According to the WSJ, in this piece, titled Cyprus Rejects Rescue Plan, the government is working closely with the Russians for further loans, in return for possible equity stakes in their newly formed gas industry and banks . A 2.5 billion Euro loan is due to be repaid to the Russians in 2016, that amount is not included on the list above. What might happen is that the Russians could use this as a bit of a leverage tool over the Europeans, and why not? But CNBC suggests that the Russian money might be unsavoury to the Kremlin, and the Cyprus finance minister might be there to tell them that they are considering a 20 to 30 percent levy on their deposits. Gee, sounds like they are upping the ante here.
So, a little posturing, looking for perhaps more from the Europeans, in the coming days we will see who blinks first. The small matter of civil servants needing to be paid is, how should we say, a pressing matter? How do you say debt restructuring is almost inevitable, and is perhaps the next step. The horror of it all, I wonder who owns Cypriot debt? The pressure for the politicians in Cyprus must be completely unbearable. A pretty good look at the situation and "money" in general from Cullen Roche: Some Monetary Lessons from Cyprus. I am 100 percent sure that if there was a central European banking regulator, this would not have been allowed to happen. Time to move quickly in that direction, which of course is happening already.
Market participants are either treating the size and scale of the problem in Cyprus as it should be, too small really to worry about in the bigger picture, or were perhaps not giving it enough attention. Either way, markets locally drifted mostly lower through the course of the day, a big sell off in resources, and a sizeable sell off in Richemont. Sizeable, because in Europe the stock sank over four percent. Why? Well, it turns out that Goldman Sachs were hired to do a bookbuild, that went off well, of around 7 million shares, quite a large shareholder I guess. 520 million shares in total, is 7 million a lot? I guess it is. But the fact that the bookbuild went well suggests to me something that as is always the case, for every seller, there is also a buyer.
On the local jobs front we managed to add 22 thousand folks in the formal (non-farm) sector in the fourth quarter. See this: Quarterly Employment Statistics. See page five for the long and short of which sectors added for the quarter and which ones did not. Mining was essentially flat, construction jobs were shed (5000 in total), retail and services are where the jobs are being created. Government created a lot of jobs year on year, but shed jobs in the quarter. And in terms of gross earnings, it turns out that the best job to have is one working in the "community, social and personal services industry". What is most interesting however, is that the employed salaries have risen significantly over the last four years.
At the same time we have seen local inflationary data this morning, and I am afraid to say that we are now starting to press towards the top end of the range. 5.9 percent. For the full release, check it out: Consumer Price Index February 2013. What amazes me about these numbers is that it is heavily weighted, as one would imagine, to the folks with higher incomes. But inflation is a problem that impacts on poor people the most. Because in the contributions segment, the pressure is being exerted by the food, transport and housing and utilities groups, as well as the services sector. Petrol, public transport, beer, electricity and vegetables all registered 10 percent plus year on year increases. Scary. We wait for the MPC announcement at midday.
In New York (New York), where the folks are urging the summer to arrive earlier, it seems cold there, markets essentially had a nowhere session. The markets have been hot, last evening however was another lukewarm session. Markets started off really well with another sliver of housing news that was pleasing, this time in the form of building starts and building permits, both rising to multi year highs. Excellent. Which means that more people building homes and applying to build those same homes which essentially means that the consumer confidence levels have to be more elevated than in the last few years. You would not embark on an expensive exercise if you felt the future was less certain.
Byron's beats the streets The banks used to own and run Visa in order to link banks with different card issuances. When it listed in 2008 the banks each got a portion of the company. Some of the banks sold, some of them held on to them. The ones that held on have obviously done very well as the share price has gone from the listing price of around $64 to $156 today. Since the reorganisation in 2007 Visa and Visa Europe have operated independently because the members (banks) in Europe decided to keep it as a non-profit association and pay Visa Inc royalties for their services.
Why am I telling you this? Because when the agreement was structured the European members were granted a perpetual put option which allows them to sell at some stage. The WSJ has reported that the Visa Europe board will discuss in April the option of selling to US based Visa Inc. The price will be determined by a formula within the put option based on forward price earnings of the business and other such ratios.
The sale would raise billions of much needed Euros for the 3700 struggling members and would also be beneficial for the purchasing parent company. They can now focus on running this massive region for profit as opposed to relying on just the royalties. There will be lots of potential synergies and Visa's network will just get bigger. It is one of those businesses where the bigger your network, the faster you can grow. The bigger you are the more merchants will be forced to accept your cards otherwise they will lose business. When that happens the more valuable you become to the client because your service is more accessible and the client will have preference for your brand over others.
That is why we have chosen Visa because they are the biggest transaction processor amongst the lot. Of course the business model is fantastic. I am told that transactions in Italy are still predominantly cash so as to avoid taxes but the government is now forcing electronic payments on their citizens in order to monitor the movement of money. Banks are doing the same, incentivizing electronic payments because moving cash around is risky. It is a no brainer.
Whether the deal will go through or not is speculation at this stage. But having announced a $2.9bn share buyback and having 0 debt, I am confident they will have the capital to finance a deal. We continue to add to this stock even though it has done well recently, the potential going forward is huge.
Crow's nest. Who knows what is going to happen next, always something "interesting" on the go. The MPC decided to keep rates on hold, which was the right thing to do. What I do however know is that tomorrow is a public holiday.
Sasha Naryshkine and Byron Lotter
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