To the long list of those picking fights with banks over bad mortgages, add the Federal Reserve.
Two years after the Fed bought billions of dollars in mortgage securities as part of the financial bailout, its New York arm is questioning the paperwork — and pressing banks to buy some of the investments back.
The Federal Reserve Bank of New York and several giant investment companies, including Pimco and BlackRock, have singled out Bank of America, which assembled more than $2 trillion of mortgage securities from 2004 to 2008.
Bank of America is already dealing with the fallout from the fight over whether foreclosures were handled properly. It insists that no foreclosures have been initiated in error, and on Monday announced it would resume the foreclosure process in 23 states where court approval is required to go ahead.
But while the human toll of the foreclosure crisis has grabbed the headlines, the fight over how these loans were created in the first place could last longer and ultimately cost the banks much, much more. And it is setting the stage for a huge battle between mortgage holders like the government, hedge funds and other institutional investors on one side and the big banks on the other.
“It’s very serious,” said Glenn Schorr, an analyst with Nomura Securities. “The numbers are all over the map.”
If the Fed and the investors succeed, it could cost Bank of America billions of dollars. On Wall Street and in bank boardrooms, the question of whether investors can force banks to buy back, or “put-back,” the bad mortgages to the banks that sold them is dominating the debate and worrying analysts, money managers and banking executives.
It also makes for some strange bedfellows. After all, it was the government that bailed out Bank of America — twice — during the financial crisis, the same government that includes the Fed.
And it is going to be a fight. On Tuesday, after watching its shares get pummeled again, Bank of America went on the offensive, vowing to “defend the interests of Bank of America shareholders,” and hire more lawyers.
“It’s loan by loan, and we have the resources to deploy in that kind of review,” said Brian T. Moynihan, Bank of America’s chief executive, on a conference call to discuss the bank’s results for the third quarter.
Although the bank turned in better results than expected, much of the call was given over to the put-back issue. “We have thousands of people who are willing to stand and look at these loans,” Mr. Moynihan told analysts. “We’d love never to talk about this again and put it behind us, but the right answer is to fight for it.”
The legal battle turns on the question of whether the banks properly represented the loans they put together into mortgage-backed securities when they sold them to investors. If the banks ignored evidence that the underlying mortgages did not conform to underwriting standards or they lacked the proper paperwork, the banks could be obligated to buy the troubled mortgages back.
The Federal Reserve Bank of New York and the other large investors are pressing Bank of America to buy back a portion of the $47 billion in mortgages it originated, most of which were assembled by Countrywide Financial just before the real estate boom turned to bust in 2005, 2006 and 2007.
Countrywide, which specialized in subprime mortgages, was acquired by Bank of America in July 2008.
“People did not think bondholders would be able to organize themselves, but they can,” said Kathy Patrick, a Houston lawyer who is leading the effort. “It’s a large amount of money but the principle is simple. When you promise to do something in an agreement, you should do it.” A letter from Ms. Patrick detailing the claims was obtained by The New York Times.
The danger posed by angry — or opportunistic — investors ‘putting-back’ mortgages to the banks is hardly limited to Bank of America. Other giants like Citigroup and JPMorgan Chase face similar claims, and last week JPMorgan set aside $1.3 billion just for legal costs, including put-backs.
JPMorgan has said it expects repurchases of mortgages to run at about $1 billion a year, but that expense should be covered by $3 billion it has earmarked specifically for put-backs.
At Bank of America, repurchases have been running at about half a billion dollars a quarter. The bank estimates total put-back claims stand at $12.9 billion, as of Sept. 30. In the third-quarter, Bank of America recorded an $872 million expense for put-backs.
Besides the major institutions, hedge funds like York Capital and Moore Capital have been jumping into the game recently, buying up bad debt in the hopes it will eventually be bought back, according to traders and money managers. Both funds declined to comment.
And smaller ones are sniffing around, hoping to ride the depressed securities higher as the fight over put-backs gathers steam.
“Any hedge fund with a distressed desk is contemplating this trade,” said one analyst who insisted on anonymity. “The idea of bottom-fishing vulture funds buying this stuff up for a nickel on the dollar so they can sue the banks to get 100 cents must be pretty odious for the Treasury, which bailed out the banks in the first place.”
Indeed, the group that includes the Fed is one of two coalitions that is gearing up for a fight with the banks.
Bill Frey, chief executive of Greenwich Financial Services, leads a group of investors that holds just under $600 billion worth of mortgage-backed securities.
But it is the recent controversy over foreclosures that has jump-started interest by pension funds, hedge funds and other players. “In the last two weeks, there has been a flood of new investors,” Mr. Frey said. “We haven’t even had a chance to do the arithmetic, that’s how fast they’re coming in.”
Besides all the lawyers that billions can buy, the banks have other weapons in their arsenal. Some hedge funds and other investors are nervous about challenging the banks too forcefully, because they trade with them daily.
There is risk too for the government, despite the Federal Reserve claims. If the banks are indeed forced to spend tens of billions to buy back securities, they could turn once again to the federal government for help.
Given the legal resources available to the banks, though, that is unlikely to happen quickly. And for now, broader conditions in the financial services are improving. On Wednesday, Bank of America reported that operating earnings in the third quarter hit $3.1 billion, in contrast to a loss a year ago.
A substantial portion of the profit gain came from the expectation of lower losses among credit card and mortgage borrowers, rather than new business, but the bank was able to recapture money it had earlier set aside. It released $1.8 billion from reserves, compared with a release of $1.45 billion in the second quarter.
On a noncash basis for the quarter, the bank reported a loss of $7.3 billion because of a $10.4 billion write-down in the value of its credit card unit, attributed to federal regulations that limit debit fees and other charges.
