Tuesday, 30 December 2014

China’s Two Largest Trainmakers Plan to Merge in Share Swap

China’s two biggest trainmakers said they plan to combine through a share swap, a move intended to boost exports of the country’s high-speed rail technology. The merger between China CNR Corp. (6199) and CSR Corp. (1766) will be at a ratio of 1.1 CSR share for every CNR share, the companies said in a joint statement today. The conversion price for CNR is equal to 6.19 yuan per share or HK$8.05 for its Hong Kong-listed shares, they said in a filing to the Shanghai exchange. The proposal to combine the two trainmakers comes as competitors such as Germany’s Siemens AG and France’s Alstom SA (ALO) are facing constrained public spending in developed markets. China is competing aggressively for overseas rail projects, targeting emerging markets in Africa, Eastern Europe, Latin America and Southeast Asia while also pitching for high-profile projects in the developed world. Chinese Premier Li Keqiang has touted the country’s rail engineering and construction companies on overseas trips, signing a number of deals on his visits. Shareholders who object to the proposal have the option of receiving HK$7.32 for every CSR H-share they hold or HK$7.21 for ever CNR H-share. CNR said its board approved the plan. Shares of CNR and CSR were halted for trading on the Hong Kong and Shanghai exchanges Oct. 27. Both companies’ shares will resume trading tomorrow. To contact Bloomberg News staff for this story: Clement Tan in Hong Kong at ctan297@bloomberg.net; Feifei Shen in Beijing at fshen11@bloomberg.net; Jonathan Browning in Hong Kong at jbrowning9@bloomberg.net To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Michael S. Arnold, Brendan Scott

Monday, 22 December 2014

Dublin Airport Christmas Boom a Buy Signal for Investors

It’s Christmas, and the tills at Dublin Airport are ringing merrily on high. About 770,000 passengers will travel through the airport over the holidays, rising 8 percent from last year, boosted in part by families flying off to winter sun and skiing vacations, according to the state-owned DAA, which runs the airport. Reinforcing the appeal of a rebound in Irish travel, British Airways (IAG) owner IAG SA made an offer for Aer Lingus Group Plc (AERL) this month, prompting a surge in its shares. The passenger numbers flowing through the airport may also present an opportunity for investors looking to play Ireland’s revival, according to Philip O’Sullivan, an analyst in Dublin at Investec Plc (INVP), which recommends buying DAA’s 2018 bond. “DAA is very much a leveraged play on the Irish economy,” saidO’Sullivan. “We have been fans of the bond for some months now, viewing it as a relatively cheap way to play the sovereign.” By Joe Brennan and Dara Doyle

Ruble Rallies Second Day as Russia Tax Deadline Boosts Demand

The ruble rallied as companies sold dollars to pay local taxes, shoring up the currency for a second day after China signaled it’s prepared to offer Russia support to tackle the worsening economic slump. The ruble strengthened 5.5 percent to 55.4995 a dollar by 2:52 p.m. in Moscow, bringing its two-day appreciation to 11 percent. The yield on 10-year government bonds fell 44 basis points to 13.16 percent, while the dollar-denominated RTS Index of equities climbed for a fourth day. Corporate tax payments that Bank of America Corp. estimates will amount to 500 billion rubles ($8.8 billion) are bolstering the ruble as last week’s interest-rate increase to 17 percent squeezes money-market funding. Two Chinese ministers offered support for President Vladimir Putin as Russia’s highest borrowing costs in 11 years choke an economy already facing a deepening slowdown due to sanctions over Ukraine and low oil prices. “Our official forecast is still 48 rubles per dollar by the end of the year and we still stand by it,” Vladimir Osakovskiy, the chief economist for Russia at Bank of America in Moscow, said by e-mail. “There are clearly plenty of risks, including potential for escalation of the Ukraine crisis, the risk of capital controls, further oil price moves and so on.” China’s Commerce Minister suggested that expanding a currency swap agreement and increasing the use of yuan in bilateral trade would have the greatest impact in aiding Russia, according to a Dec. 20 report by Hong Kong-based Phoenix TV. China is ready to help and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying. The countries signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October. By Vladimir Kuznetsov

