HONG KONG, March 12 (Xinhua) -- Hong Kong’s top health official announced here Wednesday night that all primary schools, special schools and kindergartens in the city will close for two weeks starting from Thursday, due to seasonal flu outbreaks.
Dr. York Chow, secretary for Food and Health of Hong Kong Special Administrative Region (HKSAR) government made the announcement after the Department of Health and the Bureau of Education met Wednesday night to review the data of the flu and the response of parents.
“We made the decision given the rising trend of flu infections within the community as the flu peak is expected to continue for weeks,” Chow told reporters.
“We hope such precautionary measures will help reduce the cross infection of the flu virus in schools and the community.”
This week’s central bank efforts to unfreeze credit markets will offer only temporary relief and more pain can be expected before a market recovery, analysts said at a credit conference on Wednesday.
The U.S. Federal Reserve announced on Tuesday that it would inject up to $200 billion to strained credit markets as part of a coordinated effort with other central banks, including the Bank of Canada, Bank of England, European Central Bank and the Swiss National Bank.
That effort is likely a short-term solution. Credit markets will likely stay frozen until banks fully realize more losses as they write down their holdings of mortgage-related bonds after years of inflated values for loan and debt securities, panellists said at a credit conference in New York.
Buyers are unwilling to return to credit markets due to a mistrust of credit ratings and a lack of experience among managers of collateralized debt and loan obligations, which is contributing to opaque pricing, according to Janet Tavakoli, president of Tavakoli Structured Finance.
“Most CDO managers aren’t worth what they are being paid,” said Tavakoli, who referenced billionaire investor Warren Buffett’s description of credit derivatives as “weapons of mass destruction” that have wiped out billions of dollars of value.
In addition, too many investors failed to properly analyse assets in collateralized debt structures that are now crumbling, she said during a conference sponsored by the Information Management Network.
Richard Field, founder of financial consulting firm TYI LLC based in Needham, Massachusetts, said greater transparency in pricing is needed before any recovery takes shape.
“Transparency will be the catalyst driving profitable trades,” Field said. “The gold standard for transparency is easily accessible and usable real time, standardized loan details, over the life of the deal.”
While many market observers anticipate that loans may be the first market to recover, James Finkel, chief executive officer of Dynamic Credit Partners, mentioned some trader speculation that the next surprise may come from defaults in the loan market.
None of the speakers on a loan panel said they had immediate concerns about loan defaults.
Steve Odesser, a managing director at Sheridan Capital, however, said it might take years for stability to return to the bond insurer industry, which has been roiled by fears that the sector will be swamped by the collapse of structured debt that it guaranteed.
“My guess is that it will be a couple year process,” Odesser said.
0417 GMT [Dow Jones] Asian stocks extend falls with U.S. futures weak, in part on news Carlyle Capital expects lenders will seize its assets, causing likely liquidation of fund; Nikkei off 3.4%, Kospi 2.4%, Taiwan 1.6%, STI 2.5%, HSI 3.1%. Nasdaq futures down 1% in screen trade with S&P futures down 0.9%. “Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing,” fund says; likely collapse is major black eye for Carlyle Group, powerful Washington, D.C.-based private-equity firm whose executives own 15% of fund. Comes just one week after Carlyle Group asked some of world’s largest banks to hold off on margin calls and liquidation of mortgage assets; but several lenders began selling fund’s $21.7 billion in mortgage securities, which committed as collateral against huge borrowings. Shows how Wall Street’s biggest players now playing hardball with some of their best clients, and how jittery banks have become about own loan exposures. Shows too how credit crunch has moved far beyond subprime mortgages; Carlyle Capital’s portfolio consisted exclusively of AAA-rated MBS issued by Fannie Mae, Freddie Mac. (RXM)
0430 GMT [Dow Jones] Straits Asia (AJ1.SG) down 10.5% at S$3.00, with support tipped at S$2.95 (midpoint of Jan. 25 trading range). Volume fairly high with 6.6 million shares traded so far vs daily average of 6.8 million. Analyst at foreign house says shares likely suffering on a combination of factors, but no company-specific bad news out. “There’s ongoing noise on regulatory risk in Indonesia to do with worries they might impose a coal export tax, and there’s also talk that China’s coal production has been higher than expected so people may be worried about downward pressure on coal prices.” Adds, coal stocks have done well, probably fair to expect some profit-taking, Straits Asia tends to be volatile, high beta stock, big swings not unusual. (KIG)
0412 GMT [Dow Jones] STOCK CALL: Deutsche Bank says Olam (O32.SG) is likely to continue to underperform other agricultural commodity plays on worries of need for fresh equity. Broker notes company has indicated it’s likely to raise equity or equity-linked funds for its next 3-year business cycle. Says potential fund raising “will remain an overhang on the stock.” Adds, move into plantation assets also causing uncertainty; “we consider that the move will increase earnings volatility and quality and hence likely lower valuation multiples.” Keeps Hold rating with unchanged S$3.10 target price. Share down 3.6% at S$2.12; STI down 2.5%. (KIG)
0446 GMT [Dow Jones] CORRECTION: Falling USD, news creditor banks expected to seize control of Carlyle Capital’s (CCC.AE) assets following mortgage bond fund’s failure to meet margin calls send Singapore shares sharply lower, pushing STI down 2.5% at 2845.53 midday, wiping out all of yesterday’s gains. Most component stocks down; immediate support for STI at 2800. Dealer says USD weakness against major currencies causing further unwinding of yen carry trades, with situation compounded by fears of more casualties in financial services sector following Carlyle news; “the (major Asian) indexes usually track dollar-yen movements. When the yen strengthens, the indexes come off.” FTSE ST All Share Index down 2.4% at 731.37. Overall marker volume light, with over 3 decliners for every gainer. Yanlord Land (Z25.SG) top percentage loser on STI, down 8.7% at S$2, possibly on concerns demand for its homes will wane given prospect of more interest rate hikes, tightening measures in China to curb inflation. (An item at 0438 GMT misstated that Carlyle Capital’s assets had already been seized.) (FKH)
Three Hedge Funds Battered by Credit Squeeze, FT Says
March 13 (Bloomberg) -- Three more large hedge-fund firms, including Drake Management LLC, a $12 billion New York manager, have closed down or suspended investors' withdrawals because of the credit squeeze, the Financial Times reported.
Drake offered investors in its three hedge funds the choice of winding up the funds after about half asked for their money back, the FT said. It has lost almost 10 percent this year in its main fund after a 24 percent loss last year, the newspaper said.
GO Capital Asset Management BV, an $870 million Amsterdam-based hedge fund, which has fallen 7.7 percent this year, blocked clients from withdrawing cash from one of its funds, the FT said. Blue River Asset Management, the most highly leveraged of the three, was the worst affected, the newspaper said.
Blue River, a Colorado-based hedge-fund manager specializing in municipal bonds, is closing its main fund after nearly 80 percent losses, even after raising $110 million for a new fund, the FT said.
When analysts stick to buy calls even as prices keep falling
By R SIVANITHY
IN this column on Monday, senior correspondent Conrad Raj highlighted two instances of analysts’ reports that were wide of the mark. The companies mentioned were Hersing and Advance SCT - the former’s shares suffering a knock when local broker CIMB mistakenly factored in a loss on Hersing’s remittance business instead of a profit, while the latter’s shares crashed despite persistent ‘buy’ calls from Kim Eng Research even after Advance SCT had reported disappointing results.
There are undoubtedly many more similar cases floating around - the banks, for example, were the subject of ‘buy’ calls throughout the past six weeks but all have continued to weaken, while China plays such as Cosco Corp and China Hongxing Sports have also plunged despite calls from brokers to buy.
None, however, stands out as glaringly as China Energy, whose shares have crashed from 90 cents at the start of this month to 61.5 cents yesterday - an astonishing loss of almost 32 per cent in less than two weeks.
You’d have to wonder which is more disconcerting for shareholders: the fact that China Energy shares dropped 4.5 cents or 7 per cent yesterday, a day when the Straits Times Index bounced sharply in response to a US Federal Reserve-inspired bailout plan for battered credit markets, or that its crash has come despite an overwhelmingly bullish broking community.
Merrill Lynch for example, on Jan 11 when the stock traded at $1.18, cut its forecast earnings for China Energy for FY08/09 by 13/35 per cent respectively but maintained its ‘buy’ with a $1.68 price target. A few days later, the counter broke below $1 and has been on a downtrend thereafter.
Less than two weeks ago, on Feb 26, Lehman Brothers reviewed the company’s earnings announcement and, when the stock was trading at 95 cents, trimmed its FY08/09 earnings forecasts by 5/2 per cent respectively to factor in higher coal costs but reiterated its ‘overweight’ call with a $1.26 price target.
Yesterday, after China Energy had slid to 66 cents on Tuesday, CIMB maintained its ‘outperform’ on the stock, revising its target price from $1.76 to $1.44. As stated earlier, the counter then fell to 61.5 cents.
So, here we have three well-respected houses that some months ago separately called a ‘buy’ on a stock that seemingly offered decent growth prospects but despite lowering their target prices, have maintained their position even as the price has plummeted.
Incidentally, there are signs that the selling is intensifying. Last week’s average daily volume when the counter traded at 81.5-84.5 cents was 2.5 million shares while the average on Tuesday and yesterday, when the shares have lost most of their value, is almost 14 million shares. You’d have to wonder: does the market know something that these analysts do not? Or is there an upcoming announcement that might explain the sudden weakness?
