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News : International Last Updated: Apr 16, 2010 - 3:55:57 AM


Markets News Thursday: Goldman Sachs board member under investigation in insider trading case; HP focus of bribery probe in Germany and Russia
By Finfacts Team
Apr 15, 2010 - 11:35:26 AM

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The announcement of the Galleon Hedge Fund insider trading case in Oct 2009.

US prosecutors are examining whether a Goldman Sachs board member gave inside information about the Wall Street firm to Galleon hedge-fund founder Raj Rajaratnam during the height of the financial crisis, people close to the situation told The Wall Street Journal.

Goldman's name emerged in a government letter listing companies whose trading, by Rajaratnam and others in the Galleon case, the US is investigating. The March 22 letter said the government is scrutinizing trades by Rajaratnam and others in Goldman Sachs from June 2008 through October 2008, a time when Goldman shares gyrated amid the bankruptcy of Lehman Brothers Holdings and concerns about the future of all major investment banks - - see Related at bottom of page for access to previous stories on this case.

In an unrelated report, the Journal says that German and Russian authorities are investigating whether Hewlett-Packard (HP) executives paid millions of dollars in bribes to win a contract in Russia, according to people familiar with the matter.

The Journal says German prosecutors are looking into the possibility that HP executives paid about €8 million ($10.9 million) in bribes to win a €35 million contract under which the US company sold computer gear, through a German subsidiary, to the office of the prosecutor general of the Russian Federation. The office handles criminal prosecutions in Russia, including many corruption cases.

Economic View; US recovery remains on track: Goodbody economist, Deirdre Ryan, commented - - "With adverse weather patterns making it difficult to discern an underlying pattern in many economic data releases over the early months of 2010, the latest instalment of the Beige Book as well as Ben Bernanke’s testimony to congress provide confidence that the underlying economic recovery remains on track, albeit at a relatively subdued pace.

Eleven of the twelve Federal Reserve Districts in the US reported activity as ‘increasing somewhat’ since the last Beige Book, an improvement on the nine districts that reported improving economic activity in the previous report. While the pace of expansion appears modest, the report contains evidence of a continuing broadening recovery, with both manufacturing and consumer spending increasing over the period. While manufacturing activity has been on a strong upward trend for some months now and continues to gather momentum, the comments in relation to consumer spending are encouraging with retail sales ‘strengthening’ or ‘rebounding’ across districts, led in particular by auto sales.

Lending activity is described as mixed, with unchanged credit standards on balance. These sentiments were echoed in Bernanke’s testimony yesterday, where he described the expected path of growth as ‘moderate’ in the coming quarters. However, it is a recovery that will be significantly restrained by high unemployment and weak construction according to the Chairman. Nevertheless, Bernanke indicated the risk of further economic weakness had certainly retreated, as the recovery becomes more sustained. Such an outlook will see the Fed keep with its commitment to low rates ‘for an extended period’ when it meets later this month. Our own expectation is for no change in interest rates for the remainder of the year, with the Fed not likely to begin tightening until Q1 2011."

S&P 500 gains prompted by a mix of news that suggested the US economic backdrop is ever improving: Davy analyst, Flor O'Donoghue, commented - - "Yesterday's (April 14th) 1.1% gain by the S&P 500 brought its year-to-date advance to over 10%. The index has gained for five consecutive days and is now up over 75% since March 9th 2009, the day that marked the beginning of the rally in equities. The latest catalyst for equities was a combination of favourable dynamics, including well-received Q1 earnings (Intel and JP Morgan Chase standing out) and better-than-expected US retail sales.

US retail sales rose 1.6% in March, the strongest advance since November and comfortably better than the 1.2% gain that was expected. The increase was skewed by a 6.7% jump in motor vehicles and parts; even excluding this, sales were up a healthy 0.6%. Improving retail sales are clearly a tangible barometer of growing consumer confidence. With consumer spending accounting for a substantial proportion of US economic activity, the implication is that the recovery in the US economy gained further momentum in Q1. Indeed, there is now the suggestion that the US economy may have expanded by up to 4.5% in the first quarter of the year. Moreover, rounding off what was a favourable backdrop for markets, the latest figures suggest that US consumer price inflation remains benign. Even Fed Chairman Bernanke joined in, suggesting in testimony to Congress a more positive view on the economic outlook than previously.

