MasterFeeds: October 2011

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October 31, 2011

(BN) JPMorgan, Deutsche Bank Are Among MF Global Holdings’ Biggest Creditors

List of unsecured creditors of MF Global:

MF Global Holdings Creditors Led By JPMorgan, Deutsche Bank

Oct. 31 (Bloomberg) -- The following are MF Global Holdings' largest unsecured creditors and shareholders, according to the company's bankruptcy filing and related court papers submitted today in U.S. Bankruptcy Court in Manhattan.

Unsecured creditors rank behind secured lenders in getting repaid in a bankruptcy, and are ahead of preferred and common shareholders.

Unsecured Creditors:

JPMorgan Chase & Co.'s JPMorgan Chase Bank, bondholder trustee, $1.2 billion.

Deutsche Bank AG, trustee for $1.02 billion in bonds:

Deutsche Bank Trust Co., bondholder trustee for 6.25% notes, $325 million bondholder trustee for 3.375% notes, $325 million bondholder trustee for 1.875% notes, $287.5 million bondholder trustee for 9% notes, $78.6 million.

Headstrong Services LLC, $3.9 million

Comcast Corp.'s CNBC, $845,397

Sullivan & Cromwell LLP, $596,939

Caplin Systems Ltd., $427,520

Wachtell, Lipton, Rosen & Katz, $388,000

Linklaters LLP, $348,000

PricewaterhouseCoopers LLP, $312,598

Dean Media Group, $309,000

Oracle Corp., $302,704

ForwardThink Group Inc., $278,825

Bloomberg Finance LP, $276,064

The Gate Worldwide (S) Pte Ltd., $229,739

Lever Interactive, $178,900

Braxton Group LLC, $172,325

Forum Group, $154,300

Shearman & Sterling LLP, $135,500

RR Donnelly, $118,600

Infinia Group LLC, $115,001

Directors Fees, $105,000

ADK America Inc., $101,958

Shareholders as of Sept. 30, according to the petition:

Preferred Shares:

J.C. Flowers, 1.5 million preferred shares

Common Shares:

Pyramis Global Advisors LLC, 8.44 percent

RS Investments, 7.81 percent

Fine Capital Partners LP, 7.37 percent

Cadian Capital Management LLC, 6.17 percent

TIAA-CREF, 5.77 percent

Advisory Research Inc., 5.54 percent

Dimensional Fund Advisors LP, 5.41 percent

Rydex Security Global Investors LLC, 5.13 percent

The case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at Linda Sandler in New York at .

To contact the editor responsible for this story: John Pickering at .

Student loans in America: Nope, just debt | The Economist

Student loans in America

Nope, just debt

The next big credit bubble?

IN LATE 1965, President Lyndon Johnson stood in the modest gymnasium of what had once been the tiny teaching college he attended in Texas and announced a programme to promote education. It was an initiative that exemplified the “Great Society” agenda of his administration: social advancement financed by a little hard cash, lots of leverage and potentially vast implicit government commitments. Those commitments are now coming due.

“Economists tell us that improvement of education has been responsible for one-fourth to one-half of the growth in our nation’s economy over the past half-century,” Johnson said. “We must be sure that there will be no gap between the number of jobs available and the ability of our people to perform those jobs.”

To fill this gap Johnson pledged an amount that now seems trivial, $1.9m, sent from the federal government to states which could then leverage it ten-to-one to back student loans of up to $1,000 for 25,000 people. “This act”, he promised, “will help young people enter business, trade, and technical schools—institutions which play a vital role in providing the skills our citizens must have to compete and contribute in our society.”

Almost a half-century later these modest steps have metastasised into a huge, federally guaranteed student-loan industry. On October 25th the Obama administration added indebted students to the list of banks, car companies, homeowners, solar manufacturers and others that have benefited from a federal handout.

Johnson’s lending programme was altered almost straight away. The intention of providing students with an education through “business, trade and technical schools” was expanded to include the full, imaginative panoply of American education, regardless of economic utility. Interest rates and terms have all been adjusted numerous times.

The result is a shifting, difficult landscape only barely understood even by insiders. For students, the task is that much larger. They must choose between an array of products, including subsidised and unsubsidised “Stafford” loans (named after a Republican senator) via the William D. Ford loan programme (named for a Michigan congressman), loans directly from the government, “Plus” loans (for parents of dependent children) and “Perkins” loans (named after a congressman from Kentucky), plus an array of private options.

On top of all this, there are choices about how to consolidate, restructure and pay the debts. Many students are understandably overwhelmed. Deanne Loonin of the National Consumer Law Centre has one client with $300,000 in debt from a failed effort to become an airline pilot. That liability could have been reduced by a better understanding of products.

Two things, however, are clear. The size of student debt is vast (see chart), and lots of borrowers are struggling. More than 10m students took out loans for the latest academic year, according to a report issued on October 26th by the College Board, a consortium of academic institutions. Almost a third of students graduating from college, and 69% of the ones dropping out, hold debt tied to their education.

The total amount of debt is staggering. The New York Federal Reserve Bank puts it at $550 billion, but includes a footnote in the “technical notes” section suggesting this may be an underestimate. Sallie Mae, the school-loan equivalent of the housing industry’s Fannie Mae and Freddie Mac, reckons there are $757 billion-worth of outstanding loans. A bank heavily involved in the area says there is at least another $111 billion in purely private loans, and with new lending estimated in excess of $112 billion for this year alone, the total amount outstanding will surpass $1 trillion in the not-so-distant future.

