TheChek News Flow

Altice could divest the Portuguese telcos Cabovisao and Oni to side-step EU competition issues over its EUR 7.4bn acquisition of PT Portugal from Oi, reported Publico.

The Lusophone paper cited Altice CEO Dexter Goei as saying the French telco wants to reach swift agreement with EU anti-trust authorities to conclude its PT Portugal acquisition from Brazilian telco Oi.

In Portugal, Altice already owns Oni and Cabovisao and Goei said these could be offloaded to satisfy EU competition authorities over the PT Portugal deal. Rival Portuguese operators Vodafone and Nos would be interested in these potential asset disposals by Altice, he added.

Publico

Bank of Italy Gov. Visco: ‘Who Knows’ Whether QE Program Will Be Big Enough

Bank’s Governor Says If Quantitative Easing Doesn’t Restore Price Stability, More Will Be Done

“Who knows?” Mr. Visco said in an interview when asked whether the ECB’s announced plans to purchase about €60 billion ($67.2 billion) a month in eurozone government bonds and other assets will be large enough to effectively counter deflation.

Mr. Visco, who is a member of the ECB’s governing council, said the central bank settled on the size based in part on how much the ECB balance sheet has shrunk since 2012—in contrast to the expanding balance sheets of central banks in the U.S. and England—and on market expectations, which were for a slightly smaller bond-purchasing program.

Mr. Visco added in a subsequent email that the bond-buying program, known as quantitative easing, is essentially open-ended. “If medium term price stability will not appear to be restored by the time the program ends, more will be done!” he wrote.

Mr. Visco added that he would have preferred that the ECB’s quantitative-easing program included greater international risk-sharing, as opposed to national central banks being responsible for most losses on the bonds that they purchase. So-called mutualization would have been “the right approach,” he said. In the eurozone, there should be “shared responsibilities.”

Mr. Visco also said the Italian banking system “has been extremely resilient,” requiring much less government aid than banks in countries such as Spain and Germany. But he said Italy should consider the creation of a “bad bank” that would house toxic or unwanted assets from Italian banks to accelerate the cleanup of their balance sheets. An Italian bad bank “is an interesting idea,” he said.

Plunge us back the Greeks fully back in the worst times of the euro crisis?This concern have some today. For the evening will be decided whether the euro-critical Syriza won the parliamentary elections and the government will provide. It wants to give a haircut and also a large part of the reforms of recent years reversed. This would cause a stir in the stock markets.

A course fireworks in Europe and Athens, however, would trigger the electoral victory of the previous government Samaras. Because it supports the reforms and austerity. But all the polls say otherwise: SYRIZA wins.

Open is whether it is enough for an absolute majority. If so, the stock market would react negatively. Because then stand on difficult negotiations with the Europeans of the new government - would show little willingness to compromise - strengthened by the high electoral victory. Since even the end of February expires, the previous utility could bring Greece's financial problems quickly in lengthy negotiations beyond that date.

Worse for the exchanges would be there only an unclear election that produces no new government and thereby makes repeated elections but necessary in a few months. This uncertainty dislike the financial markets.

The most likely scenario is one that makes some hope: the victory of SYRIZA can not be prevented. But the leftists need a coalition partner to moderates. Then perhaps the maturities on Greek bonds would be extended and lowered interest rates again. And some relief in the reform requirements granted. But above all, Greece would remain in the euro. For the want all those responsible - in Europe and Athens.

Mario Draghi’s “big bazooka” could prove to be little more than a peashooter unless institutions such as pension funds and insurance companies can be persuaded to sell sovereign debt.

The European Central Bank president last week unveiled a much-heralded plan to buy €60bn a month of eurozone sovereign debt and other assets until September 2016.

John Greenwood, chief economist at Invesco, the fund manager, said this would raise the rate of eurozone “broad” money supply growth to 9.6 per cent a year — a similar level to that achieved by quantitative easing in the US — but only if sovereign bonds were bought from non-banks.

“Expansion of the ECB’s balance sheet is not an end in itself. What is needed is an increase in the balance sheet of the commercial banks. That is a crucial part of any QE programme,” said Mr Greenwood. He feared that if banks sell bonds to the ECB they will simply lodge the proceeds with their national central bank, an asset swap that would negate the effect of the ECB’s printing press.

Pension funds and insurers may be unwilling to sell “risk-free” government debt and buy higher-risk assets such as equities and corporate debt. A swath of regulations, such as Solvency II and FRS17, has pushed them in the opposite direction.