Tuesday, October 19, 2010
Monday, October 18, 2010
Asian Stocks Advance as Citigroup Profit Brightens Banks' Earnings Outlook
Asian stocks advanced for the first time in three days after commodity prices increased and Citigroup Inc. reported profit that exceeded analysts’ estimates, boosting the outlook for corporate earnings.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, gained 1.3 percent. Westpac Banking Corp., Australia’s second- biggest bank, rose 1.3 percent. Nintendo Co., the world’s largest maker of video-game players, climbed 1.5 percent after JPMorgan Chase & Co. recommended investors buy the stock. Inpex Corp., Japan’s biggest energy explorer, increased 1 percent.
“Market sentiment is improving,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Expectations for corporate earnings in the financial sector are rising after the better-than-expected results at Citigroup.”
The MSCI Asia Pacific Index gained 0.5 percent to 131.04 as of 9:32 a.m. in Tokyo. The measure completed its seventh weekly advance last week, the longest winning streak since 2006, on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound
Japan’s Nikkei 225 Stock Average rose 0.7 percent. Korea’s Kospi Index gained 0.2 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent today.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent. The gauge rose 0.7 percent yesterday in New York to the highest level since May 3 following Citigroup’s results and as an unexpected drop in U.S. industrial production added to signs the Federal Reserve will help fuel the economic recovery.
Output at factories, mines and utilities fell 0.2 percent in September, according to figures from the Fed, the first decline since the recession ended in June 2009.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, gained 1.3 percent. Westpac Banking Corp., Australia’s second- biggest bank, rose 1.3 percent. Nintendo Co., the world’s largest maker of video-game players, climbed 1.5 percent after JPMorgan Chase & Co. recommended investors buy the stock. Inpex Corp., Japan’s biggest energy explorer, increased 1 percent.
“Market sentiment is improving,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “Expectations for corporate earnings in the financial sector are rising after the better-than-expected results at Citigroup.”
The MSCI Asia Pacific Index gained 0.5 percent to 131.04 as of 9:32 a.m. in Tokyo. The measure completed its seventh weekly advance last week, the longest winning streak since 2006, on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound
Japan’s Nikkei 225 Stock Average rose 0.7 percent. Korea’s Kospi Index gained 0.2 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent today.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent. The gauge rose 0.7 percent yesterday in New York to the highest level since May 3 following Citigroup’s results and as an unexpected drop in U.S. industrial production added to signs the Federal Reserve will help fuel the economic recovery.
Output at factories, mines and utilities fell 0.2 percent in September, according to figures from the Fed, the first decline since the recession ended in June 2009.
Rupee Advance to 43 May Prompt Sales as Exporters Complain: India Credit
The Indian rupee’s 6 percent climb in the past seven weeks left the currency close to a level that may prompt the central bank to intervene in the foreign-exchange market to limit gains for the first time in 11 months.
The government is comfortable with a rate between 43 and 45 per dollar, said a Finance Ministry official with direct knowledge of the matter, who asked not to be identified because the issue is sensitive. The rupee, the second-best performer in Asia outside of Japan since Aug. 30 after South Korea’s won, fell 0.6 percent yesterday to 44.37.
Reserve Bank of India Governor Duvvuri Subbarao would join policy makers from Japan to Brazil who have sold their currencies to keep exports competitive as the global recovery loses momentum. Infosys Technologies Ltd., India’s second- biggest software exporter, said last week that volatility in the exchange rate would ‘kill’ exporters, while pharmaceutical companies such as Cipla Ltd. and IPCA Laboratories Ltd. called on the central bank to curb swings in the rupee.
“Global demand is already weak and many are starting to intervene,” Sonal Varma, a Mumbai-based economist with Nomura Holdings Inc., said in a phone interview yesterday. “We won’t be surprised if the RBI did start intervening before 43 as well.”
Currency forecasters bet India’s rupee will drop during the rest of this year and climb in 2011. The rupee will trade 0.5 percent lower at 44.60 per dollar on Dec. 31, according to the median prediction of 16 analysts surveyed by Bloomberg. The currency will advance 5.6 percent to 42 by the end of 2011, according to 13 analysts.
Don’t Panic
“We should watch the situation but it’s not a matter of concern,” Finance Minister Pranab Mukherjee said in an interview to Bloomberg-UTV on Oct. 15 in Birbhum in the eastern state of West Bengal. “We need not press the panic button.”
The central bank, which last intervened in November 2009, says that the currency’s strength will be limited by the nation’s deteriorating trade balance. Exports climbed at a rate of 22.5 percent in August, down from as much as 54.1 percent in March, according to government data. The current-account deficit widened to a record $13.7 billion in the three months through June, the Reserve Bank said Sept. 30.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” central bank Deputy Governor Subir Gokarn said in the northern Indian city of Chandigarh said on Oct. 14.
Price Swings
Infosys said it suffers a 40-basis point drop in operating margin for every 1 percent movement in the rupee. The rupee has gained 17 percent since it slid to 51.985 in March 2009 and was as strong as 39.27 on Jan. 15, 2008, according to data compiled by Bloomberg.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Infosys Chief Financial Officer V. Balakrishnan told reporters last week. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
A. K. Jain, the joint managing director of IPCA Laboratories Ltd., India’s biggest supplier of anti-malaria drugs, said the rupee gain will start hurting in a few months.
“Suddenly, 6 to 7 percent of your revenues have just gone,” Mumbai-based Jain said in an interview on Oct. 15. “Within one month, your cost structures have not come down by 7 percent.”
Bond Yields
The rupee retreated from a two year-high yesterday as refiners bought dollars to buy crude oil after a decline in the price of the commodity.
India’s 7.8 percent note due May 2020 fell, pushing the yield up 2 basis points to 8.09 percent, the highest level in more than five months, after inflation unexpectedly accelerated, according to the central bank’s trading system.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia and 3.29 percent in China and 2.51 percent in the U.S., according to data compiled by Bloomberg.
