionally based indicators are suspect,” Paulsen said. “There is a lot of anger out there. In a calmer time, these indicators might provide a better guide. Consumers are scared to death, but they are still spending.”
Consumption has tracked sentiment about 75 percent of the time in the past 25 years, Deutsche Bank estimated in an Oct. 25 report. Periods when the confidence measures proved unreliable include the aftermath of the 1990-91 and 2001 recessions, the bank’s report and Paulsen said. The most recent recession lasted 18 months and ended in June 2009.
Business Activity in U.S. Grows as Factories Accelerate Economic Recovery (Source: Bloomberg)
Business activity in the U.S. expanded in October at about the same pace as in the prior month, a sign overseas demand and business investment will help keep the economy expanding. The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month. A level of 50 is the dividing line between expansion and contraction. The group’s employment gauge climbed to a six-month high. Improving consumer spending is lifting sales at manufacturers like Chrysler Group LLC, combined with rising demand from emerging economies and the need to replace outdated equipment, means assembly lines will keep humming. Some Federal Reserve policy makers, ahead of their meeting this week, have said they are willing to take additional steps to spur growth.
“Manufacturing is still moving along quickly,” said Samuel Coffin, an economist at UBS Securities in Stamford, Connecticut. “It seems pretty broad-based, autos helped. We have growth perking along in the fourth quarter.”
Gross Says Additional Fed Easing Programs to Push Longer Yields Higher (Source: Bloomberg)
Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., said the additional easing programs hinted at by Federal Reserve officials will push yields on longer-term Treasuries higher. “Sovereign monetary and fiscal policies, while generating undersized real growth, have managed to produce disproportionally large inflation,” Gross wrote in a monthly investment outlook posted on Newport Beach, California-based Pimco’s website today. “Developed economies -- the U.S. included -- have experienced 3 percent plus inflation in the midst of a New Normal economy. Portfolios should avoid longer dated issues where inflation premiums dominate performance.”
More quantitative easing suggested by Fed officials including Vice Chairman Janet Yellen is likely to push the central bank’s objective for inflation to above 2 percent, which will cause investors to demand higher yields on longer-term Treasuries, Gross wrote. Investors should buy “safe haven” maturities of under 10 years and in equity markets focus on dividend-producing stocks, Gross added.
China’s Property Stocks Decline as Wen Pledges to ‘Firmly’ Maintain Curbs (Source: Bloomberg)
China property stocks fell for the first time in six days in Shanghai trading after Premier Wen Jiabao doused speculation the government will ease curbs on the industry. The government will “firmly” maintain restrictions on real estate and local authorities should continue to strictly implement its policies, Wen said according to a statement following a State Council meeting. The Shanghai Composite Index’s property gauge dropped 0.1 percent at the close, after declining as much as 1.9 percent earlier. “It demonstrates to local governments and developers the central government’s determination to tighten the property market,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “With inflation still at a high level, it’s unlikely the government will take a big step to loosen its policy, but only a partial easing.”
Japan May Prepare Sustained Intervention (Source: Bloomberg)
Japan’s government signaled it is prepared for sustained intervention to ward off speculators from yen purchases after currency appreciation forced companies from Panasonic Corp. (6752) to Honda Motor Co. to lower earnings forecasts. Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen ($57 billion) seeking to stem the currency’s surge to a postwar high against the dollar.
The effort showed support by Prime Minister Yoshihiko Noda for exporters seeing a loss in competitiveness after the yen rose 15 percent against the dollar and 21 percent versus the euro the past two years. With Nissan Motor Co. Chief Executive Officer Carlos Ghosn warning last month about a hollowing out of industry, lack of action risked undermining Noda’s agenda, said Hideo Kumano, an economist at Dai-Ichi Life Research Institute.
Life Insurers Bet on Government Debt as Corporate Sales Flag: Japan Credit (Source: Bloomberg)
Japan’s life insurers are set to increase investments in government debt in the second half of the fiscal year that ends March 31, 2012, as corporate bond sales slump to the least in five years. The nation’s top nine life insurers will probably buy about 1 trillion yen ($13 billion) of yen-denominated, mostly public, notes in the six months through March, according to Nomura Securities Co. and Mizuho Securities Co. A decline in sales has shrunk the extra yield investors demand to own Japanese corporate bonds, excluding power companies and banks, rather than government securities by five basis points to 22 as of Oct. 28, from a post-earthquake high of 27 on May 11, Bank of America Corp.’s Merrill Lynch Japan Industrial Index shows.
Nippon Life Insurance Co., Dai-ichi Life Insurance Co., Meiji Yasuda Life Insurance Co. and Sumitomo Life Insurance Co. are accumulating government bonds, after they bought about 3.1 trillion yen worth in the first half, according to Mizuho and Nomura. Sovereign debt purchases may help the government keep borrowing costs low as Prime Minister Yoshihiko Noda aims to revive the economy after three quarters of contraction and to rebuild after the March 11 temblor.
