Fausta's Blog

American and Latin American Politics, Society, and Culture

June 10, 2014 By Fausta

Ecuador: The bond and pony show

The Economist looks at this week’s roadshow to peddle new Ecuadorian sovereign bonds in London, Boston, Los Angeles and New York, and opens with the old saying, Fool me once, shame on you; fool me twice, shame on me.

Ecuador and the capital markets
Fool me once

Caveats remain. The state of the public finances warrants scrutiny. The non-financial public-sector deficit is widening. In April Mr Correa said Ecuador needed to obtain $9.5 billion, or close to 10% of GDP, in credit this year, compared with the $7.6 billion approved by Congress only a few months earlier. A recent $400m loan from Goldman Sachs that was secured by more than half of Ecuador’s gold reserves raised eyebrows. Such issues will doubtless crop up during the roadshow.

The Economist thinks invesors will “swallow their objections”; maybe, maybe not (emphasis added),

Not all investors are rushing to take part in an Ecuador deal.”Ecuador’s past record of defaults makes us very wary, and I don’t think taking part in the deal would be high on our radar,” said Colm McDonagh, head of emerging-market fixed-income at money manager Insight Investment in London, which manages £295 billion ($496 billion) of assets.

“There is a price for different types of risk, and there will always be demand for a deal such as this. But as far as we are concerned, Ecuador’s track record of honoring its debt obligations makes it hard for us to determine the appropriate yield level where we would be comfortable holding those bonds,” he said.

In plain english, that means, you can’t pay me enough to buy the stuff.

Here’s why:

  • The country defaulted on its debt in 1999
  • Ecuador defaulted again in 2008
  • In 2009, it bought back about 93% of the $3.2 billion in defaulted debt at 35 cents on the dollar

    That left an estimated $95.37 million of defaulted bonds that would have matured in 2012, with $194.4 million falling due in 2030.

  • And then there’s another$650 million of bonds due in 2015. Is the new debt issue going towards servicing those?

The other day I had 2 words of advice: Stay Away. I stand by those words.

In other news, Ecuador’ buying three more Airbus C295 military transport planes.

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Filed Under: business, Ecuador, money Tagged With: Fausta's blog

August 19, 2010 By Fausta

We have Jon Corzine to thank for this one

SEC Sues New Jersey as States’ Finances Stir Fears

The Securities and Exchange Commission, in its first securities-fraud case against a state, accused New Jersey of misleading investors about the health of its two largest state pensions while selling billions of dollars in bonds.

In the New Jersey action, the SEC cited municipal bonds in 79 separate offerings totaling $26 billion from 2001 to 2007. Many of those sales occurred after the SEC said the state abandoned a plan to bring pension funding up to snuff.

The SEC’s filing in the civil case described a series of moves that it alleged misled investors into believing the state was adequately funding the $34 billion Teachers’ Pension and Annuity Fund and the $28 billion Public Employees’ Retirement System.

The funds are the largest of seven funds in the $66.9 billion New Jersey retirement system. Among other things, the SEC said, the state didn’t disclose it had abandoned a five-year plan to fund the pension plans. The pension system covers 689,000 current employees and retirees.

In its settlement, New Jersey neither admitted nor denied wrongdoing but said it wouldn’t do it again. The SEC didn’t fine the state, citing its cooperation and remedial steps it has taken. No individuals were charged.

Jon Corzine was governor of NJ from 2006 to 2010. If he claims he inherited the problem from his predecessor(*), Jim McGreevey, who was governor from 2002 to 2004, one may also consider that Corzine is the NJ governor who has the most experience in the financial area, having worked as chairman and CEO of Goldman Sachs, where he allegedly earned $500 million.

If anyone had the know-how to remedy the bond problems, that was he.

NJ residents thank you, Jon.

(*) A friend’s email reminded me that Codey was Corzine’s immediate predecessor, after McGreevey denied the NJ voters the right to pick anyone (all Democrats, pulling the typical NJ Dem trick – a.k.a. the Torricelli maneuver).
Codey was governor for a year and a couple of months, and his term was totally forgettable.
So sue me.

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Filed Under: business, Democrats, Jon Corzine, money, New Jersey, NJ Tagged With: Fausta's blog

August 1, 2008 By Fausta

Venezuela: Now Chavez goes after the banks

Speeding down the road to ruin, Chavez is now nationalizing the banks: First comes Banco de Venezuela, the country’s third-largest in terms of deposits and which is owned by Spanish Banco de Santander.

Chavez says to nationalize unit of Santander bank (emphasis added)

Venezuela’s President Hugo Chavez said on Thursday he will nationalize the local unit of Spain’s Grupo Santander bank, expanding his drive for state control of key sectors of the OPEC-nation’s economy.

Grupo Santander (SAN.MC: Quote, Profile, Research, Stock Buzz) owns Banco de Venezuela, one of the largest banks in the nation’s financial system with $700 million invested in Venezuela operations.

Chavez, who threatened to take over banks last year,

(which he threatened after completing the takeover of the last privately run oil fields)

said he had decided to buy Banco de Venezuela after Santander asked for permission to sell it to a local finance group.

“I said ‘No, I’ll buy it from you — what’s it worth? We’ll pay it,”‘ Chavez said during a live television broadcast.

We’ll see if “we’ll pay it” – Chavez said the same thing to the oil companies when taking over their assets and Conoco Phillips suffered a $4.5billion loss, which amounted to 10% of its proved reserves. Exxon lost $1billion, and is trying to find redress in courts; Chavez’s reaction to the Exxon lawsuits? Threatening that, if Exxon Mobil Corp. dares to freeze Venezuela’s assets, he will not sell any more oil to the United States.

