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News : International Last Updated: Apr 19, 2010 - 7:36:02 AM


Markets News Friday: Goldman Sachs director in insider trading probe to resign
By Finfacts Team
Apr 16, 2010 - 11:40:57 AM

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German speaking Governor Arnold Schwarzenegger welcomes Chancellor Angela Merkel to Los Angeles, April 16, 2010.

The Wall Street Journal reports that Rajat Gupta a director of US investment bank Goldman Sachs is not seeking re-election as he is being investigated for insider trading in the Galleon hedge fund case.

Galleon Group founder Raj Rajaratnam, a billionaire of Sri Lankan origin and two senior executives of Intel and McKinsey - - the management consulting firm - - who were friendly with Rajaratnam and are of Indian origin, have pleaded guilty to supplying him with insider tips.  The Indian-born Rajat.Gupta who is 61 years of age,who  had been a partner in a business with Rajaratnam and headed from McKinsey from 1994 to 2003, is currently on the board of Proctor and Gamble. His former colleague at McKinsey, Anil Kumar, pleaded guilty last January to conspiracy and securities fraud. He invested some of the money in Galleon and made a total of $2.6 million.

Kumar, 51 years old, said he was approached by Rajaratnam - - a friend from their time at the Wharton School at the University of Pennsylvania in the early 1980s - -  in late 2003 or early 2004 and began providing inside tips to him about McKinsey clients as far back as 2004, including on chip maker Advanced Micro Devices's (AMD) plans to acquire ATI Technologies in 2006.

The Journal said today that the government is focusing on trades in shares of Goldman between June 2008 and October 2008, the height of the financial crisis, when the Wall Street firm's shares were gyrating because of fears about the prospects for the banking business.

Flight/Passport Disruption: While the disruption caused by the ash fallout from the volcanic eruption in Iceland could be termed an "Act of God" (using an accepted legally defined situation), the ongoing delays at the Passport Office requires some management backbone and customer service commitment from staff. On Thursday, business group IBEC said the massive inconvenience to business travellers and the public could be eased if temporary staff were hired  to help with the backlog. The group said it was outrageous that unions are not allowing this to happen, particularly at a time when so many in the country are looking for work. Over 66000 passport applications are waiting to be processed.

IBEC Director Brendan McGinty said: "In addition to the enormous inconvenience to the travelling public, many important business trips have been disrupted because of the backlog. This is the last thing we need given the current economic circumstances.

"It is a disgrace that Passport Office workers are now benefiting from generous overtime payments, as they clear a backlog created by their failure to do the work in the first place. Temporary workers should immediately be employed.

"The travel disruption caused by the dispute is affecting holiday plans and important business trips. The cost of this disruption is considerable and is particularly galling, given that it could so easily have been avoided."

The euro is weak and it's having a widespread affect on markets says Richard Yetsenga, regional FX strategist at HSBC. He discusses whether other EU countries might follow suit with CNBC's Oriel Morrison:

Economic View; Concerns over Greece continue to linger: Goodbody economist, Deirdre Ryan, commented today - - "While the announcement of the amended bailout package for Greece received a warm welcome from financial markets earlier this week, this enthusiasm, it appears has been short lived, according to bond yield movements at least. The Greek 10 year spread versus Germany has edged back up above 4% once again (stands at 4.01% this morning) and is now back at levels seen in the run up to the announcement of the aid package.

Greek spreads have now widened by 52bps in the days since the announcement was made, with the focus now shifting to whether they will seek financial assistance from their fellow Eurozone members. It has been reported this morning that the Greek Government will have “discussions” with the European Commission, the ECB and the IMF on Monday, ahead of its planned €8.5 bln 10 year bond issue next month. This emerged as Mr Papaconstantinou, the Greek finance minister, published his letter 'requesting discussions….on a multi year programme of economic policies…that could be supported with financial assistance from the euro-area Member States and the IMF.'

Encouragingly, movements in the Irish spread have been minimal in this latest bout of sovereign concerns, with only a slight widening seen over recent days (the spread over bunds stands at 141bps currently). As we have highlighted, this performance is all the more impressive in light of the increased cost of the Irish banking crisis, which has become apparent following the bank recapitalisation plan. Encouragingly, however, the market is choosing to concentrate on the actions taken by the Irish government in stabilising the budget deficit as well as the fact that Ireland has the financial capacity to deal with the cost of its banking crisis. The euro, too, has given up little of its gains made over recent days and stands at $1.3543 this morning. As such, it is very much Greece alone that is in focus at present with little sign of contagion spreading into either the other peripheral euro-area countries or the currency. One hopes that that remains the case."

Jerry Lou, China strategist at Morgan Stanley says the Chinese government will revalue before June and that the recent pull back on the property market will have little affect overall. He talks with CNBC's Martin Soong, Sri Jegarajah, Bernard Lo & Karen Tso:

US manufacturing output continues to improve, but inflationary pressure still seems some way off: Davy analyst, Barry Dixon, comments  -- "Latest manufacturing data from the US indicate underlying growth of 1% month-on-month in March, continuing the positive trend of the past few months. While the headline number of 0.1% was below the expected 0.7% growth, this included a 6.4% fall in the output from utilities in March – presumably reflecting the lower sale of energy-related products following the cold snap in January and February.

