Sallie Mae Shocks Bondholders in Asset Strip

Sallie Mae Shocks Bondholders in Asset Strip: Corporate Finance

SLM Corp. (SLM) dealt bondholders a blow as the student loan company prepares to move cash-generating assets out of their reach and rely more heavily on secured funding as it seeks to split into two separate entities.

Fitch Ratings cut the company known as Sallie Mae to speculative grade yesterday, citing the new structure’s weaker credit profile while Standard & Poor’s and Moody’s Investors Service said they may reduce the credit as well. Newark, Delaware-based SLM’s bonds lost more than $200 million in value after the disclosure, according to data compiled by Bloomberg.

Sallie Mae is separating its education loan business from its consumer lending operation, following legislation in 2010 that cut companies out of the government-guaranteed student loan market. The lender’s $17.9 billion of unsecured bonds will be serviced by the company housing Sallie Mae’s $118 billion portfolio of U.S.-backed loans that it’s winding down, while the earnings, cash flow and equity of the newly formed SLM Bank will be moved out of bondholders’ reach, according to Moody’s.

“Anytime you split a company up like this and some portion of the cashflows that could have been available to support debt payments is no longer available, it is incrementally negative for bondholders,” Sameer Gokhale, an analyst at Janney Montgomery Scott LLC, said in a telephone interview. “The question is: how negative?” Read more of this post

Trend Towards In-House Investing Is Growing

Trend Towards In-House Investing Is Growing

29 MAY 2013 – ASHBY MONK

My morning ritual of drinking an unseemly amount of coffee and then scouring the interwebs for any and all Giant-related news unearthed something rather interesting: Four separate stories about large institutional investors shifting assets away from external managers and giving them to internal teams of direct investment professionals. Read more of this post

Oil and Gas Pose Challenge to Norway’s Tech Startups

May 29, 2013, 4:14 p.m. ET

Oil and Gas Pose Challenge to Norway’s Tech Startups

By BEN ROONEY

For those who follow Europe’s tech scene, naming startups from the Nordic/Baltic region wouldn’t be too hard.

There are any number from Sweden (music streaming site Spotify AB, payment service Klarna AB, games maker Mojang AB). Finland is host to Angry Birds maker Rovio. Even tiny Estonia has virtual fitting-room-provider Fits.me. But Norway? The browser company Opera Software OPERA.OS +0.23% ASA and…and, unless you are in the oil and gas business, chances are you are going to struggle. Read more of this post

Struggling Korean builders tell employees to show loyalty: buy apartments

Struggling Korean builders tell employees to show loyalty: buy apartments

5:35pm EDT

By Ju-min Park

GOYANG, South Korea (Reuters) – Five years after the global financial crisis, South Korean construction workers are feeling the pinch more than ever as they shoulder a mountain of debt from a real estate bust that has cast a long shadow on the country’s growth prospects. Facing the specter of bankruptcy, some construction firms persuaded their staff to take up loans to mop up unsold apartments. “There was pressure. There’s nowhere else in the world where there’s a parallel to these practices,” said a construction worker, who declined to be identified due to the sensitivity of the matter.

“Loyalty and hierarchy is still strong in South Korea and especially in the construction companies which are run like the armed forces,” he said, adding that his employer Poonglim Industrial Co Ltd had asked him to buy two apartments, which meant he had to borrow 800 million won ($712,800). Read more of this post

There’s No Accounting for China’s Accounting; A deal between Beijing and Washington to share audit information still leaves U.S. investors exposed

May 29, 2013, 11:31 a.m. ET

There’s No Accounting for China’s Accounting

A deal between Beijing and Washington to share audit information still leaves U.S. investors exposed.

By PAUL GILLIS

For a brief moment last week it looked like there had been a break in a serious regulatory dispute between the U.S. and China. On Friday, Washington and Beijing announced a deal for some information sharing between them concerning audits of U.S.-listed Chinese companies embroiled in accounting scandals. But there’s a whole lot less to this compromise than meets the eye, and those listings may still be in jeopardy.