All this helped send the S&P to its first close north of 1,200 since September 2008 (having first passed through 1,200 in 1998!). With 1,200 seen as a technical resistance level, going through this suggests that the recent run in equities may have further to go."

Fitch Ratings warned that major French banks face high levels of loan impairment charges in 2010 Wednesday. Eric Dupont from Fitch Ratings has more:

US Markets

On Wednesday, the Dow rose 104 points or 0.94% to 11,123.

The S&P 500 rose 1.12% while the Nasdaq added 1.58%.

The S&P closed above the 1,200 level for the first time in 19 months.

Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, predicts share markets around the world to end the financial year significantly higher. He speaks to CNBC's Anna Edwards, Chloe Cho and Cheng Lei:

Asia

The MSCI Asia Pacific rose0.7% Thursday, to over 129  - - its highest close since early Aug. 2008

The Nikkei 225 gained 0.61%; the Shanghai Composite dipped 0.04%; Australia’s S&P/ASX 200 Index climbed 0.14% and India's Sensex Index declined 1.04%.

China's GDP (gross domestic product) grew 11.9% in the first quarter of 2010 from a year earlier. The increase is 5.7 percentage points higher than the same period in 2009 when economic growth slowed to 6.2%, the lowest in a decade - - see link to story in Box below.

Asia benchmarks

Finfacts Reports

China's GDP grew 11.9% in the first quarter of 2010 from a year earlier
Government debt in Eurozone may top 100% of GDP with “severe consequences” for growth/ stability says ECB official
Federal Reserve says US economic recovery is spreading to most parts of the country
Investors demonstrating growing belief in a robust global recovery
Worldwide PC shipments grow 27% in first quarter of 2010; HP in lead with 18% market share
IMF sees unemployment remaining high in many advanced economies
Markets News Afternoon: JP Morgan Chase to add 9,000 US jobs in 2010; Shares up in Europe and US
Financial Regulator to set new rules for bank directors; More mortgage rate hikes likely; Rapid wind-up of Anglo "prohibitively expensive"
US retail sales rise in March; Consumer price inflation remained subdued
Eurozone industrial production in the month of February 2010 grew by 0.9%

In Europe, the Dow Jones Stoxx 600 has dipped 0.23% Thursday.

The ISEQ has declined 0.34% in Dublin.

AIB has added 4.97% and Glanbia has dropped 4.69%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3531 and at £0.8780.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - -  close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

The BDI fell 2 points on Monday to 2,911 after a 2.6% dip last week; on Tuesday the BDI added 17 points or 0.58% to 2,928; on Wednesday, the index rose 38 points or 1.30% to 2,966.

In the Financial Times on Wednesday, Feb 17th, Javier Blas wrote that the weakness in the Baltic Dry Index, long seen as an indicator of global economic activity, does not reflect a downturn in global trade. Instead, the measure of freight costs is showing a strong supply of new vessels that helps explain the 40% drop in three months. “New supply is astonishingly high and it is overwhelming the otherwise robust demand for bulk commodities from China,” he wrote. “On the other hand, bullish investors should be cautious of any near-term turnround. Rather than a sign of stronger economic activity and commodities demand, it is likely to reflect cancelled orders, scrappage and port congestion.”

Crude oil for May 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $84.48 per barrel down 36 cents from Wednesday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $86.30.

Gold spot price

Gold is trading at $1150.60 down $3.30 from Wednesday's spot price close in New York.

