The International Swaps and Derivatives Association (ISDA) committee tasked with making a ruling on the tussle over Noble Group’s credit-default swaps has issued a verdict that could halt attempts to settle the derivatives contracts bilaterally.
In a statement on Tuesday, the committee – which is made up of representatives of banks and investors – said that attempts to trigger the contracts bilaterally are only valid if backed up with supporting documentation.
The widespread confusion over whether sellers owe money to buyers of credit protection is unusual, as the CDS market has relied on the rulings of ISDA’s “determination committees” since 2009 to decide when a company is in default.
While Noble Group has not formally defaulted on any debt, buyers of CDS claim that a recent extension to loan repayment terms amounted to a debt restructuring — which can also trigger payouts.
Last month the ISDA committee responsible for deciding on the status of Noble’s debt said it was unable to determine if the loan extension qualified as a restructuring, as they were unable to obtain the loan’s underlying documentation. It is the first time a committee has dismissed a question of default without ruling either way.
ISDA’s inability to rule stems from the lack of clarity over whether Noble Group Limited – the reference entity for credit derivatives contracts – has provided a guarantee to the loan facility in question.
The statement on Tuesday said that any attempts to trigger the CDS that does not contain publicly available information confirming that there is a “Qualifying Guarantee” from this entity are “invalid and ineffective”.
The ISDA ruling said that it “deliberately limited” its focus on this issue of guarantees, however, with no ruling on what other elements CDS holders could supply publicly available information on to try and trigger the contracts bilaterally.
“No inferences should be drawn from the fact that the DC’s determination does not cover these points,” the statement added.
The ISDA committee also dismissed a question asking for it to again make a ruling on whether a credit event had occurred.
Saudi Aramco could disclose accounts early 2018: sources
LONDON/DUBAI (Reuters) - Saudi Aramco will be able to release its audited financial accounts in early 2018 if the government decides on a venue for listing the oil giant’s IPO and finalizes several reforms this year, three sources said.
It will be the first public earnings disclosure for Aramco and one of the most important internal milestones in preparing for the initial public offering (IPO), which is expected to raise as much as $100 billion.
The Saudi government has said it wants the sale of five percent of Aramco to take place before the end of 2018. A Saudi government source said the share sale was on track.
Releasing the 2015-2017 accounts in the first quarter would be a major step toward sticking to the 2018 goal although the IPO’s timing depends on several external factors, the sources said.
“Aramco will have its 2017 results by the first quarter, the audited accounts will be available then, so the IPO could happen after that,” one of the sources said.
The sources said internal accountants would send the 2017 accounts to external auditors when they have finished work on them at the beginning of next year. The auditors - named by Aramco as PwC, EY and BCG - have already audited the 2015 and 2016 accounts. They have never been released.
The auditors and Aramco would first prepare a report on the accounts for all three years that it could share with a group of prospective large investors. They would then prepare a full prospectus which would be available to all investors.
The accounts for 2017 would be done to reflect Saudi’s new taxation system while the two previous years would be done on a pro-forma accounting basis.
However, it would make sense to release the accounts only after the government has decided where the listing will take place as different venues use different accounting standards, the sources said.
For example, a listing in New York would require the accounts to be prepared according to US GAAP standards whereas IFRS standards would be acceptable for a listing in London, Hong Kong or Singapore.
Aramco has so far prepared the accounts according to IFRS standards, but can quickly convert those to U.S. GAAP if the government decides to list in New York, a second source said.
Possible Aramco valuations: tmsnrt.rs/2fH0rkr
Jefferies trading slowdown bodes ill for other banks
Wall Street bellwether reports 27% drop in revenues from bond trading
Jefferies telegraphed a lacklustre third quarter for the trading arms of the big investment banks on Tuesday, blaming unusually calm markets for a 27 per cent fall in revenues from bond trading.
Results from the New York-based investment bank were mostly upbeat, boosted by a much-improved performance from the advisory business: fees from acting for big companies on mergers and capital raises came to $476m, up more than 60 per cent from a year earlier. That helped Jefferies to third-quarter net revenues of $801m, a record high if contributions from Bache, the commodities business it sold two years ago, are excluded.
Net income came to $84m, more than twice the $41m a year earlier, even after a $4.4m donation to charities for hurricane Harvey relief.
But conditions in the trading business were much quieter, with revenues falling 7 per cent to $320m, the lowest haul in six quarters. While equities revenues were up, rising 19 per cent to $177m, fixed income fell 27 per cent to $143m.
Rich Handler, chairman and chief executive officer, described the trading performance as “solid” amid “subdued . . . volumes and volatility”.
With its November year-end, Jefferies is often seen as a bellwether for Goldman Sachs and Morgan Stanley, and for the investment banking businesses of JPMorgan Chase, Bank of America and Citigroup, which report results for July-September about four weeks later. Already, executives from the big global banks have begun to prepare investors for disappointment, saying that revenues were tracking significantly lower than the same period a year earlier.