On this latter point, you’d expect the answer to be no - CIMB’s bullishness was largely founded on information gleaned from China Energy itself at its ‘Great China Sale’ conference held earlier this week, at which it appears great pains were taken to ease concerns over the company’s exposure to volatile methanol prices (a key raw material) and its cost structure. If no negative news was shared at the conference, then it’s unlikely that any announcement which could explain the share plunge is forthcoming.
Possible lessons
Reasons for the selling aside, what lessons are possible from this episode?
The first is that in a hugely uncertain environment which is decidedly bearish, analysts have to temper their forecasts and be more circumspect in their recommendations - Lehman’s report, for instance, estimated that China Energy’s 2009 earnings would grow by 90 per cent year-on-year, a figure that is arguably overly ambitious and one which the market clearly disagrees with.
Second, as CIMB has no doubt found, obtaining guidance from management is of little use since no company would downplay their prospects if asked about its future at a public forum.
Finally, it’s obvious that investors are much less likely to buy into a China growth story than they were say, a year ago. Fears of an economic slowdown, heightened inflation and a deflating stock market bubble are among some of the factors afflicting the country and these have to play a part in tempering future recommendations.
0811 GMT [Dow Jones] HSI ended down 4.8% at 22,301.64, off low of 22,251.24, tracking regional selloff as USD falls vs Japanese yen; news Carlyle (CCC.AE) may see liquidation of funds triggers more selloff. "Investors should not buy stocks now, even though the market is severely oversold," says Francis Lun at Fulbright. Adds investors could consider reentry level when index falls to 19,800, suggesting more pullback in near term. Volume above HK$100 billion mark, at HK$106.837 billion, of which HK$14.32 billion from debutante China Railway Construction (1186.HK), finished +12.2% at HK$12.00. "It's likely to fall below its IPO price (HK$10.70) soon amid current bearish sentiment," Lun says. (SUT)
Carlyle Capital’s shares plummet over 70%, after the fund says talks with lenders aimed at reaching a standstill agreement had failed, making it likely that assets will now be seized and liquidated. This comes a week after parent Carlyle Group pleaded with some of the world’s largest banks to hold off on margin calls and the liquidation of its mortgage assets. Several of the lenders, led by Deustche Bank and J.P. Morgan, ignored the request.
AMSTERDAM, March 13 (Reuters) - Carlyle Capital Corp, an affiliate of private equity firm Carlyle Group, is in default on about $16.6 billion of debt and said its lenders would likely take possession of its remaining assets.
The news provided a new sign of stress in global credit markets and affected asset prices and sentiment worldwide.
Bund futures in Europe, where Carlyle Capital shares are listed in Amsterdam, rose back to levels they traded at before the U.S. Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets.
"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING.
The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week.
Carlyle Capital said it was unable to meet margin calls of more than $400 million and was now in default on about $16.6 billion of its debt.
"The remaining indebtedness is expected soon to go into default," Carlyle Capital said in a statement on Wednesday.
Carlyle Capital shares tumbled 70 percent to $0.83 compared with their $20 debut on the Amsterdam bourse last July.
Dutch market regulator AFM said it was monitoring developments closely but was not planning to suspend trade.
Carlyle Capital said its lenders had proceeded to foreclose on the mortgage-backed securities collateral as it was unable to pay the margin calls. The only assets held in its portfolio as of Wednesday were U.S. government agency AAA-rated residential mortgage-backed securities.
Analysts said the news would deepen the gloom over a global credit crisis that emanated from the U.S. housing downturn.
"Sentiment is broadly negative and news of missed margin calls at large highly leveraged funds only elevates fear of a vicious cycle of more forced selling at deep loss, collateral shortfalls, and more missed margin calls," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.
Carlyle Capital's troubles began on March 6, when it said it had not been able to meet some margin calls. This snowballed over the next few days as more of its lenders feared it would default.
FEARS
June Bund futures were 33 ticks higher at 117.95, and by 0839 GMT, the Markit investment-grade iTraxx Europe index was at 156.5 basis points, according to data from Markit, 10.5 basis points wider and erasing gains from Wednesday.
"The Fed will remain vigilant that it does not cause systemic problems, but I don't think we can rule out more instances of stress," Condon said.
"There's a realisation that the Fed action is not going to solve problems of liquidity and now there is the fear about hedge funds," said Andrea Cicione, a credit strategist at BNP Paribas.
Fears that more private equity groups, hedge funds and mortgage lenders are struggling with their financing are putting heavy pressure on global equity markets, which have tumbled in recent months on fears of a U.S. recession and the growing fallout from a global credit crunch.
But analysts said private equity groups and hedge funds would continue to be important segments of the financial system.
"These firms will be under pressure but any dislocation will be transitory. The crisis is creating a lot of opportunities for them," said ING's Condon.
Carlyle Capital said U.S.-based buyout giant Carlyle Group participated actively in negotiations with lenders and was prepared to provide substantial additional capital if a successful refinancing could be achieved.
Carlyle Group's managers have a 15 percent stake in the company.
It said negotiations deteriorated late on Wednesday when the pricing service used by certain lenders reported a drop in the value of the mortgage-backed securities collateral that was expected to result in additional margin calls on Thursday of approximately $97.5 million.
"Overall, it has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.
Gold Futures Hit $1,000 Benchmark on Declining Dollar, Crude Oil Prices
By Lauren Shepherd March 13, 2006 10:06 am ET
NEW YORK (AP) -- Gold futures hit $1,000 an ounce for the first time Thursday, pushed past the benchmark by the sinking dollar and record crude oil prices. The dollar fell below 100 yen during Asian trading Thursday, its weakest level against the Japanese currency in 12 years. The dollar also dropped to all-time lows against the euro.
After reaching $1,001 on the New York Mercantile Exchange, gold for April delivery dropped slightly to $999.70 by midmorning Thursday.
Gold has been pushing up against the $1,000 an ounce mark for weeks, mainly because of the weaker dollar. Interest rate cuts -- and the prospect of more on the way -- have weakened the currency so much that foreign investors can buy dollar-based commodities like gold and oil more cheaply.
Crude oil futures hit a record high above $110 a barrel Thursday, after first crossing that level Wednesday, also due to investors abandoning the weak dollar.
Investors have been expecting gold futures to rise to $1,000 as they watched the dollar spiral lower, said Scott Meyers, senior trading analyst with Pioneer Futures, a division of MF Global. Gold has been steadily creeping closer to the record after rising nearly 32 percent in 2007.
The dollar's decline and the boost in the price of oil price merely added the extra push.
"We're getting a scenario where commodities are the place to be today," Meyers said. "With the weak dollar, it's hard to be against them."
Meyers declined to speculate on how high gold could go, saying, "to pick a top is a foolish game to play at this juncture."
The Federal Reserve's meeting next week could provide more encouragement for gold prices since the Fed is widely believed to be considering cutting interest rates again. Another rate cut could reduce the dollar's value further, making gold an even better investment.
NEW YORK, March 13 (Reuters) - The cost of protecting Bear Stearns' debt with credit default swaps surged by 120 basis points on Thursday amid ongoing concerns about liquidity issues at the investment bank.
Bear Stearns' credit default swaps rose to 700 basis points, or $700,000 a year for five years to protect $10 million of debt, up from 580 basis points at Wednesday's close, according to data from Phoenix Partners Group. Bear Stearns has denied talk that it faces a cash crunch.
Once a golden child of the hedge fund industry, a former high-flyer's management faces some brutal choices.
By Roddy Boyd March 12, 2008
NEW YORK (Fortune) -- A high-profile New York hedge fund has notified its investors that it is pondering shutting several of its key portfolios because of a brutal combination of poor performance and lack of liquidity in key markets.
Drake Management, a once-high-flying bond fund manager whose flagship fund returned an astounding 41% in 2005, has been in hot water for several months as a series of large trades moved against the fund.
Last year, the once-$3 billion Global Opportunities fund dropped around 25%, leading investors to flood Drake with $1 billion in redemption requests in early January. On February 29, fund management suspended withdrawals from another series of its funds, the Low Volatility Fund group.
In a letter to Drake's investors sent last night - which Fortune obtained - fund management laid out the stark choices management is pondering for its investors: Wind down its Global Opportunities funds, invest in a new fund or hold on, hoping the markets turn around. The wording of the letter implies that fund management hopes that investors will seek to invest in a new Drake fund.
The fund restructuring, if its investors allow it, represents a massive reversal of fortune for the Fifth Avenue-based investment manager, which had nearly $7 billion in hedge fund assets under management as recently as last year, and $10 billion firm-wide.
That Drake's Global Opportunities fund finds itself in these dire straits is odd, given that it is a macro-fund, with a charter allowing it to invest in most asset classes. Many of its peers in the macro strategy have had a good start to the year, at least according to the CS/Tremont index, posting an average gain in January of 4.44%.
Many funds in this sector continue to post outsize gains on bets against the dollar and on the rising price of oil.
While it is not clear how precisely Drake wound up in such trouble, hedge fund-of-fund managers who have monitored the Global Opportunities fund and its performance told Fortune that Drake put on a series of trades last fall that did not work out. These included betting on the decline of the price of the dollar versus the yen, a drop in long-dated Treasury bond prices and a rally in U.S. stock-market prices.