Under Friday’s agreement, Chinese regulators will allow the U.S. Public Company Accounting Oversight Board (PCAOB) to access audit documents from Chinese accounting firms for PCAOB’s investigations. Washington has bristled for a long time that whenever a U.S.-listed Chinese company implode in an accounting scandal, American authorities have little or no access to the auditing documents that would allow for a thorough investigation and perhaps sanctions. Read more of this post

Accelerators Start Revving Up Industries Well Beyond Tech

May 29, 2013, 3:40 p.m. ET

Accelerators Start Revving Up Industries Well Beyond Tech

By LORA KOLODNY

Accelerators that provide seed funding and mentorship to technology startups produce some of the hottest companies in Silicon Valley. Now just about every industry is trying a “boot camp for business” model.

In Palo Alto, Local Food Lab Inc. started Food & Farm Startup Accelerator last year to boost chefs and farmers, more than engineers and MBAs. And in San Francisco, the nonprofit Code for America Accelerator, which started in July 2012, helps public-service providers score work with government agencies.

Meanwhile, the seed fund and accelerator Matter Ventures, which launched in December, enlists media entrepreneurs who want to make money while upholding the values of traditional journalism. Read more of this post

Reserve Bank of Australia Governor Glenn Stevens has gone an interest-rate cut too far for Mrs. Watanabe, as Japan’s households look closer to home for returns

Japanese Housewives Cooling on Aussie Uridashi

Reserve Bank of Australia Governor Glenn Stevens has gone an interest-rate cut too far for Mrs. Watanabe, as Japan’s households look closer to home for returns.

Aussie uridashi sales slumped 71 percent to A$1.8 billion ($1.7 billion) this year, even as A$9.4 billion in such debt matures in 2013, data compiled by Bloomberg show. The currency accounted for 10 percent of bonds offered to Japanese individuals this year, compared with 64 percent for yen-denominated offerings and a total of 28 percent since 2006. Japanese investors cut Aussie debt holdings by a record 1.7 trillion yen ($16.7 billion) in the five months through March, Ministry of Finance data show.

Japanese individual investors, a group often nicknamed Mrs. Watanabe because many are housewives, are piling into local assets as unprecedented Bank of Japan monetary easing drives the best equities gains in the developed world. Pacific Investment Management Co. said yesterday Stevens is likely to lower the RBA’s benchmark interest rate again after cutting it on May 7 to a record 2.75 percent. The yield premium benchmark Australian bonds offer over Japan’s touched a half-year low this month.

“What is becoming clear is that Japan is falling out of love with new buying of Australian dollar assets,” Martin Whetton, a Sydney-based interest-rate strategist at Nomura Holdings Inc., wrote in a May 25 e-mail. “If the RBA continues to cut rates, the investment is likely to remain light.” Read more of this post

Thailand cuts rates to undermine baht; what’s next – capital controls? Asia might find itself in the grip of a cycle where further cuts and controls are the only way to maintain competitiveness

Thailand cuts rates to undermine baht; what’s next – capital controls?

May 29, 2013 2:18pm by Jake Maxwell Watts

Thailand became the latest of several Asian countries to actively encourage the depreciation of its currency on Wednesday, continuing a trend that is likely to leave other regional economies with little choice but to follow.

Its central bank cut interest rates by 25 basis points from 2.75 per cent to 2.5 per cent a year, in an attempt to stem a rise in the baht, which hit a 16-year high last month. The Thai finance ministry is considering adding capital controls to the mix.

The rate cut is unlikely to do enough to resolve a long-standing dispute between the central bank’s governor, Prasarn Trairatvorakul, and Thailand’s finance minister Kittirat Na Ranong about whether a cut is the best way to discourage foreign capital inflows. Read more of this post

“Panic is building on panic”: Iron ore hit by Chinese steel doldrums amid widespread anxiety about the outlook for demand, and concerns about overcapacity in the industry

May 29, 2013 8:42 pm

Iron ore hit by Chinese steel doldrums

By Jack Farchy in London

Iron ore prices tumbled to a seven-month low on Wednesday as negativity spread through the Chinese steel industry.

Analysts said that both traders and steelmakers in China, which accounts for 60 per cent of global seaborne iron ore imports, had been selling down stocks amid widespread anxiety about the outlook for demand, and concerns about overcapacity in the industry.