Finfacts Gold Page

Irish banks unlikely to need further capital: Davy analyst, Stephen Lyons, comments  - - "In an appearance before an Oireachtas committee yesterday, the Financial Regulator indicated that it was unlikely that the banks would require further capital injections. This follows the stated amounts – including €2.7bn for Bank of Ireland (BKIR) and €7.4bn for Allied Irish Banks (ALBK) – outlined last month that banks must raise in order to satisfy the Regulator's stress tests. The Regulator noted that the stress tests had factored in "pretty dire situations". These comments give comfort to the investment case for the Irish banks as investor focus has very much shifted away from capital concerns to the potential normalised earnings outlook for the banks.

The Regulator also indicated that there was a very strong prospect that government control in BKIR would be kept to below 50%. He was less certain on ALBK given the bank's need to sell assets before this can be fully assessed. However, we note an article in today's Irish Independent, which suggests that there are more than ten potential suitors for ALBK's Polish bank – a sale which we believe could generate €2.2bn of a capital gain for the group and a further €700m capital benefit from a reduction in risk-weighted assets."

Bank of Ireland (Reduce, Closing Price €1.76); Open offer may be included in capital raise; Goodbody's Ken Darmody comments - - "Further details of Bank of Ireland’s potential €3.2bn capital raise are reported in the Irish Independent this morning. It is reported that the company may use an open offer of €0.4bn alongside a €1.5bn rights issue and the €0.5bn debt for equity swap, with the remainder coming from the government. The report suggests that the open offer would be underwritten and is an indication of the level of demand for the upcoming raise. The pricing may be at a smaller discount than the rights price in an attempt to appease shareholders who would probably have to approve the plan. The Regulator recently announced BOI required €2.7bn in extra capital and this figure has been increased by c.€0.5bn as the company attempts to buy back the government warrants. The open offer is helpful in terms of keeping the state stake to a minimum and reducing the risks surrounding an increased rights issue. Our base case for BOI was already looking for €2bn of private capital as we solve for the current market cap, therefore, we would see little change to the projected state shareholding of c.23%. Our valuation suggests the stock is trading on 0.9x TERP adjusted end 2010 Price to NAV and running a number of pricing scenarios to incorporate today’s reports shows the valuation would only move slightly either side of this. However the signal of increased institutional interest is a positive."

Irish Financials; Financial Regulator appears in parliamentary session: Goodbody's Eamonn Hughes comments  - -
"The new Irish Financial Regulator (FR) appeared in front of an Oireachtas hearing yesterday. He outlined some key points on consumer protection, banking regulation, stockbroking and the credit unions, however, it is his comments on the first two that will occupy your interest.

In the consumer area, the FR highlighted that the business models of the Irish banks historically, through their pursuit of property based lending, led to mis-pricing of mortgage lending and that pricing levels are now going to have to go up. That is absolutely no surprise to us since we have been writing about this ad nauseum for some time, but it’s helpful that the powers that be are on the same ticket. Having said that, the fact that c60-65% of the Irish mortgage book is tracker-based and redemption run rates in the economy are running at c5% means that the book re-pricing will be a lot slower than that in the UK, which is providing substantial ROEs in that market at the moment.

On the banks, the FR indicated that some banks were looking for more time to reach the new capital targets, but his interest in providing clarity to capital markets and ensuring strong balance sheets to facilitate lending ensured a need to move to new targets quickly. This clearly was the more sensible outcome. His targets, under the stress tests on the NAMA and non-NAMA books required the banks to face up to their likely losses to instil confidence. Interestingly, he adds that “it means that the banks are well on the path towards being ready for the new Basel regulatory capital rules and can travel whatever distance remains on their own”. While the initial capital stress tests were under a B2 regime, it sounds like the FR thinks they can handle B3 on their own, for what its worth.

Finally, he adds that he anticipates more stringent liquidity requirements in time. It is unclear whether he means B3 (which is more stringent) or whether he is bringing in additional new standards himself. Either way, AIB’s loan to deposit ratio drops from 146% to 123% post NAMA, whilst BOI drops from 152% to 141%. Our central target is 110-115%. LDRs are a blunt instrument, but more stringent targets imply further deleveraging and we wouldn’t be as confident as the banks that deposit rates are going to collapse post NAMA."

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