TheChek News Flow

Italy rejects ‘bad bank’ on rating fears

Italy has rejected the idea of setting up a "bad bank" for fear that it will focus market attention on the exposure of Italian banks to a rising level of non-performing loans and put the country’s credit rating at risk. "Letta [Enrico Letta, Italy’s prime minister] believes the idea of a bad bank may be counterproductive for Italy, and fears this will speed up the process of a further downgrade by rating agencies in the next months," a government official told the Financial Times. One industry source said the decision not to face up to the problem was creating a "zombie" banking system where lending to the economy has all but stalled as banks seek to hoard capital. The government’s opposition to a "bad bank" comes as the governor of the Bank of Italy warned over the weekend that Italy’s economic recovery remained "weak" and "uncertain". In a downbeat speech to Italy’s top bankers, Ignazio Visco said lending to Italian companies, particularly smaller firms, had fallen 9 per cent over the past two years. Moreover, in a sign the Italian government’s opposition to a bad bank is not shared by Italy’s bankers, Mr Visco made the case for Italy’s requiring a bad bank arguing that "more ambitious interventions" were not to be excluded as a means of cleaning up non-performing loans to help free up lending. Analysts argue Italy could do with a state-sponsored bad bank worth €9bn-€12bn, which Spain and Ireland both introduced after the crisis, to free up lending to Italy’s small and mid-sized enterprises crippled by a long economic crisis. Gross non-performing loans in Italy reached nearly €150bn in November, rising 22 per cent year on year, according to the latest data from Italy’s banking association. Internal bad banks are designed to help to wind down non-core assets while encouraging investors to focus on the strengths of the remaining operating business. Italian banks, including Italy’s largest by assets UniCredit and Intesa Sanpaolo, have already taken moves to clean up their non-performing loan portfolios instead of a state-sponsored solution. Distressed debt funds, including KKR, are in preliminary discussions with Italian banks, including UniCredit and Intesa, about buying some of their liabilities, according to industry sources. The banks declined to comment. Intesa Sanpaolo is also considering plans to become the first Italian lender since the financial crisis to set up an internal bad bank by setting aside a chunk of its €55bn of gross non-performing loans, according to people informed of the discussions. Senior bankers are concerned the absence of a state-sponsored solution for Italy’s rising numbers of bad loans will put its banks in the spotlight during the European asset quality review and stress tests later this year. In lieu of a "bad bank", the Bank of Italy is putting pressure on Italy’s banks to post heavy provisions over the next quarters, according to banking sources. Several banks, including Monte dei Paschi, Banca Popolare di Milano and Banco Popolare, are due to raise capital to shore up their balance sheets. Among these the €3bn recapitalisation of Monte dei Paschi, Italy’s third-largest bank by assets which is the subject of a state bail out, is considered key to ensuring sovereign stability, according to banking sources.

Quantum nets Soros $5.5bn in a year

George Soros’s Quantum Endowment fund had its second-best year ever in dollar terms in 2013, adding $5.5bn to the billionaire’s fortune and putting Quantum back in top place among the most successful hedge funds of all time. The gains mark a return to stability for Quantum, which Mr Soros closed to non-family members at the end of 2011 to avoid regulatory scrutiny under the Dodd-Frank financial reforms. He handed day-to-day trading to Scott Bessent, chief investment officer, after a decade of rapid turnover at the top of the fund. The $5.5bn return was the best for the $28.6bn fund since 2009, when Mr Soros oversaw a return of 29 per cent by correctly calling the end of the global financial crisis. He has frequently made higher percentage returns, including 32 per cent when he came out of retirement in 2007, but his then-smaller asset base meant lower dollar profits. Last year’s return means Mr Soros has displaced Ray Dalio’s Bridgewater Pure Alpha as the fund that has made the most money for investors. It has generated almost $40bn since it was founded in 1973, according to Rick Sopher, chairman of LCH Investments, who compiled the rankings. Mr Soros is best known for triggering the collapse of the pound on Black Wednesday 1992, when Quantum made $1bn. Last year’s profits did not come from such an aggressive strategy, with the 22 per cent return spread across the different strategies of the fund. Four other funds made $4bn or more last year, all correctly calling the strong run in equities, which resulted in the US stock market returning 32 per cent. They were Lone Pine and Viking, the most successful "Tiger cub" protégés of Tiger Management’s Julian Robertson; David Tepper’s Appaloosa; and Baupost, founded by the Boston-based deep-value investor Seth Klarman. Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds. "They did far better than the hedge fund indexes," said Mr Sopher, who is also chief executive of Edmond de Rothschild Capital Holdings. "These funds are still in the mode of being get-rich vehicles rather than stay-rich vehicles. They carry on seizing whatever opportunities there are but still exhibit really good risk control." "Too many managers now focus on risk control at the expense of returns." Andrew Law, who runs the 13th-ranked, $7bn fund Caxton, said the key to success was to give money back to avoid growing too big. "With one very obvious exception [Quantum], history has not been kind to macro funds that have grown much in excess of $10bn-$12bn, in terms of subsequent return," he said. Macro funds such as Caxton and Quantum can make freewheeling bets across currencies, interest rates and shares. While the top 20 managers mainly performed well, hedge funds as a whole have proved less lucrative in recent years than they were before the crisis. Since the start of 2008 the HFRI Composite index of hedge funds has risen 20 per cent, half the return from US equities and US 10-year Treasury bonds. Last year the HFRI was up 9 per cent, its best year since 2010. Mr Law said long-only managers, who have benefited from rising shares, may face headwinds as a 30-year decline in real interest rates comes to an end. "The challenge will be to trade tactically," he said. "The discounting of financial repression over the past few years has merely brought forward future returns and left a rather less enticing landscape to long-only managers." Mr Sopher’s ranking excludes large computer-run funds such as Renaissance Technologies and those with no single manager, such as DE Shaw.

