Thursday 5th May 2016
NEWS TICKER: Moody's says it has downgraded the ratings of Exeltium SAS's €1,000m 15 year floating rate bank term loan (Facility A), €155m 15 year floating rate institutional term loan (Facility B1) and €280m 15 year fixed rate institutional term loan (Facility B2), together, the senior debt, to Baa3, from Baa2. The senior debt matures in June 2030. Moody's has also downgraded the rating of Exeltium's €153m subordinated bonds, the junior bonds, maturing in December 2031 to B3, from Ba3. The outlook on the ratings is stable. The downgrade of the senior debt ratings reflects, says Moody’s, wholesale electricity market price falls in France, resulting in a material risk that Exeltium's customers will opt out of electricity purchases from 2020 to 2024 and a fall in the weighted average credit quality of clients to Baa3, from Baa2 and iii) the weakened credit quality of the put counterparty, a large French industrial rated Ba2 negative that is obliged to purchase 51% of volumes subject to Client opt-out (the Put Option). Moody's has also revised its French wholesale electricity price assumptions downwards, reflecting the current price environment and Moody's assumption that lower prices will be sustained. The industrial logic of the project is significantly weakened in a low electricity price environment. In Moody's revised base case, the rating agency assumes that clients would opt-out of electricity purchases between 2020 and 2024. Over this period, Moody's assumes that just over half of Exeltium's electricity would be sold under the Put Option, with the remainder sold at market rates. - CORPORATE REPORTING - Lufthansa Group says is maintaining its full-year earnings forecast for an adjusted EBIT which is “slightly above” the previous year’s €1.8b, after reducing its operating losses for the first quarter, having introduced substantial cost cuts and despite a decline in revenues. The firm’s adjusted EBIT loss for the three months to the end of March fell by more than two-thirds to €53m ($61m). Revenues fell slightly to €6.9bn because of pricing pressures in the group’s passenger airlines, says chief financial officer Simone Menne. Lufthansa’s passenger airline division improved its adjusted EBIT by €244m and that for Austrian Airlines was up by €23m. However, currency effects, however, dragged on the result at Swiss International Air Lines, where adjusted earnings fell by €28m. However, the firm issued a health warning that its forecast does not take into account any negative effects of possible strike actions and that it does not expect that pricing pressures will ease any time soon. Lufthansa Group turned in a net loss of €8m, compared with a €425m profit last year, but stresses that this included a large benefit from transactions relating to US carrier JetBlue Airways. Taking this into account, it says, the first quarter net result equates to an improvement of €70m. - SOVEREIGN DEBT - THE UK’s DMO says the auction of £2.5bn of 1.5% treasury gilt 2026 says bids worth £4.473bn were received for the offer of which £2.125bn was sold to competitive bidders and £374m sold to gilt edged market makers (GEMMs). An additional amount of the Stock totalling up to £375.000 million will be made available to successful bidders for purchase at the non-competitive allotment price, in accordance with the terms of the information memorandum. Higher priced bids came in at £98.566, providing a yield of 1.653% and the lowest accepts was £98.526, providing a yield of £1/656% - CYBER SECURITY - Global Cyber Alliance, an organisation founded by the New York County District Attorney's Office, the City of London Police and the Center for Internet Security, say they will collaborate with M3AAWG to push the security community to more quickly adopt concrete, quantifiable practices that can reduce online threats. The non-profit GCA has joined the Messaging, Malware and Mobile Anti-Abuse Working Group, which develops anti-abuse best practices based on the proven experience of its members, and M3AAWG has become a GCA partner for the technology sector – ASSET MANAGEMENT JOBS - IFM Investors today announced the appointment of Rich Randall as Global Head of Debt Investments. Mr. Randall takes on this senior leadership role from his prior position as Executive Director of Debt Investments, which he had held since joining IFM Investors in 2013. Randall replaces Robin Miller, who will semi-retire from IFM Investors after a 17-year association with the company. Miller will remain with IFM Investors and will transition to the role of Senior Advisor and Chair of Investment Committee within the organisation. In his new role, Randall will manage IFM Investors’ global debt investment teams and maintain the organization’s global debt investment process and relationships with investors. He will also oversee the sourcing of infrastructure debt opportunities internationally. He will continue to be based in IFM Investors’ New York offices and will report directly to CEO Brett Himbury – ACQUISITIONS - Intercontinental Exchange says it has backed off from its counterbid for the London Stock Exchange. In a statement issued by ICE, chief executive Jeffrey Sprecher says LSEG did not provide enough information to make an informed decision on the value of the merger. "Following due diligence on the information made available, ICE determined that there was insufficient engagement to confirm the potential market and shareholder benefits of a strategic combination. Therefore, ICE has confirmed that it has no current intention