As investors return to the market, big companies in Europe are finding it easier to raise money via bonds, equities and even IPOs. The chief financial officers at some of Europe's largest firms have had a busy few months. Since markets started to recover in early summer, executives from companies including German retailer Metro and Anglo-Australian miner Rio Tinto have hit up investors for extra funds. And in the past two weeks, French banks Société Générale and BNP Paribas, as well as Italian counterpart UniCredit, have announced rights issues set to raise billions of dollars. The fact that corporations are refilling their coffers is the latest sign the worst of the Great Recession may now be over. Indeed, data provider Dealogic estimates European companies have taken in almost $221 billion through rights issues and initial public offerings so far this year. That's just below the $228 billion raised in all of 2008, which analysts expect to be surpassed by the end of 2009. Firms also have bagged $1.1 trillion through corporate bonds so far this year, vs. $865 billion during all of 2008. Nonfinancial companies-still suffering from banks' high lending fees-have scored almost two-thirds of their funding from the resurgent corporate bond market. The flurry of activity is a win-win for companies and investors alike. For recession-hit firms, the extra cash helps bolster sagging balance sheets and provides ammunition to snap up merger-and-acquisition targets at continuing knockdown prices. And for gun-shy investors -- many still hoping to recoup losses from the past two years-the chance to lock in attractive corporate bond yields and grab equity stakes amid rising markets is too good to pass up.
As investors return to the market, big companies in Europe are finding it easier to raise money via bonds, equities and even IPOs.
The chief financial officers at some of Europe's largest firms have had a busy few months. Since markets started to recover in early summer, executives from companies including German retailer Metro and Anglo-Australian miner Rio Tinto have hit up investors for extra funds. And in the past two weeks, French banks Société Générale and BNP Paribas, as well as Italian counterpart UniCredit, have announced rights issues set to raise billions of dollars.
The fact that corporations are refilling their coffers is the latest sign the worst of the Great Recession may now be over. Indeed, data provider Dealogic estimates European companies have taken in almost $221 billion through rights issues and initial public offerings so far this year. That's just below the $228 billion raised in all of 2008, which analysts expect to be surpassed by the end of 2009. Firms also have bagged $1.1 trillion through corporate bonds so far this year, vs. $865 billion during all of 2008. Nonfinancial companies-still suffering from banks' high lending fees-have scored almost two-thirds of their funding from the resurgent corporate bond market.
The flurry of activity is a win-win for companies and investors alike. For recession-hit firms, the extra cash helps bolster sagging balance sheets and provides ammunition to snap up merger-and-acquisition targets at continuing knockdown prices. And for gun-shy investors -- many still hoping to recoup losses from the past two years-the chance to lock in attractive corporate bond yields and grab equity stakes amid rising markets is too good to pass up.
But there will be no recovery unless and until individual and corporate incomes in the real economy -not the Vampire Squid economy - pick up.
That is 10 to 20 years away, if ever, in the absence of systemic fiscal and monetary reform. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
SG, BNP and UniCredit are all banks.
Did Metro and Rio Tinto use a bank as an underwriter for these equity/debt issues?
If so, how is this
Confirmation that since credit intermediaries are fucked, investors will connect directly
If not, how dit Rio Tinto and Metro manage the issues? They don't have the in-house expertise for it.
Exactly.
Banks as service providers - bringing investors together with investment, managing issues, maybe even underwriting them - none of this is credit intermediation.
Credit intermediaries are fucked through the need to conserve capital - which, as we see, they are raising from investors, while they can. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
So you're saying the banks acted as intermediaries but did not underwrite the issues?
Where did you get that idea from?
I am saying that if you are not a credit counterparty - ie a middleman standing between the depositor and the borrower - then you are not a credit intermediary.
An underwriter, as I understand underwriting, is a service provider, being paid for taking on a contingent liability to provide the finance if no-one else does. An insurance/ guarantee function, essentially
An intermediary is a middleman. We are seeing the end of credit middlemen and their replacement by credit service providers. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
We are seeing the end of credit middlemen and their replacement by credit service providers.