“Panic is building on panic,” said Melinda Moore, bulk commodity strategist at Standard Bank in London. Read more of this post

Risk of Bank Failures Is Rising in Europe, E.C.B. Warns

May 29, 2013

Risk of Bank Failures Is Rising in Europe, E.C.B. Warns

By JACK EWING

FRANKFURT — The European Central Bank warned on Wednesday that the euro zone’s slumping economy and a surge in problem loans were raising the risk of a renewed banking crisis, even as overall stress in the region’s financial markets had receded.

In a sober assessment of the state of the zone’s financial system, the E.C.B. said that a prolonged recession had made it harder for many borrowers to repay their loans, burdening banks that had still not finished repairing the damage caused by the 2008 financial crisis. Read more of this post

China Failure to Grow With $1 Trillion Credit Seen as Li Warning

China Failure to Grow With $1 Trillion Credit Seen as Li Warning

By Bloomberg News – May 29, 2013

China’s economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise.

The government’s broadest measure of credit rose 58 percent to a record 6.16 trillion yuan ($1 trillion) in January-to-March, when gross domestic product gained 7.7 percent, compared with 8.1 percent a year earlier. Each $1 in credit firepower added the equivalent of 17 cents in GDP, down from 29 cents last year and 83 cents in 2007, when global money markets began to freeze, according to data compiled by Bloomberg.

The diminishing returns to lending heighten focus on the need for what the International Monetary Fund said yesterday are “decisive” policy changes in the world’s second-largest economy. Without a refocus away from state-approved projects, Li and President Xi Jinping risk overseeing both a further slowdown in growth and an increase in non-performing loans. Read more of this post

170,000 Living in Subdivided Flats in Hong Kong: Study

170,000 Living in Subdivided Flats in Hong Kong: Study

By Agence France-Presse on 2:45 pm May 28, 2013.
High rise buildings in Hong Kong on May 23. (AFP Photo/Philippe Lopez)

Hong Kong. More than 170,000 people in Hong Kong are living in cramped subdivided flats, a government-commissioned study has found, underlining the scale of the city’s housing crisis. Tens of thousands of low-income families and immigrants are forced to live in the tiny subdivided units, unable to afford sky-high rents in the crowded city of seven million. Hong Kong’s Beijing-backed leader Leung Chun-ying has promised to make tackling the housing problem a “top priority” by boosting the number of new homes for Hong Kong people. But the study showed the problem is even greater than previously thought, with an estimated 171,300 people living in 66,900 subdivided flats.

Read more of this post

Between cronyism and rebalancing in China

Between cronyism and rebalancing in China

Kate Mackenzie

| May 29 12:07 | 5 comments | Share

Chinese premier Li Keqiang on Monday:

China needs growth of about 7 percent to double per capita gross domestic product by 2020 from the level in 2010, Li said yesterday in Berlin after meeting with Chancellor Angela Merkel during his first trip abroad as premier.

Although China has a formal target of 7.5 per cent growth for this year, and that was still kind-of-maybe assumed to be the ongoing target figure for the next few years, no-one was hugely surprised at the declaration of a 7 per cent target. Read more of this post

Copper Users Squeezed as Glut Clogs Warehouse Lines: Commodities

Copper Users Squeezed as Glut Clogs Warehouse Lines: Commodities

At a time when copper stockpiles are rising to the highest in a decade, manufacturers are paying the biggest premiums for the metal in as much as seven years as financing deals lock up supply and extend lines at warehouses.

While inventories tracked by the London Metal Exchange more than doubled in the past year and supplies exceed demand for the first time since 2009, getting copper is becoming more expensive and taking longer. Buyers in Shanghai pay $135 a metric ton more than LME futures, up from $55 last year, Metal Bulletin data show. Luvata Malaysia Bhd., a circuit-board parts maker, stopped buying from local LME stockpiles after waiting times rose to three months from three days at the start of 2012. Read more of this post

Bond Default ‘Could Occur This Year’ in China; The founder of a domestic ratings agency says fears are mounting and the government may not be able to save the day

05.29.2013 17:27

Bond Default ‘Could Occur This Year’

The founder of a domestic ratings agency says fears are mounting and the government may not be able to save the day

By staff reporter Yang Na

(Beijing) – Calling for attention to the hidden risk in the country’s bond market, a credit rating expert has warned investors that a real bond default could happen this year.