India’s securities returned 3.5 percent in 2010, the second-worst performance after China among 10 local-currency debt markets in Asia outside Japan, according to indexes compiled by HSBC Holdings Plc.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened 19 basis points this month to 558. The gap has grown from 375 at the end of 2009 and touched a record 5.6 points on Oct. 11.
Rate Swaps
The cost of one-year interest-rate swaps, a fixed payment made to receive floating rates, rose four basis points yesterday to 6.72 percent.
Nine of 10 banks surveyed by Bloomberg earlier this month said they expected the central bank to refrain from attempts to influence the exchange rate in October. Standard Chartered Plc said policy makers may take steps to reduce swings in the currency.
Option prices signal investors expect wider fluctuations in the rupee. The implied volatility on one-month dollar-rupee options has rebounded to 10.8 percent from a five-month low of 7.3 percent on Sept. 13, data compiled by Bloomberg show. Traders quote the gauge of expected swings in exchange rates as part of option prices.
Rupee Options
The rupee has “been too volatile and completely affects all our planning and strategy,” S. Radhakrishnan, the Mumbai- based Chief Financial Officer at Cipla, India’s third-biggest drugmaker by revenue, said in a phone interview on Oct. 15.
One-month options granting the right to sell the rupee against the dollar cost 0.8 percentage point more than contracts that allow purchases as of yesterday, up from a 16-month low of 0.31 percentage point reached Sept. 20. The change indicates demand increased for contracts that permit local-currency sales, data compiled by Bloomberg show. The so-called one-month 25- delta risk-reversal rate, which peaked this year in May at 6 percentage points, compares with 2.40 for Brazil’s real and 1.25 for Russia’s ruble.
Economic Growth
India’s $1.3 trillion economy may expand 8.5 percent in the year to March 31, the most in three years, the central bank forecast on July 27. Economic output grew 8.8 percent last quarter from a year earlier, the most since 2007, a government report showed Aug. 31. The Washington-based IMF raised its 2010 growth forecast for the nation’s gross domestic product on Oct. 6 to 9.7 percent from a July estimate of 9.4 percent.
“I would use this opportunity to put in place a medium- term growth strategy through productivity and infrastructure improvements rather than banking on a cheap currency,” Venkatraman Anantha Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., which oversees $140 billion, said in an interview yesterday. “This is going to be a problem that will be with us for two to three years, with the developed countries’ need for a weak currency.”
Dangerous Policy
Christian Gaier, who helps oversee the 1.33 billion euros ($1.85 billion) of the emerging-market debt managed by Erste Sparinvest KAG, said he doesn’t expect policy makers to draw a line in the sand as that would be “always dangerous.”
“India’s aim is for long-term growth and a smooth, long- term appreciation,” Gaier said in an interview yesterday. “Interventions, yes, they are possible. I don’t expect a major move such as stopping the rupee appreciation with a hard peg to the dollar, or closing the market.”
Brazil and Thailand have been selling their own currencies and taxing global investors to curb appreciation, prompting calls for the International Monetary Fund to play a greater role in monitoring capital flows and exchange-rate policy.
Thailand’s cabinet removed a tax exemption last week on foreign investment in government bonds. South Korea’s central bank began an audit this month of banks’ foreign-exchange trading to clamp down on currency speculation. In India, the government raised its cap on foreign ownership of debt by 50 percent to $30 billion last month.
Allowing the rupee to appreciate fast is “very dangerous,” A.V. Rajwade, chairman of currency consultancy A.V. Rajwade & Co. Pvt. in Mumbai, who was part of a central bank committee that suggested a plan for fuller convertibility of India’s currency, said in a phone interview yesterday. “I think they are not taking into account the impact on growth and jobs.”
The government is comfortable with a rate between 43 and 45 per dollar, said a Finance Ministry official with direct knowledge of the matter, who asked not to be identified because the issue is sensitive. The rupee, the second-best performer in Asia outside of Japan since Aug. 30 after South Korea’s won, fell 0.6 percent yesterday to 44.37.
Reserve Bank of India Governor Duvvuri Subbarao would join policy makers from Japan to Brazil who have sold their currencies to keep exports competitive as the global recovery loses momentum. Infosys Technologies Ltd., India’s second- biggest software exporter, said last week that volatility in the exchange rate would ‘kill’ exporters, while pharmaceutical companies such as Cipla Ltd. and IPCA Laboratories Ltd. called on the central bank to curb swings in the rupee.
“Global demand is already weak and many are starting to intervene,” Sonal Varma, a Mumbai-based economist with Nomura Holdings Inc., said in a phone interview yesterday. “We won’t be surprised if the RBI did start intervening before 43 as well.”
Currency forecasters bet India’s rupee will drop during the rest of this year and climb in 2011. The rupee will trade 0.5 percent lower at 44.60 per dollar on Dec. 31, according to the median prediction of 16 analysts surveyed by Bloomberg. The currency will advance 5.6 percent to 42 by the end of 2011, according to 13 analysts.
Don’t Panic
“We should watch the situation but it’s not a matter of concern,” Finance Minister Pranab Mukherjee said in an interview to Bloomberg-UTV on Oct. 15 in Birbhum in the eastern state of West Bengal. “We need not press the panic button.”
The central bank, which last intervened in November 2009, says that the currency’s strength will be limited by the nation’s deteriorating trade balance. Exports climbed at a rate of 22.5 percent in August, down from as much as 54.1 percent in March, according to government data. The current-account deficit widened to a record $13.7 billion in the three months through June, the Reserve Bank said Sept. 30.
“It comes down to a balancing act between making sure there’s enough money to finance your current-account deficit, but at the same time not do any serious damage to people whose competitiveness is undermined for no fault of their own,” central bank Deputy Governor Subir Gokarn said in the northern Indian city of Chandigarh said on Oct. 14.
