Commentaries
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A new twist in a Russian scandal
The Russian Interior Ministry is about to seek the arrest of William Browder, the chief executive of Hermitage Capital Management, for illegally evading taxes. That’s according to a front-page article in the Russian newspaper Kommersant, a leading political-economic daily.
Browder, a British and US citizen who resides in London, has been denied entry into Russia ever since 2005, when his visa was annulled for obscure reasons. His Hermitage Fund, managed by the British bank HSBC, was once the largest portfolio investor in Russia, but has more recently been embroiled in a series of interconnected scandals.
Today’s newspaper article, based on anonymous sources within the Russian police, is evidently the latest shot in a long-running media war that has pitched Hermitage against elements of the Russian police. Over the last year and a half, the British investment fund has made a series of sensational allegations, claiming that senior Russian police officers were involved in a corruption scam designed to fleece the Russian budget of hundreds of millions of dollars.
Following these claims, Russian authorities have been busy upping the pressure against the Fund. A lawyer working for Hermitage in Russia, Sergei Magnitsky, was arrested last November, and his trial in Moscow is due to begin shortly. Today’s Kommersant article lays out the case that the police intend to bring against Magnitsky, which relates to alleged underpayment of taxes by two Hermitage subsidiaries several years ago.
Calling a bottom in Spain
Is the worst over for Spanish mortgage defaults? That’s one way to interpret Santander’s offer to buy back up to 16.5 billion euros of its outstanding asset-backed debt.
The securities are trading below par – more than 40 percent in some cases before today’s announcement – allowing the bank to reduce debt by buying them back. Cash-rich banks such as HSBC have launched similar buybacks this year to profit from the ABS market dislocation, but it’s the first time a Spanish bank has launched such a large public buyback.
from Margaret Doyle:
Standard Chartered’s surprising placing
Standard Chartered may have delivered record profits for the first half of 2009, but the shine has been taken off this by the emerging markets bank’s unexpected 1 billion pound share placing. The shares were trading almost 8 percent lower in the afternoon, at 1323p.
Some discount was to be expected given that the issue was not offered back to existing shareholders. But with StanChart’s market capitalisation of around 27 billion pounds, this should only have lopped around 3.5 percent off the price. The fact that it is almost twice that gives a sense of investors’ disaffection.
StanChart says that it wants the cash “to support the development and growth …in its key strategic markets in Asia, Africa and the Middle East”. It is true that the developing world, particularly Asia, appears to be emerging from this crisis much more robustly than western economies.
Moreover, StanChart can argue that, unlike many periods over the past couple of years, the markets are now open and its shares are trading at more than double their March lows. After all, when it raised 1.8 billion pounds through a rights issue last December - to bolster capital - the new shares were offered at 390p apiece, almost a 50 percent discount to the then price.
StanChart may use the proceeds of the latest proceeds for organic growth. But if the bank is contemplating a specific deal,it does seem odd that it is raising funds ahead of that. After all, the beauty of a placing like this is that it is super-fast. If StanChart trusts its instincts to find a good deal, why not announce deal and share placing simultaneously?
Interestingly, HSBC, StanChart’s big, emerging market rival, is keeping its own hands firmly in its pockets. It is using the $17.8 billion proceedings from its mammoth spring rights issue to bolster capital, with the occasional small deal. In an interview with Reuters in Hong Kong today, Vincent Cheng, the bank’s Asia-Pacific chairman, said that acquisition prospects in Asia were too expensive.
There is an old saying that if you have money it will “burn a hole in your pocket.” This risk is that, once StanChart has collected its 1 billion pound placing proceeds, it may feel compelled to do a deal, whether it is a good one or not.
from Margaret Doyle:
HSBC tortoise will outpace Barclays hare
Barclays’ and HSBC’s interim results are a study in contrasts. Barclays has used the credit crunch to make a bet-the-farm move into the investment banking big-league, a bet that has so far paid off. HSBC, in comparison, chastened by its flawed move into the US subprime market, has returned to its conservative roots.
John Varley, Barclays’ chief executive, gives the usual guff about “staying close to our customers and clients”. In truth, Barclays’ 3 billion pounds of profit in the first half owes much more to its investment banking division, enlarged by its opportunistic acquisition of Lehman Brothers’ North American business last autumn, than to its traditional banking businesses.
Barclays’ yo-yo balance sheet
Talk about deleveraging. By far the most striking number in Barclays’ first-half profits concerns its balance sheet:
Our total assets decreased by £508bn to £1,545bn over the first half of 2009.
Given the stated desire by regulators – and investors – for banks to shrink their balance sheets, a 25 per cent reduction in total assets in the space of just six months has to be applauded, right?
Stomachs of steel for U.S. debt
Bond market vigilantes — investors who punish profligate governments by pushing up their cost of borrowing — have been remarkably quiescent.
This week the U.S. government has broken all records for debt sales. Come Friday investors will have bought $115 billion of freshly minted Treasury paper, and given the huge scale of these auctions, investors have shown only modest signs of indigestion.
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The Wall