The warning came from Mao Zhenhua, founder of China Cheng Xin International Credit Rating Co. Ltd. (CCXI), a domestic ratings agency. Debt problems are a main trigger of financial turmoil, he said at the company’s annual conference on May 28. Read more of this post

Q&A: (Almost) all you need to know about China Development Bank (CDB)

Q&A: (Almost) all you need to know about China Development Bank

May 29, 2013 12:33pm by Simon Rabinovitch

China Development Bank is one of the world’s largest but least understood financial institutions. Riddled by debt 15 years ago, CDB has now comfortably surpassed the World Bank as the biggest international lender to developing countries. And that only begins to tell the story about CDB. Overseas development lending is a small part of its overall business, with most of its Rmb7.5tn ($1.2tn) in assets focused on catalysing China’s own growth. But CDB is an opaque institution. Chinese banks are difficult to penetrate under the best of circumstances. Unlike its major domestic peers, CDB is unlisted and hence provides even less disclosure.

Read more of this post

Shell under the skin, 10 years after crisis

Shell under the skin, 10 years after crisis

7:31pm EDT

By Andrew Callus

LONDON (Reuters) – A decade ago, Royal Dutch/Shell’s (RDSa.L: Quote, Profile, Research, Stock Buzz) boss was fighting to close the gap between the truth about his company’s oil and gas reserves and the much larger figure in its accounts.

He lost the fight, and his job. Scandal engulfed one of the world’s biggest companies, exposing years of neglect.

Fast forward to May 2013, and the surprise news that chief executive Peter Voser will retire next year caused barely a ripple. Shell has recovered shareholder confidence. But while the risks may all be in the open now, they remain big. Read more of this post

Mexico Housing Bust Bruises Investors, Buyers

May 29, 2013, 7:58 p.m. ET

Mexico Housing Bust Bruises Investors, Buyers

By AMY GUTHRIE

HUEHUETOCA, Mexico—Hardly anyone turns up nowadays at a HomexHOMEX.MX +6.87% sales center for low-income homes in this dusty town north of Mexico City. On a recent Saturday, a banner promising “well-being” flapped in the wind near a sign that read “a new life awaits you.” Even the lone saleswoman on duty, Carolayn León, says she no longer believes in her employer after several missed paychecks.

She isn’t the only one who has lost faith. Home buyers and investors are turning their backs on Mexico’s low-income housing darlings, bringing a government-fueled boom that lasted more than a decade to a screeching halt. Scores of new homes in far-flung communities sit empty, while banks have canceled credit lines to some of the country’s biggest housing companies. Read more of this post

Latin America Boom Starts to Fade; “If commodity prices fall to 2003 levels, all that support for Latin American growth could be removed,”

Updated May 29, 2013, 7:17 p.m. ET

Latin America Boom Starts to Fade

Slowdown in China, a Major Commodities Importer From the Region, Drags on Growth; Xi to Visit

By PAULO WINTERSTEIN in São Paulo and DARCY CROWE in Bogota

A decadelong commodity boom in Latin America that lifted millions out of poverty is showing signs of fatigue, as fading demand in China hits consumers and corporate earnings from Bogotá to Brasilia. The latest evidence of a regional slowdown came Wednesday, when Brazil said its economy grew just 1.9% in the first quarter compared with the year-earlier period, far below estimates for 2.4% growth. Compared with the previous three months, Brazil’s GDP grew a modest 0.6%. Finance Minister Guido Mantega said he would lower his current forecast for 3.5% growth this year by an unspecified amount. “It’s evident that we won’t get an impulse from trade for some time to come and that the commodities boom has passed,” said Andre Perfeito, chief economist at Gradual Investimentos, a brokerage in São Paulo. Read more of this post

CHART OF THE DAY: What The Bond Market Sell-Off Looks Like On A 222-Year Chart

CHART OF THE DAY: What The Bond Market Sell-Off Looks Like On A 222-Year Chart

Matthew Boesler | May 29, 2013, 1:48 PM | 6,162 | 1

The big story in markets over the past few weeks has been the sell-off in the Treasury bond market and the accompanying rise in bond yields to their highest levels in over a year. Goldman strategists are out with a call declaring the sell-off “for real” this time after a number of false starts. The chart below, via Global Financial Data, shows the 10-year Treasury yields going back to 1791, as well as concurrent activity in the stock market. The chart isn’t granular enough to see the move over the past few weeks, but it does show the rise in interest rates since bottoming out about a year ago. 

