Thursday, October 16, 2008

Roundup: October 16


Switzerland has taken a CHF6bn stake in UBS through convertible preferreds; UBS will use its new capital to partially capitalize a bad bank to be run by the SNB, which will hold up to $60bn of illiquid US assets currently at UBS. FT Alphaville speculates that the toxicity of the assets is due less to their structure or likelihood of default -- though the mix includes some nasty stuff (student loans and ARS) -- and more to UBS's need to delever. UBS will retain the right to buy back equity interests in the bad bank for $1bn plus half the equity value over $1bn. Credit Suisse has raised CHF10bn by selling common stock, convertible bonds, and preferred shares to private investors and the Qatar Investment Authority. The Swiss authorities have moved decisively and intelligently throughout the unfolding of the credit crisis -- understandably enough, since the Swiss value the prosperity their banking system brings them and understand how important it is to their continued independence that the rest of the world trust their bankers. The SNB hasn't been afraid to dismiss top management at major Swiss banks, to instruct management to dramatically scale back operations (especially in investment banking), and to dilute shareholders, when the national interest was at stake. The UBS bad bank operation announced today is a model both for recapitalization operations and for taxpayer protection.

Hank Paulson has promised a "first-rate transition" when he steps down as Treasury Secretary in January. No word yet whether Tsar of All the Markets Neel Kashkari will follow him (presumably, back to a board seat and eternal sinecure at Goldman Sachs First National).

As usual, Gordon Brown's government is quickly backpedaling after failing to sort its measures out before announcing them: this time over the dividend prohibition at Her Majesty's Banks -- RBS and Lloyds-HBOS. Meanwhile, Greece has announced a EUR28bn bailout package, and the ECB has extended a EUR5bn credit line to the Hungarian National Bank.

OPEC is set to hold an emergency meeting next week in Vienna at which it will consider production cuts.

Accrued Interest runs a primer on credit market indicators.

GMAC has "limited if any access to funding" for mortgage and auto lending. It's now clear why they are no longer making loans to people with FICO scores below 700: as the size of the loan pool shrinks, so too do the incentives to extend credit to any but the best customers.

S&P has placed $280bn of Alt-A mortgage debt under review for downgrade.

US September industrial production came in -2.8%, worse than consensus of -0.8%, and the largest fall since December 1974, exacerbated by Hurricanes Gustav and Ike and a strike at Boeing. The Philadelphia Fed indicators showed their largest one-month decline ever, with a large decline in new orders. CPI was unchanged in September, and inital jobless claims were down (!) to 461k. Libor continued to ease slightly yesterday. US real estate prices remain elevated compared to the historical record.

Iceland's newly nationalized Glitnir bank has defaulted on a $750mn bond maturing yesterday. The Russian bank Globex has frozen some withdrawals from its term deposit accounts, in a sign Russia's bailouts have not gotten her banks out of hot water yet. CDS on Russian sovereign debt were trading as high as 575/595 today.

The Russian agricultural industry is lobbying for $34bn of bailouts. Electric utilities are also asking for substantial government aid. All this on the heels of the energy sector (Gazprom et al.) asking for vast sums in the last week. Nine Russian airlines will be grounded this week because of unpaid debts. Will they be the next to ask for a bailout?

Failed deals today: EDF has abandoned its bid for Constellation Energy Group because of difficulties getting financing; Rio Tinto has postponed $10bn of asset sales; TUI said it wouldn't buy out TUI Travel; EnCana is postponing its spin-off; Grupo Modelo has filed a notice of arbitration against the Anheuser-Busch - InBev merger. Chinalco's 12% stake in Rio Tinto plc -- likely intended to give the Chinese government leverage over the possible consolidation of Rio Tinto and BHP Billiton, which would control more than 40% of world iron ore -- is frozen in a Lehman custodial account. Citigroup will cut 11k jobs and write down $4.4bn; Merrill will write down $9.5bn.