Price Swings
Infosys said it suffers a 40-basis point drop in operating margin for every 1 percent movement in the rupee. The rupee has gained 17 percent since it slid to 51.985 in March 2009 and was as strong as 39.27 on Jan. 15, 2008, according to data compiled by Bloomberg.
“We’ve seen the rupee go from 52 to 39 and back and forth,” Infosys Chief Financial Officer V. Balakrishnan told reporters last week. “It will kill the whole export industry. The RBI has no choice but to intervene at some point in time, like every other country.”
A. K. Jain, the joint managing director of IPCA Laboratories Ltd., India’s biggest supplier of anti-malaria drugs, said the rupee gain will start hurting in a few months.
“Suddenly, 6 to 7 percent of your revenues have just gone,” Mumbai-based Jain said in an interview on Oct. 15. “Within one month, your cost structures have not come down by 7 percent.”
Bond Yields
The rupee retreated from a two year-high yesterday as refiners bought dollars to buy crude oil after a decline in the price of the commodity.
India’s 7.8 percent note due May 2020 fell, pushing the yield up 2 basis points to 8.09 percent, the highest level in more than five months, after inflation unexpectedly accelerated, according to the central bank’s trading system.
India’s 10-year bond yield is the highest among the major emerging economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.34 percent in Russia and 3.29 percent in China and 2.51 percent in the U.S., according to data compiled by Bloomberg.
India’s securities returned 3.5 percent in 2010, the second-worst performance after China among 10 local-currency debt markets in Asia outside Japan, according to indexes compiled by HSBC Holdings Plc.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened 19 basis points this month to 558. The gap has grown from 375 at the end of 2009 and touched a record 5.6 points on Oct. 11.
Rate Swaps
The cost of one-year interest-rate swaps, a fixed payment made to receive floating rates, rose four basis points yesterday to 6.72 percent.
Nine of 10 banks surveyed by Bloomberg earlier this month said they expected the central bank to refrain from attempts to influence the exchange rate in October. Standard Chartered Plc said policy makers may take steps to reduce swings in the currency.
Option prices signal investors expect wider fluctuations in the rupee. The implied volatility on one-month dollar-rupee options has rebounded to 10.8 percent from a five-month low of 7.3 percent on Sept. 13, data compiled by Bloomberg show. Traders quote the gauge of expected swings in exchange rates as part of option prices.
Rupee Options
The rupee has “been too volatile and completely affects all our planning and strategy,” S. Radhakrishnan, the Mumbai- based Chief Financial Officer at Cipla, India’s third-biggest drugmaker by revenue, said in a phone interview on Oct. 15.
One-month options granting the right to sell the rupee against the dollar cost 0.8 percentage point more than contracts that allow purchases as of yesterday, up from a 16-month low of 0.31 percentage point reached Sept. 20. The change indicates demand increased for contracts that permit local-currency sales, data compiled by Bloomberg show. The so-called one-month 25- delta risk-reversal rate, which peaked this year in May at 6 percentage points, compares with 2.40 for Brazil’s real and 1.25 for Russia’s ruble.
Economic Growth
India’s $1.3 trillion economy may expand 8.5 percent in the year to March 31, the most in three years, the central bank forecast on July 27. Economic output grew 8.8 percent last quarter from a year earlier, the most since 2007, a government report showed Aug. 31. The Washington-based IMF raised its 2010 growth forecast for the nation’s gross domestic product on Oct. 6 to 9.7 percent from a July estimate of 9.4 percent.
“I would use this opportunity to put in place a medium- term growth strategy through productivity and infrastructure improvements rather than banking on a cheap currency,” Venkatraman Anantha Nageswaran, the Singapore-based global chief investment officer at Bank Julius Baer & Co., which oversees $140 billion, said in an interview yesterday. “This is going to be a problem that will be with us for two to three years, with the developed countries’ need for a weak currency.”
Dangerous Policy
Christian Gaier, who helps oversee the 1.33 billion euros ($1.85 billion) of the emerging-market debt managed by Erste Sparinvest KAG, said he doesn’t expect policy makers to draw a line in the sand as that would be “always dangerous.”
“India’s aim is for long-term growth and a smooth, long- term appreciation,” Gaier said in an interview yesterday. “Interventions, yes, they are possible. I don’t expect a major move such as stopping the rupee appreciation with a hard peg to the dollar, or closing the market.”
Brazil and Thailand have been selling their own currencies and taxing global investors to curb appreciation, prompting calls for the International Monetary Fund to play a greater role in monitoring capital flows and exchange-rate policy.
Thailand’s cabinet removed a tax exemption last week on foreign investment in government bonds. South Korea’s central bank began an audit this month of banks’ foreign-exchange trading to clamp down on currency speculation. In India, the government raised its cap on foreign ownership of debt by 50 percent to $30 billion last month.
Allowing the rupee to appreciate fast is “very dangerous,” A.V. Rajwade, chairman of currency consultancy A.V. Rajwade & Co. Pvt. in Mumbai, who was part of a central bank committee that suggested a plan for fuller convertibility of India’s currency, said in a phone interview yesterday. “I think they are not taking into account the impact on growth and jobs.”
Indian diamond bourse opens
The world’s largest diamond exchange opened in Mumbai on Sunday, as India, the largest global cutter and polisher of roughs looks to establish itself as a trading hub, challenging the traditional dominance of countries such as Belgium and Israel.
Bharat Diamond Bourse (BDB), spread over 20 acres with eight interlinked nine-storey towers, has been set up in India’s financial capital at a cost of more than $200m. Situated in central Mumbai’s Bandra Kurla Complex the exchange will house 2,500 offices for exporters, importers and clearing agents, banks, customs departments and trading halls with top security as well as restaurants, food courts, landscaped areas and other amenities for the staff, visitors, businessmen and clients.