All three bets failed. When the trades did not pan out, Drake's Global Opportunity was forced to book a 14% loss and then suffered another 10% decline in November.
Soon after, the fund was forced into an all-too typical scenario: Increased margin requirements and requests for additional collateral. Drake's letter also references "predatory trading" with respect to its counter-parties, the big brokers. This means that dealers are no longer risking their own capital, or even providing narrow bond bid-ask spreads, to Drake in a bid to win the fund's trading business. In essence, the brokers know that the fund is weak and have little risk in trading against it.
Also, its large fixed-income holdings in its other hedge funds suffered from a decline in prices and liquidity as the credit crisis spread across the bond spectrum.
NEW YORK - Stocks tumbled Thursday morning as investors recoiled following a further decline in the dollar, spikes in gold and oil prices and a warning that a Carlyle Group fund is near collapse. The major indexes each lost more than 1 percent; the Dow Jones industrial average at times fell more than 200 points.
Investors were also getting their first look at a plan outlined by Treasury Secretary Henry Paulson to provide stronger regulatory oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
But talk of regulatory changes appeared to do little to dislodge the glum mood on Wall Street. A government report showing that retail sales fell in February rather than increasing as had been expected only added to investors' worries.
The dollar fell below 100 yen during Asian trading Thursday. The decline marked the weakest level for the dollar against the Japanese currency in 12 years. The dollar also dropped to fresh lows against the euro.
Gold prices moved above the psychological benchmark of $1,000 an ounce for the first time Thursday, underscoring investors' nervousness about the economy and inflation and the weakness in the dollar. The currency's swoon also helped push oil prices higher.
Carlyle Capital Corp., which is managed by Carlyle Group, warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. World markets shuddered last week after the Amsterdam-listed fund missed margin calls from banks on its $21.7 billion portfolio of residential-mortgage-backed bonds.
Carlyle's troubles have added to concern that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further.
In the first hour of trading, the Dow fell 205.07, or 1.69 percent, to 11,905.17.
Broader stock indicators also fell. The Standard & Poor's 500 index lost 19.33, or 1.48 percent, to 1,289.44, and the Nasdaq composite index fell 28.50, or 1.27 percent, to 2,215.37.
Thursday's decline follows moderate losses Wednesday and a 416-point rally on Tuesday. Those sharp gains followed a plan by the Federal Reserve — and coordinated with other major central banks — to lubricate near-frozen credit markets with an infusion of as much as $200 billion.
Bond prices rose Thursday as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.43 percent from 3.44 percent late Wednesday.
Light, sweet crude traded flat at $109.92 on the New York Mercantile Exchange.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
The decline in retail sales for February was unnerving for investors because consumer spending accounts for more than two-thirds of U.S. economic activity. A pullback among consumers worried about jobs, falling home prices or rising energy costs could hasten the economy's slowdown.
The Commerce Department said Thursday that retail sales fell by 0.6 percent last month. Analysts had expected an increase of 0.2 percent.
In other economic findings, the Labor Department said that the number of workers seeking unemployment benefits was unchanged last week. Last week unemployment concerns sent a wave of unease across Wall Street when the government said that employers cut payrolls by 63,000 in February, the second straight month of losses. Many economists regard back-to-back declines in unemployment as a sure sign the economy won't be able to avoid recession.
Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to 288.8 million shares.
The Russell 2000 index of smaller companies fell 9.42, or 1.41 percent, to 657.89.
Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest in 2 1/2 years. In afternoon trading, Britain's FTSE 100 fell 2.11 percent in morning trading, while Germany's DAX index slid 2.66 percent, and France's CAC-40 lost 2.85 percent.
Dollar Falls to 12-Year Low of 100 Yen on Carlyle Fund Failure
By Gavin Finch and Ye Xie
March 13 (Bloomberg) -- The dollar fell below 100 yen earlier today for the first time since 1995 and dropped to a record low against the euro after a Carlyle Group fund moved closer to collapse, adding to turmoil in financial markets.
The dollar approached parity with the Swiss franc and slumped against the British pound after Carlyle said lenders will seize the assets of its mortgage-bond fund and President George W. Bush said the U.S. currency's decline was not ``good tidings.'' The dollar's drop may prompt Middle East central banks to reduce dollar holdings, Greg Gibbs, a strategist at ABN Amro Holding NV in Sydney, said in a report.
``Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the securities unit of Credit Agricole SA, France's second-biggest bank. ``The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan.''
The dollar fell to 99.77 yen, the lowest since October 1995, before trading at 100.18 at 10:29 a.m. in New York, from 101.79 yesterday. The dollar touched $1.5624 per euro, the weakest since the European currency's debut in 1999, and was at $1.5589, from $1.5551. It slid to a record 1.0045 Swiss francs. Japan's currency advanced to 156.21 per euro, from 158.30.
The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.82. The dollar dropped to $2.0365 per pound from $2.0270, touching the weakest since December.
Yen Sales
Japan sold the yen on the four occasions since 1995 when the currency approached 100 to support exporters including Toyota Motor Corp., the world's second-biggest automaker. The Bank of Japan sold 14.8 trillion yen ($148 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
The yen's 24 percent gain against the dollar from a 4 1/2- year low on June 22 was ``unexpected'' and will damage earnings, Toyota President Katsuaki Watanabe said today.
``We must continue cost cuts by all means, but the currency has reached the level where we have to think about other measures,'' Watanabe told reporters in Tokyo. A gain of 1 yen against the dollar cuts Toyota's annual operating profit by 35 billion yen, according to the automaker.
Intervention Risk
The yen may rise as high as 95 per dollar, according to forecasts this month by Citigroup Inc., the third-biggest currency trader, Lehman Brothers Holdings Inc., the fourth- biggest U.S. securities firm, and Mizuho Financial Group Inc., Japan's second-largest publicly traded bank. Deutsche Bank AG and UBS AG, the two biggest currency traders, had predicted the dollar would hold above 100.
``There's more than a 50 percent probability that the U.S. is in recession,'' Eisuke Sakakibara, dubbed ``Mr. Yen'' when he was Japan's top currency official from 1997 to 1999, said in an interview on March 6. ``The dollar-yen rate is dependent on the state of the U.S. economy.''
The Group of Seven, which next meets April 12-13 in Washington, may signal its intent to consider coordinated intervention, UBS strategists wrote in a March 3 report. Unilateral intervention ``seems unlikely'' as Japan's economy has grown every year since 2002, it said.
Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.
Exiting Carry Trades
The yen also gained as investors exited so-called carry trades, in which they borrow in a country with low interest rates and buy higher-yielding assets elsewhere, earning the spread between the two. The risk is that currency moves erase those profits.
Japan's benchmark rate of 0.5 percent compares with 3 percent in the U.S., 4 percent in Europe, 7.25 percent in Australia and 8.25 percent in New Zealand.
Carlyle Capital Corp., co-founded by David Rubenstein, said in a statement it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets and any remaining debt is expected ``soon'' to go into default, it said.
The yen has rallied 13 percent against the dollar as the Fed cut rates amid the worst housing slump in a quarter of a century and $190 billion of U.S. subprime-mortgage-related losses and markdowns at the world's biggest financial institutions.
Losing Confidence
``Investors are starting to lose confidence in the dollar, given the increased uncertainty over credit-related losses,'' Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients today. ``Carlyle is unlikely to be the last hedge fund in difficulty. That will only further depress investor sentiment.''
Drake Management LLC, the New York based-firm started by former BlackRock Inc. money managers, said yesterday it may shut its largest hedge fund, while GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds.
The biggest job losses in five years and record fuel costs are eroding U.S. consumer confidence and spending, which accounts for more than two-thirds of the economy. Lehman and JPMorgan Chase & Co. last week said the U.S. is headed into a recession.
U.S. retail sales declined 0.6 percent in February following a 0.4 percent gain the previous month, the Commerce Department said today. The median forecast in a Bloomberg survey was for an increase of 0.2 percent.
`Going Lower'
``Dollar-yen is going lower,'' said Ray Farris, head of foreign-exchange strategy at Credit Suisse in London. ``It will definitely overshoot our 98 forecast in the very near term. Our forecast was for the dollar to reach 98 in three months. The big question now is whether there will be intervention.''
Japanese officials are unlikely to intervene now in the foreign-exchange market, because the yen is ``cheap'' compared with other currencies, Sakakibara said. The U.S. and Japan may intervene to weaken the yen should it break through 90 and head toward 80 per dollar, he said.
The yen's real effective exchange rate, measured against 15 currencies of major trading partners including China, Europe and Canada, is 99.5, according to Bank of Japan figures. The rate averaged 121.9 in the first quarter of 2004, when the bank last intervened on behalf of the Ministry of Finance.
Flowing to Japan
``The yen hasn't played its part in terms of dollar depreciation,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York. As carry trades unwind, ``we could find ourselves moving down toward 95 very, very quickly in the next couple of weeks.''
The yen may strengthen further as global growth slows and other central banks will lower interest rates, prompting Japanese investors to send money back home, said Scott Ainsbury, who helps oversee about $12 billion in currency as a portfolio manager in New York at FX Concepts Inc.
Japan's economy, the world's second-largest, may expand 1.5 percent this year, matching the growth rate in the U.S., the International Monetary Fund said on Jan. 29. It would be the first time Japan doesn't lag behind the U.S. since 1991.