“If Myanmar fails to build a compelling growth plan and implement it effectively, today’s goodwill and cautious optimism could evaporate all too rapidly”

May 29, 2013, 2:00 p.m. ET

McKinsey Warns Over Myanmar Investor Risk

By SHIBANI MAHTANI

A new report from global consulting firm McKinsey & Co. warns of “major risk of disappointment” for companies entering Myanmar despite the country’s recent reforms, particularly if the government fails to solve sectarian strife that again erupted in mob violence this week.

“The first thing the government is going to have to do is ensure a stable political situation,” said Heang Chhor, senior partner at McKinsey and one of the principal authors of the report, which is one of the first comprehensive looks at Myanmar’s economic potential, compiling half a year of independent research and interviews from the Southeast Asian country where data are notoriously hard to come by and often unreliable. Read more of this post

China’s spurned mistresses can’t be relied on to bust graft

China’s spurned mistresses can’t be relied on to bust graft: paper

6:43am EDT

BEIJING (Reuters) – China must not rely on whistle-blowing mistresses to expose corrupt officials, China’s top newspaper said on Wednesday, after a string of such incidents has led to some people hailing the girlfriends as graft-busters.

President Xi Jinping has singled out corruption as a threat to the Communist Party’s survival, and the keeping of mistresses in lavish apartments, which breaks party rules, has come to represent to many people the excesses of power in China.

In a recent high-profile case, Liu Tienan, once the deputy chief of China’s top planning agency, was sacked after his mistress told a journalist that Liu had helped defraud banks of $200 million, state media reported. Read more of this post

Mothers Turn Breadwinners for 40% of U.S. Households With Kids

Mothers Turn Breadwinners for 40% of U.S. Households With Kids

Mothers are the primary or only breadwinners in a record 40 percent of U.S. households with children, according to a study released today.

About 5.1 million of those workers are married women earning more than their spouses, boosting median family income in this group to almost $80,000, compared with the nationwide figure of $57,100 for all families with children, according to the Pew Research Center. Another 8.6 million households are headed by single mothers who report an annual median family income of just $23,000.

The report from Washington-based Pew highlights an economic divide between married and single mothers that has grown amid a steady decline in the fortunes of U.S. households. Median household income in the U.S. in 2011 was $50,054, its lowest level since 1995 and the fourth drop since 2007. Read more of this post

Gold Diverging From Fine Wine as Bullion Investors Lose Faith

Gold Diverging From Fine Wine as Bullion Investors Lose Faith

Gold and wine prices that tracked each other in the past decade amid demand for alternative assets are now diverging after bullion slumped into a bear market as some investors lost faith in the metal as a store of value.

The Liv-ex Fine Wine 100 Index (LIVX100) tripled in the past 10 years and gold advanced fourfold. The wine gauge rose 5.9 percent this year as bullion slid 17 percent. Credit Suisse Group AG said May 16 that the metal may drop to $1,100 an ounce in a year, or 21 percent less than now. The Wine Investment Fund, which manages about $50 million of assets, expects the Liv-ex gauge to rise by about another 7.6 percent by the end of December. Read more of this post

Brazil World Cup Kick-Starts Billionaire Boon as Farmers Lose

Brazil World Cup Kick-Starts Billionaire Boon as Farmers Lose

Monica Piaia’s catering company in downtown Cuiaba, the capital of the Brazilian grain-belt state of Mato Grosso, is doing so well that she has tripled her staff and acquired a third building since 2010 to handle a sixfold increase in demand.

The reason for her success is clear. A stone’s throw from her headquarters, where industrial-sized kettles bubble and delivery vans are loaded, 500 workers are toiling to finish one of the 12 stadiums nationwide that will host the 2014 soccer World Cup.

Three times a day, Piaia delivers food to workers there and at several of the 56 construction sites that will give Cuiaba new roads, a trolley and an airport terminal by June 2014, Bloomberg Markets magazine will report in its July issue. Read more of this post