Yen Slides Most in Three Years After Japan Intervenes; Euro, Krone Weaken (Source: Bloomberg)
The yen slumped the most since 2008 against the dollar as Japan stepped in to foreign-exchange markets to weaken the currency for the third time this year after its gain to a postwar record threatened exporters. The dollar rose against all its major peers after MF Global Holdings Ltd. filed for bankruptcy after making bets on European sovereign debt, driving stocks down and boosting refuge demand. The yen fell against its 16 most-traded counterparts tracked by Bloomberg after Japan’s Finance Minister Jun Azumi ordered the intervention. The euro extended its drop after Greek Prime Minister George Papandreou said he will put the region’s new agreement on financing for his nation to a referendum.
“The yen is no longer a safe-haven instrument to buy in times of risk aversion,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “When you do get risk aversion going forward, the dollar is the only true remaining currency that won’t be debauched by authorities. The reason to buy risk today is few and far between.”
Japan May Prepare Sustained Intervention (Source: Bloomberg)
Japan’s government signaled it is prepared for sustained intervention to ward off speculators from yen purchases after currency appreciation forced companies from Panasonic Corp. (6752) to Honda Motor Co. to lower earnings forecasts. Finance Minister Jun Azumi said in Tokyo he will “continue to intervene until I am satisfied,” after yen sales yesterday that Credit Suisse Group AG analysts estimated may have exceeded $50 billion. The intervention was the first since August, when Japan spent 4.51 trillion yen ($57 billion) seeking to stem the currency’s surge to a postwar high against the dollar.
The effort showed support by Prime Minister Yoshihiko Noda for exporters seeing a loss in competitiveness after the yen rose 15 percent against the dollar and 21 percent versus the euro the past two years. With Nissan Motor Co. Chief Executive Officer Carlos Ghosn warning last month about a hollowing out of industry, lack of action risked undermining Noda’s agenda, said Hideo Kumano, an economist at Dai-Ichi Life Research Institute.
Taiwan GDP Rises Least in Two Years (Source: Bloomberg)
Taiwan’s economy expanded at the slowest pace in two years last quarter as a faltering global recovery hurt exports, prompting the government to cut its growth outlook for this year and 2012. Gross domestic product climbed 3.37 percent in the three months through September from a year earlier, after rising 5.02 percent in the second quarter, the statistics bureau said in a preliminary estimate in Taipei yesterday. The median of 13 forecasts in a Bloomberg News survey was for a 3.56 percent gain. Europe’s debt crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s central bank left interest rates unchanged in September, snapping a run of five straight quarterly increases, as emerging-market officials try to shield expansion.
European Stocks Drop, Paring Best Month Since ‘09; Vestas Slumps (Source: Bloomberg)
European stocks dropped, paring their biggest monthly gain since July 2009, as some investors remain reluctant to buy equities before the euro area’s leaders explain how they will fund their expanded bailout facility. Vestas Wind Systems A/S tumbled 24 percent as the biggest maker of wind turbines cut its forecasts for revenue and margins based on earnings before interest and taxes this year after delays in expanding production at its new plant in Germany. HSBC Holdings Plc (HSBA) and Rio Tinto Group helped lead bank and commodity- company shares lower. The Stoxx Europe 600 Index slid 2.2 percent to 243.48 at the close, paring its monthly gain to 7.7 percent, the largest advance in more than two years. The gauge slipped 0.2 percent on Oct. 28, having rallied 3.6 percent the previous day, after the euro area’s leaders said they will boost the European Financial Stability Facility’s capacity in a bid to stem the debt crisis. The benchmark jumped 4.2 percent last week, its fifth straight weekly gain.
Europe Seeking Crisis-Fighting Funds Faces Resistance Before Cannes G-20 (Source: Bloomberg)
European governments are running into initial resistance as they seek to use this week’s Group of 20 summit to turn early praise for their revamped crisis- fighting strategy into financial support. The G-20 leaders convene Nov. 3-4 in Cannes, France, a week after euro-area authorities pledged to magnify the capacity of their rescue fund to 1 trillion euros ($1.4 trillion) and look beyond their borders for help in doing so as they combat the debt turmoil posing the biggest threat to global growth. While the help of China and cooperation of the International Monetary Fund were immediately sought, pledges of hard cash are proving hard to come by as G-20 members press for more details of the plan. In an indication Europe may eventually prevail, Brazilian and Russian officials said their governments may be willing to provide assistance.
“Unless European leaders can flesh out some of these details very quickly, it’s hard to see the rest of the G-20 coming on board with very great enthusiasm,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former IMF economist.