Japanese mutual funds have reduced purchases of overseas assets by 9 percent to 33.5 trillion yen in January, from 36.9 trillion yen in December, according to the Investment Trust Association data.
``Money is flowing back toward Japan, rather than going out to the rest of the world,'' said Ainsbury. ``Why put the money in the U.S. where stocks are sliding and the dollar is sliding? It's just a double whammy.''
The yen will reach 95 per dollar in three months, he predicted.
Foreign investments and international hedge funds, some of which are speculative hot money, are now elbowing into the China market. They're lured by the Chinese people's emerging consumption power, and expectations of the Chinese yuan appreciating higher.
The Ministry of Commerce said on Wednesday that China drew $18.13 billion in overseas investments in January and February, shooting 75.2 percent year-on-year.
Chinese Commerce Minister Chen Deming, who was promoted to the post late last year, said at a news conference in Beijing that the reason for the big increase of overseas capital in the first two months was due to the big increase in large-scale investing projects and a stronger yuan.
Chen's ministry, which oversees foreign trade and domestic consumption, said that during the first two months, investments from the European Union countries rose a whopping 109 percent, while investments from the United States increased 44 percent.
Wild expectations abroad that the yuan will continue to rise in value against major world currencies has led to money coming to China.
"When you bring US dollars to invest in China, you need to change it into the yuan. Naturally you would like your funds to enter China at an earlier date. Because, if you are late, the same amount of dollars will turn out to be less yuan bills," Chen told reporters.
China's foreign exchange administration, under the auspices of the People's Bank of China, the central bank, said in its latest report that the country's total foreign exchange reserve has reached nearly $1.59 trillion by the end of January, the world's largest.
China's currency, also called the renminbi, has been constantly rising in value. The People's Bank of China, set the medium parity trading price at 7.0970 against one US dollar on Thursday, a new record high. The yuan has gained 3 percent against the dollar in value since the beginning of 2008.
The sharp increase in the stock of hard currencies has triggered another round of concern on speculative hot money flowing into China, posing potential risks to China's financial system stability.
Wu Xiaoling, deputy head of the National People's Congress's Finance Committee, who was a former central banker, said that the American subprime crisis and the rising trend of the yuan's value will make world speculative funds come to the China market to seek profits.
When asked by reporters whether the hot money has arrived in the name of foreign direct investments, Minister Chen Deming said: "I can hardly tell their entering channels, and their volume. It belongs to the management of the foreign exchange administration."
Economist Suggests Quick Appreciation
Liang Hong, economist at the Goldman Sachs, argued in a written article published by a major Chinese financial newspaper on Thursday that Chinese monetary authorities should consider quickening the appreciation pace of the yuan, to fight domestic inflation, which approached to 8.7 percent in February.
Others have suggested another "one-off" big rise of the value of the yuan, possibly 5 percent against the greenback by the central bank, to block more hot money from flooding in.
Liang said in her article that "allowing a marked rise in the yuan value is the most opportune policy instrument to curb inflation, as well as rectify the foreign trade imbalance".
She also argued for immediate interest rate hikes to thwart inflation, otherwise the Chinese economy faces an increasing risk of a hard-landing.
Carlyle Capital Nears Collapse As Accord Can't Be Reached
By PETER LATTMAN March 13, 2008
The credit crisis has claimed another victim.
Carlyle Capital Corp. said late Wednesday it expects its lenders will seize its assets, causing the likely liquidation of the fund, which until recently owned $21.7 billion in mortgage securities.
"Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing," the fund said in a statement.
The fund's likely collapse would be a major black eye for Carlyle Group, the powerful Washington-based private-equity firm whose executives own 15% of the fund.
Though it's registered in Guernsey, U.K., and trades in Amsterdam, Carlyle Group runs Carlyle Capital out of its New York offices. Early Thursday in Amsterdam, the shares plunged 70% to $0.83 each. The stock has lost around 83% since the company first disclosed its funding problems last week.
The news comes just one week after Carlyle Group began pleading with some of the world's largest banks to hold off on margin calls and the liquidation of its mortgage assets. Several of the lenders, led by Deutsche Bank and J.P. Morgan Chase & Co. ignored Carlyle's request. Wednesday night, they began selling the fund's assets, which were committed as collateral against huge borrowings. By Monday, dealers had sold $5.7 billion of the fund's assets.
The fund said that through yesterday it had defaulted on approximately $16.6 billion of its loans, and expects to default on the rest.
Other dealers that sold Carlyle Capital's collateral included Merrill Lynch & Co. and Bear Stearns Cos., according to people familiar with the fund.
The fund's collapse shows how Wall Street's biggest players have begun playing hardball with some of their best clients. And they reveal how jittery banks have become about their own loan exposures. In the case of Carlyle, 12 banks had lent the fund about $21 billion, or $20 for every dollar of initial capital.
It also illustrates how the credit crunch has moved far beyond subprime mortgages. Carlyle Capital's portfolio consisted exclusively of AAA-rated mortgage backed securities issued by Fannie Mae and Freddie Mac. They are considered to have the implied guarantee of the U.S. government and pay par at maturity.
The fund, which started in 2006, had struggled since last summer. It had to postpone its initial public offering of stock last June just as the credit crunch was first taking hold, and when it did go public in early July was forced to sell its shares at a discount. Only a month after its IPO, Carlyle Group had to extend $200 million to the fund to meet margin calls.
Carlyle Capital's investment strategy looked like easy money at first. The fund would exploit the difference between the interest earned on its investments in mortgage securities and the costs of financing those investments.
Like so many other hedge-fund blowups, Carlyle's troubles came from borrowing too much money. The secret to making money was borrowing massive sums. Carlyle Capital managed only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion. Until last week, when the dealers started selling the fund's collateral, it was about 32 times leveraged, a level one mortgage-company analyst called "astronomical."
The leverage, combined with severe dislocation in the credit markets, has proved to be Carlyle Capital's undoing. With their balance sheets under extreme pressure, banks have tightened their purse strings and are now requiring more collateral for loans. And in Carlyle Capital's case, the prices of the collateral -- the residential mortgage backed securities, or RMBSs -- have dropped to levels not seen in more than 20 years. The fund said in its statement late Wednesday that the value of the RMBS collateral continues to drop.
Carlyle Group, founded in 1987 in Washington, D.C., manages some $75 billion across 59 funds. Over the past three years, it has teamed up with other private-equity firms to do some of the largest buyouts in history, including energy company Kinder Morgan Inc., car-rental giant Hertz Corp. and technology outfit Freescale Semiconductor Inc.
Carlyle Capital is run by CEO John Stomber, who also serves as a Carlyle Group managing director. He is a former executive at Cerberus Capital Management LP, a New York private-equity firm, and before that was an executive at Merrill and Deutsche Bank. The fund's chairman, James Hance, is a senior adviser at Carlyle and a former finance chief and vice chairman at Bank of America.
US$1 = S$1.379: Sing dollar rises to new high against greenback
By Michelle Tay March 14, 2008
THE Singapore dollar hit a new high of just under $1.38 against the United States dollar yesterday as speculators kept dumping the greenback on US recession fears. Just six months ago, it was about $1.51 to the US dollar.
This is good news for Singaporeans planning a holiday to the US - but it makes exports to the key US market more pricey.
At 4.30pm yesterday, data compiled by Bloomberg showed that the local currency briefly touched $1.3794 to the sliding greenback. This is a whisker stronger than the previous record of $1.3835 in May 1995.
Singapore is not alone. Most currencies are gaining against the US dollar, meaning the Sing dollar's rise against other currencies, such as the British pound, is more muted.
Yesterday, the US dollar fell to its weakest level since 1995 against the yen - 100.1 yen. It also fell to a record low of $1.5592 per euro, the weakest level since the European currency's 1999 debut.
Standard Chartered economist Alvin Liew said the Sing dollar is 'moving in line with regional currencies and is not strengthening more than, say, the ringgit or yen'.
S'pore Macquarie Fund sells $112 mln airport stake
SINGAPORE, March 14 - Singapore-listed Macquarie International Infrastructure Fund said on Friday it had sold its entire stake in Macquarie Airports for S$154.3 million .
It also said it had accepted offers from unnamed financial institutions to establish S$440 million in term debt facilities with a three-year maturity.
Existing short-term debt facilities would be cancelled as they came up for renewal over 2008, the fund said.
20 comments:
Hong Kong to close schools due to flu outbreaks
HONG KONG, March 12 (Xinhua) -- Hong Kong’s top health official announced here Wednesday night that all primary schools, special schools and kindergartens in the city will close for two weeks starting from Thursday, due to seasonal flu outbreaks.
Dr. York Chow, secretary for Food and Health of Hong Kong Special Administrative Region (HKSAR) government made the announcement after the Department of Health and the Bureau of Education met Wednesday night to review the data of the flu and the response of parents.
“We made the decision given the rising trend of flu infections within the community as the flu peak is expected to continue for weeks,” Chow told reporters.
“We hope such precautionary measures will help reduce the cross infection of the flu virus in schools and the community.”
More pain expected before credit market recovery
Reuters – 12 March 2008
This week’s central bank efforts to unfreeze credit markets will offer only temporary relief and more pain can be expected before a market recovery, analysts said at a credit conference on Wednesday.
