Receiving Wide Coverage ...
China Woes Precede Earnings: As banks ready themselves to release the next batch of earnings, China is expected to be a source of concern on many big investment banks' minds. A faltering Chinese economy has become the cornerstone of fears associated with weaker global demand, according to the Financial Times, also characterized by tensions in Saudi Arabia and North Korea. Fueling suspicions of a weaker Chinese economy is the skepticism that has met China's choice last in 2015 to peg its currency to a new basket index. While such a move should represent a loosening of control over the yuan, most observers believe the Chinese government will still retain strong control over the currency. That has the potential to put forex markets in a bit of quandary, as people mainly focus on the exchange rate between the yuan and the dollar, and not the basket. "The yuan is down almost 6% against the dollar since the start of last year, but against that basket, it is almost exactly flat," the Journal reports.
But China isn't just a problem for America's largest investment banks – it also poses something of a threat to the Federal Reserve and its normalization strategy, as the Journal notes. The U.S. economy so far seems pretty healthy – the jobs report out Friday showed 292,000 jobs created in December – but Treasury yields haven't reflected that strength. That's largely because of unease overseas, namely in China. Inflation figures are expected to be low in the U.S. as overseas turmoil pressures import prices. Such a situation would make it difficult for the Fed to raise interest rates again, as some expect the central bank hopes to do in March.
RIP David Bowie: Upon his passing, David Bowie is remembered not just for his staggering musical creativity, but also for his financial prowess. The rock star helped to usher in a new type of investment, the so-called "Bowie Bond," which was backed by revenues from his albums, the Financial Times recollects. When the asset-backed securities went on the market in 1997, Bowie managed to rake in $55 million. As the FT notes in its Alphaville blog, Bowie Bonds, which were really the first "Pullman Bonds," were possible in the first place because Bowie held the rights to his music unlike many musical artists, having purchased them from EMI. As for who created them – that's the source of debate. Most consider investment banker David Pullman to be their creator, but another investment banker, David Van Dam, attempted to interject himself into a breach-of-contract suit between Pullman and SeaWest Financial Corp., claiming he masterminded the bonds, as American Banker detailed in a profile about their creation. The suit ended with a settlement "apparently leaving Mr. Van Dam out in the cold."
The investments were not foolproof – Quartz notes the bonds fell to around junk status as piracy took its toll on Bowie's expected profits. The 10-year bonds ultimately liquidated in 2007, and others, such as Rod Stewart, followed in Bowie's wake and securitized their music against future earnings. Bowie, meanwhile would take on other innovative business endeavors, including opening an online bank in 2000.
Wall Street Journal
The Federal Reserve plans to flex its muscles by enacting long-overlooked margin requirements that would limit how much stock or bonds can be bought through borrowing. The requirements, which apply to all financial firms, not just banks, have returned to the fore globally as regulators from 25 economies recently signed off on a plan to adopt similar requirements. Previously, the Fed only concerned itself with stock purchases, but as concerns mount regarding asset bubbles that could threaten to produce another financial meltdown a wider range of securities is now being scrutinized. The move will also help the Fed to regulate shadow banking, another area of concern for the central bank.
Credit Suisse is moving forward with a spin-off of its domestic Swiss Universal Bank, which is set to become a major player against local Swiss rivals. Swiss Universal Bank, which uses the acronym Chub, holds roughly 40% of the assets under management for the new group it is a part of, according to figures released Friday. Through the spin-off, Credit Suisse will list somewhere between 20% and 30% of Chub in Switzerland as a means of raising funds. The money raised will go toward the company's Asian operations, the paper said.
Financial Times
As Saudi Arabia preps an initial public offering for its national oil company Saudi Aramco, banks are looking to get a piece of the pie. Analysts predict the company could be valued as high as $10 trillion, which would make for a very nice payday for investment banks struggling amidst lower fees despite a boom in M&A. But others are expressing more caution, seeing a $500 billion valuation, since the country is unlikely to put its national resources on the line. Still, the company's IPO would be big, and investment banks are already jockeying to woo Saudi officials to score a portion of the listing.
New York Times
Ratings agencies may not have learned a lesson from the financial crisis, according to a report from the Securities and Exchange Commission. Ratings agencies, including Moody's and Standard & Poor's, shouldered much of the blame for the crisis – many contend they preferred to profit off clients rather than assign the grades that the low-quality securities which fueled the recession actually deserved. And in the SEC's report on the country's 10 ratings agencies, they still appear to be messing up. While the report does not name names, it does split them into two groups – large and small. Among the larger agencies – Standard & Poor's, Moody's and Fitch – two reportedly didn't stick to their ratings policies and procedures, methodologies or criteria on numerous occasions. The report also found errors – whether in coding or in calculation – to be rampant. Now, the question that remains is how the SEC will penalize the agencies in question – if it does so at all.
