Mixed 2007 For John W. Henry's Funds

January 29, 2008

The year-to-date numbers are in for John W. Henry & Co. and the results range from pretty to pretty ugly.

First, the bad news: The firm’s International Foreign Currency Exchange program lost an estimated 30.89% through December, followed by its Global Diversified Portfolio, which dropped an estimated 15.39%. Performance in programs that placed “a greater weight on currencies posted disappointing results,” wrote Kenneth Webster, in his year-end wrap-up to investors.

“Most JWH models were able to capture profits in the liquid euro where the dollar decline was most pronounced, but suffered losses in many of the other world currencies.”

Adding salt to the wound, investors have reportedly pulled their capital out of the firm’s flagship Strategic Allocation program, which lost 4.76% last year and managed $67 million as of the end of December, in favor of the firm’s other offerings, HFM Week reports. A call made to Webster was not returned by press time.

In addition, Matthew Aptman, a former director in the investor services group at JWH, has joined the ComVest Group in a similar role. He joins the growing list of JWH defectors including Mark Rzepczynski, former chief investment officer, and former vice chairman Mark Mitchell.

On the bright side, the firm’s commodities trades were profitable on the strength of the energy and grain markets. The firm’s most diversified program, GlobalAnalytics, gained an estimated 18.68% while its newest program, JWH Diversified Plus, gained 24% in its first nine months of trading. And, of course, firm founder John Henry's Boston Red Sox won baseball's World Series.

“A large part of the year’s gains came from August to December and coincided with the decline in the dollar,” said Webster. “As the decline in the dollar gathered steam in the fourth quarter, most commodity markets were moving higher and contributing positively to JWH returns.”

As of the end of December, the former managed futures behemoth managed $297 million in total assets.

Australian Dollar Will Exceed $1, Antipodean Says (Update1)

By David McIntyre

Jan. 30 (Bloomberg) -- The Australian dollar will exceed $1 for the first time in more than 25 years as the nation's interest-rate advantage widens, said Craig Ferguson, a hedge- fund manager at Antipodean Capital Management.

The local currency may surge 24 percent to $1.10 by the end of 2008 as the Federal Reserve cuts rates and the Reserve Bank of Australia raises borrowing costs at least once, Ferguson said in an interview in Sydney. Rising prices of coal and iron ore, Australia's two most valuable export products, will also boost the currency, he said.

``The Australian dollar is one of the most undervalued currencies,'' said Melbourne-based Ferguson, formerly chief currency strategist at Australia & New Zealand Banking Group Ltd., the nation's third-largest lender. ``Commodities have kept going up and yield differentials have kept widening. The currency has done nothing because of uncertainty in equities.''

Ferguson, who correctly bet in November 2006 the Australian dollar would strengthen at least 18 percent to above 90 U.S. cents last year, said he expects the currency to trade between 83 and 93 cents until June 30 as stock market volatility persists, eroding confidence in higher-yielding assets.

The Australian dollar, known as the Aussie, traded at 88.78 cents at 3:51 p.m. in Sydney compared with 88.99 cents late in Asia yesterday. The last time the Aussie was worth more than $1 was in 1982, before the currency was allowed to trade freely in December 1983, according to data compiled by Bloomberg.

The Australian dollar will rise to 89 cents by mid-year before sliding to 85 cents by year-end, according to the median forecast of 39 analysts surveyed by Bloomberg News.

Widest Since 1991

The Fed may reduce its benchmark rate to as low as 1.25 percent by the end of the year from the current 3.5 percent, Ferguson said. That would take Australia's rate advantage to over 5 percentage points, the widest spread since 1991. The RBA will raise its rate at least once from 6.75 percent, he said.

``The Aussie could go on a run unlike anything we've seen in the last two years,'' said Ferguson in an interview with Bloomberg Television. ``In the second half of the year you have huge potential for the Aussie to move higher.''

