LONDON (MNI) - European credit markets have had a fairly subdued morning with spreads just slightly wider in places. The broader markets have seen more mixed price action, with stock indices opening on a strong note, but then fading back to unchanged levels on the day.
The main event on the markets overnight was the sharp fall in the dollar, sending the currency to new lows on the move against the Euro. The earnings season continues to move up a gear, with some generally upbeat data from Europe today and with key tech earnings due after the close in the US from AMD and Google. Xover is currently 10bps wider at 457bps, HiVol 2bps wider at 154bps and Europe 2bps wider at 99bps.
Anglo Irish Bank Corp is in focus this morning following an article in the WSJ reporting that a group of subordinated bondholders are resisting plans to restructure the bank that will effectively see them as creditors help pay for the bailout. The paper reports that bondholders are growing anxious that they will be forced to take losses on their holdings as part of the broad, government bailout effort. They argue that the government has no legal standing to force bondholders to take a loss while the banks continue to operate as state-owned entities. A group of creditors from the nationalized Irish Nationwide Building Society is also mounting a similar challenge. The groups represent around E500 million of debt for Anglo Irish Banks and just under E200 million for Irish Nationwide.
Currently this debt is trading around 20c in the Euro, and the move is seen by many as an attempt to get the Irish government to buy back the debt at a much higher price than the current market level. The news has had zero impact on Irish government and Irish bank spreads this morning, but this case will be closely watched, as if the investors win any concessions, it could impact holders of subordinated debt elsewhere in Europe and the US, who are in the midst of similar restructuring.
Rio Tinto released a Q3 operations review this morning. Iron ore production set a new quarterly record across its global operations, with production during the first nine months up 10% on the same period of 2009. Mined copper and gold were down 19% and 33% respectively when compared with last year, with Bauxite production increasing by 17% versus last year, in-line with higher demand. Alumina production was a quarterly record, up 6% on the third quarter of 2009.
Australian hard coking coal production was a record 2.4 million tonnes, up 17% on last year, reflecting increased investment at the Queensland operations. Australian thermal coal production was down 14% on the same period, mainly due to wet weather in the Hunter Valley. The company said that the continued recovery in diamonds and minerals production reflected improving market fundamentals compared with the difficult conditions of 2009.
The company's CEO, Tom Albanese, said that "We have delivered consistently strong operating performance in 2010 and the third quarter was no exception. We continue to run our operations at close to or above capacity rates, taking advantage of strong prices for our products. This quarter we achieved record production in iron ore, alumina and coking coal. Our investment in organic growth is gathering momentum. We approved more than $4 billion of capital projects during the third quarter, including investment towards the expansion of our Pilbara iron ore operations to 330 million tonnes per annum. This takes our total approvals this year to $5.5 billion and is consistent with our capex guidance of $13 billion over the 18 months to December 2011."
Shares in Rio Tinto are currently up 85p in London, trading at the 4123p level, with CDS spreads around the 86 bps level.
Syngenta, the largest agricultural chemicals maker in the world. released Q3 sales figures this morning. Sales increased by 11% at constant exchange rates, with reported sales up 10% at $2.2 billion. In the first nine months of the year, sales were up 1% at constant exchange rates at $8.9 billion. In Crop Protection, Q3 sales volume increased by 18%, with strong growth across all product lines and all regions. Growth in Selective Herbicides was led by CALLISTO in North America and by sales of oilseed rape in Europe, with seeds sales increasing by 12% in the quarter.
The CEO of the company, Mike Mack, said that "The third quarter performance confirms our expectation of continuing positive volume momentum in the second half of 2010. This, coupled with careful control of costs and increasing profitability in Seeds, should allow us to achieve full year operating income around last year's level. As we look ahead to 2011, we are in a strong position to capture value from improving conditions in the crop protection market and from the significant advances in our Seeds technology." Shares in Syngenta are currently up CHF9.7 trading at the CHF273.7 level, with CDS spreads basically unchanged at the 51 bps level.
Suedzucker AG disappointed the market, missing earnings estimates for the second quarter but the company said this was expected due to the strong export driven first quarter. Europe's largest sugar producer reported a 9% decline in net income in the second quarter to E50 million but for the first half of 2010 net earnings rose 19.4% to E123 million. Undiluted EPS for the second quarter came to E0.27, below analysts estimates of E0.34. The H1 group operating profit jumped 57% to E282 million driven especially by sugar exports to non-EU countries as a result of the one-time quota increase set by the EU in the first quarter, the Mannheim based company said. For the fiscal year 2010/11, revenues are seen rising slightly to E5.8 billion compared to E5.7 billion last year with the special products, CropEnergies and the fruit segment is expected to balance out lower revenues in the sugar unit.
Nevertheless, the company expects the sugar segment's operating profit to continue recovering in the rest of the year after completion of the EU sugar market restructuring phase. The company's shares are trading 1.6% lower to E16.9 on the MDAX. Suedzucker International Finance CDS spreads are unchanged at 121 bps.
Commerzbank is under pressure from the German government over the wages it is paying to a number of top investment bankers, Handelsblatt reports. Wages in Germany's second largest lender are not allowed to exceed half a million euros since the government had to bail out the bank during the financial crisis and became the majority stakeholder. However a number of bankers earn more than the official threshold. On the one hand these bankers are seen as contributing to the bank's recovery and therefore make a repayment of E18 bln in state credits more likely.
CEO Blessing defended the pay in a letter to the governing CDU party saying that "the quick return to profits by Commerzbank shows that our decision to pay selected employers more than E500,000 is right." But with public opinion widely opposed to bonus payments, the government is seen as unwilling to give in to these exceptions and will try to cap the wages of all employers in the bank. Commerzbank share are down 1.1%. The bank's CDS spread is 1 bps wider 85 bps.