However, in terms of Banco de Santander’s earnings, Banco de Venezuela accounts for “a tiny fraction of its earnings”, according to the Wall Street Journal. Reuters is even shedding a positive light on the news:

Gianfranco Bertozzi, an analyst with Lehman Brothers in New York, said the fact that Santander was looking to sell made the takeover less alarming for investors.

Perhaps it’s “less alarming” for Banco de Santander investors, but the situation is alarming enough for investors in Venezuela.

The Wall Street Journal has more details on the Banco de Venezuela/Banco de Santander appropriation:

Promoting his populist agenda ahead of midterm elections, Venezuela’s President Hugo Chávez said his government will nationalize the local unit of Spanish banking giant Banco Santander.

In a country-wide televised address Thursday, Mr. Chávez said the government would buy the bank, Banco de Venezuela, because he believed Santander was trying to sell it to a Venezuelan banking group. Mr. Chávez said the group, which he didn’t name, sought permission to do the deal.

Anyone following Venezuela’s road to ruin won’t be surprised by the move:

The possibility of nationalization has long loomed over banks in Venezuela. Already, the Chávez government heavily regulates the country’s financial system and forces banks to lend to politically sensitive areas, such as agriculture, at cut rates. Spain’s biggest bank, Banco Bilbao Vizcaya Argentaria SA, U.S. giant Citigroup and others also have units in Venezuela.

Particularly since it furthers Chavez’s political agenda, close to a midterm election (if you asume that Chavez’s “term” is somehow finite)

The Santander unit may hold a special purpose for Mr. Chávez: Its vast network of branches nicely compliment the existing branch networks of government banks. Adding Santander to the mix would give Mr. Chávez a larger, more efficient reach when it comes to distributing the welfare payments and cash subsidies at the heart of his support.

Additionally, as Venezuela’s fourth-largest lender, it would give Chavez the illusion of “lending” to political cronies. In a country where the government controls the board of elections and keeps track of who you vote for, controlling credit through banks becomes a political weapon, especially when you have to deal with the Banco de Venezuela.

Venezuela News and Views points out that

the state does not need a new bank: it already has Banco Industrial (always losing money), Banfoandes (of more than obscure accounting, and used a lot to give money away to Chavez allies) and a plethora of “banks for the people” Banco del Pueblo, Banmujer, Banco del Tesoro, Banco X and Banco Y. Why, oh why, another bank?

I said a few years ago that property rights were a thing of the past in Venezuela. Take a look at what Chavez has nationalized, as listed by Reuters:
Oil industry:

USA’s Exxon, Conoco-Phillips, Chevron
France’s Total
Norway’s StatoilHydro
Britain’s BP

Telecommunications (bear in mind that the Venezuelan Constitution had granted Chavez control of the internet):

CANTV TDVd.CR, the nation’s largest telecommunications company

Power:

Electricidad de Caracas, which was formerly owned by U.S.-based AES Corp
Seneca, in the island of Margarita

And let’s not forget the Hato El Charcote, a beef cattle ranch owned by Agroflora, a subsidiary of Britain’s Vestey Group, which Chavez seized in 2005,
the idle Heinz ketchup plant, one of many,

The move comes at a time that the Chavez government is investigating over 700 closed enterprises, evaluating them for their suitability for worker takeovers, via expropriation.

and CEMEX, the country’s largest domestic supplier of cement and ready-mix concrete.

Not surprisingly, the inhospitable business environment is making foreign private investors flee. The Iranians, however, are welcome to open cement factories.

Miguel Octavio analyzes the Banco de Venezuela nationalization in light of the a series of moves that began in May when the Government ordered all banks to sell their Bolivar-denominated structured notes. Go to his post and follow all four posts of his Guisonomics series, especially part III, How to buy a bank without using your money and IV, Why did the Government stop the use of structured notes to buy a bank?.

UPDATE
IBD blog mentions that Chavez’s bank takeover has triggered a run on deposits today.

Bonds fall on Chavez’s plan to nationalize bank

Venezuela’s bonds continued to decline Friday, as President Hugo Chavez’s announcement that the government will nationalize the country’s third largest bank gave investors reason once again to sell local assets.

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Filed Under: business, Communism, Hugo Chavez, money, politics, Venezuela Tagged With: Fausta's blog

November 26, 2007 By Fausta

Money matters

Men motivated by ‘superior wage’

Scans reveal that being paid more than a co-worker stimulates the “reward centre” in the male brain.

Traditional economic theory assumes the only important factor is the absolute size of the reward.

But researchers in the journal Science have shown the relative size of one’s earnings play a major role.

If I were a waging type, I’d bet you that if they scanned my brain the findings would be similar.

I’ll be posting the Carnival shortly. This is one busy morning!

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Filed Under: business, money

May 24, 2007 By Fausta

Gift from the sea, and today’s items

John Edwards continues to find out about poverty: John Edwards Stakes Claim on Pirate Booty

Gifts from the sea, alright.

——————————————————-

Irrational Exuberance — Version 2.0
I’d say that right now would be a good time to take some profits…
——————————————————-

Donald Luskin aks WHAT’S THE ULTIMATE UNINTENDED CONSEQUENCE OF ECONOMIC MICRO-MANAGEMENT?
——————————————————-

If China sharply revalued the yuan, as American politicians are demanding, it could actually hurt the United States and help China, says The Economist.
——————————————————-

Via Irwin, Midwest Lutherans Largely Reject Violence
——————————————————-

Via Maria Blanco, TV Liberty has a video tribute to Communism,
Warning: disturbing images

——————————————————-

In the animal kingdom,
The Artic Monkeys are hot, and here are some apes gone wild

More pubescent apes gone wild (h/t Siggy

——————————————————-

Happy anniversary to bRight&Early Blog. He celebrated with a bright and early podcast.

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Filed Under: China, Communism, economics, John Edwards, money, news

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