Futures contracts on the Chicago Board of Trade show a 74 percent chance the Fed will cut its target rate to 3 percent today. The Fed unexpectedly cut rates by 75 basis points last week to help revive the U.S. economy.

Traders see a 72 percent probability the Reserve Bank will increase its 6.75 percent overnight cash-rate target by a quarter-point on Feb. 5, according to an index calculated by Credit Suisse Group based on trading in interest-rate swaps.

Immunity to Stocks

Gains in the Aussie will be limited while stock markets remain volatile, Ferguson said. Australia's dollar has fallen 3 percent against the yen this year as global equity markets slumped on concern the U.S. will slide into a recession.

``Until markets become immune to what stocks are doing, you're going to'' see the currency capped, Ferguson said. Antipodean plans in coming weeks to buy the Australia's dollar on any decline toward 85 cents and sell it on advances to 90 cents, he said.

The Chicago Board Options Exchange Volatility Index, or VIX, has averaged 23.16 the past six months compared with 13.98 the previous six. Higher readings in the so-called VIX, derived from prices paid for Standard & Poor's 500 Index options, indicate traders expect larger share-price swings.

``The case remains strong for further Australian dollar upside if and when risk appetite and equity market volatility stabilize,'' John Rothfield, a senior currency strategist at Bank of America Corp. in San Francisco, wrote in a report dated yesterday. He forecasts the currency to end the year at 91 cents.

Chinese Demand

Australia's dollar will also gain as the country's exports are boosted by a 50 percent increase in the cost of coal and iron ore, Ferguson said. Growth in China's economy won't slow until the end of 2008, underpinning demand for Australia's raw material exports, he said. Overseas shipments of commodities contribute about 17 percent to Australia's economy.

Demand from China for Australia's mineral resources has prompted companies including miner Rio Tinto Group to hire more workers and increase wages, increasing pressure on the RBA to raise interest rates.

While U.S. retail sales during the holiday season rose at the slowest pace since 2002, Australians increased spending in shops over the period at the fastest pace in a decade, according to the nations' retail associations.

Ferguson teamed up with Simon Ho, a former currency options trader at Deutsche Bank AG in Sydney, to form Antipodean, which began trading in February 2006. The two met in their first week as traders at JPMorgan Chase & Co. in May 1994. He declined to say how much in funds he has under management.

To contact the reporter on this story: David McIntyre in Sydney at dmcintyre2@bloomberg.net

Last Updated: January 29, 2008 23:52 EST

SocGen in disarray as judges throw out fraud charge against trader

· Bank admits it was warned on more than one occasion
· Shareholders go to court over alleged insider dealing

• David Gow and Emilie Boyer King in Paris
• The Guardian,
• Tuesday January 29 2008

Contact us

Close

• Contact the Business editor
  business.editor@guardianunlimited.co.uk

• Report errors or inaccuracies: reader@guardian.co.uk
• Letters for publication should be sent to: letters@guardian.co.uk

• If you need help using the site: userhelp@guardian.co.uk
• Call the main Guardian and Observer switchboard:
  +44 (0)20 7278 2332
• • Advertising guide
  • License/buy our content

About this article

Close

This article appeared in the Guardian on Tuesday January 29 2008 on p24 of the Financial section. It was last updated at 08:08 on January 29 2008.

The Société Générale affair descended deeper into the mire last night as investigating judges threw out the most serious accusation, attempted fraud, put forward by prosecutors against the trader behind the €4.9bn losses, Jérôme Kerviel.

They released him under judicial supervision, or bail, after two days of police questioning, leading his lawyers to claim a substantial victory. The surprise threatened to undermine the bank's increasingly fragile defence that he had used ingeniously fraudulent devices, including hacking into colleagues' internet codes, to hide his gambling on equity derivatives trading markets.

