U.S. sues S&P and McGraw-Hill over mortgage-bond ratings | Experts: European transaction tax could push business elsewhere | Moscow Exchange is worth as much as $6.5B, IPO arrangers say
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05 February 2013
CFA Institute: Financial NewsBrief
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Liberty Global prepares bid for Virgin Media
U.S. cable company Liberty Global is again looking to acquire Britain's Virgin Media, and a bid could be announced any day, sources say. "Virgin Media confirms that it is in discussions with Liberty Global, a leading international cable company, concerning a possible transaction. Any such transaction would be subject to regulatory and other conditions," according to Virgin Media, which has an enterprise value in excess of $20 billion. Bloomberg (05 Feb.), The Guardian (London) (05 Feb.), Financial Times (tiered subscription model) (05 Feb.)
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U.S. sues S&P and McGraw-Hill over mortgage-bond ratings
The Justice Department has sued credit rating agency Standard & Poor's and parent McGraw-Hill, claiming S&P intentionally understated the credit risk of mortgage-backed securities. The U.S. government accuses McGraw-Hill and S&P of wire, financial-institution and mail fraud. McGraw-Hill's share price fell the most in 25 years. Bloomberg (05 Feb.), Reuters (04 Feb.), Los Angeles Times (tiered subscription model) (04 Feb.)
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Experts: European transaction tax could push business elsewhere
The Eurobond originated 50 years ago, when the U.S. instituted a tax to make it more expensive to invest in foreign equities. The Eurobond market became a viable alternative and has become the largest fixed-income market for corporate debt. Analysts see Europe's proposed financial-transaction tax as having the same effect. "If you can transact without transaction costs, you will," said Jim Kean of Bayesic Asset Management. "There'll be a market in Singapore or somewhere else." Bloomberg (03 Feb.)
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Moscow Exchange is worth as much as $6.5B, IPO arrangers say
The Moscow Exchange, Russia's main trading venue for stocks, bonds, derivatives and foreign exchange, has priced its initial public offering at 55 to 63 rubles per share. The exchange aims to raise about $502 million. Reuters (04 Feb.), The New York Times (tiered subscription model)/DealBook blog (04 Feb.), Financial Times (tiered subscription model) (04 Feb.)
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Stock funds in U.S. report record monthly inflow
U.S. investors poured a record $77.4 billion into stock funds in January, TrimTabs Investment Research said. The figure includes mutual funds and exchange-traded funds. The previous one-month record was $53 billion in 2000, right before the collapse of the dot-com bubble. Barron's (free content)/Focus on Funds blog (04 Feb.), The Globe and Mail (Toronto) (tiered subscription model)/Inside the Market blog (05 Feb.), 24/7 Wall St. (04 Feb.)
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Fed's ability to hold rates near zero is questioned
The Federal Reserve has made a commitment to hold short-term interest rates at or near zero "for a considerable time," but officials are raising doubts about whether that will be possible as long-term rates rise. One Fed official said the U.S. central bank won't be able to hold the line on rates. Market News International (05 Feb.)
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Worries about Europe drive down Asian-Pacific markets
Stock markets fell Tuesday in Asia-Pacific as investors backed away from risk amid political discord in Europe. Hong Kong's Hang Seng Index declined 2.3%. Japan's Nikkei 225 dropped 1.9%. Australia's S&P/ASX 200 and India's Sensex each slid 0.5%. South Korea's Kospi gave up 0.8%. Bucking the trend, China's Shanghai Composite edged up 0.2%. The Economic Times (India) (26 Feb.), The Wall Street Journal (tiered subscription model) (05 Feb.)
Spanish and Italian borrowing costs rise and equities tumble
Spanish and Italian bond yields surged and stock prices plummeted as potential political upheaval in the countries unnerved traders. In Spain, Prime Minister Mariano Rajoy denied involvement in a financial scandal. In Italy, the popularity of Silvio Berlusconi, who is campaigning to again become prime minister, appears to be rising. The Telegraph (London) (tiered subscription model) (04 Feb.)