However,
a contingent liability to provide the finance if no-one else does
It's like the animal that walks like a duck, and quacks like a duck, but it's not a duck. In the long run, we're all dead. John Maynard Keynes
I presume you know what an underwriter does? My understanding is that an underwriting bank will only end up as a creditor/investor if they don't manage to find other creditors/investors willing to put up existing credit=money.
Would you characterise the function of debt underwriting by a bank as credit service provision, or as credit creation/ intermediation?
The fact that credit intermediation is increasingly fucked is my point, and no amount of snark will make that any less the case. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
So it's both a credit service and credit creation. The syndication is just shuffling around of money, whether it exists or needs to be created by other entities (and the part sold down by the underwriter may itslef be destroyed of shuffled elsewhere).
The only distinction between bank debt and capital market instruments is that bank debt is syndicated to a smaller pool of potential participants, and is less easy to trade. But fundamentally it's not very different. In the long run, we're all dead. John Maynard Keynes
Hallelujah. =) Peak oil is not an energy crisis. It is a liquid fuel crisis.
The problems that emerged when the investment banks converted from partnerships to corporations (something which should of course not have been allowed) came from leveraging underwriting skills in pursuit of financial middleman incomes through the invention of new financial instruments to underwrite. Freeing the financial industry from being tied to income growth in the productive sector - or so it was thought, in the midst of the bubble economy, as it is always thought in midst of a bubble economy. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
the investment banks converted from partnerships to corporations (something which should of course not have been allowed)
Lehman Bros. went public to merge with American Express, and so of course was spun off as a corporation when American Express decided to get out of banking. Salomon Bros. went public with its take-over by Phibro Corp. (which became Salomon Inc.). Goldman Sachs went public in an IPO in 1999. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
(a) Ownership and control goes with stock ownership in a corporation - in a partnership it's whatever they agree, and typically one member, one vote;
(b) Principal/Agency conflict in a corporation, between owner stock-holders and their agents, the directors/management - that need not, and probably will not, be the case in a partnership;
(c) in a Corporation members have only a collective responsibility, whereas in a partnership they have a collective and individual (joint and several) responsibility.
Limited Liability is a separate issue. For maybe 250 years until 1855 in the UK Companies and their members did not have limited liability, any more than partnerships did, and it was an extremely contentious change at the time.
Quite rightly, since as it has turned out, in return for this privilege, investors don't give much back to the society which grants them the privilege. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
For maybe 250 years until 1855 in the UK Companies and their members did not have limited liability, any more than partnerships did, and it was an extremely contentious change at the time.
An economic history hypothesis here: financial instability à la Minsky did not occur before 1855 and there was a speculative bubble starting in 1855 which ended in a severe recession.
I think most people would characterise both the South Sea Bubble and the Mississippi Bubble as financial instability, but I have yet to read Minsky's definition.
IMHO it's leverage - ie deficit-based financing, of which John Law's Banque Royale was arguably the first recognisable Central Bank nexus - that is the prime cause of instability.
Limited liability certainly wouldn't act against instability, that's for sure. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
South Sea Company - Wikipedia, the free encyclopedia
Furthermore, the scramble for liquidity appeared internationally as "bubbles" were also ending in Amsterdam and Paris. The collapse coincided with the fall of the Mississippi Scheme of John Law in France. As a result, the price of South Sea shares began to decline. By the end of September the stock had fallen to £150. The company failures now extended to banks and goldsmiths as they could not collect loans made on the stock, and thousands of individuals were ruined (including many members of the aristocracy). With investors outraged, Parliament was recalled in December and an investigation began. Reporting in 1721, it revealed widespread fraud amongst the company directors and corruption in the Cabinet. Among those implicated were John Aislabie (the Chancellor of the Exchequer), James Craggs the Elder (the Postmaster General), James Craggs the Younger (the Southern Secretary), and even Lord Stanhope and Lord Sunderland (the heads of the Ministry). Craggs the Elder and Craggs the Younger both died in disgrace; the remainder were impeached for their corruption. Aislabie was imprisoned. The newly appointed First Lord of the Treasury Robert Walpole was forced to introduce a series of measures to restore public confidence. Under the guidance of Walpole, Parliament attempted to deal with the financial crisis. The estates of the directors of the company were confiscated and used to relieve the suffering of the victims, and the stock of the South Sea Company was divided between the Bank of England and East India Company. A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames.[3] The crisis had significantly damaged the credibility of King George I and of the Whig Party.