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BN 02/10 00:00 Birinyi Sees S&P 500 at 1,900 by July as Shorts Sit Out 6% Drop

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Birinyi Sees S&P 500 at 1,900 by July as Shorts Sit Out 6% Drop 2014-02-10 02:18:32.944 GMT

By Nick Taborek and Callie Bost Feb. 10 (Bloomberg) -- U.S. stocks have too much momentum to make betting against the S&P 500 Index a winning strategy, the gauge will probably reach 1,900 next qtr, according to money manager Laszlo Birinyi. * Birinyi said in a phone interview Feb. 7 that the benchmark gauge for U.S. equities will increase almost 6% by July * It fell 5.8% in the 3 wks staring Jan. 15, losses he said signal healthy skepticism that set the stage for more gains Full Story: NSN N0R0R86JTSE9<GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO> --Editor: Jan Dahinten

To contact the reporter on this story: Sarah Gill in sydney at +61-2-9777-8641 or sgill23@bloomberg.net

To contact the editor responsible for this story: Jan Dahinten at +65-6212-1164 or jdahinten@bloomberg.net

Asian Market Update: Japan posts largest monthly deficit on record for December and smaller surplus for the year in 2013

***Economic Data*** - (JP) JAPAN DEC CURRENT ACCOUNT BALANCE: -¥638.6B V -¥685.4BE (largest deficit on record); ADJ CURRENT ACCOUNT: -¥196.7B V -¥64.0BE; TRADE BALANCE BOP BASIS: -¥1.21T V -¥1.26TE; 2013 Current account surplus was the smallest on record - (JP) JAPAN JAN BANK LENDING EX-TRUSTS Y/Y: 2.5% V 2.6% PRIOR; BANK LENDING INCL TRUSTS Y/Y: 2.3% V 2.3% PRIOR - (JP) JAPAN JAN BANKRUPTCIES Y/Y: -7.5% V -15.7% PRIOR - (JP) JAPAN Q4 HOUSING LOANS Y/Y: 2.9% V 3.0% PRIOR - (NZ) NEW ZEALAND JAN QV HOUSE PRICES Y/Y: 9.6% V 10.0% PRIOR; Avg national house price NZ$467.5K - (MY) MALAYSIA DEC INDUSTRIAL PRODUCTION: 4.8% V 5.5%E; MANUFACTURING SALES VALUE Y/Y: 5.4% V 4.4% PRIOR

***Observations/Insights*** - Shanghai Composite leads regional indices higher as CASS forecasts the State Council will keep its 7.5% GDP target in 2014; PBoC Quarterly Policy report pledges continued "stable monetary policy" amid concern economy yet to find a stable base. - Rising import energy costs continue to sag Japan trade figures, with December current account deficit widening to a record high for the month and sending 2013 surplus to a record low. Cabinet officials also attribute the deficit in part to a one-off strong consumption trend ahead of the increase in sales tax in April. Separately in Japan, Tokyo gubernatorial elections were soundly won by the LDP-endorsed candidate who supports PM Abe's agenda of paving the way toward a nuclear energy restart - WTI March crude contract pushed toward $100.50/brl mark - the highest in 2014 - in early electronic trade on reports Iran has sent its military fleet toward US maritime border as a sign of protest to continued US presence in the Gulf. Contract was back below $100 after Iranian media confirmed that only two ships - a destroyer and a helicopter transport vessel - had been dispatched about 3 weeks ago.