Capacity utilisation rates also continue to creep higher but still remain some way off the level which would cause inflationary pressure. Utilisation rates increased to 73.2% in March from 73.0% in February – still well below the 80% level which is deemed inflationary.

While this is positive from a monetary policy perspective, it also prolongs concerns about the strength of recovery in business investment. If companies still have significant excess capacity, they are far less likely to invest in new capital stock. Against this, however, many companies have been running capex/depreciation rates of well below 100% for the past three years which is bound to have a negative impact on the productive capacity of their assets.

Q1 results from industrial giants such as Caterpillar and GE as well as the IT sector will be instructive in just how keen corporates are to replenish capital stock."

Update on EU restructuring plan: Davy analyst, Stephen Lyons, comments  -- "Bank of Ireland (BKIR) has provided an update on its discussions with the European Commission thus far regarding its restructuring plan under state aid rules. The final decision regarding proposed measures and final terms is to be agreed by mid-2010. There is no certainty to the outcome, but the bank expects that the plan is likely to consist of the following key elements.

The group is to dispose of New Ireland Assurance Company plc, which has a 19% share of new business in ROI and €12bn of primarily unit-linked life assets at end- 2009. Post disposal, BKIR will continue to distribute but not manufacture pensions and life assurance products. Bank of Ireland Asset Management Ltd. (BIAM), with €25bn of assets under management, is also set for disposal as is ICS building society (the Irish intermediary-sourced mortgage business). ICS comprises €7bn of mortgages (of which the bank will commit to sell a minimum of €2bn) and €4bn of deposits. In aggregate, the business marked for divestment contributed c.€90m (8.5%) of pre-provision profit in the nine-month period to December 2009.

The statement also acknowledges that the bank's wind-down announcement in January 2009 is also part of the EU plan. This wind-down involved the UK intermediary-sourced mortgage portfolio and certain discontinued international corporate lending portfolios – €34bn of loans in total and €6bn of risk-weighted assets. The bank will attempt to accelerate the wind-down of these portfolios by way of sale but will not have an obligation to sell these portfolios below book value. If the bank has not run down or sold its UK intermediary mortgage business to below an agreed level, group customer loans must be at least equal to group customer deposits and wholesale funding greater than one year.

There are also certain behavioral commitments such as a commitment that the bank will not make discretionary payments of coupons or exercise voluntary call options on hybrid capital instruments from February 1st 2010 to January 31st 2011. In addition, the bank will not pay dividends on ordinary stock until the earlier of (i) September 30th 2012 or (ii) the 2009 preference stock is redeemed or no longer owned by the state through the NPRF (National Pensions reserve Fund) or otherwise. "

US Markets

On Thursday, the Dow rose 21 points or 0.19% to 11,145.

The S&P 500 rose 0.08% while the Nasdaq added 0.43%.

Asia

The MSCI Asia Pacific declined 0.7% Friday after US weekly jobless benefit claims rose more than expected according to the Labor Department on Thursday.

The Nikkei 225 dipped 1.52%; the Shanghai Composite dropped 1.10%; Australia’s S&P/ASX 200 Index slid 0.34% and India's Sensex Index slipped 0.33%.

Bloomberg reports China has come to a “consensus” on adjusting its exchange rate gradually and wants to avoid the impression that it is bowing to U.S. pressure by allowing appreciation, central bank adviser Li Daokui said

Asia benchmarks

Finfacts Reports

Bank of Ireland to sell New Ireland Assurance, the ICS Building Society and Bank of Ireland Asset Management
Bribery, patronage and other public corruption costs Greece 8% of its GDP or more than €20bn annually
Iceland makes waves again as ash hurls across Northern Europe
Google reports first quarter earnings rise of 37% and a revenue gain of 23%
US report says farmers who grow genetically modified (GM) crops are realising substantial economic and environmental benefits
Irish average annual GNP growth in 2011-2014 forecast to be 3.3%; Eurozone GDP growth in same timeframe predicted to be 2%
Markets News Afternoon: Greece want talks on multi-year support; US industrial production up in March; Iceland's ash creates flight disruption
Quinn Group withdraws objection to appointment of permanent administrators of its insurance division

In Europe, the Dow Jones Stoxx 600 has risen 0.08% Friday.

The ISEQ has added 0.44% in Dublin.

Bank of Ireland rose 0.76% after the announcement on planned disposals this  morning.

Both Ryanair and Aer Lingus are down about 2% in reaction to the aviation disruption caused by the Icelandic volcanic ash.

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 $1.3552 and at £0.8769.

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; on Rhursday, the BDI gained 35 or

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 $84.888 per barrel down 63 cents from Thursday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $87.01.

Gold spot price

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

Finfacts Gold Page

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