Kerviel ran up an exposure of €50bn, costing France's second-largest bank a record loss in banking history as it unwound his positions last week. The prosecutor's office, which wanted to charge him with fraud, said it would appeal against the release. He has been placed under formal investigation for lesser allegations of breach of trust, computer abuse, and falsification. "There is no fraud," said Christian Charriere-Bournazel, one of Kerviel's two lawyers, accusing Daniel Bouton, SocGen's chief executive, of "throwing him to the dogs" and "holding him up for public vilification."

Earlier, a lawyer acting for 100 small shareholders sued the bank over insider trading and market manipulation, and minority investors accused it of issuing misleading information.

And Kerviel, depicted by the bank as a "lone" rogue trader, also increased SocGen's woes by accusing his colleagues of having similarly traded beyond their limits. Prosecutors said the bank had been alerted by the Eurex derivatives market to the scale of his positions as long ago as November last year.

Prosecutor Jean-Claude Marin said Kerviel had been able to fool his employer by producing a fake document to justify the risk cover - a comment seized upon by SocGen as it struggled to defend itself against charges its controls were so extraordinarily lax that Kerviel acted unapprehended for 15 months.

Eurex said its controls "functioned correctly at all levels, also in this case", while Socgen admitted it had been warned by the Deutsche Boerse subsidiary more than once. "There were false trades picked up but he [Kerviel] explained them away, justified them, or fabricated covers."

An enraged Colette Neuville, head of Adam, a minority shareholders' lobby, disclosed she had asked the AMF, the French financial services authority, for a formal inquiry into alleged insider trading by a director and/or others at the bank. She also wants the AMF to investigate whether the bank deliberately misled investors over its sub-prime losses in November when it put them at €230m, only to announce a €2.05bn hit two months later. She told the Guardian. "There are strong possibilities that the information given to shareholders was incorrect - misleading."

The lawyer, Frederik-Karel Canoy, said he had begun legal action against SocGen over how it unwound billions of euros in allegedly fraudulent share deals last week. The bank said on Sunday it unwound Kerviel's positions, €50bn, "in particularly unfavourable market conditions" between Monday and Wednesday last week after discovering them on January 18.

Canoy, a thorn in the flesh of French companies, told Reuters the bank should have told markets about its pending losses before its huge three-day selling spree.

SocGen says it unwound these positions in a controlled manner and within a volume limited to less than 10% to "respect the integrity of markets". It won support from Bank of France governor Christian Noyer: "The way Société Générale has handled its affairs to unwind positions in a very short space of time, and without moving the markets, contrary to what has been said, because they remained within normal trading limits ... was very professional."

Canoy also filed a complaint about the sale of 1m shares by SocGen director Robert Day on January 9 and 10, disclosed in AMF filings, shares worth €85.7m in his own name, and €8.63m and €959,066 from two foundations "linked" to him.

The bank said the sale had come "well before" it knew of any fraud, while sources, dismissing Canoy's move as a stunt, insisted that only a few senior officials, excluding Day, could have known of pending losses when he sold his shares.

But Neuville, in a letter to the AMF, insisted that share sales had taken place just before Socgen shares started to slide on January 14 - or four days before Kerviel's fictitious and fraudulent dealings were first detected inside the bank on January 18. "There are people who had access to information that was not publicly known; there's a suspicion of insider trading, and there must be a formal inquiry."

Kerviel has admitted hiding his activities but accused colleagues of trading beyond their limits, Marin said earlier.

Prosecutors had sought charges against Kerviel for offences of forgery and fraud, with a sentence of up to seven years.

Marin said the 31-year-old, who gave himself up on Saturday, had told investigators that his and other irregular deals had taken place since the end of 2005, a dagger at the heart of Socgen's defence that he was a one-off fraudster of genius.

Marin said the investigation had shown Kerviel did indeed act alone - to prove himself a star trader and earn a bonus of €300,000, rather than to harm the bank.

The bank has so far dismissed two managers over the scandal: Luc François, head of equity derivatives trading, and Jean-Pierre Lessage, Kerviel's direct manager.