The U.S. Federal Reserve announced on Tuesday that it would inject up to $200 billion to strained credit markets as part of a coordinated effort with other central banks, including the Bank of Canada, Bank of England, European Central Bank and the Swiss National Bank.
That effort is likely a short-term solution. Credit markets will likely stay frozen until banks fully realize more losses as they write down their holdings of mortgage-related bonds after years of inflated values for loan and debt securities, panellists said at a credit conference in New York.
Buyers are unwilling to return to credit markets due to a mistrust of credit ratings and a lack of experience among managers of collateralized debt and loan obligations, which is contributing to opaque pricing, according to Janet Tavakoli, president of Tavakoli Structured Finance.
“Most CDO managers aren’t worth what they are being paid,” said Tavakoli, who referenced billionaire investor Warren Buffett’s description of credit derivatives as “weapons of mass destruction” that have wiped out billions of dollars of value.
In addition, too many investors failed to properly analyse assets in collateralized debt structures that are now crumbling, she said during a conference sponsored by the Information Management Network.
Richard Field, founder of financial consulting firm TYI LLC based in Needham, Massachusetts, said greater transparency in pricing is needed before any recovery takes shape.
“Transparency will be the catalyst driving profitable trades,” Field said. “The gold standard for transparency is easily accessible and usable real time, standardized loan details, over the life of the deal.”
While many market observers anticipate that loans may be the first market to recover, James Finkel, chief executive officer of Dynamic Credit Partners, mentioned some trader speculation that the next surprise may come from defaults in the loan market.
None of the speakers on a loan panel said they had immediate concerns about loan defaults.
Steve Odesser, a managing director at Sheridan Capital, however, said it might take years for stability to return to the bond insurer industry, which has been roiled by fears that the sector will be swamped by the collapse of structured debt that it guaranteed.
“My guess is that it will be a couple year process,” Odesser said.
Carlyle Cap News Dents Asian Shares, US Futures
2008/03/13 12:17PM
0417 GMT [Dow Jones] Asian stocks extend falls with U.S. futures weak, in part on news Carlyle Capital expects lenders will seize its assets, causing likely liquidation of fund; Nikkei off 3.4%, Kospi 2.4%, Taiwan 1.6%, STI 2.5%, HSI 3.1%. Nasdaq futures down 1% in screen trade with S&P futures down 0.9%. “Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing,” fund says; likely collapse is major black eye for Carlyle Group, powerful Washington, D.C.-based private-equity firm whose executives own 15% of fund. Comes just one week after Carlyle Group asked some of world’s largest banks to hold off on margin calls and liquidation of mortgage assets; but several lenders began selling fund’s $21.7 billion in mortgage securities, which committed as collateral against huge borrowings. Shows how Wall Street’s biggest players now playing hardball with some of their best clients, and how jittery banks have become about own loan exposures. Shows too how credit crunch has moved far beyond subprime mortgages; Carlyle Capital’s portfolio consisted exclusively of AAA-rated MBS issued by Fannie Mae, Freddie Mac. (RXM)
Straits Asia Off 10.5% On Coal Price, Tax Worries
2008/03/13 12:30PM
0430 GMT [Dow Jones] Straits Asia (AJ1.SG) down 10.5% at S$3.00, with support tipped at S$2.95 (midpoint of Jan. 25 trading range). Volume fairly high with 6.6 million shares traded so far vs daily average of 6.8 million. Analyst at foreign house says shares likely suffering on a combination of factors, but no company-specific bad news out. “There’s ongoing noise on regulatory risk in Indonesia to do with worries they might impose a coal export tax, and there’s also talk that China’s coal production has been higher than expected so people may be worried about downward pressure on coal prices.” Adds, coal stocks have done well, probably fair to expect some profit-taking, Straits Asia tends to be volatile, high beta stock, big swings not unusual. (KIG)
Olam Fund Raising Fears To Drag On Stock – DB
(2008/03/13 12:12PM
0412 GMT [Dow Jones] STOCK CALL: Deutsche Bank says Olam (O32.SG) is likely to continue to underperform other agricultural commodity plays on worries of need for fresh equity. Broker notes company has indicated it’s likely to raise equity or equity-linked funds for its next 3-year business cycle. Says potential fund raising “will remain an overhang on the stock.” Adds, move into plantation assets also causing uncertainty; “we consider that the move will increase earnings volatility and quality and hence likely lower valuation multiples.” Keeps Hold rating with unchanged S$3.10 target price. Share down 3.6% at S$2.12; STI down 2.5%. (KIG)
STI Off 2.5% On Weak USD, Carlyle Fallout
2008/03/13 12:46PM
0446 GMT [Dow Jones] CORRECTION: Falling USD, news creditor banks expected to seize control of Carlyle Capital’s (CCC.AE) assets following mortgage bond fund’s failure to meet margin calls send Singapore shares sharply lower, pushing STI down 2.5% at 2845.53 midday, wiping out all of yesterday’s gains. Most component stocks down; immediate support for STI at 2800. Dealer says USD weakness against major currencies causing further unwinding of yen carry trades, with situation compounded by fears of more casualties in financial services sector following Carlyle news; “the (major Asian) indexes usually track dollar-yen movements. When the yen strengthens, the indexes come off.” FTSE ST All Share Index down 2.4% at 731.37. Overall marker volume light, with over 3 decliners for every gainer. Yanlord Land (Z25.SG) top percentage loser on STI, down 8.7% at S$2, possibly on concerns demand for its homes will wane given prospect of more interest rate hikes, tightening measures in China to curb inflation. (An item at 0438 GMT misstated that Carlyle Capital’s assets had already been seized.) (FKH)
Three Hedge Funds Battered by Credit Squeeze, FT Says
March 13 (Bloomberg) -- Three more large hedge-fund firms, including Drake Management LLC, a $12 billion New York manager, have closed down or suspended investors' withdrawals because of the credit squeeze, the Financial Times reported.
Drake offered investors in its three hedge funds the choice of winding up the funds after about half asked for their money back, the FT said. It has lost almost 10 percent this year in its main fund after a 24 percent loss last year, the newspaper said.
GO Capital Asset Management BV, an $870 million Amsterdam-based hedge fund, which has fallen 7.7 percent this year, blocked clients from withdrawing cash from one of its funds, the FT said. Blue River Asset Management, the most highly leveraged of the three, was the worst affected, the newspaper said.
Blue River, a Colorado-based hedge-fund manager specializing in municipal bonds, is closing its main fund after nearly 80 percent losses, even after raising $110 million for a new fund, the FT said.
Business Times - 13 Mar 2008
When analysts stick to buy calls even as prices keep falling
By R SIVANITHY
IN this column on Monday, senior correspondent Conrad Raj highlighted two instances of analysts’ reports that were wide of the mark. The companies mentioned were Hersing and Advance SCT - the former’s shares suffering a knock when local broker CIMB mistakenly factored in a loss on Hersing’s remittance business instead of a profit, while the latter’s shares crashed despite persistent ‘buy’ calls from Kim Eng Research even after Advance SCT had reported disappointing results.
There are undoubtedly many more similar cases floating around - the banks, for example, were the subject of ‘buy’ calls throughout the past six weeks but all have continued to weaken, while China plays such as Cosco Corp and China Hongxing Sports have also plunged despite calls from brokers to buy.
None, however, stands out as glaringly as China Energy, whose shares have crashed from 90 cents at the start of this month to 61.5 cents yesterday - an astonishing loss of almost 32 per cent in less than two weeks.
You’d have to wonder which is more disconcerting for shareholders: the fact that China Energy shares dropped 4.5 cents or 7 per cent yesterday, a day when the Straits Times Index bounced sharply in response to a US Federal Reserve-inspired bailout plan for battered credit markets, or that its crash has come despite an overwhelmingly bullish broking community.
Merrill Lynch for example, on Jan 11 when the stock traded at $1.18, cut its forecast earnings for China Energy for FY08/09 by 13/35 per cent respectively but maintained its ‘buy’ with a $1.68 price target. A few days later, the counter broke below $1 and has been on a downtrend thereafter.
Less than two weeks ago, on Feb 26, Lehman Brothers reviewed the company’s earnings announcement and, when the stock was trading at 95 cents, trimmed its FY08/09 earnings forecasts by 5/2 per cent respectively to factor in higher coal costs but reiterated its ‘overweight’ call with a $1.26 price target.
Yesterday, after China Energy had slid to 66 cents on Tuesday, CIMB maintained its ‘outperform’ on the stock, revising its target price from $1.76 to $1.44. As stated earlier, the counter then fell to 61.5 cents.
So, here we have three well-respected houses that some months ago separately called a ‘buy’ on a stock that seemingly offered decent growth prospects but despite lowering their target prices, have maintained their position even as the price has plummeted.
Incidentally, there are signs that the selling is intensifying. Last week’s average daily volume when the counter traded at 81.5-84.5 cents was 2.5 million shares while the average on Tuesday and yesterday, when the shares have lost most of their value, is almost 14 million shares. You’d have to wonder: does the market know something that these analysts do not? Or is there an upcoming announcement that might explain the sudden weakness?
On this latter point, you’d expect the answer to be no - CIMB’s bullishness was largely founded on information gleaned from China Energy itself at its ‘Great China Sale’ conference held earlier this week, at which it appears great pains were taken to ease concerns over the company’s exposure to volatile methanol prices (a key raw material) and its cost structure. If no negative news was shared at the conference, then it’s unlikely that any announcement which could explain the share plunge is forthcoming.