Hanukkah’s Fried Food Tradition Gets Light Makeover

It’s the fattiest -- and for some, the tastiest -- of Jewish holidays. For time immemorial, Jews around the world have celebrated Hanukkah by eating jelly doughnuts and pancakes fried in oil to commemorate a miracle: a small flask of oil lasted long enough to light Jerusalem’s holiest temple for eight days in an uprising against the Greek more than 2,000 years ago. Lately, some followers have started worrying about what the frying is doing to their arteries and waistlines. In Israel, where it’s not unusual to gobble down several daily doughnuts during the feast also known as the Festival of Lights, some bakeries are tweaking ancient traditions and selling Hanukkah treats that boast less fat, as well as some vegan and gluten-free alternatives. Bread Story, a bakery on Tel Aviv’s trendy Dizengoff Street, has ditched frying altogether. Instead, manager Nir Zur says strawberry, chocolate, caramel, and pistachio doughnuts are baked in the oven, allowing him to advertise one-third fewer calories. Two blocks away on Bograshov Street’s Le Moulin shop, manager Yitzik Amiel says his own baked Sufganiyot -- Hebrew for doughnut -- are selling out almost every night. “For people on a diet, or health conscious, I think it’s a good compromise,” said Zur, who figures he’s been selling about 150 doughnuts a day this year, more than last year. “Some people are looking to enjoy the Hanukkah holidays without getting completely bloated.” Limit Quantity For now, these alternatives are only finding favor with a health-conscious minority. Metuka Food and Accommodation Ltd., a Tel Aviv-based bakery, which this year began offering two vegan doughnuts, says demand for those products has yet to catch up with that for its classic creamy, deep-fried treats. At the Rolladin cafe on Tel Aviv’s Allenby street, there is another option for people looking to restrict fat: a small-sized doughnut. Noa Hope, a local nutritionist, also advises patients to limit quantity, not quality. “There are excellent levivot from carrots or broccoli that you can bake in the oven,” she said. “But a Sufganiyah in the oven? Give me a break. This is a once-a-year event.” To contact the reporter on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net

Gold Holds Weekly Drop as Price Near Most Volatile Since January

Gold traded little changed as investors weighed oil prices and the strength of the dollar and as a gauge of the metal’s price swings was near the highest since January. Gold futures fell 2.2 percent last week for the first loss in three. Bullion’s 60-day historical volatility is near a level of 18.1 set Dec. 16, data compiled by Bloomberg show. The Bloomberg Dollar Spot Index slipped 0.1 percent today and Brent crude declined 0.4 percent. The metal, which reached a four-year low last month, is down 0.5 percent this year. Holdings in gold-backed funds are near the lowest since 2009, as the dollar trades near a five-year high on the outlook for higher U.S. interest rates, and after slumping oil prices reduced demand for an inflation hedge. By Nicholas Larkin and Jasmine Ng

Sunday, 21 December 2014

Oil Crash Exposes New Risks for U.S. Shale Drillers

Shares of oil companies are also dropping, with a 49 percent decline in the 76-member Bloomberg Intelligence North America E&P Valuation Peers index from this year’s peak in June. The drilling had been driven by high oil prices and low-cost financing. Companies spent $1.30 for every dollar earned selling oil and gas in the third quarter, according to data compiled by Bloomberg on 56 of the U.S.-listed companies in the E&P index. Financing costs are now rising as prices sink. The average borrowing cost for energy companies in the U.S. high-yield debt market has almost doubled to 10.43 percent from an all-time low of 5.68 percent in June, Bank of America Merrill Lynch data show. Locking in a minimum price for crude reassures investors that companies will have the cash to keep expanding and lenders that debt can be repaid. While several companies such as Anadarko Petroleum Corp. (APC), Bonanza Creek (BCEI) Energy Inc., Callon Petroleum Co., Carrizo Oil & Gas Inc. and Parsley Energy Inc., use three-way collars, Pioneer uses more than its competitors, company records show. Tumbling oil prices have exposed a weakness in the insurance that some U.S. shale drillers bought to protect themselves against a crash. At least six companies, including Pioneer Natural Resources Co. (PXD) and Noble Energy Inc. (NBL), used a strategy known as a three-way collar that doesn’t guarantee a minimum price if crude falls below a certain level, according to company filings. While three-ways can be cheaper than other hedges, they can leave drillers exposed to steep declines. “Producers are inherently bullish,” said Mike Corley, the founder of Mercatus Energy Advisors, a Houston-based firm that advises companies on hedging strategies. “It’s just the nature of the business. You’re not going to go drill holes in the ground if you think prices are going down.” To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net