“The regulatory environment in Europe is pretty unfriendly to the second-round effects of this QE programme,” Mr Greenwood said.

While banks could sell bonds and use the proceeds to expand their lending operations, Yoram Lustig, head of UK multi-asset investments at Axa Investment Managers, pointed out that the banks took up just €130bn of the €317bn of cheap funding they were offered by the ECB late last year, suggesting there is little appetite to expand their balance sheets.

However, Andrew Balls, chief investment officer for global fixed income at Pimco, the world’s largest bond manager, said “if there are banks that are sitting on eurozone sovereign debt, we would hope that we get a rotation towards some greater lending”.

Mr Balls also believed that non-eurozone entities might be tempted to sell eurozone bonds as QE pushes yields lower, a process that would have the added advantage of weakening the euro. Mr Greenwood also saw some scope for fund managers to sell bonds.

The ECB’s move was broadly welcomed by fund managers. Threadneedle said it had raised its weighting to European equities in its multi-asset portfolios.

Tom Becket, chief investment officer at PSigma Investment Management, said Italian banks, some of which are trading at half their book value, could be a “great trading buy” if the ECB manages to stem the worst fears over Europe.

With net eurozone sovereign bond issuance running at €22bn a month, the QE programme “is large relative to supply”, added Mr Balls, suggesting it could have a significant impact on yields.

“For now we are happy with our positions, but we keep a very close eye on price,” he said.

Cover story: The second installment of Barrons 2015 Roundtable includes picks from Felix Zulauf (TLT, U.S. Dollar Index Future, Buy USD/SGD, GDX, RTH), Abby Joseph Cohen (CRI, FDX, DGX, QYI, Siemens, PANW), Brian Rogers (BA, GE, HES, L, MAT, VMC), and Scott Black (VIAB, MSCC, CUBI, ARCC). 

Tech Trader: Cautious on TWTR: Micro-bloggers core problem may be that users tweets dont ultimately hold much value for advertisers; the poor performance of the stock has prompted rumors of a takeover, possibly by GOOG. 

Trader: AMTDs chief strategist, J.J. Kinahan, says investors might hesitate and do some profit-taking ahead of the Federal Open Market Committee this week; Cautious on LH: Shares are up 20% since November following deal for Covance, but execution risk should be a concern for investors, and while not overpriced, shares are near historical highs; Cautious on URBN: Though its Anthropologie and Free People brands are thriving, retailer's namesake Urban Outfitters stores continue to struggle, though there is evidence efforts to stabilize them are working.

Features: 1) Positive on AMP: Following firms spin-off from AXP, chief James Cracchiolo has improved profitability by focusing on growing fee-based wealth and asset management businesses and placing less emphasis on life insurance and annuities, ashares could rise 15% if investors valued it like a money manager; 2) Positive on DAL, DFS, F, JPM, LRCX, MU: Though overall earnings growth in the market could slow down this year, these six companies could buck the trend; 3) Positive on ORCL: Tech giant is in the middle of a tough transition to the cloud, presenting risks but also opportunities to thrive, and shares could rise 20% or more if it succeeds. 

Small Caps: Positive on REMY: As a wholly independent operation, company is poised to take advantage of its market-leading positions in engine starters and alternators, while its spinoff from Fidelity National Financing has boosted the stocks liquidity; Profile: Richard Mashaal and Brian Gonick of Canadian hedge fund Senvest Partners only buy stocks they think can double in two or three years (picks: ANW, Fiat Chrysler, Bank of Cyprus, DMRC; pan: MCD). 

Follow Up: Positive on PEP: Companys resistance to splitting up under pressure from Trian Fund Management seems to have been well-founded, but investors are pleased with the election of Trian advisor William Johnson to the board; Cautious on LFL: Q4 results should show a return to profitability, but while earnings look poised to improve, turbulence ahead means other airline stocks are a better play. 

European Trader: Despite Germanys worry about quantitative easing, some of the countrys exports stand to gain (Positive on BMW, Daimler, Continental, Linde). 

Asian Trader: Beijings energy policies, created to help the country move away from coal, should start to give solar companies a boost, especially if oil prices remain low (Positive on China Singyes Solar, JKS; Cautious on JASO, TSL). 

Emerging Markets: Cautious on Gazprom, Petrobras: Oil companies are poorly run and mired in debt, but they are unlikely to default, creating an opportunity for fixed-income investors willing to ignore their governance issues.

Alexis Tsipras speaking at Friday's press conference.