While India is a leading diamond manufacturing centre with 11 out of 12 diamonds in the world being cut, polished and processed in the country, it is hoped that the better infrastructure for traders and other operators in the country’s diamond industry will enable India to compete with Antwerp and Tel Aviv and even catapult its diamond trade to become the biggest in the world.
Anoop Mehta, president of the Bharat Diamond Bourse said the bourse would be the springboard from which the Indian diamond industry could endeavour not only to be the world’s largest manufacturing centre but also the world’s top diamond trading centre.
“Today we are the leaders in every aspect of this trade, in terms of number of pieces manufactured, maximum carats being exported and highest volume,’’ he said. “The BDB will ultimately help make India an international trading centre for gems and jewellery and take the step towards creating a Brand India in the world of diamonds.”
India’s diamond processing industry accounts for 70 to 75 per cent of total diamond exports, worth about $28bn annually. It also employs 850,000 people, making it the largest cutting centre not only by value but also by number of employees. The top 400 exporters will operate for the first time within the same complex
Incorporated in 1984 with a group of diamond exporters in the city, the exchange expects revenues to rise 10-15 per cent annually over the next five years. Although industry bodies said that they did not expect to see an effect on pricing, they expected diamond traders from Israel, Belgium and elsewhere to start trading in India as a result of the world-class bourse that complies with international standards.
“Buyers can now carry out trade as they would in Antwerp, Tel Aviv or New York,” said Vasant Mehta, chairman of India’s Gem and Jewellery Export Promotion Council.
Bharat Diamond Bourse (BDB), spread over 20 acres with eight interlinked nine-storey towers, has been set up in India’s financial capital at a cost of more than $200m. Situated in central Mumbai’s Bandra Kurla Complex the exchange will house 2,500 offices for exporters, importers and clearing agents, banks, customs departments and trading halls with top security as well as restaurants, food courts, landscaped areas and other amenities for the staff, visitors, businessmen and clients.
While India is a leading diamond manufacturing centre with 11 out of 12 diamonds in the world being cut, polished and processed in the country, it is hoped that the better infrastructure for traders and other operators in the country’s diamond industry will enable India to compete with Antwerp and Tel Aviv and even catapult its diamond trade to become the biggest in the world.
Anoop Mehta, president of the Bharat Diamond Bourse said the bourse would be the springboard from which the Indian diamond industry could endeavour not only to be the world’s largest manufacturing centre but also the world’s top diamond trading centre.
“Today we are the leaders in every aspect of this trade, in terms of number of pieces manufactured, maximum carats being exported and highest volume,’’ he said. “The BDB will ultimately help make India an international trading centre for gems and jewellery and take the step towards creating a Brand India in the world of diamonds.”
India’s diamond processing industry accounts for 70 to 75 per cent of total diamond exports, worth about $28bn annually. It also employs 850,000 people, making it the largest cutting centre not only by value but also by number of employees. The top 400 exporters will operate for the first time within the same complex
Incorporated in 1984 with a group of diamond exporters in the city, the exchange expects revenues to rise 10-15 per cent annually over the next five years. Although industry bodies said that they did not expect to see an effect on pricing, they expected diamond traders from Israel, Belgium and elsewhere to start trading in India as a result of the world-class bourse that complies with international standards.
“Buyers can now carry out trade as they would in Antwerp, Tel Aviv or New York,” said Vasant Mehta, chairman of India’s Gem and Jewellery Export Promotion Council.
A Hedge Fund Soared, Controlled by Women, or So It Claimed
Jane Buchan is a rarity in the big-money boys’ club of hedge funds.
Amid the testosterone-fueled trading floors of Wall Street, Ms. Buchan has not only built a hugely successful hedge fund investment firm but also one that is, on paper, owned and run by women.
But questions have surfaced about whether her firm, Pacific Alternative Asset Management Company, is now — or ever was — controlled by women at all.
It turns out that S. Donald Sussman, a hedge fund mogul who has bankrolled some of the biggest (male) names in the business, has quietly stood behind Paamco for years, pocketing much of its profit. A recent court ruling officially put a chunk of Paamco’s parent company in his hands.
Equally troubling is the suggestion that Paamco, which collects tens of millions of dollars in fees annually to vet hedge funds for pension funds and other clients, disguised aspects of its own business from its customers, partners and federal regulators.
The arrangement with Mr. Sussman “may have been designed to mislead a number of observers, from the tax authorities to the S.E.C. to entities wishing to invest in women-owned businesses,” Judge Richard J. Sullivan of the United States District Court for the Southern District of New York wrote in an August ruling in the case, which centered on a contract dispute between Mr. Sussman and Paamco.
In an e-mailed statement, Paamco said its relationship with Mr. Sussman had not been structured to mislead anyone and that the transaction in question had been properly treated, and approved by the firm’s legal advisers and auditors.
Furthermore, Paamco said it had never taken any “set aside” business or minority mandates.
A lawyer for Mr. Sussman said in an e-mailed statement that Paamco executives “relied on their own counsel and advisers” and that they had built a “world-class fund of funds business to the benefit of their investors.”
But from the start, Paamco trumpeted the fact that it was run by Ms. Buchan, one of only a handful of women who have made a big mark in the mostly male world of hedge funds.
The question raised by the lawsuit was whether Paamco’s status as a company owned by women, albeit with a scant 51 percent majority for many years, gave it an edge over the competition.
Some states like Illinois and Ohio and corporations like Verizon steer a portion of their pension fund business to investment companies owned by women or minorities, which often fall into the category euphemistically referred to in the industry as “emerging managers.”
For investment professionals trying to stand out in a crowded field, the designation can be “a tool for competitive advantage,” said Thurman V. White Jr., the chief executive officer of Progress Investment Management Company, a San Francisco-based firm that invests in emerging managers. “It’s clear they’ve had some benefits from these kind of initiatives,” he said of Paamco.