Saturday, 20 December 2014

Incredible Shrinking Bankers at Davos Humbler Amid Austerity

Leaders of the world’s biggest banks touted the virtues of austerity at the World Economic Forum in Davos -- for themselves, not just for over-indebted governments. Many arrived in the Swiss Alps following a year marked by weak revenue, declining stock prices and cuts in jobs and compensation. The finance and banking industries remain the “least trusted” for the second consecutive year, according to a 20-country survey released earlier this week by public relations firm Edelman. “Last year every bank thought they could grow their way out of trouble,” Huw van Steenis, who oversees European bank research for Morgan Stanley (MS) in London, said between meetings with investors and policy makers in Davos. “Now they realize they have to shrink their way out of trouble.” Financial companies, mainly in Western Europe and the U.S., have announced more than 238,000 job cuts since last year’s meeting in Davos, according to data compiled by Bloomberg. Bank of America Corp. (BAC), Deutsche Bank AG (DBK), and HSBC Holdings Plc (HSBA) are among banks selling businesses and slimming down as they adapt to capital requirements approved by the Basel Committee on Banking Supervision, new national regulations and a slowdown in economic growth in Europe. By Christine Harper

Carnival Falls as Cruise-Ship Disaster May Cost $95 Million

Carnival Corp. (CCL) fell the most in more than 11 years in London trading after saying the grounding of the Costa Concordia off Italy’s Tuscan Coast that killed at least six people will cost the company as much as $95 million. Carnival, the world’s biggest cruise operator with brands including Cunard and Princess Cruises, dropped 16 percent to 1,878 pence, the biggest decline since 2000. The vessel will be out of service for at least the current financial year ending Nov. 30, the Miami- and London-based company said in a statement today. The reduction in fiscal 2012 earnings will amount to 11 cents to 12 cents a share, it said. Carnival said it anticipates additional costs to the business that aren’t possible to determine at this time. “There will be negative short-term implications for bookings across the cruise sector as pictures of the stricken ship are flashed around the world,” said Wyn Ellis, an analyst at Numis Securities in London who reduced his recommendation on the stock to “hold” from “add.” The insurance loss could be $500 million to $1 billion, depending on liability claims, exceeding the loss from the Exxon Valdez disaster including pollution, said Joy Ferneyhough, an insurance analyst at Espirito Santo Investment Bank. The Costa Concordia was insured by companies including Assicurazioni Generali SpA, RSA Insurance Group Plc and XL Group Plc, said three people with knowledge of the policies. They are among several insurers facing total costs of about 405 million euros ($513 million), said one of the people, who declined to be identified because the terms of the policies are confidential. Carnival is self-insured for the loss of the use of the Costa Concordia, which is insured for damage with a deductible of approximately $30 million, the company said. Third-party personal injury liability insurance carries a deductible of approximately $10 million for this incident. Cash costs, excluding the capital cost of the ship, probably won’t exceed $1 billion, which Carnival should be able to accommodate, Numis’s Ellis said. “Consumer sentiment soon recovers following such tragic events, and we do not expect there to be long-term negative consequences for demand,” Ellis said. “Tragic accidents happen with greater frequency and, sadly, often greater loss of life, in the aviation and rail industry and this does not prevent people using these modes of transport.” Carnival, which has dual U.S. and U.K. listings, had risen 5.7 percent in London this year before today and about 5 percent in New York. That compares with a 16 percent gain for Royal Caribbean Cruises Ltd. (RCL) U.S. markets are closed today for the Martin Luther King Jr. holiday. Genting Hong Kong Ltd. (GENHK) fell 3.2 percent today. Some investors may switch holdings into Royal Caribbean after the Concordia incident, according to Tim Ramskill, an analyst at Credit Suisse in London. “If the industry already didn’t face enough challenges -- fuel price volatility, capacity absorption, and weakness in the European economy -- this unfortunate event will reverberate on the group,” he said. Costa Crociere Chief Executive Officer Pier Luigi Foschi told a press conference in Genoa that he doesn’t foresee a long-term impact on the industry. Carnival bought P&O Princess Cruises Plc in 2003, three years after it was spun off from Peninsular & Oriental Steam Navigation Co. To contact the reporter on this story: Armorel Kenna in Milan at akenna@bloomberg.net

Korean Stocks Drop to a 10-Month on Fund Withdrawals

Overseas investors sold South Korean stocks for the seventh day, the longest losing streak in two months, helping drag down the benchmark Kospi (KOSPI) index to its lowest level since Feb. 5. Global funds pulled a net 542.9 billion won ($492 million) of Kospi shares as of 3:36 p.m. in Seoul trading, taking total sales in the seven days to 2.83 trillion won, according to data compiled by Bloomberg. The string of outflows is the longest since mid-October. The Kospi dropped 0.1 percent to 1,897.5, while the won weakened 0.7 percent. Korea’s stock index has declined 5.7 percent this year, the worst performer in Asia after Malaysia, as profits declined at the nation’s biggest companies and volatility in the won increased. Investors withdrew more than $2.5 billion from U.S. exchange-traded funds that buy developing nation stocks and bonds last week, the biggest outflow since January, as oil declined and concern grew the U.S. will raise borrowing costs. “Global investors in general have been trimming exposures in emerging markets,” Park So Yeon, strategist at Korea Investment & Securities Co., said by phone today. “Some emerging investors also seem to moving funds to Chinese markets after the Hong Kong-China link opened.” The Shanghai Composite Index (SHCOMP) has rallied 24 percent in the past month, compared with a 6.4 percent drop by the MSCI Emerging Markets Index. The link between exchanges in the city and Hong Kong began on Nov. 17, giving foreign investors unprecedented access to mainland shares. By Seonjin Cha