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Private placement raises $3.1B for China's Sinopec
The sale of H-shares to 10 investors in a private placement raised $3.1 billion for China Petroleum & Chemical, commonly known as Sinopec. The share price was at a 9.5% discount to Monday's closing price for publicly traded H-shares. The transaction was Asia's biggest equity deal this year. FinanceAsia.com (Hong Kong) (05 Feb.)
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Economics
Banks ease credit for some types of loans, Fed says
U.S. banks are narrowing profit margins and loosening auto loan requirements to bring in more business, the Federal Reserve said. Consumer demand for car loans is up from October, but home mortgage applications are flat, the central bank said. Banks told the Fed that they aren't significantly relaxing credit standards for business loans or commercial real estate loans. USA Today (04 Feb.)
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U.S. factory orders rebounded in December
Orders received by U.S. manufacturers increased 1.8% in December compared with November, which saw a 0.3% decrease, the Commerce Department says. In 2012, factory orders climbed 3%, to $5.66 trillion; orders jumped 11.8% in 2011. The New York Times (tiered subscription model)/The Associated Press (04 Feb.)
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Investors are heartened by rising bond yields
Corporate-pension executives and other institutional investors are welcoming an increase in corporate-bond and U.S. Treasury yields, which is coming sooner than expected. If yields keep rising, the trend will open the door to more corporate defined-benefit plans, reducing long-term obligations through lump-sum distributions or the purchase of group-annuity contracts to transfer pension risk, experts say. Pensions & Investments (free access for SmartBrief readers) (04 Feb.)
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Advisers face hurdle in retirement-income planning, group says
Financial advisers might find it a challenge to meet increased demand for retirement-income planning as investable assets held by heads of households older than 55 reach $22 trillion by 2020, according to industry-funded research group LIMRA. "With such a large demand, advisers may have to provide income product solutions more efficiently," said Jafor Iqbal, associate managing director of LIMRA Retirement Research. Financial-Planning.com (04 Feb.)
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U.K. economic growth is slowing, research institute says
The National Institute of Economic and Social Research expects the U.K. economy to expand 0.7% this year, rather than a previously forecast 1.1%. The institute says Chancellor George Osborne should ease austerity measures to help the economy recover. Bloomberg (04 Feb.)
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Geopolitical/Regulatory
European Parliament panel rejects proposed swaps rules
The European Parliament Economic and Monetary Affairs Committee has voted down draft rules for over-the-counter derivatives. The outcome, which was expected, hinged on lawmakers' concerns that the rules would create an undue burden on businesses and would run counter to EU law. The full Parliament could take up the matter this week. If the measure fails there, too, policymakers will have to start over. Bloomberg Businessweek (04 Feb.), Reuters (04 Feb.), Financial Times (tiered subscription model) (04 Feb.)
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FSB's call for FX derivatives margin confuses industry
The Financial Stability Board has called for the Basel Committee on Banking Supervision and the Committee on Payment and Settlement Systems to focus on foreign exchange derivatives and "set out strong provisions on variation margin." The request seems to run counter to the Working Group on Margining Requirements, which has delayed issuing guidelines, partly because of questions about whether they would be appropriate for forex swaps. The working group is run by the Basel Committee and the International Organization of Securities Commissions. Risk.net (subscription required) (04 Feb.)
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EU moves to open bond and stock settlement to competition
The European Parliament Economic and Monetary Affairs Committee approved a draft law that would, under certain conditions, open the settlement of bond and share trades to competition. The proposal aims to improve the system and reduce trading costs. Reuters (04 Feb.)
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Analysis: Cyberattacks on banks require more attention
Regulators are giving more attention to cyberattacks on financial institutions, but not enough is being done when the potential for crippling a national economy is considered, according to The Economist. "At the moment banks have little incentive to share information on attacks and vulnerabilities with regulators or competitors," the magazine notes. "Supervisors also appear to be unwilling to talk publicly about their concerns or about investigations into lapses by banks." The Economist (tiered subscription model) (02 Feb.)
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Financial Products
Thornburg creates retirement-plan share classes for 2 funds
Thornburg Investment Management added R-share classes for two funds. The classes aim to help retirement-plan sponsors comply with U.S. Labor Department fee-disclosure rules for defined-benefit and -contribution pensions. The classes are available for the Developing World Fund and the International Growth Fund. PlanAdviser.com (01 Feb.)
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