Verizon Communications, for instance, hired Paamco as part of the Verizon Diversity Managers program, which was established in the late 1990s to attract funds managed by minorities. Ms. Buchan’s firm oversees a small part of the communication company’s $28.6 billion pension fund. In recent state budget and presentation materials, public pension funds in California and Pennsylvania highlighted Paamco’s status as a firm owned by women.
Documents and depositions related to the case involving Mr. Sussman paint a somewhat different picture. The case centered on whether Mr. Sussman had the right to convert a $2 million loan he made to Paamco’s founding partners in 2000 into an equity stake in Paamco’s parent company. In a countersuit, Paamco’s founding partners claimed the interest Mr. Sussman had charged them violated state laws that set maximum rates on loans.
Amid the testosterone-fueled trading floors of Wall Street, Ms. Buchan has not only built a hugely successful hedge fund investment firm but also one that is, on paper, owned and run by women.
But questions have surfaced about whether her firm, Pacific Alternative Asset Management Company, is now — or ever was — controlled by women at all.
It turns out that S. Donald Sussman, a hedge fund mogul who has bankrolled some of the biggest (male) names in the business, has quietly stood behind Paamco for years, pocketing much of its profit. A recent court ruling officially put a chunk of Paamco’s parent company in his hands.
Equally troubling is the suggestion that Paamco, which collects tens of millions of dollars in fees annually to vet hedge funds for pension funds and other clients, disguised aspects of its own business from its customers, partners and federal regulators.
The arrangement with Mr. Sussman “may have been designed to mislead a number of observers, from the tax authorities to the S.E.C. to entities wishing to invest in women-owned businesses,” Judge Richard J. Sullivan of the United States District Court for the Southern District of New York wrote in an August ruling in the case, which centered on a contract dispute between Mr. Sussman and Paamco.
In an e-mailed statement, Paamco said its relationship with Mr. Sussman had not been structured to mislead anyone and that the transaction in question had been properly treated, and approved by the firm’s legal advisers and auditors.
Furthermore, Paamco said it had never taken any “set aside” business or minority mandates.
A lawyer for Mr. Sussman said in an e-mailed statement that Paamco executives “relied on their own counsel and advisers” and that they had built a “world-class fund of funds business to the benefit of their investors.”
But from the start, Paamco trumpeted the fact that it was run by Ms. Buchan, one of only a handful of women who have made a big mark in the mostly male world of hedge funds.
The question raised by the lawsuit was whether Paamco’s status as a company owned by women, albeit with a scant 51 percent majority for many years, gave it an edge over the competition.
Some states like Illinois and Ohio and corporations like Verizon steer a portion of their pension fund business to investment companies owned by women or minorities, which often fall into the category euphemistically referred to in the industry as “emerging managers.”
For investment professionals trying to stand out in a crowded field, the designation can be “a tool for competitive advantage,” said Thurman V. White Jr., the chief executive officer of Progress Investment Management Company, a San Francisco-based firm that invests in emerging managers. “It’s clear they’ve had some benefits from these kind of initiatives,” he said of Paamco.
Verizon Communications, for instance, hired Paamco as part of the Verizon Diversity Managers program, which was established in the late 1990s to attract funds managed by minorities. Ms. Buchan’s firm oversees a small part of the communication company’s $28.6 billion pension fund. In recent state budget and presentation materials, public pension funds in California and Pennsylvania highlighted Paamco’s status as a firm owned by women.
Documents and depositions related to the case involving Mr. Sussman paint a somewhat different picture. The case centered on whether Mr. Sussman had the right to convert a $2 million loan he made to Paamco’s founding partners in 2000 into an equity stake in Paamco’s parent company. In a countersuit, Paamco’s founding partners claimed the interest Mr. Sussman had charged them violated state laws that set maximum rates on loans.
Sunday, October 17, 2010
Asian Stocks Fluctuate as Asset Managers Advance on KKR's Perpetual Offer
Asian stocks fluctuated after completing a seventh weekly advance last week, as Australian asset managers climbed following a private-equity bid for Perpetual Ltd., countering declines among commodity producers.
Perpetual jumped 22 percent in Sydney after Kohlberg Kravis Roberts & Co. offered as much as A$1.75 billion ($1.73 billion) for the company. Challenger Financial Services Group Ltd. surged 5.4 percent. BHP Billiton Ltd. sank 0.8 percent after abandoning plans to create the world’s largest iron-ore exporter, and as commodity prices sank. Mazda Motor Corp. dropped 0.5 percent in Tokyo after Nikkei English News reported Ford Motor Co. may lower its stake in the company.
“Investors are in a wait-and-see mood as they look to see what’s coming in the way of policy stimulus in the U.S. and elsewhere,” said Stephen Halmarick, who helps manage about $135 billion as head of investment markets research at Colonial First State Global Asset Management in Sydney. “The data is mixed at the moment, and that’s why we’re seeing a pretty slow pace today.”
The MSCI Asia Pacific Index fell 0.3 percent to 131.69 as of 11:24 a.m. in Tokyo today after reaching its highest level since July 2008 last week. About four stocks rose for every three that fell on the nearly 1,000-member gauge, which advanced as much as 0.2 percent earlier today. The measure completed its seventh weekly advance last week, the longest winning streak since 2006.
Japan’s Nikkei 225 Stock Average climbed 0.5 percent today. South Korea’s Kospi Index fell 1 percent. Australia’s S&P/ASX 200 Index slid 0.9 percent, while New Zealand’s NZX 50 Index advanced 0.2 percent in Wellington.
Hong Kong’s Hang Seng Index declined 1 percent as HSBC Holdings Plc led banks lower.
Technology Shares
Futures on the Standard & Poor’s 500 Index retreated 0.3 percent. The U.S. index rose 0.2 percent on Oct. 15 in New York as companies such as Google Inc. fueled a rally in technology shares that helped offset a decline in bank shares and an unexpected drop in consumer confidence.