Trade Opportunities

I'm starting to look for set ups in the following pairs:

Long gbp/usd

Short usd/cad

Possibly nzd/usd

eur/jpy not very clear but possible daily short if we sell of resistance under 159.00

Waiting for pull back to short eur/cad


These ARE NOT ENTRIES but instead they are possible trades...I will post entries when I see them.

Chicago and New York could create $11bn derivatives giant

Tom Bawden

The Chicago Mercantile Exchange (CME) is in talks with its New York rival Nymex about an $11 billion (£5.5 billion) deal to create one of the world’s largest derivatives exchanges.

If successful, the tie-up would represent the next step in a frenzy of consolidation among the big global exchanges, which are struggling to build market share. Under the terms of the proposed deal, CME Group – the Chicago exchange’s parent company – would acquire Nymex by offering its shareholders $36 in cash and 0.1323 CME shares for each Nymex share. The offer values Nymex shares at roughly $119.22 each, an 11 per cent premium on its closing price on Friday.

In a joint statement yesterday, issued after mounting speculation about a deal, the companies said that they had agreed a 30-day exclusive negotiating period. The statement said that discussions were at an early stage. “There can be no assurances that any agreement will be reached or that a transaction will be completed,” it said, adding that any deal would be subject to completion of due diligence and the approvals of both boards of directors.

If it takes place, the deal would create a futures industry colossus, dominating the global market for contracts in oil and other commodities.

Strategically, it would also offer CME Group, formed after the merger last year of the CME with the Chicago Board of Trade (CBOT), an opportunity to expand into the booming market for energy contracts.

Christopher Allen, a Banc of America securities analyst, wrote in a research note that it “looks like a great deal” for CME. “The company would be acquiring one of the two major players in energy at a very reasonable price,” he said. CME Group is the world’s largest derivatives exchange, offering a bewildering array of futures and options contracts in everything from frozen pork bellies to live cattle, wheat and corn to foreign currencies, interest rates and even the weather.

Nymex started out in the 1870s as the Butter and Cheese Exchange of New York, but these days is known for its influential futures exchange, in which contracts for natural gas, heating oil, crude oil, petrol and metals are traded. Through its Comex subsidiary, Nymex also offers trading in commodities such as coffee and cotton.

Both the Chicago and New York exchanges feature a mixture of “open outcry” pit trading and electronic trading. Nymex has already joined forces with CME to list some of its most popular contracts on CME’s electronic exchange Globex. In an apparent effort to placate New York’s powerful financial community and to smooth the way for a deal, the CME insisted yesterday that it would maintain trading floors in Manhattan and in other parts of the New York region.

A rash of tie-ups have taken place between the world’s big exchanges over the past two years, including Euronext with the Intercontinental Exchange and the New York Board of Trade with the New York Stock Exchange. The NYSE has also agreed to buy the American Stock Exchange.

This month, CME Group agreed to buy a 10 per cent equity stake in São Paulo’s Brazilian Mercantile & Futures Exchange, the largest derivatives exchange in South America. Richard Schaeffer, the chairman of Nymex, said last year that the exchange was in discussions with several possible partners, thought at the time to include NYSE Euronext and Deutsche Börse, as well as CME.

Gold, Platinum Rise to Records as Mines Close; Crude Oil Gains

By Danielle Rossingh

Jan. 25 (Bloomberg) -- Gold and platinum rose to records in London as a shortage of electricity in South Africa forced mining companies to shut production. Oil and copper also advanced.

AngloGold Ashanti Ltd., Gold Fields Ltd. and Anglo Platinum Ltd. shut their South African mines because of power problems. The nation is the world's biggest platinum producer and ranks second, after China, for gold output. Oil rose after U.S. lawmakers announced an economic package to avoid recession in the world's biggest energy-consuming country. Copper advanced to its highest in more than a week after Chinese stockpiles plunged.

