UK takes 1 billion pounds hit in RBS sell-off  

Britain took a 1.1 billion pound (US$1.7 billion) loss on its first sale of shares in Royal Bank of Scotland (RBS) on Tuesday, sparking accusations from opposition politicians of an unnecessarily rushed and costly disposal.

PHOTO: REUTERS

AUG 4, 20155:55 PM

[LONDON] Britain took a 1.1 billion pound (US$1.7 billion) loss on its first sale of shares in Royal Bank of Scotland (RBS) on Tuesday, sparking accusations from opposition politicians of an unnecessarily rushed and costly disposal.

The UK government sold a 5.4 per cent stake in RBS at 330 pence per share, a third below the price paid when Britain rescued the British bank with 45.8 billion pounds of taxpayer cash at the peak of the 2007/09 financial crisis.

Britain raised 2.1 billion pounds, but lost a substantial sum on the first of many blocks of shares to be sold. Overall it is currently sitting on a 15 billion pound loss on its holding.

Finance Minister George Osborne hailed the start of returning RBS to the private sector and said it was right to commence selling at a loss.

See who is talking about RBS

Last 30 days:

• 2214
• 134
• 787

30 days avg

HOT COMPANIES

Shire +1500% messages

• RBS +497%
• Standard Life +351%
• Travis Perkins +245%
• Direct Line +182%
• Smiths Group +153%
• Glencore +151%
• Fresnillo +143%
• Intertek +101%
• Coca-Cola HBC +83%

• RBS +497%
• Standard Life +351%
• Travis Perkins +245%
• Direct Line +182%
• Smiths Group +153%
• Glencore +151%
• Fresnillo +143%
• Intertek +101%
• Coca-Cola HBC +83%

"While the easiest thing to do would be to duck the difficult decisions and leave RBS in state hands, the right thing to do for the economy and for taxpayers is to start selling off our stake," Mr Osborne said.

But the opposition Labour Party slammed the sale. "RBS had to be bailed out urgently, but it doesn't have to be sold off at the same speed," said Chris Leslie, shadow finance minister.

"The Chancellor needs to justify his haste in selling off a chunk of RBS while the bank is still awaiting a US settlement for the mis-selling of sub-prime mortgages," Mr Leslie added, referring to a potentially massive fine from US authorities against RBS, related to past sales of US mortgages.

RBS has set aside 2.1 billion pounds for a settlement but has said the timing of a deal is uncertain. Analysts estimate it could cost as much as 9 billion pounds.

However the share sale, which cuts the taxpayers' holding to 72.9 per cent from 78.3 per cent, still marks a milestone in Britain's recovery from the financial crisis, as well as forming a plank in Mr Osborne's strategy to improve the country's finances.

The divestment had been on the cards since Osborne in June accelerated the timetable for selling RBS, after his Conservative Party won May's UK national election with a surprise majority, giving his party more power in government.

He has lost no time since then in pressing on with his plans for Britain's economy, including the sale of more shares in Lloyds Banking Group and a budget that included a shift away from welfare spending to higher wages for workers.

UK Financial Investments (UKFI), the body that holds the government's stake, said it sold 630 million shares in a quick-fire sale to institutional investors after the market closed on Monday.

UKFI sold more shares than it had indicated on Monday, when it had announced plans to sell 600 million. The 2.3 per cent discount to RBS's closing price on Monday, at which the shares were sold, was also narrower than the 3.1 per cent discount on the government's first sale of Lloyds shares in September 2013.

By 0944 GMT RBS shares were up 0.3 per cent at 338.5p.

The RBS share sale was 2.4 times covered by investors, a person familiar with the matter said, adding about 48 per cent were UK-based investors, 37 per cent were from the United States and 15 per cent were from elsewhere.

RBS CEO Ross McEwan said he was pleased the sell-down had begun, which he said reflected the progress the bank had made "to become a stronger, simpler and fairer bank".

RBS was briefly the world's biggest bank by assets, but it has more than halved its assets and the size of its investment bank and sold businesses around the world.

Britain also had to rescue Lloyds and has sold down its stake in that bank at a profit over the past two years and now holds less than 14 per cent. The taxpayer could make at least 2 billion pounds on the Lloyds bailout.

The RBS sale was handled by Citigroup, Goldman Sachs , Morgan Stanley and UBS.

