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ICBC Plans No Fund Raising; Loans Jump to Record in 2009

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, said it has no fund-raising plan at the moment even as it boosted lending by 24 percent to a record last year.

ICBC’s capital adequacy ratio is “sound” and the highest among rivals, and pressure on capital raising is “not big,” President Yang Kaisheng said at a press conference in Beijing yesterday.

China’s banks doled out a combined 9.59 trillion yuan ($1.4 trillion) in new loans last year, helping the government engineer a turnaround in the world’s third- largest economy. The credit binge drained lenders’ capital and sparked concerns about asset bubbles, a higher number of bad loans and increased inflation pressure.

China’s publicly-traded banks have already raised about 131 billion yuan from bond and share sales since the second half of last year to replenish capital drained by loan growth, and they have announced plans to raise a further 127 billion yuan, according to Bloomberg data.

Beijing-based ICBC’s capital adequacy ratio, a measure of the bank’s financial strength, fell to 12.60 percent at the end of third quarter, from 13.06 percent at the end of 2008.

The nation’s policy makers aim to avert asset bubbles and restrain inflation by limiting new credit at 7.5 trillion yuan this year. China’s growth accelerated to 10.7 percent in the fourth quarter, the fastest pace since 2007, and property prices climbed the most in 21 months.

Boost Financing

ICBC said it will boost financing to projects already under construction and to small-and-medium sized firms and cut loans to new projects that are not government-backed and if they’re energy-intensive or polluting. Loans would also be reduced to sectors with overcapacity, Yang said.

Loans by the bank this year will be less than in 2009, Yang said. ICBC’s new loans were 1.03 trillion yuan last year, Yang said. That’s a record, according to calculations based on Bloomberg data.

After a government bailout five years ago, ICBC is now the world’s biggest bank by value. The lender has more than doubled profit during the past three years and has more than 16,000 outlets nationwide and 112 branches outside China, and 190 million personal customers — equivalent to the populations of Russia and Canada combined.

ICBC on March 4 submitted a tender offer to buy all shares in Thailand’s ACL Bank Pcl in a deal that would give ICBC a foothold in the southeastern Asian nation after acquisitions in Indonesia, Macau, South Africa and Canada since 2007. The bank aims to triple the share of profit coming from abroad to 10 percent.

ICBC will be “active and prudent” with overseas expansion this year, Yang said.

Mar

07

2010

U.S. Said to Tell Hedge Funds to Save Euro Trading Records

The U.S. is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests, as Europe and the U.S. step up scrutiny of the funds’ role in the Greek debt crisis.

The Department of Justice sent requests to save the records to at least some of the hedge funds whose executives attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private.

The European Commission said yesterday it will investigate trades in sovereign credit-default swaps in the wake of the Greek crisis, which has pushed the euro lower and prompted officials to warn hedge funds they shouldn’t try to profit from the woes of the region’s nations. One of 23 themes discussed at the Feb. 8 dinner was a wager that the euro would fall against the dollar, according to an agenda obtained by Bloomberg News.

“It is clear in the current environment, and likely for a long time going forward, any entity that profits from another’s misfortune, in this case hedge funds versus Greece and the euro zone, risks being the target of public backlash, or worse, government retaliation,” said Kirby Daley, a senior strategist in Hong Kong with Newedge Group’s prime brokerage business.

Aaron Cowen, an executive at SAC Capital Advisors LP, David Einhorn, head of Greenlight Capital LLC, and Don Morgan, who runs Brigade Capital Management LLC, attended the dinner, as did a representative from Soros Fund Management LLC, the Wall Street Journal said Feb. 25.

Greece’s Woes

Spokespeople for the hedge funds declined to comment or didn’t return calls seeking a comment. Neil Crespi, president of Monness Crespi, couldn’t be reached for comment. Gina Talamona, a Department of Justice spokeswoman, declined to comment. The requests were reported earlier yesterday by CNBC.

The premium investors demand to buy Greek government debt over comparable German bonds, the European benchmark, rose to 396 basis points on Jan. 28, the highest level since the start of the euro in 1999, making it more expensive for the country to sell new bonds. Sovereign credit-default swaps, used to insure against default, rose to a record last month.

European official have said the contracts can fuel speculation that may distort market perceptions. The German Finance Ministry said this week the over-the-counter products must be reviewed following the reaction of financial markets to the Greek debt crisis. French Finance Minister Christine Lagarde has said she wanted politicians to take a united approach against “speculators” betting on government bond defaults.