``It's kind of a perfect storm'' for precious metals, said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, which owns five precious-metal refineries. ``There are absolutely no platinum reserves, so any supply disruption will have an impact.''

Gold for immediate delivery rose as much as $10.89, or 1.2 percent, to a record $923.73 an ounce, and traded at $922.15 as of 11:38 a.m. in London. Platinum for immediate delivery rose as much as $90.50, or 5.6 percent, to an all-time high of $1,701 an ounce in London.

South Africa accounts for about 11 percent of global gold supply from mines and 78 percent of platinum output.

``Most gold mining is done underground in South Africa, which means they've had to stop completely, and the price has reacted,'' Wrzesniok-Rossbach said by telephone.

Gold also rose as some investors bought the metal as a hedge against inflation stoked by higher oil prices, Ross Norman, director of London-based TheBullionDesk.com and a former bullion trader, said by telephone.

Crude Oil Gains

Crude oil for March delivery rose as much as $1.03, or 1.2 percent, to $90.44 a barrel on the New York Mercantile Exchange, and traded at $90.09 as of 11:39 a.m. in London. Futures reached a record $100.09 a barrel on Jan. 3.

Speculation that tax rebates for households and businesses planned by President George W. Bush and Congress would allow the U.S. to skirt recession outweighed the impact of larger-than- expected increase in crude and gasoline inventories reported by the Energy Department yesterday.

``Primary upside risk will come from further recovery in equity values if White House stimulants take effect along with a serious bout of cold weather hitting the U.S.,'' said Robert Laughlin, a senior broker at MF Global Ltd. in London.

The UBS Bloomberg Constant Maturity Index, a gauge of 26 commodities, advanced 2.1 percent yesterday, its biggest one-day gain since Jan. 2. It rose another 1.3 percent today.

Gold for February delivery rose as much as $18.50, or 2 percent, to a record $924.30 an ounce on the Comex division of the New York Mercantile Exchange.

Silver Jumps

Silver for immediate delivery jumped 19 cents, or 1.2 percent, to $16.61 an ounce, the highest since November 1980, according to data on Bloomberg.

Platinum futures rose $57.40, or 3.6 percent, to $1,670.40 an ounce in New York.

Aquarius Platinum Ltd. said production at its Everest mine in South Africa stopped after the contractor left. Lonmin Plc, the world's third-biggest platinum producer, yesterday cut its sales target for fiscal 2008 by 4.4 percent because of accidents and a strike in South Africa.

Supply of the metal used in car catalysts and jewelry has fallen short of demand in seven years since 1999, according to London-based Johnson Matthey Plc, the world's largest distributor of the metal.

Platinum may jump to $2,000 an ounce this year, Michael Widmer, director of metals research at Lehman Brothers Holdings Inc. in London, said in an interview today.

Platinum Shortfall

Platinum supply may fall short of demand by as much as 500,000 ounces this year, Wrzesniok-Rossbach said.

Anglo Platinum, the world's largest producer of the metal, yesterday said output at its second-biggest mine was disrupted by flooding and it may take as long as 12 weeks to get back to full capacity. The Amandelbult mine in South Africa may lose 50,000 to 70,000 ounces of production, representing almost four days of global supply.

Copper for delivery in three months increased $108, or 1.5 percent, to $7,128 a metric ton as of 11:40 a.m. on the London Metal Exchange.

China's Shanghai Futures Exchange reported that stockpiles fell 8,397 metric tons, or 32 percent, in the past week, to 18,158 tons. Wire and pipe manufacturers will be on a week-long holiday starting Feb. 6 for the Lunar new year.

``There's a sense that the Chinese are restocking ahead of the Chinese new year holiday,'' said John Meyer, an analyst at Fairfax I.S. Plc in London. ``There is an expectation that Chinese demand for copper and other commodities is going to continue to rise.''