REUTERS

      

Europe: Bank shares lead European stock drop as Greece falls for 2nd day

AUG 5, 201512:28 AM

[FRANKFURT] European stocks snapped a five-day winning streak as declines in banks outweighed a surge in miners. Greek shares slid for a second day.

Credit Agricole SA dragged lenders to the worst performance on the Stoxx Europe 600 Index, tumbling 10 per cent after signaling it failed to win backing from regulators for a reorganization that may free up capital to repay investors. Total SA and Eni SpA pulled oil-and-gas companies down, as crude traded in a bear market. BHP Billiton Ltd and Rio Tinto Group rose at least 1.6 per cent, pushing commodity producers to the biggest gain on the equity gauge as some metal prices rebounded.

The Stoxx 600 retreated 0.2 per cent to 398.75 at the close of trading, after earlier losing as much as 0.6 per cent. Italy's FTSE MIB Index and Spain's IBEX 35 Index dropped 1 per cent.

"The banking sector today is burdened mainly by Credit Agricole," said Christian Stocker, a strategist at UniCredit Bank AG in Munich. "There were hopes that some capital could be repaid to investors. Mining stocks were extremely weak the last few weeks and the reaction today is nothing but a small relief."

Greece's ASE Index, which plummeted 16 per cent on reopening Monday after a five-week suspension, lost 1.2 per cent, for the biggest drop among western-European markets. The emergency curbs placed on trading before the resumption of activity are making routine tasks like buying and selling often impossible, according to local brokers.

Piraeus Bank SA tumbled the maximum 30 per cent for a second day, to record low. National Bank of Greece SA slid 29 per cent, also to a new low.

BMW AG dropped 1.3 per cent after saying that slowing sales in China may force it to revise this year's profitability goals.

Shire Plc slipped 5.9 per cent after making an unsolicited offer to buy Baxalta Inc, a business spun off by Baxter International Inc last month, for about US$30 billion in stock.

Continental AG advanced 5.7 per cent as Europe's second biggest maker of car parts raised its 2015 profitability goal. Smiths Group Plc climbed 4.4 per cent after people familiar with the matter said ValueAct Capital Management has bought a stake in the British engineering company.

BLOOMBERG

    

Oil price unlikely to recover as Saudi refining hits market 

AUG 5, 201512:00 AM

[LONDON] Oil prices are unlikely to recover soon as Saudi Arabia's drive to boost its refining activities is expected to force refineries elsewhere to slow down their operations, thus creating an even bigger glut of unwanted crude oil.

Two big new refineries in Saudi Arabia are adding to growing supplies of diesel and jet fuel, which could mean other refiners will use less crude as they respond to the oversupply of oil products.

Oil prices currently near US$50 a barrel are already under pressure, in part from an oversupply of fuels produced by refiners enjoying healthy margins from cheap crude as a result of the US shale boom and record Opec output.

A big difference now is that the world's largest oil exporter, Saudi Arabia, whose new refineries have added to a flood of the fuels now swamping global markets.

Opec's biggest oil producer has long wanted to process more of its own crude. Earlier this year, its 400,000 barrel per day Yasref refinery reached full production. It joined the 400,000 bpd Jubail refinery, which hit full capacity late last year.

"All signals point to weaker margins, which mean lower runs," said Jonathan Leitch, research director with Wood Mackenzie. "You're going to start to get a surplus of crude again." Storage tanks in Asia and Europe are filling up with diesel and jet fuel as growing consumption has failed to keep pace with increased production.

Soaring production of fuels in the United States and Europe has added to the overhang. Refineries there are still running hard to supply drivers, particularly in India and the United States, with the gasoline they are consuming at breakneck pace due in part to the halving of oil prices over the past year.

But slower economic growth in China has hit diesel demand growth, which relies primarily on industrial activity such as construction.

European demand growth has not been nearly enough to absorb the barrels now arriving from the United States, Asia and the Middle East.

"Storage will reach capacity," one European distillates trader said, adding that an extremely cold winter, or heavy schedule of refinery maintenance work, would be the only salvation for diesel's profitability.

Product stocks, including jet fuel and diesel, in independently held storage in the Amsterdam-Rotterdam-Antwerp area hit an all time high last week, while such stocks in Singapore were near a four-year high. At least one Asian storage operator reported a rise in enquiries about leasing new capacity.

That leaves limited hope for the margins of European, American and Asian refineries which produce these fuels; profits for producing them have already fallen to five-year lows in Asia. This has put refineries' demand for crude oil in question.