to make an offer for LSEG – POLITICAL RISK – Global risk analysts Red24 reports that political parties, including the National Movement for the Organisation of the Country (MONOP) and the Fanmi Lavalas party, held a series of demonstrations in Port-au-Prince, yesterday. The action was launched to show support for the Commission to Evaluate Haiti Elections (CIEVE), a body established to verify the 2015 elections. The latest call to action came amid heightened tensions between the aforementioned political parties and former president Michel Martelly's Parti Haitien Tet Kale (PHTK), which launched general strikes against CIEVE on 2 May. Further opposition party-led demonstrations are expected to continue in the near-term due to the indefinite postponement of the country's 24 April run-off election and issues surrounding the evaluation of the 2015 elections – INDEX TRADING – Investors have not yet leant into the wind as a ruff of mixed data discombobulated markets yet again, with a lacklustre Asian trading session. More pertinently perhaps, investor sentiment is hanging in advance of tomorrow’s US labour market report. Peter O’Flanagan ClearTreasury reports that uncertainty around Brexit has impacted business sentiment in the UK and “if we are seeing this filter through into Q2 data there may well be additional downside for UK data until we have a referendum result. That may not be an end to the uncertainty as the “Out” campaign appears to be gathering some momentum. Depending on what poll you look at, it would appear the “uncertain” portion of the polls is narrowing, and while the position is currently still far too close to call by looking at the polls, bookies are still favouring the ‘In’ campaign with a 75% probability of remaining”. In the Asian trading session meantime, Japanese stock indexes fell to three week lows, and in line with sentiment this year, the yen has touched yet another 18-month high against the dollar, no doubt testing the resolve of the central bank not to act, despite stating that the yen is way over-priced. The Nikkei225 was down 3.11% today. The Hang Seng ended down 0.37%, while the Shanghai Composite rose marginally by 0.23%. The ASX All Ordinaries ended 0.17% higher, though the Kospi fell 0.49% and the FTSE Bursa Malaysia dropped 0.75%. The Straits Times Index (STI) ended 0.53 points or 0.02% lower to 2772.54, taking the year-to-date performance to -3.82%. The top active stocks today were SingTel, which gained 0.53%, DBS, which declined 2.22%, OCBC Bank, which declined 1.06%, UOB, which declined 1.04% and Wilmar Intl, with a 0.57% advance. The FTSE ST Mid Cap Index declined 0.27%, while the FTSE ST Small Cap Index rose 0.01%. OIL PRICES RISE - The story today was oil as prices climbed in the Asian session, with the Brent crude price breaking through $45; wildfires in Canada were behind the rise. Wildfires look to be burning out of control in the Alberta oil sands region of Canada, which mines and ships heavy crude to the US. Oil companies there have reduced operations as non-essential employees are evacuated. Moreover, US oil output fell last week by more than 100,000 barrels a day to 8.83m, its lowest level since September 2014, though inventories continue to rise. US benchmark West Texas Intermediate for delivery next month was up $1.19, or 2.7%, at $44.97 while Brent prices for July supply rose 94 cents to $45.56. The price of oil has rallied recently because of the 400,000 bpd cut in US oil output (IEA data), US dollar weakness and Asian demand optimism. The next OPEC meeting scheduled for June 2nd will likely be another watershed, as all recent meetings have been. One beneficiary of the recent rally in oil prices is Russia, where the ruble has appreciated 14% against the US dollar this year. As well, investor sentiment towards Russia risk is highly influenced by the oil price. Year-to-date the dollar-denominated Russia RDX equity index is up 25%, and that compares with a gain of 6% for the MSCI EM Index and 1% for the S&P 500 Index reports Chris Weafer at macro-advisory.com. Weafer says the current oil price also makes the removal of financial sector sanctions less urgent for 2016 and eases both short-term geo-political and economic pressure on the Kremlin and reduces social stability concerns. “Oil should rise by [the end of the decade] but be less important by mid-next decade. Medium-term, an oil price rally to over US$100 per barrel is perfectly feasible due to the combination of steadily rising Asia demand (in particular) and the lack of investment by the oil majors since late 2014. Longer-term, the age of oil, or the importance of oil, may already be over or significantly in decline. The strong growth in alternative energy and the commitments made as part of the Paris Agreement make that a very high probability”. Gold is still seen under pressure this morning, say Swissquote’s Michael van Dulkin and Augustin Eden in their morning note today, which they attribute as usual to “pre Non-Farms trading (or lack thereof). We’re of the opinion, however, that employment is OK in terms of the US economic picture such that while there will be short term volatility around it, there’s little point giving this print much attention. Better to concentrate on US inflation data which, if it starts rising, could boost Gold (an inflation hedge) much more efficiently. There is, after all, a fair amount of concern that current easy US monetary policy could lead to inflation overshooting the 2% target when it does finally pick up.” In focus today, UK Services PMI (flat).