Possible lessons
Reasons for the selling aside, what lessons are possible from this episode?
The first is that in a hugely uncertain environment which is decidedly bearish, analysts have to temper their forecasts and be more circumspect in their recommendations - Lehman’s report, for instance, estimated that China Energy’s 2009 earnings would grow by 90 per cent year-on-year, a figure that is arguably overly ambitious and one which the market clearly disagrees with.
Second, as CIMB has no doubt found, obtaining guidance from management is of little use since no company would downplay their prospects if asked about its future at a public forum.
Finally, it’s obvious that investors are much less likely to buy into a China growth story than they were say, a year ago. Fears of an economic slowdown, heightened inflation and a deflating stock market bubble are among some of the factors afflicting the country and these have to play a part in tempering future recommendations.
HSI Ends Dn 4.8%; Reentry At 19800 - Fulbright
0811 GMT [Dow Jones] HSI ended down 4.8% at 22,301.64, off low of 22,251.24, tracking regional selloff as USD falls vs Japanese yen; news Carlyle (CCC.AE) may see liquidation of funds triggers more selloff. "Investors should not buy stocks now, even though the market is severely oversold," says Francis Lun at Fulbright. Adds investors could consider reentry level when index falls to 19,800, suggesting more pullback in near term. Volume above HK$100 billion mark, at HK$106.837 billion, of which HK$14.32 billion from debutante China Railway Construction (1186.HK), finished +12.2% at HK$12.00. "It's likely to fall below its IPO price (HK$10.70) soon amid current bearish sentiment," Lun says. (SUT)
Carlyle Capital Shares Plunge After Talks Fail
Carlyle Capital’s shares plummet over 70%, after the fund says talks with lenders aimed at reaching a standstill agreement had failed, making it likely that assets will now be seized and liquidated. This comes a week after parent Carlyle Group pleaded with some of the world’s largest banks to hold off on margin calls and the liquidation of its mortgage assets. Several of the lenders, led by Deustche Bank and J.P. Morgan, ignored the request.
Carlyle Capital in default, on brink of collapse
By Reed Stevenson
Mar 13, 2008
AMSTERDAM, March 13 (Reuters) - Carlyle Capital Corp, an affiliate of private equity firm Carlyle Group, is in default on about $16.6 billion of debt and said its lenders would likely take possession of its remaining assets.
The news provided a new sign of stress in global credit markets and affected asset prices and sentiment worldwide.
Bund futures in Europe, where Carlyle Capital shares are listed in Amsterdam, rose back to levels they traded at before the U.S. Federal Reserve and other central banks coordinated on Tuesday to inject liquidity into credit markets.
"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING.
The default by the fund prompted spreads to widen on the iTRAXX Asia ex-Japan investment grade index, and European credit spreads also widened, returning close to record wide levels touched earlier in the week.
Carlyle Capital said it was unable to meet margin calls of more than $400 million and was now in default on about $16.6 billion of its debt.
"The remaining indebtedness is expected soon to go into default," Carlyle Capital said in a statement on Wednesday.
Carlyle Capital shares tumbled 70 percent to $0.83 compared with their $20 debut on the Amsterdam bourse last July.
Dutch market regulator AFM said it was monitoring developments closely but was not planning to suspend trade.
Carlyle Capital said its lenders had proceeded to foreclose on the mortgage-backed securities collateral as it was unable to pay the margin calls. The only assets held in its portfolio as of Wednesday were U.S. government agency AAA-rated residential mortgage-backed securities.
Analysts said the news would deepen the gloom over a global credit crisis that emanated from the U.S. housing downturn.
"Sentiment is broadly negative and news of missed margin calls at large highly leveraged funds only elevates fear of a vicious cycle of more forced selling at deep loss, collateral shortfalls, and more missed margin calls," said Brett Williams, credit analyst with BNP Paribas in Hong Kong.
Carlyle Capital's troubles began on March 6, when it said it had not been able to meet some margin calls. This snowballed over the next few days as more of its lenders feared it would default.
FEARS
June Bund futures were 33 ticks higher at 117.95, and by 0839 GMT, the Markit investment-grade iTraxx Europe index was at 156.5 basis points, according to data from Markit, 10.5 basis points wider and erasing gains from Wednesday.
"The Fed will remain vigilant that it does not cause systemic problems, but I don't think we can rule out more instances of stress," Condon said.
"There's a realisation that the Fed action is not going to solve problems of liquidity and now there is the fear about hedge funds," said Andrea Cicione, a credit strategist at BNP Paribas.
Fears that more private equity groups, hedge funds and mortgage lenders are struggling with their financing are putting heavy pressure on global equity markets, which have tumbled in recent months on fears of a U.S. recession and the growing fallout from a global credit crunch.
But analysts said private equity groups and hedge funds would continue to be important segments of the financial system.
"These firms will be under pressure but any dislocation will be transitory. The crisis is creating a lot of opportunities for them," said ING's Condon.
Carlyle Capital said U.S.-based buyout giant Carlyle Group
participated actively in negotiations with lenders and was prepared to provide substantial additional capital if a successful refinancing could be achieved.
Carlyle Group's managers have a 15 percent stake in the company.
It said negotiations deteriorated late on Wednesday when the pricing service used by certain lenders reported a drop in the value of the mortgage-backed securities collateral that was expected to result in additional margin calls on Thursday of approximately $97.5 million.
"Overall, it has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.
Gold Futures Hit $1,000 Benchmark on Declining Dollar, Crude Oil Prices
By Lauren Shepherd
March 13, 2006 10:06 am ET
NEW YORK (AP) -- Gold futures hit $1,000 an ounce for the first time Thursday, pushed past the benchmark by the sinking dollar and record crude oil prices.
The dollar fell below 100 yen during Asian trading Thursday, its weakest level against the Japanese currency in 12 years. The dollar also dropped to all-time lows against the euro.
After reaching $1,001 on the New York Mercantile Exchange, gold for April delivery dropped slightly to $999.70 by midmorning Thursday.
Gold has been pushing up against the $1,000 an ounce mark for weeks, mainly because of the weaker dollar. Interest rate cuts -- and the prospect of more on the way -- have weakened the currency so much that foreign investors can buy dollar-based commodities like gold and oil more cheaply.
Crude oil futures hit a record high above $110 a barrel Thursday, after first crossing that level Wednesday, also due to investors abandoning the weak dollar.
Investors have been expecting gold futures to rise to $1,000 as they watched the dollar spiral lower, said Scott Meyers, senior trading analyst with Pioneer Futures, a division of MF Global. Gold has been steadily creeping closer to the record after rising nearly 32 percent in 2007.
The dollar's decline and the boost in the price of oil price merely added the extra push.
"We're getting a scenario where commodities are the place to be today," Meyers said. "With the weak dollar, it's hard to be against them."
Meyers declined to speculate on how high gold could go, saying, "to pick a top is a foolish game to play at this juncture."
The Federal Reserve's meeting next week could provide more encouragement for gold prices since the Fed is widely believed to be considering cutting interest rates again. Another rate cut could reduce the dollar's value further, making gold an even better investment.
Bear Stearns credit default swaps rise 120 bps
Thu Mar 13, 2008 10:13am EDT
NEW YORK, March 13 (Reuters) - The cost of protecting Bear Stearns' debt with credit default swaps surged by 120 basis points on Thursday amid ongoing concerns about liquidity issues at the investment bank.
Bear Stearns' credit default swaps rose to 700 basis points, or $700,000 a year for five years to protect $10 million of debt, up from 580 basis points at Wednesday's close, according to data from Phoenix Partners Group. Bear Stearns has denied talk that it faces a cash crunch.
Drake's rocky passage
Once a golden child of the hedge fund industry, a former high-flyer's management faces some brutal choices.
By Roddy Boyd
March 12, 2008
NEW YORK (Fortune) -- A high-profile New York hedge fund has notified its investors that it is pondering shutting several of its key portfolios because of a brutal combination of poor performance and lack of liquidity in key markets.
Drake Management, a once-high-flying bond fund manager whose flagship fund returned an astounding 41% in 2005, has been in hot water for several months as a series of large trades moved against the fund.
Last year, the once-$3 billion Global Opportunities fund dropped around 25%, leading investors to flood Drake with $1 billion in redemption requests in early January. On February 29, fund management suspended withdrawals from another series of its funds, the Low Volatility Fund group.
In a letter to Drake's investors sent last night - which Fortune obtained - fund management laid out the stark choices management is pondering for its investors: Wind down its Global Opportunities funds, invest in a new fund or hold on, hoping the markets turn around. The wording of the letter implies that fund management hopes that investors will seek to invest in a new Drake fund.
The fund restructuring, if its investors allow it, represents a massive reversal of fortune for the Fifth Avenue-based investment manager, which had nearly $7 billion in hedge fund assets under management as recently as last year, and $10 billion firm-wide.
That Drake's Global Opportunities fund finds itself in these dire straits is odd, given that it is a macro-fund, with a charter allowing it to invest in most asset classes. Many of its peers in the macro strategy have had a good start to the year, at least according to the CS/Tremont index, posting an average gain in January of 4.44%.
Many funds in this sector continue to post outsize gains on bets against the dollar and on the rising price of oil.
