Monthly Archives: March 2009

John Gapper

Good grief. Every so often, one learns something shocking about markets and this morning I found out that wholesale tea is priced in dollars rather than sterling (or the Indian or Chinese currencies).

This means that the British tea drinker is going to suffer even more from the rising price of tea than Americans because of the fall in the value of the pound against the dollar. Read more

John Gapper

Having just watched Barack Obama’s televised remarks about GM and Chrysler, the most striking thing was that, after a gentle start praising the historic strengths of the industry and its place at the heart of the US economy, he got remarkably tough.

First, the president said openly that they might have to go into Chapter 11 bankruptcy to meet a 60-day deadline for restructuring, in the case of GM, and 30-day deadline, in the case of Chrysler: Read more

John Gapper

The departure of Rick Wagoner as chief executive of General Motors was inevitable once Barack Obama’s auto taskforce had concluded that it did not believe the restructuring plan GM had submitted in an effort to gain billions more in government support.

The question is whether Fritz Henderson, who is a GM lifer like Mr Wagoner, has enough credibility to retain his post as Mr Wagoner’s successor for long. Read more

John Gapper

Supermarkets in the US are more reliant on branded products than their counterparts in Europe, which have bigger selections of private label goods. But the recession is being treated by US retailers as a chance to have another go with private label.

Wal-Mart has relaunched its Great Value private label brand and I had an interesting chat today with executives from 7-Eleven, the Japanese-owned convenience store chain, which is trying to do the same thing with its 7-Select private label brandRead more

John Gapper

Tim Geithner’s plan to make it compulsory for larger hedge funds to register with the Securities and Exchange Commission, and to disclose information to the SEC about their investors and counter-parties, will probably cause some griping in the industry.

Hedge funds can fairly argue that they have hardly been at the epicentre of the financial crisis and have been able to suffer heavy investor withdrawals, and even collapse, without noticeably hurting the financial system as a whole. Read more

John Gapper

My FT column this week is on Tim Geithner and Ben Bernanke’s plan for winding up insolvent financial institutions: Read more

John Gapper

Perhaps it was just me, but I thought I detected a note of regret at this morning’s session of the House of Representatives financial services committee about the House’s rush last week to tax 90 per cent of bonuses at institutions that have taken public funding.

The main business of the session was to grill Ben Bernanke, chairman of the Federal Reserve, and Tim Geithner, Treasury secretary, on matters including the AIG bonuses and their request to be granted more authority to seize and wind down insolvent non-banks. Read more

John Gapper

On the day that Rajan Tata gave details of the world’s cheapest car - the 100,000 Rupee Nano – I went to the US unveiling of what promises to be one of the most expensive: the new Rolls-Royce 200EXRead more

John Gapper

I am a bit more hopeful about the Tim Geithner’s latest plan to take troubled assets off the balance sheets of US banks than the sceptical economists led by Paul Krugman.

Mr Krugman does not like the plan – at all – because he regards it as a mere reshuffling of the original Tarp plan suggested by Hank Paulson last autumn, which seems like ages ago. He points out, rightly, that it involves a government subsidy to private investors in the form of guaranteed debt. Read more

John Gapper

Beware any financial legislation that passes the House of Representatives rapidly when both the Democrats and Republicans are angry. It will cause a heap of unintended consequences.

That was true of the Sarbanes-Oxley Act of 2002 and it may be even more true of the House’s bill to impose a 90 per cent tax on bonuses earned by employees of large banks that have taken US government capital. It is an ill-conceived and over-hasty piece of populism. Read more

John Gapper

Lex points out an interesting aspect of the Roche-Genentech deal:

If the middleman won’t lend to you except at usurious rates of interest, just cut him out. That’s what Roche did. The Swiss drugmaker has raised $39bn of the $47bn it needs to fund its recently agreed acquisition of Genentech, the US biotechnology group, by tapping directly into the bond market. There was no bank finance to be seen. Read more

John Gapper

Further to my column this morning, I am not in the camp of those thinking that Tim Geithner ought to step down as US Treasury secretary for failing to curb the AIG bonuses or coming up with a detailed plan to buy troubled assets.

The two sides of the case were put pretty well this morning by the FT and Gawker, the media and gossip blog – these days everyone has their opinion on credit default swaps and the Treasury secretary. Read more

John Gapper

My FT column this week is on the AIG bonuses: Read more

John Gapper

I have one initial thought about the uproar over the bonuses at AIG, although I plan to offer some more in my column this week.

The US Congress is now so angry about the $165m in retention payments to employees in AIG’s financial products group that it wants to impose a tax to recoup the money, or perhaps 90 per cent of it, from anyone who gets such a bonus. Read more

John Gapper

The list of Bernie and Ruth Madoff’s assets, which the US government is attempting to seize following his 11 pleas of guilty to counts including money laundering, is instructive as well as entertaining. It prompts three thoughts.

First, as far as Ruth Madoff’s attempt to retain about $70m of the couple’s estimated assets of about $825m goes, pull the other one. Read more

John Gapper

Floyd Norris has a go at bankers who want to dilute mark-to-market accounting this morning and he makes some good points.

However, just as an exercise, imagine what it would be like if all homeowners were forced to mark to market the value of their homes, and post cash collateral in cases of negative equity. Read more

John Gapper

Fitch’s downgrade of Berkshire Hathaway from triple-A to double-A plus status has been greeted in a fairly sanguine manner, with Barron’s pointing out that Warren Buffett’s borrowing costs “aren’t exactly going to skyrocket.” But I think it is a bit more serious than that.

Remember what happened to American International Group, after Fitch cut its triple-A rating in March 2005 (to be followed by Moody’s and Standard and Poor’s). This is a description of what subsequently occurred from the Washington Post’s series on AIGRead more

John Gapper

I spent today at court in lower Manhattan watching Bernie Madoff being jailed. Here is my account of it for the FT:

The end of Bernie Madoff’s liberty came swiftly. “It is my intention to remand Mr Madoff. I do not need to hear from the government,” said Judge Denny Chin briskly, a second after Ira Sorkin, Mr Madoff’s attorney, had ended his hopeless plea for his client to remain on bail. Read more

John Gapper

My FT column this week is about structural reform of financial services: Read more

John Gapper

Perhaps they should re-christen it a Madoff scheme.

To judge by the charges against him, to which his lawyer says he will plead guilty on Thursday in Manhattan, Bernard Madoff not only ran the biggest Ponzi scheme of all time but one of the purest. In some ways, his alleged fraud outdid Charles Ponzi’s own effort. Read more