Read the rest of the article here: Student loans in America: Nope, just debt | The Economist


Fwd: (BN) Corzine’s MF Global Finance Files for Bankruptcy as Sovereign Debts Go Bad

Great job Corzine...

MF Global Finance Files for Bankruptcy Protection in New York

Oct. 31 (Bloomberg) -- MF Global USA Inc., part of the holding company for the broker-dealer run by former New Jersey governor and Goldman Sachs Group Inc. co-chairman Jon Corzine, filed for bankruptcy after making bets on European sovereign debt.

To contact the reporter on this story: Tiffany Kary in New York at

To contact the editor responsible for this story: Stephen Farr at

(BN) Brazil Bull Market Lures Bears as Shorting Doubles ‘08 Peak

Brazil Bull Market Lures Bears as Shorting Doubles '08 Peak

Bloomberg News

Oct. 28 (Bloomberg) -- Stock investors are showing little faith in Brazil's bull market.

Short-selling has jumped to twice the levels before the 2008 market crash on concern Brazil's move to cut borrowing costs will add to the fastest inflation since 2005, while slowing global growth may hurt demand for commodities. An accord to stem Europe's debt crisis helped the Bovespa index emerge from a yearlong bear market yesterday. Currency declines had made stocks cheaper in dollar terms, luring foreign investors amid the lowest valuations in two years.

Brazil's benchmark equity gauge is still down 14 percent this year through yesterday after economists cut their domestic economic expansion forecasts amid the global slowdown. That compares to a 2.1 percent gain for the Standard & Poor's 500 Index in that period and a 1 percent advance for South Africa's FTSE/JSE Africa All Share Index.

The bull-market rally "does not indicate a sustained upward move by Brazil," said Komal Sri-Kumar, chief global strategist in Los Angeles at TCW Group Inc., which oversees about $120 billion. "There is a lot of optimism -- in my opinion not completely justified -- on the solution to Europe's debt crisis. I wouldn't get overly excited."

Bull Market

The Bovespa rose 3.7 percent yesterday, extending its gain to 22 percent from an Aug. 8 low, after European leaders agreed to expand a bailout fund to stem the region's debt crisis. A bull market is typically defined as an advance of at least 20 percent from the preceding bear-market low. The gauge had lost 33 percent from a November 2010 peak through early August, dragging its price to 7.9 times estimated earnings, the lowest since March 2009, according to data compiled by Bloomberg.

The index rose 0.4 percent to 59,513.13 at the close of trading today in Sao Paulo.

Commodities rose 5.9 percent from Aug. 8 through yesterday as European policy makers stepped up their efforts to contain the region's debt crisis, according to the Standard & Poor's GSCI index of 24 raw materials, boosting revenue for Brazil's producers.

Russian stocks also entered a bull market yesterday, bolstered by the commodities rally. The 30-stock Micex Index added 1.7 percent, extending its gain from an Oct. 5 low to 21 percent.

Options Trading

Brazil has missed out on a drop in bearish options trading in emerging markets. The ratio of outstanding puts to sell the iShares MSCI Emerging Markets Index exchange-traded fund fell to a 22-month low on Oct. 25, sinking 24 percent to 1.22-to-1 since Aug. 8. The measure for the iShares MSCI Brazil Index ETF rose 23 percent to 1.42-to-1 during that time.

The volume of equity on loan in Brazil, an indication of short-selling, jumped to $35.2 billion last month, or 2.9 percent of the country's total market capitalization, according to data from the Sao Paulo exchange and Bloomberg. The ratio reached a record 3 percent in August. That compares to the 2008 peak of 1.5 percent just three months before Lehman Brothers Holdings Inc.'s September bankruptcy sent stocks tumbling.

In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.

Traders in New York have borrowed 25.7 million shares of the iShares MSCI Brazil ETF as of Oct. 14, or 15 percent of the total outstanding, Bloomberg data show. That's the highest since October 2007.

Investors may have gotten too bearish, and the jump in short-selling could end up intensifying gains as investors close out their bets, said Eric Conrads, who manages $1.2 billion in Latin American stocks at ING Groep NV in New York.

'Too Much Pessimism'

"The big issue you had in the market was that 2008 was way too fresh in people's minds," said Conrads, who's been adding to holdings in Brazil since August. "There's too much pessimism. On the macro front things are not collapsing, and on the valuation front things are more attractive."

Analysts cut their forecasts for 2012 inflation for the first time in eight weeks, a central bank survey showed on Oct. 24, after the national statistics agency reported that annual inflation had retreated from a six-year high in mid-October, reaching 7.12 percent.

Brazil's central bank has lowered the benchmark rate twice since August, cutting it to 11.5 percent, to shore up growth amid concern the European crisis could derail the global recovery. The reductions followed five increases to the benchmark Selic rate earlier this year as near record-low unemployment fueled inflation.

'Rolling the Dice'

"The market is having a tough time with inflationary expectations and the way interest-rate policy has been managed," said Roberto Lampl, who oversees $19 billion as head of emerging-market equities at Baring Asset Management in London. "We think they're rolling the dice."

The Bovespa now trades at a ratio of 10.6 times estimated profit, in line with MSCI Inc.'s gauge of 21 developing nations' stocks. Russia's Micex trades at 5.6 times forecast earnings, compared to 15.2 for India's Sensex and 11.5 for the Shanghai Composite Index.

Economists cut their estimates for Brazil's 2011 gross domestic product expansion to 3.3 percent from 4.5 percent at the beginning of the year, the central bank's survey shows.

"Valuations were irresistible to a lot of people," said Urban Larson, who helps manage about $2.2 billion in emerging- market assets at F&C Management Ltd. in London. "There's still a lot of uncertainty in the world. We need less uncertainty for the market to really get going."

