Opening Bell: 4.14.22

ECB stays the course; Yellen’s yellin’ at China; crypto mortgages because why not? And more!

Author:
Dealbreaker
Publish date:
Apr 14, 2022

ECB stays the course; Yellen’s yellin’ at China; crypto mortgages because why not? And more!

ECB confirms plans to end bonds buys in third quarter [Reuters]
Interest rates will, however, only go up “some time” after the end of bond buys and they will be gradual, the ECB added…. The ECB has bought nearly 5 trillion euros of public and private debt since 2015, all with the aim of rekindling inflation, which undershot the bank’s 2% target for years after the bloc’s debt crisis.
But inflation has unexpectedly shot up in recent months, leaving policymakers in a dilemma as they try to reconcile two opposing economic forces.

Yellen Talks Tough on China, Warning of Fallout Over Russia Ties [Bloomberg]
“The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she said.
Yellen backed the strategy of “friend-shoring,” where supply chains depend on allies rather than “countries where we have geopolitical tensions.”

CLOs Face Pain From Looming Risk of Leveraged Loan Downgrades [Bloomberg via Yahoo!]
Around a quarter of the loans in the S&P LSTA Leveraged Loan Index are rated B-, the lowest level that many money managers can easily buy. That’s the highest proportion on record, according to Barclays Plc.
If those loans are downgraded by at least one notch in another downturn, their prices could plunge, as the biggest buyers of the debt are effectively forced to sell their holdings…. Barclays analysts aren’t forecasting a wave of loan downgrades, or trouble for CLOs, in the near term. There have been more upgrades than downgrades so far this year, as corporate earnings continue to recover from the pandemic.

CLSA proposes moving flagship investor forum from Hong Kong to Singapore [FT]
CLSA’s proposal to move the event, typically attended by 1,500 institutional investors from around the world, highlights the disruption caused by Hong Kong’s strict pandemic control measures…. Relocating the conference “makes commercial sense”, the person said, “but it’s in Beijing’s hands. It is not a straightforward political decision”.

Crypto Mortgages Test Home Buyers’ Appetite in Digital-Currency World [WSJ]
Milo, a fintech company in the lending business, made the first crypto home loan in March, when it provided a 30-year mortgage in bitcoin for a Miami duplex…. “Between crypto millionaires who don’t want to sell their cryptocurrency and foreign buyers who have trouble entering the market, we see a huge demand,” says Joe Haggenmiller, head of markets for XBTO.

Quartz, the business news site, drops its paywall. [NYT]
“Quartz’s mission is to make business better, and our journalism is focused on that,” Zach Seward, the chief executive, said. He added, “The more we think about the best way to accomplish that mission, it seems clear to us that it is by making that journalism, all of those resources, as widely available to as many people as we can….” He added that advertising still made up most of the company’s revenue, allowing it to turn off the paywall, which had been in place since 2019.

By Kiefer. from Frankfurt, Germany (Europäische Zentralbank / European Central Bank) [CC BY-SA 2.0], via Wikimedia Commons

Opening Bell

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By VIIRS image captured by the National Oceanic and Atmospheric Administration's Suomi NPP satellite (NOAA View Global Data Explorer) [Public domain], via Wikimedia Commons

