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JP Morgan To Cease Proprietary Trading
Global banking giant JP Morgan has apparently decided to close down its proprietary trading operations, sources from within the bank say. According to an unnamed source quoted by Dow Jones, JP Morgan has issued notice to approximately 20 proprietary traders that trade commodities.
JP Morgan has never had a huge focus on proprietary trading, and it’s prop trading desks have tended to be small. Nevertheless those desks have been affected by regulatory reform and in particular the Volcker Rule, which forbids banks from proprietary trading, proprietary investments in hedge funds and private equity.
According to the source, the lender has decided to exit the proprietary trading business altogether, and has given notice to its commodities proprietary trading desk which is based in London, and one of the largest proprietary desks at JP Morgan.
Last year Citigroup divested Phibro, its commodities trading business, which also ran its own proprietary positions.
Other companies including Goldman Sachs are still mulling their options. Goldman in particular has a very large proprietary operation, and is considering a number of options, the most radical of which include transferring them to its asset management business and spinning the entire unit of as a new listed entity.
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Foster’s In Play
The share price of Australian brewing and drinks major Fosters Group leapt as much as six per cent during trading on Monday as reports began to emerge that Beer giant SAB Miller is planning a $12.22 billion takeover attempt of Foster’s beer arm, CUB.
The report which first surfaces in the Sunday Times of London, suggests that London listed SAB Miller has Carlton United Breweries (CUB) in its sights, CUB has the Victoria Bitter and Carlton Draught brands.
If SAB Miller can reach an agreement, a deal of this kind would put it in a position to challenge the world’s largest brewer Anheuser-Busch InBev for the top spot.
According to the Sunday Times SAB chief executive Graham Mackay is apparently keen to pull off a big deal before his retirement.
SAM owns Foster’s in India and has brewing rights to the brand in America. A deal with the Melbourne-based company could provide them with a platform for expansion into Asia.
In May, Foster’s announced it would be dividing its beer and wine assets, but such a demerger is not expected to take place until next year.
The Sunday Times also suggests that SAB Miller is keen to act quickly, since the beer maker is already in play, with Japanese brewing giant Asahi considered the favourite to acquire the company.
American company Molson Coors and Coca-Cola Amatil also are thought to be interested in buying Foster’s.
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American Express Delivers Solid Second Quarter Results
Second quarter profits at credit card company American Express nearly triples, and came in well ahead of analyst estimates, as spending by card holders vaulted 16 per cent.
American Express also benefited from having to put away less than half as much money to cover losses as it did in the previous year.
“While spending among affluent consumers and businesses remains strong, today’s card members are borrowing less and paying down more of their outstanding debt. We remain cautious about the economy and the challenging regulatory environment.” chairman and chief Executive Kenneth Chenault said.
The figures bode well for American Express which seems to have rebounded from last year, where its cardholders spent less on their cards, and fell behind its peers.
The card company like its rivals now face the prospect of encouraging increased spending without loosening its credit standards.
American Express, unlike most rivals, issues credit cards and is subject to legislation enacted earlier this year that limits rate increases, which will bite into income.
For the latest quarter, American Express posted a profit of $US1 billion ($1.12bn), or US84 cents a share, up from $US337 million, or US9c a share, a year earlier. Revenue, net of interest expense, rose 13 per cent to $US6.86bn.
The company’s US card business, its largest by revenue by far, swung to a profit as revenue, net of interest income, rose and provisions for losses plunged 56 per cent.
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E*Trade Posts Second Quarter Profit
E*Trade Financial the online brokerage company has returned to profitability after posting second quarter profits on Wednesday for the first time in three years.
The company has not faired well after its business was negatively impacted by bad loans made by its banking division, which reported its seventh consecutive drop in loan loss provisions.
Net charge-offs, or loans that E*Trade doesn’t think it can collect, were $US225 million ($252m), falling 42 per cent from a year ago.
E*Trade gave its earnings a boost by releasing US$60 million from its loan loss as opposed to adding to it, suggesting that the company now believes it has enough capital to cover any impending losses.
The in improvement in the company’s loan portfolio during the second quarter was the difference between E*Trade reporting a profit rather than a loss.
In an interview with Dow Jones Newswires, E*Trade chief executive Steven Freiberg said: “The most significant dollar change (for the company) has been continued improvement in delinquencies and therefore write-offs and provisions in the legacy loan book.”
Mr. Freiberg took the helm at E*Trade on April 1st, and given the current state of the U.S. economy says the company would probably experience a continued decline into 2011.
A closely followed metric with E*Trade is its daily average revenue trades (DARTs), which it reported as being 170,000, up ten per cent from the first quarter however still 16 per cent below where it was a year earlier. The broker like its rivals benefitted from the “flash crash” on the U.S stock market in May 6.
Mr. Freiberg said, however, that trading in June was “not anywhere near as robust,” adding that the “residual effects of the flash crash have caused more investors to become concerned”.
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Macquarie Looking To Sell Stake In Sprint Finance Corp
Australian investment banking major Macquarie is seeking offers valued at approximately US$3.5 billion for Real Estate Investment Trust (REIT) Sprint Finance Corp. If a deal is successful, it would be the largest sale of a U.S. based REIT in over three years.
The Bloomberg news service which cited unnamed sources close to the negotiations saying three publicly traded REIT’s including Lexington Realty Trust, National Retail Properties and Realty Income Corp have been approached recently. According to the sources several Private Equity firms have also expressed their interest in Sprint.
Macquarie declined to comment through its spokesperson, whilst the interested REIT’s also either declined to comment.
Sprint Finance Corp owns or finances approximately 1,200 retail properties across 45 states, The Scottsdale, Arizona-based REIT has listed assets valued at US$3.5 billion on its balance sheet., and debts of US$2.9 billion.