SYRIZA leader Alexis Tsipras will aim to conclude an agreement with Greece’s international lenders by the summer if his party is able to form a government after Sunday’s elections.

In a televised news conference Friday, Tsipras sketched out his plans for government and revealed that he had no specific plans for meeting German Chancellor Angela Merkel if he becomes prime minister.

The SYRIZA chief suggested that his government would enter negotiations with Greece’s eurozone partners after being elected and would aim to wrap up talks on the way forward in the relationship between the two sides by July or August, when Greece has a series of debt obligations to meet.

Tsipras said that he is aiming to achieve a “sustainable, mutually acceptable solution for Greece and for Europe.” However, he suggested that he would negotiate with representatives of European Union institutions, rather than troika officials.

“Austerity is not enshrined in European treaties,” said Tsipras, adding that his government would recognize Greece’s “institutional obligations” toward the EU but not the “political commitments”» made by the outgoing government.

When asked where he would make his first official trip to if elected prime minister, Tsipras said it would be Cyprus. He added that he would not seek direct talks with Merkel.

“I do not recognize Mrs Merkel as being any different from the other leaders,” he said. “She is one of 28 so I will not rush to meet her.”

Greece’s inclusion in the European Central Bank’s bond-buying plan this year doesn’t just depend on its new government sticking to a bailout program. It also relies on some debt-market arithmetic.

When ECB President Mario Draghi presented his quantitative- easing program on Jan. 22 in Frankfurt, he offered Greece the prospect of eligibility as existing securities roll off in the middle of the year. Those redemptions, he said, would bring the Mediterranean nation back below the ECB’s cap at 33 percent of an issuer’s debt, which the central bank imposed as Draghi presented initial guidelines.

Even after debt matures in July and August, the institution’s share of Greek bonds won’t drop below 33 percent for the whole of 2015, assuming no new securities are issued, according to calculations based on data compiled by Bloomberg.

It takes the inclusion of treasury bills to bring the ECB’s holdings below the cap. It currently owns just under 33 percent of the entire Greek debt market, and that would fall further, creating room for QE purchases, once the 2015 bonds owned by the ECB mature. That calculation is based on the supply of bills, or short-term money-market securities, remaining constant.

The ECB has yet to say precisely what will be included in its calculations on the allowance for its purchases and an ECB spokesman declined to comment on the calculations.

The ECB and euro-area central banks currently own about 27 billion euros ($30.4 billion) of Greek bonds, according to data compiled by Bloomberg, comprising 40 percent of the total outstanding market of about 67.5 billion euros.

General election

At the end of this year, by which time 6.6 billion euros of bonds held by the ECB and in euro-area central banks’ investment portfolios under the Securities Markets Program are due to have been repaid, it would own 20.4 billion euros out of a total 60.5 billion euros. That equates to about 34 percent, still exceeding the limit set by Draghi. If the stock of bills remain the same and are included in the calculation, the ECB’s holdings would drop to 30 percent by the end of July and 27 percent by the end of the year.

Greek voters go to the polls on Jan. 25 in a general election that may shift power from Prime Minister Antonis Samaras to his anti-austerity opponent. Alexis Tsipras, who leads the opposition Syriza group, has vowed to abandon the budget constraints that underpin the ECB’s support, while keeping Greece in the currency union. Both Syriza and Samaras’s New Democracy party welcomed the QE decision.

Within limits

Greece’s three-year note yield was at 10.08 percent at the 5 p.m. London close on Friday. It was issued via banks in July at an average yield of 3.5 percent. The 10-year yield was at 8.41 percent.

“There are obviously some conditions before we can buy Greek bonds,” Draghi said Jan. 22 in Frankfurt. “There is a waiver that has to remain in place, has to be a program. And then there is this 33 percent issuer limit, which means that, if all the other conditions are in place, we could buy bonds in, I believe, July, because by then there will be some large redemptions of SMP bonds and therefore we would be within the limit.”

The ECB will buy 60 billion euros of public and private securities a month, starting in March, Draghi said, adding that the central bank will buy bonds due between two- and 30-years. About 45 billion euros probably would be sovereign debt, according to a central bank official.

ECB buying will be carried out in proportion to each euro- area country’s contribution to the central bank’s capital, Draghi said. Adjusted for non-euro-region central banks, that works out as a 2.9 percent share for Greece, according to calculations based on data on the ECB’s website, equating to a pace of about 1.3 billion euros a month, if all other conditions are met.