Friday, 12 December 2014

Europe Stocks Fall With Krone, Oil Extends Drop Below $60

Commodity producers led European stocks to their worst week since 2012 as U.S. benchmark oil extended declines below $60 a barrel. Norway’s krone weakened and Russia’s ruble slid to a record, while a surge in government bonds sent yields in Europe to all-time lows. The Stoxx Europe 600 Index dropped 1.5 percent at 10:45 a.m. in London. Standard & Poor’s 500 Index futures slipped 0.6 percent, with the gauge set to end seven weeks of gains. West Texas Intermediate crude lost 1.5 percent to $59.05 a barrel. The krone slid to an 11-year low against the dollar, while the cost of insuring Russian government debt rose for a 15th day, the longest streak on record. The yield on 30-year German bunds slid as much as six basis points to a record 1.465 percent and France’s reached 1.931 percent. Oil is headed for the 10th weekly drop since the start of October after OPEC decided against reducing its output, even as the highest U.S. production in more than three decades exacerbates a global glut. Global oil demand next year will be weaker than previously estimated and supply from non-OPEC producers will be bigger, the International Energy Agency said in a report today. While the lower fuel prices hurts producers, that’s boosting demand for bonds as central banks maintain stimulus to fight deflation. By Nick Gentle and Stephen Kirkland

U.K. Water Bills to Drop 5% in 2015 After Price Review

Households in England and Wales today received a boost when Britain’s water regulator published a final determination on prices that will see the average customer bill fall about 5 percent starting next year. Ofwat published the prices that Britain’s water and waste companies, including United Utilities Plc (UU/) and Severn Trent Plc (SVT), can charge for the five-year period starting 2015. The measures will see average annual rates drop by about 5 percent before inflation, meaning bills will be reduced by about 20 pounds ($31) from 396 pounds now to 376 pounds, it said in a statement. The water regulator sets limits on how much utilities can charge customers every five years. The decision is aimed at supporting 44 billion pounds of investments in measures such as curbing leaks and sewer flooding including into the Thames River while keeping household bills as low as possible. The price review has been subject to consultation with some utilities tweaking and re-submitting rate plans. “We are bringing down bills so customers can expect value for money while investors can earn a fair return,” Jonson Cox, chairman of Ofwat, said in the statement. “Companies will need to stretch themselves to deliver much more with the same level of funding as in previous years.” The decision means United Utilities, Britain’s largest publicly traded water company, will see its water and sewerage bills decline an average of 3 percent over the five-year period. Rates at Severn Trent, the U.K.’s second-largest publicly traded utility, will drop 5 percent. Companies will have two months to accept Ofwat’s decision or challenge it. By Louise Downing

Thursday, 11 December 2014

Shengjing Bank, Investors Seeking $1.4 Billion in IPO

Shengjing Bank Co., the biggest city commercial lender in northeastern China, and its investors are seeking as much as $1.4 billion from an initial public offering in Hong Kong. The company, based in Shenyang city, and its shareholders offered about 1.38 billion shares at HK$7.43 to HK$7.81 each, according to a term sheet obtained by Bloomberg News. New shares account for 90.9 percent of the offering. Shengjing Bank is following provincial and city lenders Harbin Bank Co. and Huishang Bank (3698) in going public in Hong Kong to bolster capital as the world’s second-largest economy slows and bad loans increase. The lender aims to set a final price on Dec. 18 and start trading on Dec. 29, the terms show. Five cornerstone investors, including Chow Tai Fook Nominee Ltd., agreed to buy a combined $700 million of stock as part of the IPO. Chow Tai Fook committed $100 million, while Paul Suen Cho Hung will invest $180 million, the terms show. Cornerstone investors typically agree to hold their stock for at least six month in return for guaranteed allocations in initial share sales. Shengjing Bank had assets of 355.4 billion yuan ($57.4 billion) at the end of last year, according to a pre-IPO filing yesterday. To contact the reporter on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net