To contact the reporter on this story: Danielle Rossingh in London at drossingh@bloomberg.net

Last Updated: January 25, 2008 06:52 EST

Soros: Dollar's Golden Era is so over, Davos Dudes

Soros: Dollar's Golden Era is so over, Davos Dudes
on Thursday 24 Jan 2008 11:02 GMT From The Telegraph - see full story (subscription required)
The Telegraph reports: George Soros said that a recession in both the United States and Britain "will be very difficult to avoid". He was speaking on the fringes of the World Economic Forum summit in Davos, Switzerland, where many of the world's top politicians and businessmen are meeting. The warning is significant, since although many of the major investment banks now agree that the US is set to suffer a recession, most economists have predicted that Britain's fortunes will be far better. His warning came less than 24 hours after the US Federal Reserve used an emergency three-quarter percentage point cut in interest rates to try to prevent the world's biggest economy slumping dramatically. It will also fuel speculation that Mr Soros has been betting against the pound in recent months. Sterling has fallen dramatically since late last year, with the housing market slowing fast and the Bank of England being forced to cut interest rates. Mr Soros also warned that the dollar's status as the world's reserve currency was drawing to an end, thanks in part to the financial crisis on Wall Street. He said the plight of US households, who are facing major slumps in nationwide house prices for the first time in living memory, was increasing the distaste among international investor.

Caxton hedge fund stops strategic investments

Redeeming investors to get new shares representing longer-term holdings

By Alistair Barr, MarketWatch

Last update: 4:17 p.m. EST Jan. 23, 2008

SAN FRANCISCO (MarketWatch) -- The main hedge fund run by Bruce Kovner's Caxton Associates L.L.C. has stopped making strategic, longer-term investments, according to two people familiar with the situation.

The decision shows how the hedge fund industry's foray into longer-term investing, such as private equity, in recent years has produced tensions between fund investors accustomed to quick returns and fund managers who push for longer-term investments. It doesn't necessarily mean Caxton's strategic investments are performing poorly though.

Private-equity strategies usually require longer investment horizons, locking up investors' money for several years. In contrast, hedge funds have traditionally focused on short-term trading and have allowed investors to withdraw their money more frequently.

The combination of the two investing styles has made some hedge fund investors uncomfortable.

Caxton Global Investment Ltd. told investors in a recent letter that, as of Jan. 1, it won't pursue new strategic investments, a person who's seen the letter said on condition of anonymity. Another person confirmed the general contents of the letter, also without wanting to be identified.

Toby Young, director of investor relations at Caxton in New York, declined to comment.

Strategic investments by hedge funds are usually less liquid and often don't have market quotations. They are also usually held for longer periods, Caxton explained in the letter. The holdings make up 7.89% of the fund's net asset value, the firm noted.

Investors who want to redeem from the Caxton Global Investment fund will get their money back, excluding the portion that's in the strategic investments. They will also get new "FI" shares, which represent those longer-term investments.

The new shares also reflect a $235 million reserve that Caxton is adding to its existing strategic investments, plus other items such as expenses, according to the letter.

Caxton is one of several big hedge funds that set aside a portion of clients' money to invest in less liquid, longer-term investments. During the private-equity boom of the past few years, those moves looked attractive, but big leveraged buyouts slowed sharply after credit crisis hit hard during the summer.

Other hedge funds may now be considering similar moves to Caxton to address their less-liquid holdings.

Caxton Global Investment, which oversees roughly $5 billion, climbed 1.14% in 2007. That lagged some other large hedge funds in its field, such as the Tudor BVI Global Fund and Moore Global Investments.

The Caxton fund suffered during the summer's credit crisis, losing just over 7% from June through August. Since the fund started, it has generated annual returns of more than 17%.

Caxton said in its recent letter that it remains focused on trading in international currency, financial, commodities and securities markets.

The firm also said it's offering new class T shares in the fund. This class represents the fund's main trading business, but excludes the strategic investments, the person who has seen the letter said.

Alistair Barr is a reporter for MarketWatch in San Francisco.