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Opening Bell

Former UBS Trader Found Guilty (WSJ) Former trader Kweku Adoboli was found guilty on one count of fraud in connection with a $2.3 billion loss the Swiss bank suffered last year, as the juryin the alleged rogue-trading case continued to deliberate on five other counts he was charged with. The partial verdict comes nearly a week after the jury began deliberating following a roughly eight-week trial. It is unclear when the jury might reach verdicts on the other five counts or when sentencing might take place. Mr. Adoboli pleaded not guilty to all six counts. Shakeup At Credit Suisse (WSJ) Credit Suisse said Tuesday that it will combine the Swiss bank's asset management unit with its private bank, but stopped short of announcing the more drastic revamp analysts expected after crosstown rival UBS decided to fire 10,000 bankers. Robert Shafir, who currently heads the U.S. business of Credit Suisse, will take the helm of a new private banking and wealth management division jointly with Hans-Ulrich Meister, who has run the private banking business, the bank said. At the investment bank, Gael deBoissard is being promoted to co-head of the division, jointly with incumbent Eric Varvel. Following the revamp, Credit Suisse will have only two units—wealth management and investment banking--which are distinctly separate from each other, a move that is "in alignment with the new regulatory reality," Chairman Urs Rohner said. Greece Waits Nervously For Vital Bailout Funds (Reuters) Officials familiar with preparations for the finance ministers' meeting expect a "political endorsement in principle" on unfreezing loans to Athens, after Greece completed almost all the reforms that were required of it in exchange for funding. The final go-ahead from the ministers is likely to come only once the remaining few Greek reforms are in place and once there is agreement in the euro zone on how to reduce the country's huge debt and secure extra financing while it is being done. French Downgrade Widens Gulf With Germany as Talks Loom (Bloomberg) France’s loss of the top credit rating at Moody’s Investors Service may weaken President Francois Hollande’s leverage in European budget talks and deepen concern in Germany over its neighbor’s lagging competitiveness. The downgrade late yesterday of Europe’s second-biggest economy underscores the concern expressed by allies of German Chancellor Angela Merkel that the Socialist Hollande’s failure to recognize the urgency of France’s woes risks a deepening of Europe’s slump. “This downgrade will certainly increase pressure on France big-time,” Jan Techau, director of the Carnegie Endowment for International Peace office in Brussels, said today in a phone interview. “It gives Germany more of an edge over France.” ‘Tide Turning’ Against France, Say Economists (CNBC) “The tide is turning for France. Although the country's bond market is likely to remain resilient — the yield on 10-year paper is little changed [Tuesday] morning and still stands a whisker above its record low of 2.06 percent on July 19 — French debt looks more and more overvalued relative to fundamentals,” Nicholas Spiro, Managing Director of Spiro Sovereign Strategy, said in a note on Tuesday. France has enjoyed low borrowing costs as investors have viewed the country as a safe haven in comparison with its southern European cousins. The downgrade of France to AA1 with a negative outlook by Moody’s has thrown its “deteriorating fundamentals….into sharp relief” Spiro said. China’s Richest Woman Divorces Husband, Fortune Declines (Bloomberg) Longfor Properties Co. Chairwoman Wu Yajun is no longer China’s richest woman after divorcing Cai Kui and transferring about 40 percent of the developer’s shares the couple used to own to her ex-husband. Her stake in Longfor, which Wu co-founded with Cai, dropped from a combined 72 percent to 43 percent, while Cai retains 29 percent, according to filings from Hong Kong’s stock exchange. Wu’s net worth is estimated at $4.2 billion, down from $7.3 billion as of 5:30 p.m. New York time yesterday, according to the Bloomberg Billionaires Index. New York Prepares Lawsuit Against Credit Suisse (Reuters) The New York attorney-general is preparing to file a civil lawsuit against Credit Suisse for misleading investors who lost billions of dollars on mortgage-backed