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥250B in 1-3yr JGB, ¥250B in 3-5yr JGB and ¥400B in 5-10yr JGB - (JP) Foreign investors sold net ¥1.26T of JGB in Dec (largest net sales since Sept) v sold ¥354.1B in Nov - (KR) South Korea sells 5-yr govt Bonds; avg yield: 3.195% - (CN) China Gold Association: Reports China 2013 gold production 428.2Mt, +6.23% y/y (remains world top gold producer for 7th straight year) - financial press

- USD majors were little changed in the afternoon session after some early bout of follow-through strength following the benign US jobs data on Friday. EUR/USD weakened over 20pips but bounced off the $1.36 handle, USD/JPY rose as high as 102.65 before a selloff following the release of record high Japan current account deficit, while AUD and NZD were both down about 15pips against the greenback around $0.8940 and $0.8270 respectively.

***Speakers/Political/In the Papers*** - (CN) China Academy of Social Sciences (CASS): reiterates China 2014 GDP forecast 7.5% - financial press - (CN) China Development Bank (CDB) said to have requested foreign clients to delay drawing back committed credit lines - FT - (CN) China Ministry of Commence (MOFCOM): China should join Trans-Pacific Partnership (TPP) negotiations at suitable time - Chinese press - (CN) PBoC Quarterly Monetary Policy Report pledges continued "stable monetary policy" in 2014; Aims to contain lending risks and warns economy yet to find a stable base for growth - press - (CN) China Foreign Min spokesman Hong Lei: "Urge US to stop making irresponsible remarks so as not to harm regional stability and the China-U.S. relationship" - financial press - (CN) China Banks end of Nov non-performing loans CNY598.3B, NPL ratio 1.05% - Caixin - (JP) Former Health Min Masuzoe wins Tokyo gubernatorial election, as expected - Japanese press - (AU) Australia's opposition Labor candidate wins the by-election for the seat vacated by former PM Rudd - press - (KR) South Korea and US to conduct joint military drills on Feb 24th - financial press

**Europe/Middle East** - (CH) Switzerland votes in favor of curbs on immigration by EU citizens, with narrow 50.3% majority supporting "Stop Mass Immigration" referendum proposal; European Commission responds: "The EU will examine the implications of this initiative on EU-Swiss relations as a whole." - press - (UR) About 70K protesters gathered in Kiev, Ukraine in continued drive to oust Pres Yanukovych - press - (IR) Iranian naval Admiral Haddad: "Iran's military fleet is approaching US maritime borders" to send a message of opposition to expanded stationing of US vessels in the Gulf - Fars - (IR) UN nuclear authorities holding further talks with Tehran to enhance transparency of its steps to meet conditions of P5+1 - press

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 +1.2%, S&P/ASX +0.7%, Kospi +0.1%, Shanghai Composite +1.7%, Hang Seng flat, Mar S&P500 -0.1% at 1,791, Apr gold +0.5% at $1,268, Mar crude oil flat at $99.84/brl

US markets: - JRCC: To explore Strategic Alternatives; amends Its Revolving Credit Facility - YHOO: To partner with Yelp in boosting its search engine operation - US financial press - TMUS: Sprint management said to be holding talks on whether to move to reconsider acquisition of T-Mobile - financial press

Notable movers by sector: - Consumer Discretionary: Kintetsu 9041.JP -0.3% (9M results) - Financials: Beijing Capital Land 2868.HK +9.1% (FY13 results); Evergrande Real Estate Group 3333.HK +1.0% (Jan results); OzForex Group OFX.AU +7.3% (confirms discussion on proposed sale) - Materials: Sumitomo Metal Mining 5713.JP +0.5% (9M results) - Industrials: Sinochem International 600500.CN +3.6% (private company acquires stake); Zhengzhou Yutong Bus 600066.CN +8.7%, BYD Corp 002594.CN +10.0% (China extends subsidy program for new energy vehicles); Toyota Motor 7203.JP +1.0% (reports of nearing settlement on US probe); Kubota Corp 6326.JP -4.1% (9M results); Isuzo Motors 7202.JP +5.3% (9M results); Orica Ltd ORI.AU +1.6% (considers spinoff) - Technology: Mabuchi Motors 6592.JP +2.3% (FY13/14 guidance); High Tech Computer Corp 2498.TW -2.3% (enters patent agreement with Nokia); Asahi Glass 5201.JP -6.5% (FY13 results)