Don’t mention the US subprime loans division. According to this morning’s Rear Window in The Australian Financial Review, Morgan Stanley’s Australian CEO, James Gorman is back in his homeland for a speech in Melbourne next Monday night. He will be able to update his adoring local fans among the business media and corporates about his bank’s US$2.6 billion settlement with the US government over the selling of subprime mortgages in the lead up to the GFC. Morgan Stanley had been among half a dozen big-money centre banks charged with mis-selling by the US Department of Justice. JPMorgan Chase broke first and settled with a US$13 billion fine in late 2013. Citigroup then paid US$7 billion to make its case go away in mid-2014, followed by Bank of America, whose US$17 billion penalty reflected the huge exposures to these dud loans it assumed in the takeovers of Countrywide and Merrill Lynch (as well as adding to its own problems). Morgan Stanley’s deal takes the total settlement to US$40 billion (which would be a handy way to fix the budget in Australia, if we had had a dud mortgage scandal like the US did). Trailing the pack of big banks is the old Vampire Squid, Goldman Sachs, which has yet to settle but has already coughed up US$1.2 billion to the US Government’s Housing Finance Agency. That’s being treated as an opening deal, not a final one. The AFR says Gorman will be speaking at Melbourne University’s Foundation for Business and Economics Annual Dinner. — Glenn Dyer

Banking, Alice In Wonderland style. Got a spare US$100 million or a cool US$1 billion on deposit with JPMorgan, the giant US bank? Well, whip it out quickly, otherwise this hard-up operation will start charging you to leave your excess funds with it. Just like banks in Switzerland, Sweden and Denmark are now charging depositors who leave money on deposit in those countries — even with their rock-solid central banks. JPMorgan reckons looking after huge cash holdings of its customers has become too expensive under new US liquidity rules, and is effectively telling holders of up to US$100 billion to get out with their cash — and don’t come back. JPMorgan is the biggest US bank by assets, and it feels put upon by the new liquidity rules, which penalise it for looking after the huge excess cash piles of big US and international companies not covered by US bank deposit insurance. Under new rules developed by the US Federal Reserve, banks in America with big uninsured cash deposits will have to maintain higher reserves against those deposits, increasing their cost to more than what JPMorgan and others can get lending the cash out into the money markets.The fees range from reserves of 40% to 100% for cash on deposit at JPMorgan from another financial group. Bank of New York Mellon and Goldman Sachs are already charging some unnamed customers fees for holding their large cash deposits. According to figures in the Financial Times, these types of cash deposits account for around US$200 billion of the US$390 billion in cash deposits JPMorgan has taken from other financial groups (such as money market funds and big corporates). It’s Alice In Wonderland sort of banking, a perverse situation where cash is not as attractive as it once was. But after the GFC and the liquidity crisis that almost plunged us into a depression, what these Fed rules really tell us is that the likes of JPMorgan can’t trust its peers not to grab the money and run when the brown stuff hits the fan, and who can blame the Fed for trying to guard against that black hole? — Glenn Dyer

Bonds the new black. Negative interest rates are now the new black for financial markets — especially in sovereign bonds. Overnight, Germany joined Finland and Sweden in selling bonds to investors at negative yields. In each case, the countries have sold five-year bonds and, in each case, it was a first. Sweden and Finland are smaller issuers compared to Germany, which has one of the world’s major bond markets and whose bonds are the benchmark for fixed interest securities in Europe. The German five-year bond has been trading in the market at a negative yield since the start of 2015, and overnight its latest auction resulted in 3.2 billion euros of the security sold at an average yield of -0.08%, lower than the 0.02% yield the Finnish bonds were sold for at the start of this month. In Japan, the government has sold off bonds at negative yields this year, even though inflation is positive — but falling again. Buying a bond with a negative yield means you will get less back at redemption than you subscribed. If rates generally start rising (after a couple of increases from the Fed for example), then it’s unchartered territory. But the market values of these bonds should fall sharply, triggering big losses. In the eurozone, the market trading yields on five-year bonds issued by Finland, the Netherlands, Austria and Germany are now all negative, as are five-year securities issued by the European Financial Stability Facility, one of the bloc’s rescue funds (which has helped bail Greece out). Denmark and Switzerland also have negative five-year yields. Ireland’s 10-year bond yield fell below 1% for the first time in history overnight, joining Slovakia, France, Belgium, Austria, the Netherlands, Finland and Germany in the sub-1% club for the 10-year benchmark maturity. Fancy paying to lend to rich, financially strong Germany. We’re back down the rabbit hole. — Glenn Dyer