Record Bets

U.S. politicians plan to hold a hearing on the role that investment banks including Goldman Sachs Group Inc. may have played in Greece’s debt crisis. Federal Reserve Chairman Ben S. Bernanke said on Feb. 25 that the U.S. central bank is reviewing derivatives contracts arranged between Goldman Sachs other investment banks with Greece.

The woes of Greece, which has to finance the euro region’s largest budget shortfall, and concern they may spread to other countries have dragged down the euro, which has tumbled 11 percent since Nov. 25. It traded at $1.3613 at 8:09 a.m. in Tokyo.

Futures traders last week placed the biggest bets on record that the euro will fall against the dollar. The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on Feb. 23 to 71,623 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the fourth consecutive week that the amount climbed to a record.

Even if the Department of Justice decides to request the records it has asked the hedge funds to save, that doesn’t necessarily mean that the managers will be investigated, said Jedd Wider, a partner at law firm Morgan, Lewis & Bockius LLP.

Bullish on Canada

Other ideas discussed at the dinner, which took place at the Townhouse, a private facility run by restaurant Park Avenue Winter, were bullish bets on the Canadian dollar and Philip Morris International and bearish wagers on Wells Fargo & Co. and Bank of America Corp.

“The big issue is whether the meeting was informational, and these various traders were simply responding in a parallel way to a common set of facts,” which would be legal, said Herbert Hovenkamp, who teaches antitrust law at the University of Iowa College of Law in Iowa City. “What’s not legal is for people to agree to trade at a particular price or against the euro to devalue it and start a stampede that devalues it further.”

Rejecting Speculation

Louis Bacon’s $14.6 billion Moore Capital Management LP and Brevan Howard Asset Management LLP, Europe’s largest hedge-fund firm, have rejected speculation they’re trying to benefit from Greece’s woes.

Bacon told investors in a Feb. 19 letter that he isn’t betting on a Greek default because European authorities will probably bail out the country. Moore has a net long duration position in Greek bonds, meaning it will benefit from a uniform decline in interest rates across the yield curve.

Brevan Howard said in an investor letter for the $22 billion Brevan Howard Master Fund that it hasn’t been betting against Greek debt since mid-December and has “no meaningful positions” through bonds or credit default swaps in Greece, Italy or Portugal.

Mar

03

2010

Loan Prices Reach Two-Year High as Apax Borrows: Credit Markets

Prices of high-yield loans in Europe hit a two-year high as the improving outlook for corporate defaults and the economy open up financing for leveraged buyouts.

The average price for actively traded so-called leveraged loans climbed 7 basis points to 96.07 percent of face value since Jan. 1, according to Standard & Poor’s Leveraged Commentary & Data. The price of the debt, mostly used to finance mergers and acquisitions, reached the highest level since Dec. 13, 2007. A year ago, loans traded at 60.4 percent of face value.

Demand for riskier assets is returning as Moody’s Investors Service forecasts that the default rate among speculative-grade companies will drop to 3.3 percent this year from 12.5 percent now. London-based private-equity firm Apax Partners LLP is raising 315 million pounds ($517 million) to finance its acquisition of Marken Ltd. in the first European LBO this year, according to data compiled by Bloomberg.

“Investors are now looking at leveraged loans as a product offering attractive yields with limited downside,” said Edward Eyerman, head of leveraged finance at Fitch Ratings in London.

Elsewhere in credit markets, the extra yield investors demand to own European investment-grade corporate bonds rather than government debt increased 1 basis point to 152, near the lowest level since February 2008, according to Bank of America Merrill Lynch index data. The spread on the European high-yield index narrowed 1 basis point to 699. A basis point is 0.01 percentage point.

Spreads Narrow

Spreads on investment-grade debt will narrow 20 basis points over the “near term” from 125 basis points now because of government measures to combat the credit crisis, Moody’s said yesterday in a report. Bonds rated below Baa3 by Moody’s and BBB- by Standard & Poor’s are considered below investment grade.

Credit Suisse Group AG, Switzerland’s biggest bank by market value, sold 2.25 billion euros ($3.24 billion) of seven- year notes yesterday in its first deal in the currency since Dec. 2, according to data compiled by Bloomberg. The 3.875 percent securities due in seven years were the only European benchmark corporate notes yesterday, a U.S. holiday, compared with a daily average of 5.3 billion euros.

Slovenia sold 1.5 billion euros of 10-year bonds, joining governments from Mexico to Indonesia in the busiest start to a year for developing-nation foreign borrowing in a decade. Officials from Vietnam are meeting with investors in London today to market a $1 billion offering of 10-year notes. Albania plans to sell its first international bonds and is preparing to hire a bank to manage a sale of 300 million euros in three- or five-year notes, the Finance Ministry said.