Latest Video

Blog

Regulatory Update

Lessons from an Industry Titan: Jamie Dimon’s Testimony

Friday, 15 June 2012 Written by 
Lessons from an Industry Titan: Jamie Dimon’s Testimony This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are: http://www.ftseglobalmarkets.com/

This week, J.P. Morgan Chase’s CEO, the highly regarded Jamie Dimon, testified before the US Senate banking committee regarding the failures of its Chief Investment Office (CIO), the group responsible for certain well-publicized losses. We thought his testimony provided more than a few lessons on governance matters and the state of the world generally. Here they are:

"[W]e are still reviewing the facts...”

Lesson: Never speak out publicly in a definitive way until you fully know the facts.  You will not fully know the facts for months.



"...I will explain everything I can to the extent possible."

Lesson: Even for Dimon, transparency matters.

"CIO's strategy...was poorly conceived and vetted.  The strategy was not carefully analyzed or subjected to rigorous stress testing.... CIO's traders did not have the requisite understanding of the risks they took.”

Lesson: Didn’t we learn this lesson in 2008? Back then we learned that some strategies had assumptions that seemed poorly founded in retrospect. This was particularly true about the behavior of the mortgage markets and their derivatives.  Guess the lesson is that most people never learn this lesson. Before a system or strategy is implemented, and periodically thereafter, management (including the board) should ask the probing questions. Make no assumptions on this score.

"Personnel in key control roles in CIO were in transition and risk control functions were generally ineffective in challenging the judgment of CIO's trading personnel.”

Lesson: The press reported that the CIO’s then-current chief risk officer began to internally express his concerns about London office trading strategies last year. This past January, he was replaced as the head of risk by a former trader who, at least according to the press reports, had no prior risk management experience. This lesson relates to human nature: it's very hard to appreciate someone who has a different point of view. Watch out – he may be right.

"Risk Committee structures and processes in CIO were not as formal or robust as they should have been.”

Lesson: Assessments have to be substantive, robust, and “real”, and be tested and documented regularly as assumptions and/or reality changes. Structure, process and formality may not protect you from all losses, but they can provide a protective shield that will hopefully mitigate them. Be sure to build your protective shield. 

 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

Related News

Related Articles

Related Blogs

Related Videos

Current Issue

TWITTER FEED