St Twiggy whacks Macmahon Holdings. Read the fine print in yesterday’s December 31 financial report issued by poor old Macmahon Holdings. It’s a terrible story of financial pain laid on financial pain, with more to come. Already reeling from the downturn in mining and construction, Macmahon was kneecapped in a rather brutal fashion by Twiggy Forrest’s Fortescue Metals Group (which is looking to cut its costs) with the loss of a huge contract-mining contract late last week. That contract, which went to the other contract miner, Downer EDI, at reduced rates (saving Fortescue millions of dollars a year), earned Macmahon $137.5 million in revenue for the six months to December. That, in turn, has set off another round of cost cuts days after a previous campaign resulted in impairment losses of around $124 million, bottom-line losses and, for yet another half year, no dividend. And despite having $124 million in cash, it owes its banks around $168 million of a credit facility of $317.5 million. And while it has net assets of $322 million, many of those are plant and equipment, which in the current recession would be hard to sell for book value. Now it has to go and talk to banks to try and hammer out a new arrangement to allow it to remain in business. Directors said the company will continue to need support from its banks. In the current climate, it could go either way. There have been other failures in the mining services and contracting and construction sectors, such as Forge Group and Bluestone. Both were ASX-listed companies. Macmahon is in a better position, with an estimated $600 million and more revenue on its books — but nothing is certain these days. –Glenn Dyer

Relief rally for Southern Cross. Shares in Southern Cross Austero leapt 18% yesterday after the company sorted out its bank debt restrictions (confirming it wouldn’t be breaching restrictions on its debt because it had negotiated an easing in the curbs on leverage with the banks), appointed former Nine Entertainment Co. chair Peter Bush as chairman (replacing the combative, longtime chair, Max “the Axe” Moore-Wilton) and maintained an upbeat outlook despite a 24% slide in interim earnings. Faced with all that activity, the shares jumped as investors piled back in, hoping the company’s finances wouldn’t worsen and that someone like Nine Entertainment would come along and make another offer. But that will depend on the Abbott government changing the media ownership and audience rules, which won’t happen. Earnings fell to $34.7 million in the six months to December as revenue in metropolitan radio and TV fell. But typical of the sharemarket, the surge in the share price has allowed the company’s old board and current management off the hook once again on a major self-inflicted wound — poor management of the radio assets, especially on-air talent, as well as suffering the revenue-losing programming of being the regional TV affiliate of the struggling Ten Network. The December half helps us put a figure on Southern Cross’ false economy; for the sake of saving $2 million or so from resisting the re-signing of Kyle Sandilands and his sidekick Jackie O, and saving that $2 million, Southern Cross suffered a $17 million fall in revenue from its metro radio stations in the six months to December. But in regional radio, where there were no significant changes, revenue rose $500,000 or 0.6% in the half year in a tough market. Sandilands and Ms O left 2Day FM in late 2013 and its ratings and revenues (and those of the Today Network) have plunged since, while those at APN’s Australian Radio Network (where they ended up) have risen. Revenue at the Today’s Hit Network (which includes 2Day FM) fell 33%. Strip out 2Day FM and the Today network enjoyed a 3.4% rise in revenue in the half year. As I said, a self-inflicted wound. —Glenn Dyer

Murdoch sells home. The Los Angeles Times has confirmed reports late last year that Rupert Murdoch had sold his Los Angeles mansion for around US$30 million.

“Quietly listed” outside the Multiple Listing Service last year, the property attracted interest from such Hollywood A-listers as Leonardo DiCaprio and drew multiple offers. “Murdoch ended up pulling the property off the market,” the LA Times property section has just reported.

“His youngest son, James Murdoch, has been identified as the buyer by the blog New York in Exile. Real estate sources not authorized to talk about the deal also identified the younger Murdoch as the buyer. The property was taken in the name of a New York limited liability company.”

Murdoch still has a wine estate and luxury residence in the hills above LA. He paid US$28.8 million for that property in 2013. He still has a Triplex in New York valued at more than US$57 million. — Glenn Dyer

Peter Fray

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