Stopped out of usd/chf

I got stopped out of my position in usd/chf after adding to position and advancing stop.... lost around 70 pips on that one...

AND I told you I would regret the breaking of my disclipline on the aud/nzd and I do.

One other point.

I was in love with the usd/chf opportunity. I wanted to oversize on it. Had I done it I would have regretted it and my disclpline proved me right this time. Go meee.

Closed aud/nzd

I broke discipline and closed aud/nzd at 1.1416 for +31 pips....I will regret this.

trade opportunities

Watching usd/cad for short...If the dailies close down I will look for shorts with stops at 1.0280 for a large swing down.

Just put on short usd/chf at 1.0930 with stops at 1.1062 bid looking for 1.0449

Kuwait set to invest as Merrill seeks $4bn
By Henny Sender and Ben White in New York and Stephanie Kirchgaessner in Washington
Published: January 13 2008 19:29 Last updated: January 13 2008 19:29
function floatContent(){var paraNum = "3"
paraNum = paraNum - 1;var tb = document.getElementById('floating-con');var nl = document.getElementById('floating-target');if(tb.getElementsByTagName("div").length> 0){if (nl.getElementsByTagName("p").length>= paraNum){nl.insertBefore(tb,nl.getElementsByTagName("p")[paraNum]);}else {if (nl.getElementsByTagName("p").length == 3){nl.insertBefore(tb,nl.getElementsByTagName("p")[2]);}else {nl.insertBefore(tb,nl.getElementsByTagName("p")[0]);}}}}
Merrill Lynch is seeking about $4bn in a second capital raising, as the hole in the US investment bank’s balance sheet continues to grow.
The Kuwait Investment Authority is expected to be a significant investor in the new deal, which could be announced as soon as midweek, according to people familiar with the matter. Other investors could come from Europe.
EDITOR’S CHOICE
Lex: Kuwait’s helping hand - Jan-14
Lex: Banking bonuses - Jan-14
Wolfgang Münchau: Why we are facing more than merely a subprime crisis - Jan-14
Lina Saigol: Thain reverses ‘Goldmanising’ - Jan-14
Merrill to suffer $15bn writedown - Jan-11
Citi and Merrill in SWF talks - Jan-10
KIA, which may also invest as much as $2bn or $3bn in Citigroup, is emerging as an large source of rescue finance on Wall Street. Once among the most conservative of sovereign wealth funds, KIA is changing its strategy in order to move more quickly than competitors and seize opportunities amid the turmoil in the US credit markets, these people say. Both Merrill and KIA declined to comment.
Both the price and the terms of the deals at Citi and Merrill are still being negotiated.
The latest round of capital raising comes at the start of a round of earnings reports during which big US banks and brokers are expected to reveal as much as $40bn in further mortgage-related writedowns. Action taken by Citi and Merrill will be closely watched by other institutions
Citi is expected to announce a writedown of close to $20bn and present plans to raise as much as $14bn in new capital from the Chinese and public market investors as well as the KIA. Analysts expect Vikram Pandit, Citi’s recently installed chief executive, to slash the dividend 40 per cent or more to improve Citi’s capital position.
The infusion would follow the $7.5bn Citi raised from the Abu Dhabi Investment Authority in late November.
Merrill Lynch on Thursday is expected to announce a writedown of $10bn to $20bn. Brad Hintz, Sanford Bernstein analyst, said a writedown of more than $20bn “would significantly increase leverage and would threaten the credit ratings of the firm”.
Any new capital infusion from the KIA and others would follow the $6.4bn Merrill raised last month from Temasek, the Singapore government fund, and Davis Selected Advisors, a New York-based asset manager.
More positive news is expected to come from JPMorgan Chase on Wednesday. The bank, which has avoided the worst of the mortgage problems thus far, is expected to report earnings of 93 cents per share, a decline of 14 per cent from last year.
JPMorgan is in a strong position and is thought likely to pursue a significant US acquisition to expand its domestic consumer business. Often mentioned candidates include Washington Mutual and SunTrust.
News that Citi is seeking further financing from sovereign wealth funds comes as some analysts in Washington say the state-controlled funds could soon face closer scrutiny.
Chuck Schumer, the New York senator and influential Democrat, quickly blessed an investment last year in Citi by Abu Dhabi. But last week, Mr Schumer expressed a hint of caution at reports that the US bank might receive more foreign government investment.
“Because sovereign wealth funds, by definition, are potentially susceptible to non-economic interests, the closer they come to exercising control and influence, the greater concerns we have,” he said.
While few predict that investment could be blocked, one Washington attorney who works on cross-border transactions says he believed minority investments could become subject to reviews by the inter-agency Committee on Foreign Investment in the US (Cfius)that investigates foreign takeover of US assets.
“It is one thing if you have one or two of these smallish deals,” the attorney says. “It is quite another thing, when institutions are being propped up by a bunch of investors, all from the same three states.”
So far, Citi and private equity groups that have received minority investments have not submitted their transactions to a voluntary review by Cfius. That could change if the political temperature increases on such deals.
Copyright The Financial Times Limited 2008