securities, according to a source familiar with the matter. The lawsuit, which is expected to be filed on Wednesday, will allege that Credit Suisse misrepresented the quality of loans packaged in securities, according to the source. Petraeus Mistress Paula Broadwell To Jill Kelley: 'I can make you go away' (NYDN) The notes Paula Broadwell sent to Jill Kelley were far more sinister than previously reported and seemed like the rantings of someone “clearly unhinged,” a close friend of Kelley said Monday. “This wasn’t just a catfight. Any normal person who got emails like that would have immediately called the police,” said the friend. She said Kelley read her the emails when she called, panic-stricken and seeking advice in the days before the scandal became a stunning public spectacle and led to Petraeus’ resignation as CIA director. The friend, who did not want to be identified, said Kelley saw the emails as death threats, specifically one in which Broadwell vowed to “make you go away.” [Meanwhile,] Broadwell...bloodied a female news photographer’s forehead Monday in a confrontation outside the biographer’s Charlotte, N.C., home. Broadwell smacked the photographer with the driver’s-side door of her Nissan Pathfinder SUV. “I had my camera and in all the chaos the door slammed and I got hit in the head with the flash,” said Nell Redmond, a freelancer for The Associated Press. Redmond suffered a small cut and is not pressing charges. Morgan Stanley’s Doom Scenario: Major Recession in 2013 (CNBC) The bank’s economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent. “More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks,” Morgan Stanley said in a report. Under the bank’s more gloomy scenario, the U.S. would go over the “fiscal cliff” leading to a contraction in U.S. GDP for the first three quarters of 2013. In Europe, the bank’s pessimistic scenario assumes a failure of the European Central Bank (ECB) in cutting rates and a delay of its bond-buying program. Judge Tosses Suit Over AIG (WSJ) A federal judge in Manhattan dismissed a $25 billion lawsuit by Starr International Co., which Mr. Greenberg runs, against the New York Federal Reserve Bank over claims the Fed breached its fiduciary duty to AIG's shareholders in the rescue during the U.S. financial crisis. It is one of two lawsuits Starr, AIG's largest shareholder at the time of the government takeover, is pursuing over the bailout. Mark Cuban Throws A Tantrum On Facebook Fee (NYP) Facebook used to be a “time suck” — now it just sucks. That’s the view of Dallas Mavericks owner Mark Cuban, who is urging marketers to take their business elsewhere after the social network started charging the tech billionaire to send messages to all the team’s fans. “In the past we put FB first, Twitter second,” Cuban wrote in a roughly 1,700-word blog post calling out the social network. “FB has been moved to the bottom of a longer list.” He added: “FB doesn’t seem to want to accept that its best purpose in life is as a huge time suck.” At issue is Facebook’s filtering of posts that appear in users’ news feeds. The site says it is trying to present users with content that they have shown an interest in while cutting down on spam. But Cuban says it is a pay-to-play move. He argues that Facebook is making it harder for marketers to reach their fans without paying for so-called “promoted posts.” And making the site more targeted and efficient is actually a mistake, according to Cuban. He claims most people go to the site because it’s a “time suck” that they enjoy. Cannibal Cop Pleads Not Guilty (NYDN) “cannibal cop,” accused of conspiring with an online buddy to kidnap, rape and slow-cook women, pleaded “not guilty” Monday to two federal charges. Gilberto Valle, 28, was arraigned in Manhattan Federal Court on charges of conspiracy to commit kidnapping and accessing the federal National Crime Information Center database without authorization. Valle’s public defender, Julia Gatto, made a third attempt at getting bail for her now-infamous client. "You have a hard row to hoe," said Judge Paul Gardephe...Valle — who was suspended after being arrested last month in a joint NYPD and FBI investigation — is accused of chatting last July with a sick online buddy about “kidnapping, cooking and eating body parts” of a woman identified as Victim 1, according to the indictment released Friday.