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at

To contact the editor responsible for this story: David Papadopoulos at

Find out more about Bloomberg for iPad:

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Non-Naked European CDS Update | ZeroHedge


Non-hedged Eurosov CDS may be banned, hedge Eurosov CDS may be irrelevant, but courtesy of tens of billions in capital caught up in basis trades which are all about to be Boaz Weinstein'ed very soon, moves wider in cash will drag CDS along with them.

5Y 10Y 5/10's

ITALY 430/438 +29 418/432 -16/-6
SPAIN 335/343 +24 319/335 -14/-4
PORTUGAL 960/990 +15 720/790 -250/-190
IRELAND 680/710 +25 510/580 -180/-120
GREECE 53/56 +1 53.5/57.5 -0.5/2.5
BELGIUM 265/275 +28 262/276 -6/4
FRANCE 171/175 +13 190/200 18/22
AUSTRIA 138/144 +14 153.5/163.5 15/20
UK 80/84 +6 97/103 16/20
GERMANY 80.5/83.5 +5.5 100/106 18/22

And some comments from Citi:

Change of mood this morning with several accounts resetting hedges on the back of several negative press article over the weekend pointing to the EFSF funding lack of details or China's role. Some accounts that went long at the end of last week and took profit in the ensuing rally are now happy to go short on expectations of a technical pullback after such a strong rally.

The pressure has been felt mostly in Main through the underperformed of Italian yields feeding in Senior then Main. Xver only started to find buyers when stocks were pulling back after 8am and main turned buyers-only.

Main came back since then, following the sovereign market off the wides. We are now trading around 56.5 after a high print at 58.5

Today is month end so I would expect the market to hold relatively well. But if anything, one could see stocks overperform credit considering the buying pressure from accounts that do plan to keep their protection for a while.

Non-Naked European CDS Update | ZeroHedge

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October 29, 2011

Roubini: Goodbye China, hello Indonesia:

If economist Nouriel Roubini was a betting man, he'd be cashing out of China and doubling down on Indonesia.

On his first trip to south-east...

Read the full article at:

Financial Times, 7:00am Tuesday October 25th, 2011
Roubini: Goodbye China, hello Indonesia
Anthony Deutsch

October 26, 2011

China Boom-to-Bust Concerns Show in Agricultural Bank Slide - Bloomberg

China Boom-to-Bust Concerns Show in Agricultural Bank Slide - Bloomberg

Kerry Stokes made his first billion dollars operating television stations and selling dump trucks in his native Australia. Now, he’s betting a chunk of that fortune on a bank that operates in the backwaters of rural China.

Stokes became one of the cornerstone investors in Agricultural Bank of China Ltd. (1288), whose July 2010 initial public offering was the world’s largest, raising $22 billion. Investors such as Hong Kong billionaire Li Ka-shing and the sovereign wealth funds of Kuwait, Qatar and Singapore joined Stokes, 70, in wagering that the bank will benefit from the rapid development of China’s agrarian inland areas, where growth is already outstripping that of the wealthy coastal cities, Bloomberg Markets magazine reports in its December issue. They agreed to maintain a stake for at least one year.

The payoff is far from assured. Global investors increasingly have doubts about the future of Chinese banks, which in 2009 and 2010 went on a 17.6 trillion yuan ($2.8 trillion) lending spree, according to People’s Bank of China data.

Fitch Ratings estimated in a report issued in April that as much as 30 percent of all loans in China’s banking system -- or $2.46 trillion -- could become nonperforming. Hedge-fund manager Jim Chanos told Bloomberg News in September that he was shorting Agricultural Bank and other Chinese lenders.

Investors worried about nonperforming loans pushed the MSCI China Financials Index down about 25 percent from July 1, 2010, to Oct. 25 of this year.

Concern About Loans

Concerns about bad loans have affected Agricultural Bank, too, even though it’s benefiting from increasing investment in western and central China. Its shares had lost 17 percent of their value since the IPO as of Oct. 10 and then jumped when Central Huijin Investment Ltd., a unit of China’s sovereign wealth fund, began buying the stock. On Oct. 25, the shares were back at the IPO price.

“Industry is moving west and money is flowing into those areas -- no question,” says Singapore-based Mark Mobius, executive director of Templeton Asset Management’s emerging- markets group. “But in one fell swoop, bad loans can wipe out any profits you make.” Mobius, who manages $50 billion, holds just $9.6 million worth of Agricultural Bank stock, according to data compiled by Bloomberg.

Big Banks

The economic health of China -- and its banks -- is increasingly important as the world economy teeters on the brink of another financial crisis. China has accounted for more than 40 percent of global growth since 2008, according to Bloomberg data. It holds 31 percent of all foreign reserves. Of the world’s seven biggest banks by market capitalization, four are Chinese. Agricultural Bank, with a market value of $136 billion, ranks No. 3 in China, behind Industrial & Commercial Bank of China (601398) Ltd. and China Construction Bank Corp. (939), and vies for fourth in the world with Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM)

After three decades of searing growth that has averaged 10 percent a year, the country as a whole will grow at 8 or 9 percent in the second half of this year and in 2012, according to Qu Hongbin, Hong Kong-based chief economist for China at HSBC Holdings Plc. (HSBA) Year-over-year growth in the third quarter fell to 9.1 percent, China’s National Bureau of Statistics reported on Oct. 18. Investors polled in a Bloomberg survey in September said they expect China to grow only 5 percent annually by 2016, half the current rate.