Mexico’s Central Bank Props Up Peso as Oil Plunge Hits Currency

Mexico’s central bank sold dollars to bolster the peso for the first time in more than two years, as officials try to curb volatility in the currency following an 8.2 percent slide in the past month. The Bank of Mexico sold $200 million today at an average price of 14.7544 pesos each, according to a website posting. The auction, conducted under procedures disclosed earlier this week, took place after the market exchange rate weakened by more than 1.5 percent from yesterday’s official price. The market closed today at 14.7772 pesos per dollar, the weakest since March 2009, according to data compiled by Bloomberg. The peso, the most-traded emerging-market currency, has weakened as plunging oil prices damped speculation that a projected energy boom in the country would attract foreign investment and spur economic growth. The slide has upended bets made earlier in the year on peso-denominated bonds by money managers including Pacific Investment Management Co. and BlackRock. “At the end of the day, the objective is to provide liquidity,” Mario Copca, a currency and fixed-income strategist in Mexico City at Metanalisis SA, said in a telephone interview. “The volatility may continue, not so much because of the auction, but because the behavior of oil prices.” The central bank’s intervention was its first since an auction held in July 2012. To contact the reporter on this story: Ben Bain in Mexico City at bbain2@bloomberg.net

Stock Traders Ignoring the Message From Junk Bond Traders

Perhaps 2014 will go down in history as the year that junk bonds sent a warning signal as oil plummeted and stocks just kept rallying. Prices on high-yield bonds have declined 2.4 percent this month and 5.7 percent since the end of August, even as U.S. equities have climbed to new highs. The dollar-denominated debt is now yielding the most relative to a comparable measure on the Standard & Poor’s 500 index since 2011. The divergence may signal junk-bond traders are picking up on a fundamental problem of overvalued energy companies in frothy markets fueled by six years of record Federal Reserve stimulus -- and that stock investors should pay attention. While falling oil prices mean consumers have extra cash to deploy elsewhere, boosting the economy, the price plunge may also crimp the capital spending by energy companies that has been a driver of growth in recent years. “The big question is whether oil’s problems are going to stay local or whether they’re going to spread out,” Michael Shaoul, chief executive officer of Marketfield Asset Management said in a Dec. 9 Bloomberg Television interview. The test will be whether “this big decline in oil really provokes some kind of credit problems in either high-yield energy or in one of the emerging markets.” By Lisa Abramowicz

China’s Stocks Are Little Changed Before Industrial Output Data

China’s stocks were little changed as the benchmark index erased an advance before the release of industrial production data. Neusoft Corp. leds gains for technology companies after it said Goldman Sachs Group Inc., Hony Capital and other investors agreed to invest in its health-care businesses. China Eastern Airlines Co. and Cosco Shipping Co. slumped at least 2 percent after rallying 10 percent yesterday on lower oil prices. Data later today will show industrial production probably expanded 7.5 percent last month, according to estimates compiled by Bloomberg, slowing from October’s 7.7 percent gain. The data follow a report earlier this week that showed the inflation rate and producer prices dropping more than forecast. The Shanghai Composite Index (SHCOMP) slipped 0.1 point to 2,925.64 at the 11:30 a.m. break, extending this week’s loss to 0.4 percent. The index has climbed 17 percent in the past month amid speculation the central bank will cut reserve-requirement ratios to support an economy heading for its weakest annual expansion since 1990. China cut its growth target for next year at the end of a policy-setting meeting, China Business News reported. “Stocks will be consolidating as we had rallied for a while,” said Zhang Haidong, an analyst at Tebon Securities Co. in Shanghai. “The weak economy gives rise to expectations of more rate cuts next year. That’s good. But in the short term, stocks have surged too much so some investors will be staying away to avoid risks.” Investors bought 81 billion yuan of shares using margin debt on the Shanghai bourse yesterday, taking the outstanding value of stock purchases through borrowed money to a record 617 billion yuan, according to data from the bourse. Big stock fluctuations without support from fundamentals hurt both individual investors and capital market reforms, Xinhua said in the commentary. Brokerages’ margin trading and short selling business growth may fall as clients pull away from financing and banks tighten loans at the end of the year, Shanghai Securities News reported, citing several brokerages. To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