Margins are unlikely to improve any time soon unless refineries start to make deeper cuts in production, one Singapore-based trader said.

"The supply is so much now that even marginal run cuts are not going to help." Distillate stocks in the United States also rose faster than expected last week.

While booming demand from gasoline spurred refineries to consume ever more crude oil, traders and analysts said this incentive will subside when drivers' demand for gasoline falls in the autumn and winter.

And if US and European refiners cannot count on distillates to help them make money, their appetite for crude oil could slow, as has already happened to their Asian counterparts. "I think the runs have probably hit their peak for the year," Mr Leitch said.

REUTERS

      

Canada manufacturing conditions improve, but at slower pace

Reuters
11:03 AM, E.T. | August 4, 2015
Economy

Tags: Economy, Manufacturing

Follow this

Business conditions in the Canadian manufacturing sector continued to improve for the second month in a row in July, but at a slower pace than June, with an increase in export sales supporting the recovery.
The RBC Canadian Manufacturing Purchasing Managers' index (PMI), a measure of manufacturing business conditions released on Tuesday, slid to 50.8 last month from June's six-month high of 51.3.
Growth had been contracting for much of this year prior to June, hurt by the impact of plunging crude prices. An index above the 50 mark reflects growth.
That growth, while modest, is in line with early expectations that Canada will fare better in the second half of the year than in the first half, where the latest data bolstered the view that the economy likely contracted in the second quarter as well.
"As we enter the second half the year, a strengthening U.S. economy and weaker Canadian dollar should provide a greater boost to exports and business conditions for manufacturers," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
Manufacturing output expanded for the third month in a row, albeit at a slower pace, with the index at 51.6 for July compared with 52.9 in June.
Staffing levels declined to 49.5, its weakest since March, from 50.4 in June, with manufacturers saying softer demand at plants meant they did not replace workers who voluntarily left.

China stock exchanges are stepping up a crackdown on short-selling

• NATHANIEL TAPLIN AND SAIKAT CHATTERJEE, REUTERS

• Aug. 4, 2015, 3:29 AM
• 71
• 2

Thomson ReutersAn investor checks on his mobile phone in front of an electronic board showing stock information at a brokerage house in Hangzhou

See Also

Exclusive: China watchdog extends pursuit of short sellers to HK, Singapore - sources

Chinese regulators are clamping down on a trick where a single investor controls multiple trading accounts

'China has destroyed its stock market in order to save it'

SHANGHAI/HONG KONG (Reuters) - China stepped up its crackdown on short-selling of shares on Tuesday, unveiling rules that make it harder for speculators to profit from hourly price changes, as some of the nation's major brokerages suspended their short-selling businesses.

China's stock exchanges and market watchdogs are cracking down on short-selling as part of a broad government-orchestrated effort to prevent a collapse in the country's markets, which have lost about 30 percent of their value since peaking in June.

The sell-off, which followed a dizzying rally, has shattered investor confidence in Chinese stocks and shaken the faith of some foreign investors in the ability of the ruling Communist Party to maintain stability of the financial system.

The Shanghai and Shenzhen exchanges said in separate statements on Monday night that new rules, effective immediately, banned traders from borrowing and repaying stocks on the same day — a step that raises risks for short-sellers.

On Tuesday, as the markets regained ground, major brokerages Citic Securities and Huatai Securities said they would temporarily halt their short-selling services. They were joined by smaller rival Great Wall Securities.

"In order to comply with urgent changes in exchange rules and control business risks, as of today we are temporarily halting our short selling business," Citic said in a statement.

The CSI300 index of blue chip Shanghai and Shenzhen stocks rose 1.2 percent at the end of the morning session. The Shanghai Composite Index gained 1.3 percent to 3,671.49 points — still well off the 4,500 target set by Beijing as its benchmark for a return of market confidence.

The China Securities Regulatory Commission (CSRC) has declared war on "malicious" short-sellers and is also scrutinizing the use of automated trading strategies favored by hedge funds to profit from market volatility.

On Monday, it froze a trading account linked to Citadel Securities, a unit of the U.S. group that also owns hedge fund Citadel LLC - the first time in the crackdown that a foreign firm confirmed one of its Chinese accounts had been suspended.

Citadel said it complied with all local laws and regulations.

Thomson ReutersAn investor looks at an electronic board showing stock information at a brokerage house in Nanjing

CRACKDOWN RISKS BACKFIRING

"This is apparently aimed at increasing the cost of shorting and easing selling pressure on the market," Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co, said about the new rules.