Agricultural Bank’s Turf

The inland areas where Agricultural Bank is the largest lender are the exception, with growth of more than 10 percent, Qu says.

Agricultural Bank takes in 22 percent of all deposits and makes 14 percent of all loans in the counties and other subdivisions of China’s provinces that account for 70 percent of the population and 49 percent of gross domestic product, according to Warren Blight, a banking analyst at Keefe Bruyette & Woods Inc., a New York-based investment bank that specializes in financial companies.

And with loans amounting to just 55.5 percent of deposits, Agricultural Bank has plenty of money to lend, adds Blight, who has an outperform rating on the stock.

“Agricultural Bank is a proxy for China’s new growth engine: rural China,” says Lewis Wan, Hong Kong-based chief investment officer at Pride Investments Group Ltd., which manages $200 million of China assets.

Pumping Money Inland

That trend will continue, Qu says, as the government of Premier Wen Jiabao pumps money into central and western regions, where the poorest 700 million of China’s 1.3 billion people live. The most-notable examples of this spending are on roads and railways largely funded by a $585 billion stimulus package Wen announced in 2008 to fight the impact of the global economic crisis.

Some 3,700 kilometers (2,300 miles) of new railways have been built in the West -- double the figure for eastern China, Qu says. Four-fifths of the 400,000 kilometers of new highways were also built in inland regions.

In the first eight months of this year, so-called fixed- asset investment -- which includes road and rail construction plus other long-term projects such as factories, mines and real- estate development -- jumped by 30 percent in inland China compared with just 23 percent in the East, the National Bureau of Statistics reported in September.

City of 33 Million

Even the relentless migration of Chinese from the countryside to the city is occurring at a faster rate in inland areas, which house some of the country’s great conurbations as well as the farmland that feeds the world’s largest population. From 2005 to 2009, the number of urban dwellers in inland China rose by more than 4 percent compared with a 2.7 percent increase in the East of China, according to HSBC.

A prime example: Chongqing, a sprawling municipality of 33 million people -- one and a half times the size of Beijing or Shanghai. Located on the Yangtze River 1,450 kilometers west of Shanghai, its GDP tripled to 793 billion yuan from 2004 to 2010 while Shanghai’s merely doubled.

Wuhan, a city of 8.4 million also on the Yangtze River, Chengdu, capital of the western province of Sichuan, and Chongqing have attracted investors such as Ford Motor Co., Intel Corp. and Pfizer Inc.

Founded in 1951 by Mao Zedong to finance rural cooperatives, Agricultural Bank has by far the widest reach of China’s big four lenders. It has more customers -- 320 million - - than the U.S. has people. And its 23,500 branches far outnumber the 16,200 outlets operated by Industrial & Commercial Bank of China (1398), known as ICBC, the world’s biggest bank by market value.


While Agricultural Bank’s total assets of 11.46 trillion yuan are smaller than ICBC’s 14.9 trillion yuan, they’re close on the heels of Bank of China Ltd. (3988), with 11.48 trillion, and Construction Bank, with 11.8 trillion.

Stokes, the Australian billionaire, says he decided to invest $250 million in Agricultural Bank shares based on his personal experience. In 2000, he acquired the franchise to sell Caterpillar Inc. earthmovers across a swath of rural China, from the North Korean border to the windswept prairies of Inner Mongolia. Stokes says he had never been previously tempted to invest in Chinese bank IPOs.

“Our focus is in the regions, and Agricultural Bank is a story we understood better than most people,” he says, sipping tea in his art-filled private office just outside Sydney’s main business district.

Loyal Customers

Even though the stock has declined since the IPO and the lockup period has expired, Stokes plans to hold on to his shares. He says the bank’s customers are similarly loyal.

“Agricultural Bank’s deposit base is probably the soundest of any bank in the world,” he says.

One such customer is Lai Kebin, 45, who says Agricultural Bank’s backing helped him lift himself out of poverty and into China’s newly wealthy class. Lai has built his fortune by exploiting the lush sugar cane fields of Guangxi autonomous region, 2,000 kilometers south of Beijing.

Lai was raised in the regional capital, Nanning, a city of 6.7 million, in a family so poor that they could afford only cotton shoes for him to wear to school.

He spent his first eight years in the workforce toiling at a low-level government job before the speeches of reformist leader Deng Xiaoping inspired him to set up his own sugar firm, Yong Kai Group.

Entrepreneur Expands

Within a year, Lai had got his first loan from Agricultural Bank. Back then, the Yong Kai Group was worth 3 million yuan (about $520,000) and employed 200 workers. Today, it’s one of China’s top 10 sugar producers, according to the China Sugar Association. This year, Yong Kai’s revenue will top 10 billion yuan and employees will total 3,000. In 2007, a Citigroup Inc. (C) venture capital unit invested $50 million in Yong Kai. Lai says he plans to sell shares in Hong Kong at an unspecified date.

Like many Chinese entrepreneurs, Lai has also expanded into real estate. In the process, he and other developers have transformed Nanning, until recently a city of mostly two-story buildings, into a high-rise metropolis of office towers and condominiums. Those residential apartments include a development called Fond England guarded by concrete soldiers with British army bearskin hats.

Lai credits his success to China’s leaders’ decision to encourage rural development, as well as to the financing he received from Agricultural Bank.

‘A Bank With Scale’

“The hills, water and people are still the same,” Lai says. “What has changed is government policy.”

Lai says he now also borrows from other banks, including ICBC, although he still favors the lender that gave him his start.

“Agricultural Bank is a bank with scale, and the fact that it is inclined to agriculture business makes it an easier funding source for us,” he says.