A consortium including Macquarie and Icelandic bank Kaupthing Bank hf acquired Sprint in 2007, for US$3.5 billion and $1.9 billion of assumed debt.
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Pimco Says Australia Is A Top Investment Destination
One of the largest global managers of fixed income securities, Pimco, says that Australia now offers the most investment opportunities in the developed world.
During one of its regular updates to the global bond markets, David Fisher who runs global product management for Pimco also said there was a “new normal environment”, which looked much different to that of previous decades.
Despite the volatility in Australia caused by former Prime Minister Kevin Rudd’s proposal to tax mining companies, a cooling China and debt concerns in Europe, Australia remains one of the top investment destinations of Pimco.
“Starting with a ladder, we would say those countries with solid fundamentals include in the developed world places like Canada and Australia, not only because they came into the crisis with better conditions … but also because they’re very well exposed to the growth dynamics in the emerging world and particularly through the channel of commodity prices,” Mr. Fisher.
Mr. Fisher also warned that there were risks posed by unrealistic expectations and over priced companies as both America and Australia both enter into critical reporting periods.
Pimco chief Bill Gross surprised global markets when he announced the asset manager had begun investing in equities.
“While we think bonds are priced for a depression, we think that equities are still priced for something more akin to the ‘old normal’ than the ‘new normal’, he said. We think that there’s still some scope for compression in PE ratios and we think that optimism over profit recovery is probably a little bit exaggerated in this environment of very, very weak growth, outside of a few countries such as Australia and Canada and the emerging world. So, on a relative basis, we would say that the returns in global bonds, while not spectacular, are certainly attractive.”
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Competition Regulator To Decide On NAB Bid For AXA APH In September
The saga that has gripped the Australian wealth management industry involving the bitter take -over battle for AXA Asia Pacific Holdings between two bidders NAB and AMP, is unlikely to be resolved before September when the competition regulator consults the market regarding NAB’s proposed $14 billion bid.
The Australian quoted unnamed sources as playing down the likelihood that a new bid from NAB, one which would address the concerns that the Australian Competition and Consumer Commission’s had were imminent.
NAB is rumoured to be negotiating the sale of part of APH as part of plan that would alleviate the competition regulators worries, after its initial bid failed to receive the regulator’s blessing.
The Australian previously reported NAB had identified IOOF as its preferred buyer for APH’s North investment platform and was working towards an agreed deal.
Despite the proposal to divest certain parts of the business, the regulator needs to be satisfied such a sale would address its concerns, and this may involve sounding out the opinion of market participants, a process which may take a few weeks, after which the regulator will once again consider the matter.
NAB proposes to pay $4.6bn for APH’s Australian assets, and to sell the Asian assets to APH’s French parent AXA SA for more than $9bn.
Despite the ACCC’s failure to grant its blessing for the NAB bid not surprising many, its reasoning in not doing so did raise some eyebrows. The North investment platform has been valued at less than $50 million, yet such a small part of the APH business seems to have become the main obstacle to the deal proceeding.
IOOF remains the preferred buyer, ahead of other interested parties that include Perpetual and Count.
AMP the other bidder in the takeover battle has itself engaged in a strategy of counter attack, lobbying the regulator with the argument that the sale of the North investment platform would not have the effect of increasing competition.
The group has argued that IOOF does not have the distribution muscle or funds under management to build North into a competitor able to challenge the likes of NAB’s wealth management unit MLC, or Westpac’s BT and Asgard operations.
Both NAB and APH have the right to terminate their agreement on July 15. Failure to terminate would mean the deal is automatically extended.
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Australian Banks To Begin Issuing US Dollar Denominated Securities
Australian lenders have begun the process of securitising their asset backed debt into US dollar denominated securities, which may have the impact of boosting competition in the market for mortgage lending.
Over the last week Macquarie Group and Members Equity have both begun selling US dollar denominated asset backed securities as they seek to attract European and US investors that are keen to have to exposure to Australian securitisation issues.
Analysts say that the strong reception the two deals received means that more deals are likely to be forthcoming, most likely from smaller non bank finance companies, which in turn could mean a more competitive lending market, given that securitisation is the primary source of funding for non banks.
The two deals are the first time Australian issuers have tapped the US dollar securitisation market since before the collapse of Lehman Brothers in September 2008.
Ilya Serov, an analyst with credit ratings agency Moody’s Investor Service says that international investors were extremely comfortable with Australian credits and if the deals end up being successful, then other issuers were likely to try and replicate them.
Issuers tend not to sell US currency denominated securities unless they are extremely optimistic about international interest, because it tends to cost a lot to issue debt in a foreign currency.
Issuers selling securities in US dollars, must absorb the cost of converting funds raised into domestic currency, which is also known as the cross currency basis swap. This swap rate blew up during the financial crisis and is still currently at about four times the level is has been over the last decade.
The wide swap rate essentially means that any profits would have effectively been erased.
Over the last couple of months many international investors amongst them Aberdeen Asset Management, one of the world’s largest fixed income investors have expressed interest in investing more in Australia.
At the same time, a $16 billion program by the Australian Office of Financial Management to buy RMBS has helped bring spreads in.
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US Supreme Court Rules In NAB’s Favour
The apex court in America, The Supreme Court of the United States has ruled in favour of Australian banking Major, National Australia Bank, and said the foreign investors could not continue with their lawsuit in that country, which seeks to obtain damages from NAB over the Homeside case.
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ANZ’s Chances Of Acquiring KEB Stake Improve
Australian banking major ANZ, which has grand ambitions of Asian expansion has seen the chances of it acquiring a controlling stake in Korea Exchange Bank rise sharply, after KEB said the Australian banks was a strong partner for buyout candidate.
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