World-Beating Gilts Boost Pound as Cameron Austerity Meets With King Ease (Source: Bloomberg)
The pound is turning into the must- have currency for investors seeking to get in on the world’s biggest government-bond rally. After weakening in the first half of the year, sterling has gained against all 16 major currencies tracked by Bloomberg except the yen. U.K. gilts have generated a return of 10.8 percent in 2011, the biggest among 26 sovereign-debt markets measured by Bloomberg/European Federation of Financial Analysts Societies indexes. The combination of Prime Minister David Cameron’s fiscal austerity and Bank of England Governor Mervyn King’s efforts to bolster the economy with record-low interest rates and bond purchases are attracting investors seeking a haven from Europe’s debt crisis and political gridlock in the U.S. Reserves invested in pounds rose 12 percent in the first half, compared with a 9.6 percent gain for the euro and a 3.5 percent increase in the dollar, the International Monetary Fund in Washington said.
Spain Economy Stalls in Third Quarter, Adding to Government’s Difficulties (Source: Bloomberg)
The Spanish economy stalled in the third quarter as unemployment surged, adding to the Socialist government’s difficulties three weeks before a general election. Gross domestic product stagnated from the previous quarter, when it grew 0.2 percent, the Bank of Spain in Madrid estimated today. From a year earlier, GDP rose 0.7 percent in the third quarter. Internal demand fell while exports and tourism bolstered the economy, the central bank said. Prime Minister Jose Luis Rodriquez Zapatero’s plan to cut Spain’s borrowing costs from euro-era records has crimped domestic demand while eroding the Socialists’ popularity as they reduced public wages and froze pensions. The opposition People’s Party, which is set to approve its electoral program today amid pledges of deeper austerity, may win its largest-ever majority on Nov. 20, polls show.
Draghi Takes ECB Helm in Battle Mode as Debt Crisis Torments Policy Makers (Source: Bloomberg)
Jean-Claude Trichet had almost four years to settle into the role of European Central Bank president before being thrown into crisis-fighting mode. Mario Draghi goes to battle on day one. Draghi, who succeeds Trichet tomorrow, becomes chief guardian of the euro with its 17-nation economy facing the risk of recession, a victim of the two-year-old sovereign debt crisis politicians are struggling to fix. As ECB president, he will be the second most powerful central banker in the world after Federal Reserve Chairman Ben S. Bernanke, and a key figure in the struggle to restore investor confidence in Europe’s monetary union. “This will be a baptism of fire for Draghi,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “It is challenging to be ECB president in any environment, let alone in the midst of a serious crisis.”
German Stocks Pare Biggest Monthly Gain in 2 1/2 Years; Banks Decline (Source: Bloomberg)
German stocks declined, paring the biggest monthly gain since April 2009, as investors waited for European leaders to detail how they will find the money to expand the region’s bailout fund. ThyssenKrupp AG (TKA), Germany’s largest steelmaker, fell 6.5 percent as UBS AG cut its recommendation on the shares. Deutsche Bank AG (DBK) and Commerzbank AG (CBK), Germany’s biggest lenders, slipped more than 8 percent. The benchmark DAX Index (DAX) declined 3.2 percent to 6,141.34 at the close in Frankfurt. The measure advanced for five consecutive weeks through Oct. 28 on growing speculation that European leaders will shore up banks’ balance sheets and insulate other euro economies from a possible Greek default. The DAX has risen 21 percent from this year’s low on Sept. 12. The gauge gained 12 percent in October. The broader HDAX Index retreated 3.1 percent today.
U.K. Stocks Tumble on European Bailout Concern; Banks Retreat (Source: Bloomberg)
U.K. stocks tumbled the most in five weeks, trimming the FTSE 100 Index (UKX)’s biggest monthly advance since 2009, as investors awaited details on how Europe will fund its expanded bailout facility. Xstrata Plc (XTA), BHP Billiton Ltd. (BHP) and Vedanta Resources Plc (VED) all sank more than 6 percent as copper fell on China’s plan to maintain property curbs. Banks and insurers pared last week’s rally as bond risk climbed and MF Global Holdings Ltd. filed for bankruptcy. Homeserve Plc (HSV) plunged 28 percent. The FTSE 100 retreated 158.02, or 2.8 percent, to 5,544.22 at the close in London as all but three stocks fell. The gauge has still gained 8.1 percent this month after euro-area policy makers expanded the bailout fund ahead of this week’s Group of 20 summit in France. The FTSE All-Share Index lost 2.7 percent today and Ireland’s ISEQ Index slipped 1.1 percent.
“Traders continue to rein in some of last week’s enthusiasm ahead of key economic meetings,” said Ben Critchley, a sales trader at IG Index. “After the positive knee-jerk reaction by markets, many now want to see further details.”
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