In a very hopeful sign, General Petraeus has launched a comprehensive strategic review for Afghanistan, Pakistan, Iran, and Iraq, with rumblings of emphasis on economic development and positive relations with neighboring countries, but warning that Afghanistan may well be "the longest campaign of the long war." NGOs are being forced to scale down operations in Afghanistan because of growing instability.

Meanwhile, Secretary of Defense Robert Gates has called for better NATO coordination in Afghanistan. Al Qaeda in Iraq's number 2, known as Abu Qaswarah or Abu Sarah, is dead, says the US military.

The Telegraph looks at internal Chinese Communist Party debates over the right response to the credit crisis. The outcome of the party plenum debates over land tenure reform remain uncertain, though it seems likely that ownership has been at least somewhat liberalized.

The CDC ranks the United States 29th in the world for infant mortality, tied with Poland, Slovakia, and Hungary, and far behind rich countries like Singapore, Hong Kong, Japan, and the Nordic nations.

Pakistan and China have signed a series of cooperation agreements. This is PM Asif Ali Zardari's first official foreign visit and has been taken as an indicator that the new regime in Pakistan, rebuffed by the US after the US-India nuclear cooperation deal, is looking elsewhere for aid and support.

An unprecedented lawsuit has been filed in China against Sanlu, over wrongful death due to milk tainted with melamine.

The Tories and Lib Dems are opposing Labour's plans for a gigantic database of all mobile phone and internet traffic. UK citizens should know about NO2ID, the campaign against the database state.

North Korea is threatening to cut its ties with the South, in a bid for more aid.

Talks over the Zimbabwe power-sharing deal continue today, with a state newspaper reporting that a deal could be close. What is life like under hyperinflation and conditions of 80% unemployment? Goods are priced in three ways -- in Zimbabwe dollars, in hard currency, and in credit.

South Africa's large immigrant population faces xenophobia in its adopted country -- and, often, war and strife at home. Refugees from Zimbabwe are being arrested and deported by South African police even when they are legitimate asylum seekers, reports the Zimbabwe Times.


Italy and Poland are threatening to veto the strengthened ETS guidelines that passed through committee last week, a particularly short-sighted failure of government. But Brussels is standing firm. Meanwhile, Deutsche Bank is projecting lower prices for EUAs (carbon credits on the ETS) because of the projected global recession in 2009. Berlusconi is also trying to cut funding to thousands of scientists in Italy -- this week's bullheaded, irresponsible posturing.

Lower worldwide prices for silicon in the face of a world recession could make the solar industry's plans for grid-parity by 2012 much more feasible, even with financing conditions in limbo for the foreseeable future. Several non-silicon thin-film companies have also projected grid-parity in certain major, sunny areas by 2012. A Florida utility has proposed a feed-in tariff for solar energy, the first of its kind in the U.S.

California has published a draft plan for meeting its ambitious carbon-reduction targets, but the plan lacks all the details needed to judge it.

Shanghai is following Beijing by adopting a milder version of the restrictions on traffic in the capital in order to reduce air pollution.

Royal Dutch Shell has quadrupled its budgeted spending on renewables for the next year.

The EPA has reduced its NAAQS (National Ambient Air Quality Standard) for lead by a factor of ten, but the new standard will only come into effect in 2017 -- even as the NAAQS enforcement sensor network has been weakened by neglected repairs, funding, and replacement.

A lack of regulation has allowed supposed e-waste recyclers in the US to simply ship computers overseas, where valuable parts can be sold off and toxic components indiscriminately dumped.

Nature: Climate Change reviews a new publication that consolidates the IPCC report to a simple handbook.

We link to the full version of a paper we discussed yesterday in Nature Geosciences that describes possible impacts of global warming on the carbon storage capacity of peat bogs.

Mobile phone use can cause dermatitis, thanks to nickel in the metal parts of phones.

Krugman tries to be modest about his Nobel and still explain why he deserves it.

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