Perpetual soared 22 percent to A$37.71 in Sydney. Kohlberg Kravis Roberts & Co. offered to buy the Australian asset manager to tap expanding wealth in one of the world’s fastest growing developed economies.
The offer from the New York-based private-equity firm is priced between A$38 and A$40 per share, Perpetual said in a statement to the Australian stock exchange today, 29 percent more than Perpetual’s previous closing price on Oct. 15. Challenger Financial rose 5.4 percent to A$4.86, its highest level since January 2008.
Iron-Ore Venture
Also in Sydney, BHP Billiton slipped 0.8 percent to A$41.32 after abandoning a plan with Rio Tinto Group to create the world’s largest iron-ore exporter, following opposition from regulators in Europe and Asia. Rio slipped 0.2 percent to A$83.03.
Crude oil for November delivery declined 1.7 percent on Oct. 15 in New York to $81.25 a barrel, the lowest settlement this month. The London Metal Exchange Index of six metals including aluminum and copper slipped 0.4 percent on Oct. 15, the biggest drop since Oct. 7.
Newcrest Mining Ltd., Australia’s largest gold producer, slumped 3.1 percent to A$40.78 as gold futures fell for a second day, the first two-day decline since July.
“The stock market will likely trade sideways,” said Kazuhiro Takahashi, a general manager at Tokyo-based Daiwa Securities Capital Markets Co.
Mazda dropped 0.5 percent to 213 yen in Tokyo after the Nikkei English News report. The shares pared declines after Sumitomo Mitsui Financial Group Inc.’s chairman, Masayuki Oku, said the Japanese company will become Mazda’s largest shareholder by the end of the year.
The MSCI Asia Pacific Index has risen 8.5 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound. Stocks in the gauge trade at 14.3 times estimated profit on average, compared with 14 times for the S&P 500 and 12.2 times for the Stoxx Europe 600 Index.
Perpetual jumped 22 percent in Sydney after Kohlberg Kravis Roberts & Co. offered as much as A$1.75 billion ($1.73 billion) for the company. Challenger Financial Services Group Ltd. surged 5.4 percent. BHP Billiton Ltd. sank 0.8 percent after abandoning plans to create the world’s largest iron-ore exporter, and as commodity prices sank. Mazda Motor Corp. dropped 0.5 percent in Tokyo after Nikkei English News reported Ford Motor Co. may lower its stake in the company.
“Investors are in a wait-and-see mood as they look to see what’s coming in the way of policy stimulus in the U.S. and elsewhere,” said Stephen Halmarick, who helps manage about $135 billion as head of investment markets research at Colonial First State Global Asset Management in Sydney. “The data is mixed at the moment, and that’s why we’re seeing a pretty slow pace today.”
The MSCI Asia Pacific Index fell 0.3 percent to 131.69 as of 11:24 a.m. in Tokyo today after reaching its highest level since July 2008 last week. About four stocks rose for every three that fell on the nearly 1,000-member gauge, which advanced as much as 0.2 percent earlier today. The measure completed its seventh weekly advance last week, the longest winning streak since 2006.
Japan’s Nikkei 225 Stock Average climbed 0.5 percent today. South Korea’s Kospi Index fell 1 percent. Australia’s S&P/ASX 200 Index slid 0.9 percent, while New Zealand’s NZX 50 Index advanced 0.2 percent in Wellington.
Hong Kong’s Hang Seng Index declined 1 percent as HSBC Holdings Plc led banks lower.
Technology Shares
Futures on the Standard & Poor’s 500 Index retreated 0.3 percent. The U.S. index rose 0.2 percent on Oct. 15 in New York as companies such as Google Inc. fueled a rally in technology shares that helped offset a decline in bank shares and an unexpected drop in consumer confidence.
Perpetual soared 22 percent to A$37.71 in Sydney. Kohlberg Kravis Roberts & Co. offered to buy the Australian asset manager to tap expanding wealth in one of the world’s fastest growing developed economies.
The offer from the New York-based private-equity firm is priced between A$38 and A$40 per share, Perpetual said in a statement to the Australian stock exchange today, 29 percent more than Perpetual’s previous closing price on Oct. 15. Challenger Financial rose 5.4 percent to A$4.86, its highest level since January 2008.
Iron-Ore Venture
Also in Sydney, BHP Billiton slipped 0.8 percent to A$41.32 after abandoning a plan with Rio Tinto Group to create the world’s largest iron-ore exporter, following opposition from regulators in Europe and Asia. Rio slipped 0.2 percent to A$83.03.
Crude oil for November delivery declined 1.7 percent on Oct. 15 in New York to $81.25 a barrel, the lowest settlement this month. The London Metal Exchange Index of six metals including aluminum and copper slipped 0.4 percent on Oct. 15, the biggest drop since Oct. 7.
Newcrest Mining Ltd., Australia’s largest gold producer, slumped 3.1 percent to A$40.78 as gold futures fell for a second day, the first two-day decline since July.
“The stock market will likely trade sideways,” said Kazuhiro Takahashi, a general manager at Tokyo-based Daiwa Securities Capital Markets Co.
Mazda dropped 0.5 percent to 213 yen in Tokyo after the Nikkei English News report. The shares pared declines after Sumitomo Mitsui Financial Group Inc.’s chairman, Masayuki Oku, said the Japanese company will become Mazda’s largest shareholder by the end of the year.
The MSCI Asia Pacific Index has risen 8.5 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of the U.S. economic rebound. Stocks in the gauge trade at 14.3 times estimated profit on average, compared with 14 times for the S&P 500 and 12.2 times for the Stoxx Europe 600 Index.
Coal India's Valuation for Record Share Offering Is `Biggest Attraction'
Coal India Ltd.’s sale of as much as 151.5 billion rupees ($3.4 billion) of stock in the nation’s biggest initial share sale will likely be fully subscribed because the price set by the government is low, investors said.