New Positions

Long aud/nzd at 1.1385 with stop loss at 1.1308 offer and tp at 1.1605

Renaissance Clients Pull $4 Billion From Biggest Hedge Fund

By Jenny Strasburg and Katherine Burton

Jan. 10 (Bloomberg) -- Clients of James Simons's Renaissance Technologies Corp. withdrew $4 billion from the firm's largest hedge fund in the past four months after returns trailed peers.

Redemptions from the Renaissance Institutional Equities Fund, which declined less than 1 percent last year, trimmed assets to between $21 billion and $22 billion, spokeswoman Marcia Horowitz said today in an e-mail. The average stock hedge fund gained 10.4 percent in 2007, according to data compiled by Hedge Fund Research Inc. of Chicago.

The East Setauket, New York-based firm, like other quantitative fund managers, lost money when the computer models it uses to select trades were confounded by volatile stock markets caused by the collapse of subprime mortgages. Stock volatility, as measured by the Chicago Board Options Exchange SPX Volatility Index, almost doubled last year to the highest since early 2003.

When Simons started the equity fund in 2005, he said it could handle as much as $100 billion. Last year, the firm limited inflows to $1.5 billion a month. The recent withdrawals were reported earlier today by Reuters.

The Renaissance institutional fund gained an average of 9.7 percent annually from July 31, 2005, through December 31. That compared with the 9.5 percent gain of the Standard & Poor's 500 Index including dividends reinvested in the same period.

New Operations Chief

Separately, Renaissance has hired James Rowen, the finance chief of hedge-fund firm SAC Capital Advisors LLC since April 2005, as chief operating officer. Rowen, 43, said in a telephone interview today he will move to Renaissance in the next month or so. He's replacing Stephen Daffron, who went to Morgan Stanley. The changes were reported earlier today by Dow Jones Newswires.

Dan Berkowitz, who has overseen accounting and operations for Stamford, Connecticut-based SAC for almost eight years, will replace Rowen, according to spokesman Jonathan Gasthalter. SAC, started in 1992 by Steven Cohen, oversees $15 billion.

SAC's Capital International Fund returned 13 percent last year, beating the 10.4 percent average gain of hedge funds, according to Hedge Fund Research.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net .

Last Updated: January 10, 2008 20:40 EST

Closed usd/jpy

Closed out at 110.00 for +53

I had mixed feelings on this trade and exit. I wanted to let it run but the overall market is not trending and I 'm not going to let my profits run in this type of environment.

Finally new position

I am long usd/jpy at 109.47 with stop loss at 108.66 offer and t/p at 111.20

I still think the markets are out of whack right now....I like this technical 4 hour set up....Using a half size position due to overall lack of confidence in trend in market.

No new trades