Canada Stocks Rise as Banks Climb Amid U.S. Retail Sales

Canadian stocks rose, after plunging the most in 17 months yesterday, as banks advanced after the U.S. reported better-than-forecast retail sales and unemployment data. Painted Pony Petroleum Ltd. (PPY) rose 4.7 percent to pace an advance among energy stocks after yesterday’s selloff. Gildan Activewear Inc., the clothing exporter, added 2.6 percent. National Bank of Canada and Bank of Montreal advanced at least 0.7 percent as financial shares climbed for the first time in six days. The Standard & Poor’s/TSX Composite Index (SPTSX) rose 52.17 points, or 0.4 percent, to 13,905.12 at 4 p.m. in Toronto, paring an earlier gain of as much as 1.7 percent. The equity gauge has dropped 3.9 percent this week, narrowing its advance this year to 2.1 percent. Oil, bank and raw-materials are the biggest laggards in Canada for the first time since at least 1988, fueling concern the nation’s economy is fading just as the U.S. is taking off. The three industries, which collectively account for two-thirds of the S&P/TSX, are the worst performers among 10 groups this year, led by a 18 percent slump in energy, according to data compiled by Bloomberg. Stocks rallied early today as data showed retail sales in the U.S. jumped 0.7 percent in November, the biggest gain in eight months, as higher wages and cheaper fuel fueled shopping sprees for American consumers. Another report showed fewer Americans filed claims for jobless benefits last week. To contact the reporter on this story: Eric Lam in Toronto at elam87@bloomberg.net

Monday, 8 December 2014

Energy Insiders See ‘Fire Sale’ Buy Most Shares Since ’12

The rout in energy stocks reminds Tim Rochford of something else he’s seen in Texas. “What happened is almost like a herd of cattle, one cow turns left, all the cows follow it and it’s a stampede,” said the 68-year-old co-founder of Midland-based Ring Energy Inc., one of 118 industry executives who bought shares of their own companies in the last month amid the worst losses since 2008. “This is an absolute fire sale,” he said. “It’s an overreaction and the result is it’s oversold.” With valuations at a decade low, oil executives such as Rochford and Chesapeake Energy (CHK) Corp.’s Archie Dunham are driving the biggest wave of insider buying since 2012, data compiled by the Washington Service and Bloomberg show. They’re snapping up stocks after more than $300 billion was erased from share values as crude slipped below $70 for the first time since 2010. Rochford and two other board members, Stanley McCabe and David Fowler, bought a total of more than 30,000 Ring shares over the past month, regulatory filings show. While the stock has lost 55 percent from its June peak, Rochford said his company can stay profitable even should oil slip to $50. Crude prices last settled at $65.84 a barrel in New York, down from around $105 five months ago. Equities in the industry are being ejected from the U.S. bull market, falling 9.2 percent this year, while the Standard & Poor’s 500 Index climbed 12 percent. Oil is down 33 percent amid concern over a glut of supply. Futures on the S&P 500 expiring this month dropped 0.4 percent at 10:31 a.m. in London today. By Lu Wang and Oliver Renick

Sunday, 7 December 2014

BOE Looks Beyond Rate Guidance in U.K. Bank Stress Test

The Bank of England is willing to put aside its own forward guidance to determine how well the country’s eight largest lenders would fare in a crisis. Governor Mark Carney has said rate increases from the current record-low 0.5 percent are likely to be gradual and the peak in rates lower than in previous cycles. Yet in its stress test of the U.K.’s eight largest banks, the BOE assumes an increase to 4 percent by the end of 2015. “You could argue that going to 4 percent is against their own policy,” said Charles Goodhart, a former member of the Bank of England’s Monetary Policy Committee and a professor at the London School of Economics. “I think it’s actually quite courageous, and better than the ECB did, to include in the scenario a feature which in some sense is against their current policy.” The BOE scenario will examine whether U.K. lenders could survive the interest-rate spike coupled with an economic and financial catastrophe so severe that it’s only happened once in the last 150 years. How they fare will be revealed on Dec. 16. The BOE tests will be the first in Europe to factor in monetary policy actions. The European Banking Authority and European Central Bank were criticized for failing to include deflation in the scenarios for their joint stress test in October. The ECB test uncovered capital shortfalls totaling 25 billion euros ($30.7 billion) at 25 euro-area banks, all but eight of which had already plugged the gaps or satisfied the ECB with plans to shrink. By Ben Moshinsky and Jennifer Ryan