The state-owned coal producer starts selling 631.6 million shares today. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“The IPO will easily get subscribed and that is because the valuation is fair,” said Samir Arora, founder of hedge fund Helios Capital Management Pte. in Singapore, who plans to buy the shares. “That’s the biggest attraction. It’s a large company and it’s relatively cheap.”
Fifteen of 18 investors surveyed by Bloomberg News said they plan to buy shares in the world’s largest coal producer. The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp. and Indian Oil Corp. also plan to sell shares.
India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
‘Cheaper Than Peers’
“The shares are available at a price cheaper than their global peers,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities Pvt., manager of the equivalent of $124 million in assets. “They have large cash holdings on their balance sheet and the world’s largest coal reserves. They haven’t charged a premium for this.”
The IPO by Kolkata, West Bengal-based Coal India would surpass Reliance Power Ltd.’s 116 billion-rupee sale in January 2008 as India’s biggest, data compiled by Bloomberg show. Reliance Power sold shares at 450 rupees apiece and investors ordered shares worth as much as $189 billion. The shares declined 17 percent on its trading debut on Feb. 11, 2008.
Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley is managing Coal India’s offering. The sale closes on Oct. 21.
Government Target
The share sale will help the government raise 37.8 percent of its 400 billion rupee asset-sale target in the year ending March 31. The South Asian nation has raised 5.2 percent of its target from selling stake in two state companies this year.
Investors are buying shares as India build power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30. India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24.
Companies from emerging economies in the Asia-Pacific region raised over $72 billion in initial sales this year, more than triple the amount in the same period in 2009, according to data compiled by Bloomberg. Beijing-based Agricultural Bank of China Ltd. sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s biggest IPO on record.
The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, the share-sale document shows.
Coal Production
Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said on Oct. 13, without providing the new estimates.
The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said.
The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.
“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.
Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia- Pacific Markets estimates.
The state-owned coal producer starts selling 631.6 million shares today. The stock of the state-owned company will be sold in a range of 225 rupees to 245 rupees each, with the proceeds helping the government narrow its budget deficit, Coal Minister Sriprakash Jaiswal said on Oct. 12.
“The IPO will easily get subscribed and that is because the valuation is fair,” said Samir Arora, founder of hedge fund Helios Capital Management Pte. in Singapore, who plans to buy the shares. “That’s the biggest attraction. It’s a large company and it’s relatively cheap.”
Fifteen of 18 investors surveyed by Bloomberg News said they plan to buy shares in the world’s largest coal producer. The sale is the third offering in a state company since April as the government seeks to cut its budget deficit and fund infrastructure projects. Steel Authority of India Ltd., Oil & Natural Gas Corp. and Indian Oil Corp. also plan to sell shares.
India’s coal imports surged 16 percent in the year ended March 31 as power plants burned more of the fuel to meet demand in Asia’s second-fastest growing major economy. Coal India will seek environmental clearances from the government to mine in densely forested areas in states including Jharkhand and Chhattisgarh estimated to hold half of its future output.
‘Cheaper Than Peers’
“The shares are available at a price cheaper than their global peers,” said Deven Choksey, chief executive officer at K.R. Choksey Shares & Securities Pvt., manager of the equivalent of $124 million in assets. “They have large cash holdings on their balance sheet and the world’s largest coal reserves. They haven’t charged a premium for this.”
The IPO by Kolkata, West Bengal-based Coal India would surpass Reliance Power Ltd.’s 116 billion-rupee sale in January 2008 as India’s biggest, data compiled by Bloomberg show. Reliance Power sold shares at 450 rupees apiece and investors ordered shares worth as much as $189 billion. The shares declined 17 percent on its trading debut on Feb. 11, 2008.
Citigroup Inc., Deutsche Bank AG, Bank of America Corp., Enam Securities Pvt., Kotak Mahindra and Morgan Stanley is managing Coal India’s offering. The sale closes on Oct. 21.
Government Target
The share sale will help the government raise 37.8 percent of its 400 billion rupee asset-sale target in the year ending March 31. The South Asian nation has raised 5.2 percent of its target from selling stake in two state companies this year.
Investors are buying shares as India build power plants and steel mills to keep pace with an economy that expanded at the fastest pace in 2 1/2 years in the three months ended June 30. India’s coal demand may more than triple in the next two decades to 2 billion metric tons, Coal Minister Jaiswal said Sept. 24.
Companies from emerging economies in the Asia-Pacific region raised over $72 billion in initial sales this year, more than triple the amount in the same period in 2009, according to data compiled by Bloomberg. Beijing-based Agricultural Bank of China Ltd. sold $22.1 billion of shares in Shanghai and Hong Kong last quarter in the world’s biggest IPO on record.
The nation produces 530 million tons of coal a year and imports about 67 million tons annually. Coal India has proven reserves of 52.55 billion tons, of which 21.75 billion is extractable, the share-sale document shows.
Coal Production
Coal India may miss its production targets for 2011 and 2012 because of delays in environmental clearances, Chairman Partha Bhattacharyya said on Oct. 13, without providing the new estimates.
The company had aimed to produce 460 million tons in 2011 and 486 million tons the next year, Bhattacharya said on May 20. Environmental approvals to prospect for more reserves take as long as seven years in India, he said.
The environment and coal ministries are jointly identifying areas for coal mining designated as “go” and “no-go” areas to find ways to boost output of the fuel to meet surging demand.
“No-go” areas are locations with medium or heavy density forests while degraded forests are go-areas, Minister for Environment and Forests Jairam Ramesh said in June last year. Ramesh rejected last month Vedanta Resources Plc’s planned bauxite mine and halted in August two hydropower projects.
Maoist insurgents are also a risk. Rebels are active in seven eastern and central states with 40 billion tons of India’s 46 billion tons of proven coal reserves, according to CLSA Asia- Pacific Markets estimates.
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