While it is not clear how precisely Drake wound up in such trouble, hedge fund-of-fund managers who have monitored the Global Opportunities fund and its performance told Fortune that Drake put on a series of trades last fall that did not work out. These included betting on the decline of the price of the dollar versus the yen, a drop in long-dated Treasury bond prices and a rally in U.S. stock-market prices.
All three bets failed. When the trades did not pan out, Drake's Global Opportunity was forced to book a 14% loss and then suffered another 10% decline in November.
Soon after, the fund was forced into an all-too typical scenario: Increased margin requirements and requests for additional collateral. Drake's letter also references "predatory trading" with respect to its counter-parties, the big brokers. This means that dealers are no longer risking their own capital, or even providing narrow bond bid-ask spreads, to Drake in a bid to win the fund's trading business. In essence, the brokers know that the fund is weak and have little risk in trading against it.
Also, its large fixed-income holdings in its other hedge funds suffered from a decline in prices and liquidity as the credit crisis spread across the bond spectrum.
An outside spokesman for Drake declined comment.
Stocks swoon as dollar falls, gold jumps
By TIM PARADIS
March 13, 2008
NEW YORK - Stocks tumbled Thursday morning as investors recoiled following a further decline in the dollar, spikes in gold and oil prices and a warning that a Carlyle Group fund is near collapse. The major indexes each lost more than 1 percent; the Dow Jones industrial average at times fell more than 200 points.
Investors were also getting their first look at a plan outlined by Treasury Secretary Henry Paulson to provide stronger regulatory oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets.
But talk of regulatory changes appeared to do little to dislodge the glum mood on Wall Street. A government report showing that retail sales fell in February rather than increasing as had been expected only added to investors' worries.
The dollar fell below 100 yen during Asian trading Thursday. The decline marked the weakest level for the dollar against the Japanese currency in 12 years. The dollar also dropped to fresh lows against the euro.
Gold prices moved above the psychological benchmark of $1,000 an ounce for the first time Thursday, underscoring investors' nervousness about the economy and inflation and the weakness in the dollar. The currency's swoon also helped push oil prices higher.
Carlyle Capital Corp., which is managed by Carlyle Group, warned late Wednesday it expects creditors will seize all the fund's remaining assets after unsuccessful negotiations to prevent its liquidation. World markets shuddered last week after the Amsterdam-listed fund missed margin calls from banks on its $21.7 billion portfolio of residential-mortgage-backed bonds.
Carlyle's troubles have added to concern that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further.
In the first hour of trading, the Dow fell 205.07, or 1.69 percent, to 11,905.17.
Broader stock indicators also fell. The Standard & Poor's 500 index lost 19.33, or 1.48 percent, to 1,289.44, and the Nasdaq composite index fell 28.50, or 1.27 percent, to 2,215.37.
Thursday's decline follows moderate losses Wednesday and a 416-point rally on Tuesday. Those sharp gains followed a plan by the Federal Reserve — and coordinated with other major central banks — to lubricate near-frozen credit markets with an infusion of as much as $200 billion.
Bond prices rose Thursday as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.43 percent from 3.44 percent late Wednesday.
Light, sweet crude traded flat at $109.92 on the New York Mercantile Exchange.
The Fed's Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy.
The decline in retail sales for February was unnerving for investors because consumer spending accounts for more than two-thirds of U.S. economic activity. A pullback among consumers worried about jobs, falling home prices or rising energy costs could hasten the economy's slowdown.
The Commerce Department said Thursday that retail sales fell by 0.6 percent last month. Analysts had expected an increase of 0.2 percent.
In other economic findings, the Labor Department said that the number of workers seeking unemployment benefits was unchanged last week. Last week unemployment concerns sent a wave of unease across Wall Street when the government said that employers cut payrolls by 63,000 in February, the second straight month of losses. Many economists regard back-to-back declines in unemployment as a sure sign the economy won't be able to avoid recession.
Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to 288.8 million shares.
The Russell 2000 index of smaller companies fell 9.42, or 1.41 percent, to 657.89.
Overseas, Japan's Nikkei 225 index tumbled 3.3 percent to its lowest in 2 1/2 years. In afternoon trading, Britain's FTSE 100 fell 2.11 percent in morning trading, while Germany's DAX index slid 2.66 percent, and France's CAC-40 lost 2.85 percent.
Dollar Falls to 12-Year Low of 100 Yen on Carlyle Fund Failure
By Gavin Finch and Ye Xie
March 13 (Bloomberg) -- The dollar fell below 100 yen earlier today for the first time since 1995 and dropped to a record low against the euro after a Carlyle Group fund moved closer to collapse, adding to turmoil in financial markets.
The dollar approached parity with the Swiss franc and slumped against the British pound after Carlyle said lenders will seize the assets of its mortgage-bond fund and President George W. Bush said the U.S. currency's decline was not ``good tidings.'' The dollar's drop may prompt Middle East central banks to reduce dollar holdings, Greg Gibbs, a strategist at ABN Amro Holding NV in Sydney, said in a report.
``Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the securities unit of Credit Agricole SA, France's second-biggest bank. ``The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan.''
The dollar fell to 99.77 yen, the lowest since October 1995, before trading at 100.18 at 10:29 a.m. in New York, from 101.79 yesterday. The dollar touched $1.5624 per euro, the weakest since the European currency's debut in 1999, and was at $1.5589, from $1.5551. It slid to a record 1.0045 Swiss francs. Japan's currency advanced to 156.21 per euro, from 158.30.
The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.82. The dollar dropped to $2.0365 per pound from $2.0270, touching the weakest since December.
Yen Sales
Japan sold the yen on the four occasions since 1995 when the currency approached 100 to support exporters including Toyota Motor Corp., the world's second-biggest automaker. The Bank of Japan sold 14.8 trillion yen ($148 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.
The yen's 24 percent gain against the dollar from a 4 1/2- year low on June 22 was ``unexpected'' and will damage earnings, Toyota President Katsuaki Watanabe said today.
``We must continue cost cuts by all means, but the currency has reached the level where we have to think about other measures,'' Watanabe told reporters in Tokyo. A gain of 1 yen against the dollar cuts Toyota's annual operating profit by 35 billion yen, according to the automaker.
Intervention Risk
The yen may rise as high as 95 per dollar, according to forecasts this month by Citigroup Inc., the third-biggest currency trader, Lehman Brothers Holdings Inc., the fourth- biggest U.S. securities firm, and Mizuho Financial Group Inc., Japan's second-largest publicly traded bank. Deutsche Bank AG and UBS AG, the two biggest currency traders, had predicted the dollar would hold above 100.
``There's more than a 50 percent probability that the U.S. is in recession,'' Eisuke Sakakibara, dubbed ``Mr. Yen'' when he was Japan's top currency official from 1997 to 1999, said in an interview on March 6. ``The dollar-yen rate is dependent on the state of the U.S. economy.''
The Group of Seven, which next meets April 12-13 in Washington, may signal its intent to consider coordinated intervention, UBS strategists wrote in a March 3 report. Unilateral intervention ``seems unlikely'' as Japan's economy has grown every year since 2002, it said.
Central banks intervene in the foreign-exchange market when they buy or sell currencies to influence exchange rates.
Exiting Carry Trades
The yen also gained as investors exited so-called carry trades, in which they borrow in a country with low interest rates and buy higher-yielding assets elsewhere, earning the spread between the two. The risk is that currency moves erase those profits.
Japan's benchmark rate of 0.5 percent compares with 3 percent in the U.S., 4 percent in Europe, 7.25 percent in Australia and 8.25 percent in New Zealand.
Carlyle Capital Corp., co-founded by David Rubenstein, said in a statement it defaulted on about $16.6 billion of debt as of yesterday. Lenders will ``promptly'' take over all of its remaining assets and any remaining debt is expected ``soon'' to go into default, it said.
The yen has rallied 13 percent against the dollar as the Fed cut rates amid the worst housing slump in a quarter of a century and $190 billion of U.S. subprime-mortgage-related losses and markdowns at the world's biggest financial institutions.
Losing Confidence
``Investors are starting to lose confidence in the dollar, given the increased uncertainty over credit-related losses,'' Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients today. ``Carlyle is unlikely to be the last hedge fund in difficulty. That will only further depress investor sentiment.''
Drake Management LLC, the New York based-firm started by former BlackRock Inc. money managers, said yesterday it may shut its largest hedge fund, while GO Capital Asset Management BV blocked clients from withdrawing cash from one of its funds.
The biggest job losses in five years and record fuel costs are eroding U.S. consumer confidence and spending, which accounts for more than two-thirds of the economy. Lehman and JPMorgan Chase & Co. last week said the U.S. is headed into a recession.
U.S. retail sales declined 0.6 percent in February following a 0.4 percent gain the previous month, the Commerce Department said today. The median forecast in a Bloomberg survey was for an increase of 0.2 percent.
`Going Lower'
``Dollar-yen is going lower,'' said Ray Farris, head of foreign-exchange strategy at Credit Suisse in London. ``It will definitely overshoot our 98 forecast in the very near term. Our forecast was for the dollar to reach 98 in three months. The big question now is whether there will be intervention.''
Japanese officials are unlikely to intervene now in the foreign-exchange market, because the yen is ``cheap'' compared with other currencies, Sakakibara said. The U.S. and Japan may intervene to weaken the yen should it break through 90 and head toward 80 per dollar, he said.