Customers such as Lai are boosting Agricultural Bank’s earnings growth. In the first half of 2011, profit jumped 45 percent to 66.7 billion yuan from a year earlier after increasing 46 percent in 2010. Those gains compared with an average 30 percent rise for its three rivals.

Agricultural Bank is expected to report tomorrow that net income in the third quarter of 2011 jumped 34 percent to 32.6 billion yuan compared with a 26 percent increase by ICBC, which will report its earnings on Thursday, according to the median estimate of six analysts surveyed by Bloomberg News.

“We can say with pride that the Agricultural Bank has staged a wonderful dance of concerted urban-rural growth,” Chairman Xiang Junbo told investors in August.

War With Vietnam

Xiang, 54, spent his early adult life as a lieutenant in the People’s Liberation Army and took a bullet in the thigh while fighting in China’s 1979 border war with its then- communist rival Vietnam -- a bloody, inconclusive and now largely forgotten conflict in which both sides claimed victory.

Today, more than three decades after quitting the army to study finance and law, Xiang sees rural China as his new battleground. And he’s anticipating a more clear-cut victory than he ever achieved as a soldier.

“They’ve all lost the battlefield of the countryside,” he said of his rivals in an interview after the first-half results announcement.

Xiang may have more difficulty convincing investors about the quality of his loan book. As of June 30, 1.67 percent of Agricultural Bank’s loans were nonperforming. That’s more than the 1 percent for Bank of China and 0.95 percent for ICBC. It’s still reporting a lower rate than some international banks, such as HSBC Holdings, which has 2.04 percent.

Government Debt Exposure

Like other Chinese banks, Agricultural Bank is exposed to local government debt, which the national auditor this year said some authorities had obtained by offering illegal guarantees and would struggle to repay. Xiang says that financing to local authorities is under control, accounting for about 10 percent of the bank’s total lending of 5.38 trillion yuan ($846 billion).

Chinese banks have overstretched in the recent past, when lenders were so awash with nonperforming loans as to be technically insolvent. From 1998 to 2008, China’s government had to bail out the four big banks to the tune of more than $650 billion before they could sell shares to the public.

Agricultural Bank, which Xiang joined in 2007 as president, got 815.7 billion yuan. Last year, Agricultural Bank’s three state-controlled rivals returned to the market to raise an additional $35 billion in capital. Xiang says Agricultural Bank won’t need to ask investors for more money until at least 2013.

More Capital Needed?

Still, its core capital adequacy ratio, an indicator of financial strength, fell to 9.36 percent in the first half of 2011 from 9.75 percent at the end of 2010. Sanford C. Bernstein & Co. banking analyst Mike Werner says the bank may have to return to the capital markets if it is to meet the 9.5 percent level required by 2013 under the Basel III accords.

Agricultural Bank also faces growing competition, especially from thousands of rural credit cooperatives. Foreign banks, too, are seeing opportunities in inland China. HSBC, Europe’s biggest lender, has 17 rural branches. Citigroup has opened four offices it describes as rural lending companies because they don’t take deposits.

So far, Xiang’s biggest foreign investors are hanging on for the ride. Sovereign wealth funds, banks, public companies and individuals paid a total of $5.45 billion as cornerstone investors. The lockup period expired in July, and as of Oct. 24 none of the biggest investors had sold their shares, according to Bloomberg data.

Global Investors

Qatar Holding LLC bought $2.8 billion of shares, and the Kuwait Investment Authority acquired $800 million. Singapore sovereign wealth fund Temasek Holdings Pte. invested $200 million, and Li Ka-shing invested $100 million. Standard Chartered Plc (STAN), the London-based bank that makes most of its profits in Asia, invested $500 million; Dutch lender Rabobank Groep NV invested $250 million, the same as Stokes’s Seven Group Holdings Ltd. (SVW)

Stokes is digging deeper into the market in more ways than one. His earthmoving equipment unit, WesTrac China Ltd., has signed a deal with Xiang under which Chinese contractors buying his earthmovers, which sell for $100,000 to $300,000, will be able to finance the purchases with Agricultural Bank loans.

“The transformation taking place in rural China means they are moving from wheelbarrows to excavators,” Stokes says. “Until now, getting finance for our customers has always been a challenge.”

The loan deal is giving Stokes some return now for his ties to Agricultural Bank. As China’s economic engine continues its shift toward the burgeoning hinterland, Stokes says he’s willing to wait for his bank stake to pay off.

To contact the reporter on this story: William Mellor in Sydney at Stephanie Tong in Hong Kong at 6542 or

To contact the editor responsible for this story: Laura Colby at

China Boom-to-Bust Concerns Show in Agricultural Bank Slide - Bloomberg

Check it out on The MasterCharts

October 20, 2011

Forget Wall Street, Protestors Should “Occupy Congress,” Mauldin Says

Occupy Wall Street went global this weekend. While most of the 900 events on 4 continents were peaceful some violence did ensue, most notably in Rome where so-called "black bloc" elements came armed with Molotov cocktails and other weapons of mass anarchy.

"This is what the endgame looks like because people feel powerless," says John Mauldin, president of Millennium Wave Advisors. "They're trying to figure out what happens [next] and it's not really good."

What happens next is debt deleveraging, leading to weak economic growth and continued high unemployment, says the author of (most recently) Endgame. "That means we're going to be in a 'muddle through' economy, at best, over the next five years. That just increases the angst."

To date, the protests in the U.S. have been largely peaceful and Occupy Wall Street members have pledged non-violence. But the longer it goes on and the larger the protest becomes, the possibility of violence escalates.