Chief financial officers at Citi and BofA said last week at a banking industry conference in New York that they were expecting overall trading revenues to drop about 15 per cent from the third quarter last year, while Jamie Dimon of JPMorgan said he was looking at a steeper fall of about 20 per cent.
The weak activity is likely to increase pressure on banks, which have been struggling to retool their businesses in the face of persistently sluggish revenues from their core trading units. Last week Goldman Sachs outlined various measures to pep up revenues, including a big effort to boost lending via Marcus, the consumer-focused venture it launched about a year ago.
Banks are also leaning heavily on representatives in Washington who have been lobbying the administration of President Donald Trump for relief from some of the tougher restrictions imposed since the financial crisis.
Meantime, though, analysts said the Jefferies numbers spelt trouble for banks heavily dependent on trading.
Devin Ryan at JMP Securities said he suspected the bright equity trading result would be an “outlier” amid markets still characterised by very low volatility. Other banks would struggle to match the Brexit-inspired rallies of the third quarter last year, he said.
Susan Roth Katzke, analyst at Credit Suisse in New York, said: “We strongly favour the universal banking model, with its multiple levers for growth.”
WASHINGTON — The Senate has overwhelmingly approved a sweeping defense policy bill that would pump $700 billion into the military, putting the U.S. armed forces on track for a budget greater than at any time during the decade-plus wars in Iraq and Afghanistan.
Senators passed the legislation by an 89-8 vote Monday. The measure authorizes $700 billion in military spending for the budget year that begins Oct. 1, expands U.S. missile defenses in response to North Korea’s growing hostility and refuses to allow excess military bases to be closed.
The 1,215-page measure defies a number of White House objections, but President Donald Trump hasn’t threatened to veto it. The bill helps him honor a pledge to rebuild an American military that he said had become depleted on former President Barack Obama’s watch.
Sen. John McCain, R-Ariz., and other national security hawks have insisted the military branches are at risk of losing their edge in combat without a dramatic influx of money to repair shortfalls in training and equipment.
An animated McCain, the Armed Services Committee chairman, bemoaned the limits imposed on military spending by both Democrats and Republicans. He said the rash of training accidents and crashes – since mid-July, nearly 100 service members have been killed or injured in close to a dozen mishaps – can be linked to the budget cuts.
“My friends, more of our men and women in uniform are now being killed in totally avoidable training accidents and routine operations than by our enemies in combat,” McCain said. “Where is the outrage about this? Where is our sense of urgency to deal with this problem?”
Defense Secretary Jim Mattis said senior military leaders are taking a close look at whether strict budget constraints are to blame.
Approved by the Armed Services Committee by a 27-0 vote in late June, the overall Senate bill provides $640 billion for core Pentagon operations, such as buying weapons and paying troops, and another $60 billion for wartime missions in Afghanistan, Iraq, Syria and elsewhere. Trump’s budget request sought $603 billion for basic functions and $65 billion for overseas missions.
With North Korea’s nuclear program a growing threat to the U.S. and its allies, the bill includes $8.5 billion to strengthen U.S. missile and defense systems. That’s $630 million more than the Trump administration sought for those programs, according to a committee analysis.
North Korea last week conducted its longest-ever test flight of a ballistic missile, firing an intermediate-range weapon over U.S. ally Japan into the northern Pacific Ocean. The launch signaled both defiance of its rivals and a significant technological advance.
The legislation directs the Defense Department to deploy up to 14 additional ground-based interceptors at Fort Greely, Alaska, an increase that will expand to 58 the number of interceptors designed to destroy incoming warheads. The department also is tasked with finding a storage site for as many as 14 other spare interceptors, and senators envision an eventual arsenal of 100 with additional missile fields in the Midwest and on the East Coast.
The White House, in a statement issued earlier this month, called the order for more interceptors “premature” given the Pentagon’s ongoing review of missile defense programs.
Despite the push for the additional billions in military spending, major hurdles need to be cleared before all the extra money materializes. Lawmakers will have to work out a deal that lifts the caps on federal agency budgets, including the Pentagon’s, mandated by a 2011 law. Congress has passed temporary relief from the limits before, but senior military officials have urged for the law to be repealed altogether.
Sen. Bob Corker, R-Tenn., said he voted against the defense bill because the measure “blows the budget caps by nearly $83 billion.” Corker, who chairs the Foreign Relations Committee, also said the overseas missions account is “repeatedly abused” to pay for normal operations. A self-described fiscal conservative, Corker is weighing whether to run for a third term.
As their House counterparts did, the Senate bill rejects Mattis’ plan to launch a new round of base closings starting in 2021. He told lawmakers in June that closing excess installations would save $10 billion over a five-year period. Mattis said the savings could be used to acquire four nuclear submarines or dozens of jet fighters. But military installations are prized possessions in states and lawmakers refused to go along.
The bill allots $10.6 billion for 94 Joint Strike Fighter aircraft, which is two dozen more than Trump requested. The bill also provides $25 billion to pay for 13 ships, which is $5 billion and five ships more than the Trump sought.