The yen's real effective exchange rate, measured against 15 currencies of major trading partners including China, Europe and Canada, is 99.5, according to Bank of Japan figures. The rate averaged 121.9 in the first quarter of 2004, when the bank last intervened on behalf of the Ministry of Finance.
Flowing to Japan
``The yen hasn't played its part in terms of dollar depreciation,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York. As carry trades unwind, ``we could find ourselves moving down toward 95 very, very quickly in the next couple of weeks.''
The yen may strengthen further as global growth slows and other central banks will lower interest rates, prompting Japanese investors to send money back home, said Scott Ainsbury, who helps oversee about $12 billion in currency as a portfolio manager in New York at FX Concepts Inc.
Japan's economy, the world's second-largest, may expand 1.5 percent this year, matching the growth rate in the U.S., the International Monetary Fund said on Jan. 29. It would be the first time Japan doesn't lag behind the U.S. since 1991.
Japanese mutual funds have reduced purchases of overseas assets by 9 percent to 33.5 trillion yen in January, from 36.9 trillion yen in December, according to the Investment Trust Association data.
``Money is flowing back toward Japan, rather than going out to the rest of the world,'' said Ainsbury. ``Why put the money in the U.S. where stocks are sliding and the dollar is sliding? It's just a double whammy.''
The yen will reach 95 per dollar in three months, he predicted.
Foreign investments, hot money come to China
2008-03-13
Foreign investments and international hedge funds, some of which are speculative hot money, are now elbowing into the China market. They're lured by the Chinese people's emerging consumption power, and expectations of the Chinese yuan appreciating higher.
The Ministry of Commerce said on Wednesday that China drew $18.13 billion in overseas investments in January and February, shooting 75.2 percent year-on-year.
Chinese Commerce Minister Chen Deming, who was promoted to the post late last year, said at a news conference in Beijing that the reason for the big increase of overseas capital in the first two months was due to the big increase in large-scale investing projects and a stronger yuan.
Chen's ministry, which oversees foreign trade and domestic consumption, said that during the first two months, investments from the European Union countries rose a whopping 109 percent, while investments from the United States increased 44 percent.
Wild expectations abroad that the yuan will continue to rise in value against major world currencies has led to money coming to China.
"When you bring US dollars to invest in China, you need to change it into the yuan. Naturally you would like your funds to enter China at an earlier date. Because, if you are late, the same amount of dollars will turn out to be less yuan bills," Chen told reporters.
China's foreign exchange administration, under the auspices of the People's Bank of China, the central bank, said in its latest report that the country's total foreign exchange reserve has reached nearly $1.59 trillion by the end of January, the world's largest.
China's currency, also called the renminbi, has been constantly rising in value. The People's Bank of China, set the medium parity trading price at 7.0970 against one US dollar on Thursday, a new record high. The yuan has gained 3 percent against the dollar in value since the beginning of 2008.
The sharp increase in the stock of hard currencies has triggered another round of concern on speculative hot money flowing into China, posing potential risks to China's financial system stability.
Wu Xiaoling, deputy head of the National People's Congress's Finance Committee, who was a former central banker, said that the American subprime crisis and the rising trend of the yuan's value will make world speculative funds come to the China market to seek profits.
When asked by reporters whether the hot money has arrived in the name of foreign direct investments, Minister Chen Deming said: "I can hardly tell their entering channels, and their volume. It belongs to the management of the foreign exchange administration."
Economist Suggests Quick Appreciation
Liang Hong, economist at the Goldman Sachs, argued in a written article published by a major Chinese financial newspaper on Thursday that Chinese monetary authorities should consider quickening the appreciation pace of the yuan, to fight domestic inflation, which approached to 8.7 percent in February.
Others have suggested another "one-off" big rise of the value of the yuan, possibly 5 percent against the greenback by the central bank, to block more hot money from flooding in.
Liang said in her article that "allowing a marked rise in the yuan value is the most opportune policy instrument to curb inflation, as well as rectify the foreign trade imbalance".
She also argued for immediate interest rate hikes to thwart inflation, otherwise the Chinese economy faces an increasing risk of a hard-landing.
Carlyle Capital Nears Collapse
As Accord Can't Be Reached
By PETER LATTMAN
March 13, 2008
The credit crisis has claimed another victim.
Carlyle Capital Corp. said late Wednesday it expects its lenders will seize its assets, causing the likely liquidation of the fund, which until recently owned $21.7 billion in mortgage securities.
"Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing," the fund said in a statement.
The fund's likely collapse would be a major black eye for Carlyle Group, the powerful Washington-based private-equity firm whose executives own 15% of the fund.
Though it's registered in Guernsey, U.K., and trades in Amsterdam, Carlyle Group runs Carlyle Capital out of its New York offices. Early Thursday in Amsterdam, the shares plunged 70% to $0.83 each. The stock has lost around 83% since the company first disclosed its funding problems last week.
The news comes just one week after Carlyle Group began pleading with some of the world's largest banks to hold off on margin calls and the liquidation of its mortgage assets. Several of the lenders, led by Deutsche Bank and J.P. Morgan Chase & Co. ignored Carlyle's request. Wednesday night, they began selling the fund's assets, which were committed as collateral against huge borrowings. By Monday, dealers had sold $5.7 billion of the fund's assets.
The fund said that through yesterday it had defaulted on approximately $16.6 billion of its loans, and expects to default on the rest.
Other dealers that sold Carlyle Capital's collateral included Merrill Lynch & Co. and Bear Stearns Cos., according to people familiar with the fund.
The fund's collapse shows how Wall Street's biggest players have begun playing hardball with some of their best clients. And they reveal how jittery banks have become about their own loan exposures. In the case of Carlyle, 12 banks had lent the fund about $21 billion, or $20 for every dollar of initial capital.
It also illustrates how the credit crunch has moved far beyond subprime mortgages. Carlyle Capital's portfolio consisted exclusively of AAA-rated mortgage backed securities issued by Fannie Mae and Freddie Mac. They are considered to have the implied guarantee of the U.S. government and pay par at maturity.
The fund, which started in 2006, had struggled since last summer. It had to postpone its initial public offering of stock last June just as the credit crunch was first taking hold, and when it did go public in early July was forced to sell its shares at a discount. Only a month after its IPO, Carlyle Group had to extend $200 million to the fund to meet margin calls.
Carlyle Capital's investment strategy looked like easy money at first. The fund would exploit the difference between the interest earned on its investments in mortgage securities and the costs of financing those investments.
Like so many other hedge-fund blowups, Carlyle's troubles came from borrowing too much money. The secret to making money was borrowing massive sums. Carlyle Capital managed only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion. Until last week, when the dealers started selling the fund's collateral, it was about 32 times leveraged, a level one mortgage-company analyst called "astronomical."
The leverage, combined with severe dislocation in the credit markets, has proved to be Carlyle Capital's undoing. With their balance sheets under extreme pressure, banks have tightened their purse strings and are now requiring more collateral for loans. And in Carlyle Capital's case, the prices of the collateral -- the residential mortgage backed securities, or RMBSs -- have dropped to levels not seen in more than 20 years. The fund said in its statement late Wednesday that the value of the RMBS collateral continues to drop.
Carlyle Group, founded in 1987 in Washington, D.C., manages some $75 billion across 59 funds. Over the past three years, it has teamed up with other private-equity firms to do some of the largest buyouts in history, including energy company Kinder Morgan Inc., car-rental giant Hertz Corp. and technology outfit Freescale Semiconductor Inc.
Carlyle Capital is run by CEO John Stomber, who also serves as a Carlyle Group managing director. He is a former executive at Cerberus Capital Management LP, a New York private-equity firm, and before that was an executive at Merrill and Deutsche Bank. The fund's chairman, James Hance, is a senior adviser at Carlyle and a former finance chief and vice chairman at Bank of America.
US$1 = S$1.379: Sing dollar rises to new high against greenback
By Michelle Tay
March 14, 2008
THE Singapore dollar hit a new high of just under $1.38 against the United States dollar yesterday as speculators kept dumping the greenback on US recession fears.
Just six months ago, it was about $1.51 to the US dollar.
This is good news for Singaporeans planning a holiday to the US - but it makes exports to the key US market more pricey.
At 4.30pm yesterday, data compiled by Bloomberg showed that the local currency briefly touched $1.3794 to the sliding greenback. This is a whisker stronger than the previous record of $1.3835 in May 1995.
Singapore is not alone. Most currencies are gaining against the US dollar, meaning the Sing dollar's rise against other currencies, such as the British pound, is more muted.
Yesterday, the US dollar fell to its weakest level since 1995 against the yen - 100.1 yen. It also fell to a record low of $1.5592 per euro, the weakest level since the European currency's 1999 debut.
Standard Chartered economist Alvin Liew said the Sing dollar is 'moving in line with regional currencies and is not strengthening more than, say, the ringgit or yen'.
S'pore Macquarie Fund sells $112 mln airport stake
SINGAPORE, March 14 - Singapore-listed Macquarie International Infrastructure Fund said on Friday it had sold its entire stake in Macquarie Airports for S$154.3 million .
It also said it had accepted offers from unnamed financial institutions to establish S$440 million in term debt facilities with a three-year maturity.
Existing short-term debt facilities would be cancelled as they came up for renewal over 2008, the fund said.
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