America "needs to hit the 'reset' button on the blue screen of death," Mauldin says. "Otherwise, we'll become like Greece and Italy and I fear that people will get just as frustrated here...there's no generic code that says Americans will just sit by and do nothing."

While Europe is rapidly approaching the endgame, Mauldin believes America still has time to figure out a path out of what he says is the big problem worldwide: "We've overcommitted public monies and we don't have them."

The critical question here is "how much healthcare do we want and how do we want to pay for it?" Mauldin says. "Everything else can be worked out."

While somewhat sympathetic to the protestors' frustrations, Mauldin says their anger is misdirected.

"My message to the 'Occupy Wall Street' guys: if they really want to If they really want to go after the source of the problem, they should go occupy Congress," he quips. ( See: Occupy Wall Street: Uprising a Response to "Bought and Paid for Politics," Howard Davidowitz Says)

Instead of focusing on Wall Street, Washington and the protests should be focusing on reducing regulation and making it easier for new businesses to start, Mauldin says. To that end, he offers a new slogan I somehow doubt will show up at any Occupy Wall Street protest anytime soon: "Up with Entrepreneurs"

For additional coverage, see:

Occupy Wall Street: What's It All About?

Occupy Wall Street Gains Traction: "The Message is Definitely Getting Out

Randall Lane: Wall St. Protestors Don't Hate Success, They Hate Big Rewards for Failure

Taken to Task: Occupy Wall Streets Nattering Nabobs of Negativity

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at

October 17, 2011

Citi Earnings Bloodbath: $3.8 Billion ($1.23/Share) In Reported "Earnings" Really $0.5 Billion Or $0.16/Share @zerohedge

Citi Earnings Bloodbath: $3.8 Billion ($1.23/Share) In Reported "Earnings" Really $0.5 Billion Or $0.16/Share
Tyler Durden's picture
zerohedge (@zerohedge)

Another stunning EPS beat from Citi today which reported $20.8 billion in revenue and $1.23 in earnings on expectations of $19.23 billion in top line and $0.82 in EPS.... Until one actually reads the following two parts from theearnings release: 'Third quarter revenues included $1.9 billion of credit valuation adjustment (CVA) reflecting the widening of Citi's credit spreads during the third quarter....Loan Loss Reserve Release of $1.4 Billion in Third Quarter, Down from $2.0 Billion in Each of Second Quarter 2011 and Third Quarter 2010." Once again, the bank releases reserves (i.e. a perceived improvement in economic conditions), even as its take a benefit for major economic deterioration (the equivalent of buying bank its debt at lower prices due to risk flaring). Either way, this is non-recurring gibberish. You take the $3.77 billion in Net Income, take out $1.9 billion and $1.9 billion in "buying CDS on yourself", and the $1.4 billion in phantom EPS loss reserve, and end up with $0.5 billion or $0.16 per share. It will take the vacuum tubes about an hour to figure this out.

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October 16, 2011

For Brazil, a new policy risk: Improvisation - The Globe and Mail

Creativity and improvisation have long been the most celebrated trademarks of Brazilian soccer teams.

For governments, though, those traits are less desirable. President Dilma Rousseff's willingness to make sudden, unexpected changes to economic policy is becoming one of the biggest risks of doing business in Brazil, a trend that officials says is likely to continue in coming months.

Creativity and improvisation have long been the most celebrated trademarks of Brazilian soccer teams.

For governments, though, those traits are less desirable. President Dilma Rousseff's willingness to make sudden, unexpected changes to economic policy is becoming one of the biggest risks of doing business in Brazil, a trend that officials says is likely to continue in coming months.

In the last two months, Ms. Rousseff's government has shaken foreign investors with numerous policy shifts, including: * A surprise interest rate cut on Aug. 31 that is still reverberating in markets, making Brazil's real one of the world's worst-performing currencies since.

- A reduction in the percentage of ethanol mixed into local fuels, the timing of which unsettled biofuels companies and led to an increase in gasoline imports.

- A 30 percentage-point increase in a tax on imported cars, which virtually overnight priced many vehicles out of the Brazilian market and forced auto manufacturers from China and elsewhere to rethink local investments.

Looked at in isolation, some of the measures have barely caused a ripple outside their respective industries. But taken together, they suggest a mounting risk in Brazil that business plans can be turned upside-down with little to no notice, if Ms. Rousseff's government finds it convenient.

Officials on her economic team, speaking on condition of anonymity in order to frankly discuss policy, said fast, flexible action has been essential to protect Brazil from the ever-changing effects of the global financial crisis.

They say the relatively ad hoc approach is likely to continue in the medium term and one official said the degree of policy uncertainty was "minuscule" compared with the "chaos" in Europe and the United States.

Ms. Rousseff's poor relationship with the Brazilian congress makes it very difficult for her to undertake the kinds of structural reforms that could meaningfully reduce above-target inflation, for example. That leaves her with little choice but to pursue measures such as the ethanol rule that do little to solve the core problem, but might shave a tenth of a percentage point or so off headline inflation by the end of the year.

"It's not the best way to make policy ... but these are the tools we have available to us," a second official said.

One new step under consideration is the more vigorous sale of government stocks of foodstuffs such as rice and beans to help keep food prices down and, perhaps, ensure that the consumer price index ends the year below the government's 6.5 per cent target ceiling.

"You'll probably see more measures like this in coming months," the official said.

Ms. Rousseff's improvisational approach contrasts with recent years, when economic policy in Brazil was prized above all for its boring predictability.