Opening Bell

The ECB translator; Trumpian procrastination begins to bite; Facebook-backed crypto asks, “Who’s Facebook?” and more!

Opening Bell

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Opening Bell

British Banks Face Heat From On High (WSJ) The Right Reverend Justin Welby, Bishop of Durham, is grilling top bankers as part of a new parliamentary inquiry into "banking standards" that represents the U.K. government's latest attempt to shake up the industry. The inquiry was established in July on the heels of news that several banks allegedly sought to rig interest rates such as the London interbank lending rate, known as Libor. Bishop Welby, a former oil executive who sits in Britain's House of Lords, has joined nine other lawmakers in assembling a report that will consider new rules on everything from corporate governance to conflicts of interest. The inquiry also involves a series of public hearings already under way. Sitting in a castle in his diocese in northern England, Bishop Welby said the inquiry isn't about digging into the details of banks' alleged failings in the Libor scandal and other matters. Rather, it is an attempt to determine more broadly the future role of the industry. "It's an existential question," he said. "It's about why the bankingindustry is here." Spain To Borrow $267 Billion Of Debt Amid Rescue Pressure (Bloomberg) Spain’s debt will widen to 90.5 percent of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal. This year’s budget deficit will be 7.4 percent of economic output, Budget Minister Cristobal Montoro said at a press conference. Spain’s 6.3 percent target will be met because it can exclude the cost of the bank rescue, he said. Euro Leaders Face October of Unrest After ECB’s September Rally (Bloomberg) With the first of three summit meetings that European Union President Herman Van Rompuy has called “crucial” taking place in Brussels on Oct. 18-19, investor sentiment toward the euro area that surged in September is on the wane. “People are beginning to look at this in a more sober way” after the ECB bond-buying plan and a German high-court decision releasing bailout financing spurred optimism over the past month, Clemens Fuest, an economist at Oxford University’s Said Business School, said in an interview yesterday. October, which marks the third anniversary of the debt crisis, will showcase euro-area leaders fighting out their differences. The discord underscores the inadequacy so far of ECB President Mario Draghi’s bid to calm the crisis through a pledge on sovereign-debt purchases. Graduates Turn Away From Wall Street (FT) MBA statistics show a steady decline in the number of graduates taking jobs at investment banks. The Wharton school at the University of Pennsylvania, which bankers consider the “conveyor belt of Wall Street”, sent 16.6 percent of its class to investment banks in 2011 compared with more than one in four in 2008. The pattern is similar at other large business schools. “The number of students going into financial services has remained steady but what’s changed has been the types of roles,” said Maryellen Lamb, director of MBA career management at Wharton. “We’ve seen more opportunity for students in private equity and hedge fund roles.” Yield hunt pushes funds into CLOs, CDOs (Reuters) Fund managers are increasingly eyeing riskier exotic assets, some of which haven't been in fashion since the financial crisis, as yields on traditional investments get close to rock bottom. Returns from investments in "junk" bonds, government guaranteed mortgage securities and even some battered euro-zone debt are plunging in the wake of global central bank policies intended to suppress borrowing costs. In particular, the Federal Reserve's latest move to juice the U.S. economy by purchasing $40 billion of agency mortgage-backed securities every month is forcing some money managers who had previously been feasting on those securities to get more creative. The only problem is they may be getting out of their comfort zones and taking on too much risk. "I would not be surprised if some managers are reaching outside of their expertise for a few extra basis points," said Bonnie Baha, a portfolio manager for DoubleLine's Global Developed Credit strategy. Arnold Schwarzenegger 60 minutes interview video: admits habit of keeping secrets, affairs (CNN) While he did not specify how many affairs he'd had before Shriver filed for divorce in July 2011, Schwarzenegger admits two women he was involved with include "Red Sonja" co-star Brigitte Nielsen (while he and Shriver were dating, according to Schwarzenegger) and his family's longtime housekeeper, Mildred Patricia Baena. Nine months after Schwarzenegger and Baena had their affair, she gave birth to a son -- less than a week after he and Shriver's fourth child, Christopher, was born. Baena remained the family's housekeeper for years, with her son sometimes around the house as well. But Schwarzenegger said in the "60 Minutes" interview that he didn't have any suspicions he was the father until the boy was 7 or 8 years old and he began to notice "that he started looking like me." "It was never discussed, but I put things together," said Schwarzenegger, whose autobiography "Total Recall" hits bookshelves Monday. After that realization, he said he began sending Baena extra money for her and her son, without talking about his being the boy's father. Schwarzenegger also denied to Shriver that he'd had an affair and that Baena's child was his son -- until Shriver confronted him during a marriage counseling session a few months before their break-up. "She said, 'Am I off on this or am I not?' And I said, 'You are absolutely correct.'" More Wall Street Layoffs Coming (NYP) Nomura analyst Glenn Schorr said in a recent report warns that many banks, which are still overstaffed, need a more liberal wielding of the ax to squeeze out more profits in the coming years, amid a global market that continues to look sluggish. “While overcapacity is weighing on returns under the current environment, most bank managements have been in the camp that the industry is currently experiencing a cyclical rather than secular downturn,” Schorr writes. “So they’ve been slow to do too much on the head-count front,” the bank analyst said regarding layoffs. According to Schorr’s research, big banks like JPMorgan, Credit Suisse, UBS and Barclays have actually added jobs over the past three years. Goldman Sachs and Morgan Stanley have only slashed about 1 and 2 percent of their work forces, respectively. Orange Juice Gets Squeezed (WSJ) Since the start of the current hurricane season, futures prices have climbed as high as $1.4095 a pound. Traders and analysts said the possibility of storm damage fueled much of the rise. But since no such storm has materialized, investors are taking profits or cutting their losses, they added. Vikram's Housing Woes (NYP) Pandit is on track to lose money on the sale of his Greenwich, Conn. home, which he bought in June 2001 for $4.1 million. Pandit, 55, put the two-story Colonial on the market for $4.3 million in April. Now he has lowered the price to $3.9 million, according to Trulia.com. South Florida Man Inherits 13,000 Clown Items (SS) Richard Levine is now trying to wrap his head around the unusual pickle he inherited when his father-in-law and business partner died two years ago and left him essentially a warehouse full of curated items of buffoonery. There are clown dolls with faces of joy and sorrow. Clown paintings, some more colorful than others. Clown figurines and clown puppets, some tiny, some huge, some very disturbing. There are clown photographs, clown books and clown costumes...Levine, who runs the same Waterboy Sprinklers business his father-in-law started in the 1970s, said he barely has had the time to go through all of the items. He hopes to inventory all of it, sell most of it, keep some of it and donate the rest to a local charity group. "I am slowly starting to like them and getting enthusiastic about them. I can see how Jack was into them," Levine said. "I don't go for the sad clowns much though, but I really enjoy the happy ones."