Furthermore, the scramble for liquidity appeared internationally as "bubbles" were also ending in Amsterdam and Paris. The collapse coincided with the fall of the Mississippi Scheme of John Law in France. As a result, the price of South Sea shares began to decline.
By the end of September the stock had fallen to £150. The company failures now extended to banks and goldsmiths as they could not collect loans made on the stock, and thousands of individuals were ruined (including many members of the aristocracy). With investors outraged, Parliament was recalled in December and an investigation began. Reporting in 1721, it revealed widespread fraud amongst the company directors and corruption in the Cabinet. Among those implicated were John Aislabie (the Chancellor of the Exchequer), James Craggs the Elder (the Postmaster General), James Craggs the Younger (the Southern Secretary), and even Lord Stanhope and Lord Sunderland (the heads of the Ministry). Craggs the Elder and Craggs the Younger both died in disgrace; the remainder were impeached for their corruption. Aislabie was imprisoned.
The newly appointed First Lord of the Treasury Robert Walpole was forced to introduce a series of measures to restore public confidence. Under the guidance of Walpole, Parliament attempted to deal with the financial crisis. The estates of the directors of the company were confiscated and used to relieve the suffering of the victims, and the stock of the South Sea Company was divided between the Bank of England and East India Company. A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames.[3] The crisis had significantly damaged the credibility of King George I and of the Whig Party.
The number of outstanding shares of the company was probably around 500,000 in 1720. A stock price of 15,000 livres would have given the company a market capitalization of 7.5 billion livres. After the share price collapsed to 500 livres in September 1721, the company was valued at only 250 million livres. As a comparison, the French government expenses was 150 million livres in 1700, while their debt in 1719 was 1.6 billion livres. With the demand for company shares being high, the government and John Law set out to buy back the whole 1.6 billion livres government debt for shares in the company. The plan was successful and in 1720 the whole government debt was acquired by the company, before the company's market capitalization began to collapse during 1720 and 1721. Compare this with the debt acquisition by The South Sea Company of England that acquired 80% of the 50 million pound government debt during 1720. The South Sea Company reached a highest share price of 1,000 pounds in August 1720, a few months later than the Compagnie des Indes. As the creditors bought shares in the company with their bonds and debt papers (debt-for-equity transaction), the whole government debt became property of the company, the company became property of the former creditors, now the shareholders, and the effective control fell into the hands of the government that paid an annual 3% interest to the company, which amounted to 48 million livres. Through these transactions the French government had successfully unloaded their whole gigantic debt of 1,000% the annual budget (perhaps 200% - 400% of GDP) and was basically debt free.
The number of outstanding shares of the company was probably around 500,000 in 1720. A stock price of 15,000 livres would have given the company a market capitalization of 7.5 billion livres. After the share price collapsed to 500 livres in September 1721, the company was valued at only 250 million livres. As a comparison, the French government expenses was 150 million livres in 1700, while their debt in 1719 was 1.6 billion livres.
With the demand for company shares being high, the government and John Law set out to buy back the whole 1.6 billion livres government debt for shares in the company. The plan was successful and in 1720 the whole government debt was acquired by the company, before the company's market capitalization began to collapse during 1720 and 1721. Compare this with the debt acquisition by The South Sea Company of England that acquired 80% of the 50 million pound government debt during 1720. The South Sea Company reached a highest share price of 1,000 pounds in August 1720, a few months later than the Compagnie des Indes.
As the creditors bought shares in the company with their bonds and debt papers (debt-for-equity transaction), the whole government debt became property of the company, the company became property of the former creditors, now the shareholders, and the effective control fell into the hands of the government that paid an annual 3% interest to the company, which amounted to 48 million livres. Through these transactions the French government had successfully unloaded their whole gigantic debt of 1,000% the annual budget (perhaps 200% - 400% of GDP) and was basically debt free.