UBS Turns to Artificial Intelligence to Advise Clients

UBS Group AG (UBSG), facing the threat of competition from Google Inc. (GOOGL) and Amazon.com Inc., has turned to a Singapore-based technology company that uses artificial intelligence for help delivering personalized advice to the bank’s wealthy clients. Sqreem Technologies Pte. Ltd. beat some 80 teams competing in the Innovation Challenge, a contest organized by Switzerland’s biggest bank that offered S$40,000 ($30,000) and a potential contract to the winner. Their task: Extract the information most relevant to an individual client from an explosion of data and deliver this tailored content to clients’ mobile phones, iPads and other digital devices. “Banking is one of the most rudimentary industries when it comes to digitalization,” Dirk Klee, chief operating officer for UBS wealth management and responsible for digital initiatives, said in an interview. “EBay, Amazon - everything is getting more and more digital. The question is how we translate this into a similar experience for our clients.” Big global banks like UBS are turning to technology to mine data for insight on its customers that could help lenders stay competitive in the digital era. The introduction of mobile payment systems offered by Internet giants like Google Inc. (GOOG) and Apple Inc. has alerted traditional banks to the potential threat from tech companies with vast databases and the knowhow to exploit them. READ FULL STORY AT BLOOMBERG.NET

Oil Declines From 5-Year Low on Signs U.S. Taking Fight to OPEC

West Texas Intermediate and Brent crude extended declines from the lowest close in more than five years amid speculation that U.S. oil producers will fight OPEC for market share. Futures dropped as much as 1.8 percent in New York and 1.9 percent in London. Crude explorers in the U.S. increased the number of operating rigs last week, defying predictions of a drilling slowdown, according to data from Baker Hughes Inc., a Houston-based field services company. Oil’s relative strength index remains below 30, signaling that the market is oversold. The Bloomberg Dollar Spot Index traded near the highest level since March 2009, damping the investment appeal of commodities. Crude is trading in a bear market amid signs that U.S. output is expanding even after the Organization of Petroleum Exporting Countries opted not to reduce its production quota. Falling oil prices will put “short-term pressure” on Iran’s budget, President Hassan Rouhani said in parliament yesterday, the Iranian Students’ News Agency reported. “This is primarily a supply-side issue,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone today. “Current supplies are too large for any foreseeable improvement in demand. The price needs to fall to a level that starts to really give the market some comfort that that new projects are going to be put on the backburner and delayed.” WTI for January delivery dropped as much as $1.21 to $64.63 a barrel in electronic trading on the New York Mercantile Exchange and was at $65.06 at 12:31 p.m. Sydney time. The contract slid 97 cents to $65.84 on Dec. 5, the lowest close since July 2009. The volume of all futures traded was about 18 percent above the 100-day average. Prices have decreased 34 percent this year. Brent for January settlement declined as much as $1.34 to $67.73 a barrel on the London-based ICE Futures Europe exchange. Prices lost 57 cents to $69.07 on Dec. 5, the lowest since October 2009. The European benchmark crude traded at a premium of $3.12 to WTI. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

Oil Slides as China Stocks Swing While Dollar Holds Gains

Crude oil dropped toward a five-year low while China’s Shanghai Composite Index (SHCOMP) fluctuated after regulators urged caution following an 18 percent surge in two weeks. Emerging-market currencies were weaker against the dollar after a U.S. payrolls report beat all estimates. Oil in the U.S. and London was down at least 1 percent, with West Texas Intermediate crude headed for its lowest close since July 2009. The Shanghai Composite Index swung from a loss of 2 percent to a 0.2 percent gain by 10:56 a.m. in Tokyo, while the MSCI Asia Pacific Index swung between gains and losses. The greenback traded near a more-than seven-year high versus the yen and climbed against the currencies of New Zealand, Malaysia, Indonesia and South Korea. Investors must consider risks while putting money into stocks, China’s securities regulator warned yesterday after a buying spree fueled a 21 percent rally in the Shanghai Composite Index over the past month, the most among 93 global indexes tracked by Bloomberg. BP Plc will cut jobs and freeze certain projects amid oil’s slump into a bear market, the Sunday Times reported, citing an interview with Chiief Financial Officer Brian Gilvary. The 321,000 worker increase in U.S. nonfarm payrolls topped every economists’ projection. “After digesting the positive U.S. employment data and the weaker yen, the market could trade cautiously as it eyes the possibility of higher U.S. interest rates,” Shoji Hirakawa, chief equity strategist at Okasan Securities Co. in Tokyo, said by phone. “The consensus for U.S. rate hikes is currently mid-next year, but that could begin to be brought earlier.” Foreign-debt levels of companies in emerging markets from China to India and Brazil are underestimated, threatening financial stability, the Bank for International Settlements said. China is expected to post slower growth in trade for November today. By Emma O’Brien and Nick Gentle