Credit-Default Swaps

The cost of insuring against losses on European corporate bonds using credit-default swaps fell to near the lowest level in 19 months. The high-yield Markit iTraxx Crossover Index dropped 9 basis points to 404, according to JPMorgan Chase & Co. prices. The index is a benchmark for the cost of protecting bonds against default and a decline signals an improvement in perceptions of credit quality.

Credit-default swaps on Greek debt fell to 313 basis points from a record 344.5 on Jan. 14, according to CMA DataVision prices. European government officials met in Brussels yesterday to discuss Greece’s deteriorating finances.

Swaps on Iceland, whose economy buckled in October 2008 under $80 billion of debt at its three largest banks, rose 1.5 basis points to 545, CMA prices show. The nation’s credit risk may rise “considerably” should a proposed emergency bailout fail and its government collapse, S&P said yesterday.

‘Fragile’ Recovery

The Markit iTraxx SovX Western Europe Index of default swaps on 15 European countries fell 3 basis points to 76 yesterday, after rising to a record 78.5 from 46 when it started trading in September, according to CMA. At the high point, it cost $78,500 a year to protect $10 million of debt from default for five years.

International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday it’s too early for policy makers to withdraw stimulus measures, describing the recovery as “fragile.”

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Contracts on Northfield, Illinois-based Kraft Foods Inc. rose 1 basis point to 76.5, CMA said. The company is in talks to increase its bid for Cadbury Plc to as much as 12.1 billion pounds, according to a person with knowledge of the matter. Swaps tied to bonds sold by Uxbridge, England-based Cadbury climbed 5 basis points to 76.5, CMA prices show.

Leveraged Loans

Leveraged loans in Europe will return between 7 percent and 9 percent this year, Barclays Capital forecasts. Investors have earned a 1.27 percent return on the debt this year, the London- based bank’s data show.

“A lot of companies refinanced their loans at par in the bond market so that drives returns,” said Axel Potthof, senior vice president of Allianz Global Investors in Munich.

Lloyds Banking Group Plc is arranging the loan for Apax, according to a person familiar with the plans. Apax didn’t disclose the price for the U.K. vaccine courier when it agreed to buy Marken from Intermediate Capital Group Plc last month.

The loan includes 150 million pounds of six-year term loans that pay 4.5 percentage points more than benchmark rates, 150 million pounds of seven-year debt with a spread of 5 percentage points and a 15 million-pound, seven-year revolving credit with a 4.5 percentage-point spread, according to the person.

Fiona Mulcahy, a London-based external spokeswoman for Apax, declined to comment.

LBO Debt

When Apax bought a stake in U.K. publisher Trader Media Group Ltd. in 2007, it paid interest margins on loans of 2.25 percentage points, Bloomberg data show. Marken’s debt equals four times its earnings before interest, tax, depreciation and amortization, the person said.

The LBO market, where buyers acquire companies using mostly debt financing, collapsed in 2007 when underwriters got stuck with $200 billion of loans they couldn’t sell as credit markets froze. Demand for higher-yielding securities is increasing again as Europe’s economy returns to growth.

The region will expand 1.4 percent in 2010, according to the median forecast of economists surveyed by Bloomberg News. Growth resumed in the third quarter as governments stepped up spending and exports increased for the first time in 1 1/2 years, the European Union’s statistics office in Luxembourg said Dec. 3. Gross domestic product in the 16-nation euro region rose 0.4 percent from the second quarter, when it dropped 0.2 percent.

“If you’re a high-yield bond investor, you can buy another new bond, but if you are a loan investor, you don’t have that option, you will need to reinvest in the secondary market,” said Alex Moss, a fund manager at Insight Investment Management in London.

Jan

21

2010

German Business Confidence May Rise to Highest Since July 2008

German business confidence probably increased to the highest since July 2008 in December, a sign the economic recovery is on track.

The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, rose to 94.5 from 93.9 in November, according to the median of 33 forecasts in a Bloomberg News survey. That would be the highest reading since July 2008. The index reached a 26-year low of 82.2 in March. Ifo releases the report at 10 a.m. today.

Recent reports have painted a mixed picture about Germany’s recovery. While the ZEW institute said four days ago economists are tempering optimism about the outlook, the Bundesbank this month raised its forecast for 2010 growth and Volkswagen AG on Dec. 11 posted the strongest sales gains this year.