There's a great film to be made about John Law, and a couple of good documentaries. His understanding of the concept of Money was as good as any I have seen. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The long term close holding of the investment bank is what gives teeth to the practice of the investment bank holding a portion of the financial instruments that they underwrite - when the real risk of the holding devolves onto external shareholders while the short term reward to inflated financial asset pricing accrues to all executives with stock options, the fact that the investment bank holds a portion of the financial instruments that they underwrite loses a lot of its force. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
ie the whole fortune of the top management was de facto invested in the company. In the long run, we're all dead. John Maynard Keynes
It was the conversion to publicly traded corporations that struck in a wave starting after 1980 and ending at the same time as the repeal of Glass-Steagall. Of course, the incestuousness of the primary institutions engaged in managing new issues into the capital markets being controlled by shares bought and sold in the same capital markets was remarked upon, but nobody in a position of power made a big issue of it. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Investment bankers are about to enjoy a record bonus season as confidence surges in the financial markets. Just 12 months after the global economy was brought close to collapse by reckless lending -- forcing banks to turn to taxpayers for help -- stock markets in London and New York are enjoying one of the strongest bull runs in decades and investment banks are preparing to announce huge profits. In Britain, job losses slowed in the three months to August. Unemployment rose by 88,000 to 2.47 million, the lowest rise since July last year, and youth unemployment fell slightly. China reported strong trade figures and oil hit a high for the year. Goldman Sachs, which employs 5,500 people in London, is expected to report a sharp rise in third-quarter profits today. Analysts estimate that, barring a major setback, the average London worker at Goldman will receive about $748,000 (£467,000) in salary and bonuses -- 13 per cent higher than 2007 and more than double the 2008 average.
Investment bankers are about to enjoy a record bonus season as confidence surges in the financial markets.
Just 12 months after the global economy was brought close to collapse by reckless lending -- forcing banks to turn to taxpayers for help -- stock markets in London and New York are enjoying one of the strongest bull runs in decades and investment banks are preparing to announce huge profits.
In Britain, job losses slowed in the three months to August. Unemployment rose by 88,000 to 2.47 million, the lowest rise since July last year, and youth unemployment fell slightly. China reported strong trade figures and oil hit a high for the year.
Goldman Sachs, which employs 5,500 people in London, is expected to report a sharp rise in third-quarter profits today. Analysts estimate that, barring a major setback, the average London worker at Goldman will receive about $748,000 (£467,000) in salary and bonuses -- 13 per cent higher than 2007 and more than double the 2008 average.
* Net profits of $3.6bn in third quarter* Staff on course for average pay of $133,000JP Morgan Chase signalled today that City firms are preparing to make huge bonus payments after it kicked off the US bank reporting season by smashing profit expectations.The bank revealed it had set aside $7.3bn (£4.6bn) in the third quarter to pay staff, taking the total remuneration pot for the first nine months of the year to $21bn, 23% more than at the same time last year.The admission by JP Morgan Chase that it was preparing to raise bonuses came as Goldman Sachs was expected to report that it too was enjoying a bumper year and its bonus pool could reach $22bn.Mounting expectations that bankers are looking forward to huge pay cheques barely a year after the banking system was bailed out by governments across the world have forced the biggest payers in the City to capitulate to government demands to adopt the G20 principles on pay.
* Staff on course for average pay of $133,000
JP Morgan Chase signalled today that City firms are preparing to make huge bonus payments after it kicked off the US bank reporting season by smashing profit expectations.
The bank revealed it had set aside $7.3bn (£4.6bn) in the third quarter to pay staff, taking the total remuneration pot for the first nine months of the year to $21bn, 23% more than at the same time last year.
The admission by JP Morgan Chase that it was preparing to raise bonuses came as Goldman Sachs was expected to report that it too was enjoying a bumper year and its bonus pool could reach $22bn.
Mounting expectations that bankers are looking forward to huge pay cheques barely a year after the banking system was bailed out by governments across the world have forced the biggest payers in the City to capitulate to government demands to adopt the G20 principles on pay.
The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.'s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy. "The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan's third- biggest bank. "The dollar's fall won't stop until there's a change to the global currency system." ... The dollar is now at [Elliot] wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno.
"The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger," said Daisuke Uno at Sumitomo Mitsui, a unit of Japan's third- biggest bank. "The dollar's fall won't stop until there's a change to the global currency system." ...
The dollar is now at [Elliot] wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno.
a number in the Fibonacci sequence
Good to see a point of view backed up by hard science.