Her predecessor, Luiz Inacio Lula da Silva, had little choice but to be conservative. His past as a labour union leader and one-time radical meant that investors were ready to revolt at the first sign of unconventional economic policies, especially at the beginning of his presidency.

Mr. Lula's consistency through eight years in office helped make Brazil a star among emerging markets, although he became slightly less conventional toward the end of his presidency. His solid record also arguably gave Ms. Rousseff, his chosen successor, more room to manoeuvre since she took office Jan. 1.

Unlike Ms. Lula, who didn't finish elementary school and delegated many policy matters to his top aides, Ms. Rousseff is a trained economist who officials say has been personally involved in almost every major economic decision.

Her record, so far, is mixed. Brazil's economy has to date escaped the worst of the global financial crisis. Unemployment is near all-time lows, and her popularity has remained high at about 70 per cent.

Yet gross domestic product is likely to disappoint this year, with growth expected at around 3.5 per cent. That is below its peers in the BRICS emerging markets group – China, India, Russia and South Africa – and most big economies in Latin America.

Ms. Rousseff's recent policy measures appear designed to ensure that Brazil's economy continues growing at a healthy pace and avoids the stagnation seen in rich countries, said Zeina Latif, chief Latin America economist for RBS.

"They recognize that it's not all about textbooks and models when it comes to the economy," Ms. Latif said.

However, she also warned that a constant drip-drip of new measures can also create confusing new obstacles to doing business in an economy that is already highly regulated and taxed by emerging market standards.

"We already have layers upon layers of distortions in Brazil," she said. "The risk here is that by intervening, you ultimately end up constraining economic growth."

The President and her finance minister, Guido Mantega, have repeatedly avowed their commitment to the so-called "three pillars" of Brazil's economic boom since the 1990s: a floating exchange rate, inflation targeting and fiscal responsibility.

Yet, in practice, Ms. Rousseff has essentially sacrificed this year's inflation target for the sake of maintaining economic growth. The central bank has established a de facto currency band of between 1.55 and 1.90 per dollar by intervening in the foreign exchange market or creating new capital controls when those extremes are threatened.

Ms. Rousseff's fiscal record is solid. But the government's penchant for intervention is leaving a growing trail of angry business leaders and officials.

Chen Jian, China's vice-minister of commerce, reportedly warned in Geneva last month that foreign companies could stop investing in Brazil if it were to adopt more measures like the car import tax. Brazilian officials say the move was necessary because other countries are manipulating their currencies to make their exports cheaper.

"No closed economy can grow, and it won't get the dividends of development either," Mr. Chen said, according to Brazil's Agencia Estado. "[They] also run the risk of watching companies leave."

© 2011 The Globe and Mail Inc. All Rights Reserved.

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October 13, 2011

Credit Suisse Buries European Banks, Sees Deutsche Bank And 65 Other Bank Failing Latest Stress Test

Courtesy of

A day after Credit Suisse killed the Chinese bank sector saying that the equity of virtually the entire space may be worthless if NPLs double, as they expect they will to about 10%, the Swiss bank proceeds to kill European banks next. Based on the latest farce out of Europe in the form of the third stress test, which is supposed to restore some confidence, it appears that what it will do is simply accelerate the flight out of everything bank related, but certainly out of anything RBS, Deutsche Bank, BNP, SocGen and Barclays related. To wit: "In our estimation of what could be the "new EBA stress test" there would be 66 failures, with RBS, Deutsche Bank, and BNP needing the most capital – at €19bn, €14bn and €14bn respectively. Among the banks with the highest capital shortfalls, SocGen and Barclays would need roughly €13bn with Unicredit and Commerzbank respectively at €12bn and €11bn. In the figure below we present the stated results. We note RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them, negatively impacting the results by c.80bps." Oops. Perhaps it is not too late for the EBA to back out of this latest process and say they were only kidding. And it gets even worse: "We present in this section an overview of the analysis which we published in our report 'The lost decade' – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn." Said otherwise, we can now see why the FT reported yesterday that banks will be forced to go ahead and proceed with asset firesales: the mere thought of European banks raising new cash amounting to 75% of the entire industry's market cap, is beyond ridiculous. So good luck with those sales: just remember - he who sells first, sells best.

And the scary charts:

1. Capital Shortfalls under Stress Test part Trois (9% min. CET1 ratio)

2. The same in details:

On the €400 billion shortfall:

We present in this section an overview of the analysis which we published in our report 'The lost decade' – 15-Sep 2011. One of our conclusions was that the overall European banking sector is facing a €400bn capital shortfall which compares to a current market cap of €541bn.

The table below details the breakdown of our estimated capital shortfall.

Figure 6: European banks – Capital deficit in CS 'accelerated sovereign shock

As highlighted in Figure 6, this number includes the following;

€165bn of capital necessary comply with Basel 3 requirements. We base our analysis on 2012E which might appear to be conservative given the fact that banks are expected to by compliant by 2019E including the phase-in period. We think though that higher capital requirements are actually driven by the credit market as opposed to the Basel III timeline.

Figure 7 shows both the 2012E Basel 3 fully loaded ratios for the European banks before and after our accelerated sovereign shock scenario. Our base case shows a sector average ratio of 8.6% which declines to 6.2% post losses and higher funding costs.

€213bn of losses under our "accelerated sovereign shock, including: (i) €52bn of incremental losses on credit market assets (we estimated €400bn credit market assets exposures currently at European banks); (ii) €124bn of losses on sovereign debt holding based on our "accelerated sovereign shock"; (iii) €37bn equivalent to one year of higher funding costs, which is equivalent to 26% of our 2012E estimates PBT for the sector (details by banks are shown Figure 8). We believe we are witnessing a structural change in the level of banks funding costs. Weaker sovereigns' balance sheet means, at least partly, a removal of the 'too-big-to-fail' guarantee which will inevitably be reflected in funding markets.