He added, though, that short-selling was already difficult, referring to other efforts to limit the practice. Apart from Citic, other brokerages have limited short-selling.

Many fund managers say the campaign against shorting has decayed into a general crackdown on risk management strategies, which could backfire. By denying investors tools with which they hedge their share holdings, they are inadvertently encouraging them to sell those stocks.

"In recent days we have been often asked by mainland regulators not to hold short positions in index futures," said a Chinese derivatives trader at a European bank in Hong Kong.

He said regulators insisted these short positions be closed even if they were covered by corresponding long positions.

"If we tell them that if we do that, we will have to sell our cash holdings, thus exacerbating the very volatility they want to prevent, they don't seem to understand."

The CSRC did not immediately respond to a request for comment.

China's state margin-lending agency, tasked with stabilizing the stock market, has injected 200 billion yuan ($32.21 billion) since July into five newly launched mutual funds, the official China Securities Journal said on Tuesday.

The China Securities Finance Corp is also managing a 120 billion yuan bailout fund formed by 21 brokerages, and last month provided 260 billion yuan in credit lines to brokerages to help them buy stocks via proprietary trading.

The market turmoil, and Beijing's stumbling efforts to restore confidence, are also playing out against the backdrop of a slowing economy and worries over high corporate indebtedness.

Factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashing hopes that the economy may be steadying, a private survey showed on Monday.

(Reporting by Samuel Shen and Sue-Lin Wong; Writing by Mark Bendeich; Editing by Dean Yates)

Italy in favour of a European Monetary Fund

AUG 4, 201511:21 PM

[ROME] Italy is in favour of tighter European integration and the creation of a European Monetary Fund, its finance minister said Tuesday.

"The monetary union will sooner or later have to be based on common elements... in my opinion a European monetary fund, an insurance mechanism against the shocks of the labour markets, shared budget resources," Pier Carlo Padoan said.

"If this does not happen, the monetary union will remain stuck in the middle of the river... and risks being hit by a more violent wave and being washed away," he said in the wake of the economic crisis which left several members at risk of crashing out of the eurozone.

"It is what economists call 'risk-sharing', the sharing of risks which has made the monetary union stronger over the years... sharing resources, both financial and political," he said at a press conference.

Mr Padoan's comments followed calls earlier this year from Portugal for the creation of an EMF to take over the role played by the Washington-based International Monetary Fund during the economic crisis.

Portugal, which had a full EU-IMF bailout in 2011, says an EMF would mean countries in trouble - like Greece - would only have to deal with one institution rather than relying on the approval of national parliaments.

The idea for an EMF was first put forward in 2010 and initially endorsed by Germany and France as a potential rescue fund to help member countries cope with future financial troubles, but critics said it risked undermining rather than enhancing EU stability.

AFP

    

Transportation equipment buoys US factory orders in June

AUG 4, 201510:07 PM

[WASHINGTON] New orders for US factory goods rebounded strongly in June on strong demand for transportation equipment and other goods, a hopeful sign for the struggling manufacturing sector.

The Commerce Department said on Tuesday new orders for manufactured goods increased 1.8 per cent after a revised 1.1 per cent decline in May. The increase was in line with economists' expectations. May factory orders were previously reported to have dropped 1.0 per cent.

Factory activity has been stymied by a strong dollar and spending cuts in the energy sector after last year's sharp plunge in crude oil prices. Tepid global demand also has weighed on manufacturing, which accounts for about 12 per cent of the domestic economy.

Those factors have eroded the profits of multinational companies like Caterpillar Inc, Procter & Gamble Co , the world's largest household products maker, and Whirlpool Corp, the global home appliances giant.

Orders for transportation equipment surged 9.3 per cent in June, reflecting strong demand for aircraft. There also were increases in orders for machinery and electrical equipment, appliances and components.

The department also said orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - increased 0.7 per cent instead of the 0.9 per cent rise reported last month.

Shipments of these so-called core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 0.3 per cent in June. Shipments were previously reported to have dipped 0.1 per cent.

The upward revisions to core capital goods shipments, combined with a report on Monday showing stronger construction spending in May than previously reported, suggest second-quarter GDP could be revised higher when the government publishes its second estimate later this year.

The Commerce Department reported last week that the economy expanded at a 2.3 per cent annual pace in the second quarter.

REUTERS