“There’s probably further good news to come from Ifo, even if the improvement isn’t as rapid as before,” said Laurent Bilke, a former European Central Bank economist now at Nomura International Plc in London. “Exports are the place where you’ll see the recovery coming from in Germany, even if the very strong euro means they may not benefit as much as they would have done normally.”

Ifo’s gauge of the current situation probably increased to 90 from 89.1 while an index of executives’ expectations may have risen to 99 from 98.9, according to the survey of economists. The institute conducted the survey between Dec. 1 and Dec. 17.

Exporters are helping to fuel Germany’s recovery, overcoming a 14 percent appreciation in the euro since February. Sales at Volkswagen, Europe’s largest carmaker, rose 19 percent in November from a year earlier. Deutsche Bank AG, Germany’s biggest bank, says business in Asia will help push pretax profit to a record 10 billion euros ($14.3 billion) in 2011.

Recovery Doubts

While factory orders and industrial production fell in October, exports rose more than economists forecast.

The end of government stimulus measures and market turmoil stemming from concerns over Greece’s budget health are nevertheless casting doubt on the pace of recovery.

The Bundesbank says German economic growth will slow in the current quarter from the 0.7 percent rate recorded in the third, when expansion was boosted by stimulus spending.

The central bank then expects the economy to grow 1.6 percent in 2010 after a contraction of 4.9 percent in 2009. It previously forecast the economy would stagnate in 2010.

“Exports are still strong, last month’s factory orders and industrial production were disappointing, but it was a temporary blip,” said Aline Schuiling, an economist at Fortis Bank in Amsterdam. “The underlying trend remains well set for exports and the industrial sector.”

Dec

19

2009

Bank of America’s $19.3 Billion Is Biggest U.S. Sale Since 2000

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Bank of America Corp., the largest U.S. lender, raised $19.3 billion selling securities at $15 apiece in the biggest sale of stock or preferred shares by a U.S. public company since at least 2000.

The bank, which plans to repay $45 billion of U.S. rescue funds, sold 1.286 billion so-called common equivalent securities, according to Bloomberg data. The security is made up of one depositary share and one warrant and is convertible into one common share, subject to stockholder approval, according to a regulatory filing by the Charlotte, North Carolina-based bank.

Bank of America plans to use the proceeds to free itself from government restrictions after accepting funds from the Troubled Asset Relief Program. Banks, brokerages and insurers have raised $1.5 trillion to shore up capital after the biggest financial crisis since the Great Depression spurred more than $1.7 trillion in writedowns and credit losses globally.

“It’s a good thing for Bank of America, it’s a healthy thing and it needs to happen,” said Jason Brady, a managing director of Santa Fe, New Mexico-based Thornburg Investment Management, whose $4 billion Thornburg Income Builder Fund owns Bank of America bonds. “It doesn’t mean necessarily that Bank of America stock is a wonderful investment because they spent a bunch of money to get the government out of the way.”

In May, Bank of America raised $13.5 billion issuing 1.25 billion common shares at $10.77 each in response to government stress tests and to help cushion losses tied to the takeover of Merrill Lynch & Co. The tests gauged the ability of banks to absorb losses in an extended recession, prompting Bank of America to boost capital by almost $40 billion.

Succession Battle

The repayment may ease efforts to replace Chief Executive Officer Kenneth D. Lewis, who’s leaving the bank Dec. 31. His successor inherits a company ranked first by assets and deposits in the U.S. The plan saves billions of dollars in TARP dividends and ends extra U.S. oversight of operations and salaries, Wells Fargo Advisors analyst Matthew Burnell wrote.

“Repaying TARP is going to allow a lot more flexibility for the incoming CEO as he handpicks his individual management team,” said Todd Hagerman, an analyst in New York with Collins Stewart Plc, who has a “buy” rating on Bank of America.

Bank of America rose 11 cents to $15.76 yesterday after advancing as much as 7 percent. Michael Mayo of Calyon Securities USA Inc. raised his rating to “outperform” from “underperform” and boosted his target to $19 from $12, which had been the lowest among analysts surveyed by Bloomberg.

The bank plans to repay the U.S. using $26.2 billion of cash and the proceeds from the share sale, according to a statement. It expects to increase equity by $4 billion through asset sales and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.

Wells Fargo & Co., based in San Francisco, raised $8.6 billion in May in a secondary offering, while Goldman Sachs Group Inc. sold $5.75 billion in shares in April. Wells Fargo accepted $25 billion in TARP funds last year. Goldman has repaid $10 billion received through the program.

Dec

03

2009

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