And so on.

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Google Tax Probe to Focus on Offshore Units - Bloomberg #MasterTech

The U.S. Internal Revenue Service is
auditing how Google Inc. avoided federal income taxes by
shifting profit into offshore subsidiaries, according to a
person with knowledge of the matter.

As of June 30, Google held $18.8 billion in cash in its foreign subsidiaries, almost half its total $39.1 billion in cash and marketable securities.

Google Tax Probe to Focus on Offshore Units

The U.S. Internal Revenue Service is auditing how Google Inc. (GOOG) avoided federal income taxes by shifting profit into offshore subsidiaries, according to a person with knowledge of the matter.

The agency is bringing more than typical scrutiny to how the company valued software rights and other intellectual property it licensed abroad, said the person, who requested anonymity because the audit isn't public. The IRS has requested information from Google about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube, the person said. The transfer overseas of these kinds of rights has enabled Google to attribute earnings to foreign units that pay lower taxes, Bloomberg News reported a year ago.

While Google's potential liability isn't clear, similar deals between companies and offshore arms are often the subject of disputes over hundreds of millions of dollars in taxes, said Daniel Frisch, an economist at Horst Frisch Inc. which advises businesses on transfer pricing -- the allocation of income between units in different countries. In 2006, the IRS settled a case with drugmaker GlaxoSmithKline Plc (GSK) for $3.4 billion.

"The very biggest transfer-pricing tax disputes are over transfers of intangibles to offshore subsidiaries," said Frisch, whose firm is based in Washington.

Google, owner of the world's most popular search engine, has cut its worldwide tax bill by about $1 billion a year using a pair of strategies called the "Double Irish" and "Dutch Sandwich," which move profits through units in Ireland, the Netherlands and Bermuda. Google reported an effective tax rate of 18.8 percent in the second quarter, less than half the average combined U.S. and state statutory rate of 39.2 percent.

Tax Holiday

"This is a routine inquiry," said Jim Prosser, a spokesman for Mountain View, California-based Google. He declined to comment further.

Dean Patterson, a spokesman for the IRS in Washington, said federal law prohibits the agency from discussing specific taxpayers.

U.S. companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries on which they have paid no federal income taxes, according to a May report by JPMorgan Chase & Co. Companies including Google, Cisco Systems Inc. (CSCO)Pfizer Inc. (PFE),Apple Inc. (AAPL) and Microsoft Corp. (MSFT) are lobbying Congress for a tax holiday on bringing home those profits, which would otherwise be subject to U.S. income tax at the 35 percent corporate rate with a credit for foreign taxes already paid.

The Obama administration is opposed to that tax break and has been stepping up criticism of tax preferences for various industries and millionaires. Last week, Senate Democrats proposed a new surtax on people earning at least $1 million a year, a move that would generate an estimated $453 billion over the coming decade.

France Probe

The French tax authority also began reviewing Google's income shifting in December, examining transactions between the company's French and Irish subsidiaries, according to two people with knowledge of the probe. The French inquiry was prompted by the October 2010 Bloomberg article on the company's tax-cutting strategy, the people said.

A spokesman for the French budget ministry, which oversees the tax authority, declined to comment, saying the agency cannot discuss individual cases.

Multinational companies cut their tax bills by shifting earnings into subsidiaries in offshore tax havens, a strategy that is drawing increased scrutiny from the IRS.

In May, the IRS appointed its first transfer-pricing director, Samuel Maruca. Last year, it announced the assignment of additional agents and attorneys to examine a few large companies as part of a pilot program. The IRS wouldn't discuss whether Google is one of those companies.

Valuable Patents

Moving profit abroad is particularly important for cutting the tax bills of technology and pharmaceutical companies because of their valuable and easily transportable collection of patents and copyrights. Google, Cisco, Facebook Inc., Microsoft and Forest Laboratories Inc. (FRX), maker of the blockbuster antidepressant Lexapro, have used tax-cutting strategies that move profits into units -- often with no employees or offices -- in havens such as Bermuda, the Cayman Islands and Switzerland, Bloomberg has reported.

In recent years, the IRS has engaged in a number of high profile disagreements with multinational companies over their transfer pricing. In 2006, the agency announced it was settling its dispute with GlaxoSmithKline.

In 2009, the IRS lost a closely watched U.S. Tax Court case with Veritas, now a part of computer-security software maker Symantec Corp. (SYMC) In that dispute, over intellectual property rights moved to an offshore subsidiary, the IRS sought $545 million.

Enforcement Setback

The win for Veritas was a major setback for the IRS's ability to enforce transfer-pricing rules, according to H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, and director of the International Tax program at New York University School of Law.

Income shifting by multinational companies cost the U.S. $90 billion in federal tax revenue during 2008, according to a March article in the trade journal Tax Notes by Kimberly Clausing, an economics professor at Reed College in Portland, Oregon.

Google cuts its tax bill by about $1 billion a year using a technique that allocates profits to a unit managed out of a law firm in Bermuda, where there is no corporate income tax. In 2009, the most recent year for which records are available, this subsidiary collected 4.34 billion euros (about $6.1 billion) in royalties from a Google unit in the Netherlands, according to a Dutch corporate filing.

As of June 30, Google held $18.8 billion in cash in its foreign subsidiaries, almost half its total $39.1 billion in cash and marketable securities.

Read the rest here:

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