Although to be fair, it's not any more or less outrageous than a lot of other economic scienctificism.
R. N. Elliott's analysis of the mathematical properties of waves and patterns eventually led him to conclude that "The Fibonacci Summation Series is the basis of The Wave Principle."[1] Numbers from the Fibonacci sequence surface repeatedly in Elliott wave structures, including motive waves (1, 3, 5), a single full cycle (5 up, 3 down = 8 waves), and the completed motive (89 waves) and corrective (55 waves) patterns. Elliott developed his market model before he realized that it reflects the Fibonacci sequence. "When I discovered The Wave Principle action of market trends, I had never heard of either the Fibonacci Series or the Pythagorean Diagram."[1]
It does not say who the critics are, but the second critique sounds like mainstream economists.
Indeed, both critiques sound like mainstream economists, who are often a bit tone-deaf to that kind of internal contradiction.
BTW, Dan Brown would be a brilliant technical analyst. An ability to generate fictions about elaborate patterns with a very thin surface veneer of plausibility to persuade large numbers of the gullible that the patterns are real world phenomena - why, that's just the job description for a technical analyst. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
We get a chuckle over this dollar weakness when free market people like Steve Forbes come out and look for market intervention to stop it. The market is taking the dollar where it should be, where it needs to go. If only countries with obvious pegs and ongoing manipulation to support export mercantilism were also to allow their currencies to float more freely. It is going to kill off global trade. It is the great failure of the WTO and US trade policy to have allowed pegs and overt currency manipulation policies which are de facto tariffs and subsidies on trade. ..... The only way out, the only viable path, is for the US to embrace a serious reform of its markets and its financial system, and to change system that encourages the debilitating corruption of decision-making in Washington, which is under the influence of an army of well-heeled lobbyists. To that extent, the "straight talking" pre-Palin version of John McCain had it right. Little serious reform can be done until campaign finance and influence peddling in Washington is addressed. McCain saw the danger of this conflict of interest in his own career as part of the Keating Five, and his own party and the rise of the neo-con statism and its assault on republican ideals. The Democrats have shown themselves to be no better, having gone down the slippery slope of Clinton capitalism, the partnership of special interests and government. Obama failed when he embraced it. And now both parties are deep in the mire of corruption.
.....
The only way out, the only viable path, is for the US to embrace a serious reform of its markets and its financial system, and to change system that encourages the debilitating corruption of decision-making in Washington, which is under the influence of an army of well-heeled lobbyists.
To that extent, the "straight talking" pre-Palin version of John McCain had it right. Little serious reform can be done until campaign finance and influence peddling in Washington is addressed. McCain saw the danger of this conflict of interest in his own career as part of the Keating Five, and his own party and the rise of the neo-con statism and its assault on republican ideals.
The Democrats have shown themselves to be no better, having gone down the slippery slope of Clinton capitalism, the partnership of special interests and government. Obama failed when he embraced it. And now both parties are deep in the mire of corruption.
Richard Beales writes in Breakingviews, linked from today's NYT, (won't copy, so I'll summarize, or you can click on the title), that things are about to get interesting for some of BOA's attorneys. Judge Rakoff has rejected a proposed settlement between BOA and the SEC over lack of disclosure. He wants to know who made what decisions and what was the legal advice on which they relied.
BOA had refused to release the legal advice on which they relied for the Merrill acquisition. Andrew Cuomo, NY State Atty. General, threatened to charge Ken Lewis and other bank bosses. BOA reversed course and agreed to release the advise and Lewis has announced he will resign and take no salary for '09.
Wachtell, Lipton, Rosen and Katz are the attorneys that provided the advice on the acquisition. BOA is now relying on other counsel. Not only will the correspondence be released, but the attorneys could find themselves testifying for Rogoff, Cuomo and the US Congress. The interesting prospect is that the advice they proffered was routine in the industry. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
1. The financial sector harms the real economy. Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. [...] 2. The financial sector produces recurrent, intensifying economic crises here and abroad.[...] 3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality. [...] 5. The CEO's of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.
1. The financial sector harms the real economy.
Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve.
[...]
2. The financial sector produces recurrent, intensifying economic crises here and abroad.
3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.
5. The CEO's of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.