Australian Banks Seen Needing $25 Billion in Capital

Commonwealth Bank of Australia and its three main competitors may need as much as A$30 billion ($25 billion) after a government-commissioned inquiry called for “unquestionably strong” capital levels, analysts said. The shortfall is based on lenders needing to boost levels to within the top quartile of their global peers and set aside additional funds against potential losses on home mortgages, as recommended by the Financial System Inquiry report released yesterday in Sydney by Treasurer Joe Hockey. Australia’s major lenders hold about 10 percent to 11.6 percent of their assets as Tier 1 capital compared with at least 12.2 percent at the world’s safest banks, the government’s first inquiry into the financial system since 1997 said. Banks should be strong enough to withstand shocks, particularly given their reliance on overseas investors for funding, the report said. “The onus on capital is in line with global changes and Australia has to fall in line,” John Buonaccorsi, a Sydney-based analyst at CIMB Group Holdings Bhd. said in a phone interview after the report was released. “I don’t expect a straight capital raising yet.” Australia’s largest banks are initially more likely to resort to dividend reinvestment plans, where investors swap all or part of their dividend for new shares, and limiting increases in payout ratios, he added. Photographer: Nelson Ching/Bloomberg David Murray, former Commonwealth Bank of Australia chief executive officer. Buonaccorsi expects a shortfall between A$25 billion and A$30 billion. Omkar Joshi, who helps oversee A$1 billion as an investment analyst at Watermark Funds Management, estimated a A$15 billion to A$20 billion gap. Their predictions were based on an average mortgage risk weight of 25 percent to 30 percent and systemically important bank buffer of 2 percent. Cost of Failure The inquiry led by former Commonwealth Bank head David Murray said policies must be tuned to reduce the cost of failure by ensuring lenders have sufficient loss-absorbing capacity. Australia’s government will consult widely with consumers and industry on the report, which contained 44 recommendations aimed at bolstering the nation’s financial sector, Hockey said after its release. It will seek bipartisan political support when taking decisions on the review, which will probably be after the first quarter of 2015, he said. “I have long stated that our banks must be well capitalized and they are,” Hockey told reporters in Sydney. “What the Murray inquiry is recommending is a further look at increasing those levels of capital and that’s something that needs to be dealt with appropriately by the regulators.” U.S., Europe The inquiry received more than 6,800 submissions and met with over 50 financial institutions, market participants and regulators from the U.S., Europe, U.K., Asia and New Zealand. The nation’s four largest lenders -- Commonwealth Bank, Australia & New Zealand Banking Corp. (ANZ), National Australia Bank Ltd. (NAB) and Westpac Banking Corp. (WBC) -- added A$34.6 billion in common equity Tier 1 capital from October 2010 to September this year as they boasted five straight years of record profits, filings show. The banks raised A$17.7 billion through share sales in 2008 and 2009 to bolster their balance sheets in the wake of the global financial crisis, data compiled by Bloomberg show. “Murray’s recommendations around capital, while not entirely surprising, are a negative for the major banks and incrementally positive for the regional lenders,” Watermark’s Joshi said. “However, it is interesting to note that Murray has left the final decision with the regulator rather than making an actual recommendation on a particular capital ratio.” Commonwealth Bank and National Australia said they would now consider the recommendations, in e-mailed statements. ANZ’s Deputy Chief Executive Officer Graham Hodges said increasing mortgage weights for major banks was at odds with the Basel Committee on Banking Supervision’s risk-based approach. contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

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Gold Futures Drop as Payrolls in U.S.

Gold slumped after the U.S. added the largest number of jobs in almost three years, fueling concern that the Federal Reserve will move closer to raising interest rates. Silver declined. Prices for gold options betting on a rally tumbled, and the metal’s 60-day historical volatility climbed to the highest since March. The dollar rose to the highest since 2009 against a basket of currencies, cutting the appeal of bullion as an alternative asset. Futures fell to a four-year low last month on waning demand for the metal as a store of value. Employers in the U.S. added 321,000 jobs in November, the most since January 2012. The report boosted speculation that Fed policy makers will be assured the economy is strong enough to withstand an increase in borrowing costs next year. “A selloff in gold is inevitable with these kind of numbers,” Chris Gaffney, the senior market strategist at EverBank Wealth Management in St. Louis, said in a telephone interview after the report. “This tells us rates will rise sooner rather than later.” Gold futures for February delivery dropped 1.4 percent to settle at $1,190.40 an ounce at 1:49 p.m. on the Comex in New York. Prices touched $1,130.40 on Nov. 7, the lowest since 2010. The outlook for higher interest rates erodes the allure of the metal, which generally offers investors returns through increasing prices. Holdings in global exchange-traded funds backed by bullion are at the lowest since 2009, heading for a seventh straight week of declines. Investor demand for precious metals has waned amid a rally for equities and the dollar and as inflation remained low. By Debarati Roy

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