EmailThe S&P 500 Financial Index has led markets higher this morning. The Index is up 1.95% as we head toward the middle of the U.S. trading day and is attemtping to regain the 160 level. Rumors that Europe is working on a TARP-like program to recapitalize banks has been the primary driver. Concerns about capital levels in European banks has been a major headwind for the group. Contagion fears and uncertainty have pushed investors to shed the risk and look for returns in safer assets. Belief that a plan may be forthcoming in the next few weeks to back stop banks against sovereign debt losses is allowing some to return to the beaten down sector. But gains remain tedious at best with plenty of headline risk abound as European governments prepare to vote on EFSF this week.
News of Note
1) UBS AG (UBS) CEO Oswald Gruebel resigned last night following the embarrassment of news last week that a rogue trader had lost $2.3 bln in bad trades. This marks the third CEO to resign since 2007. Mr. Gruebel took over the bank in February 2009 and had led it back to steady profitability as it recovered from the 2007 crisis. Mr. Gruebel will be replaced by Sergio Ermotti who joined the bank less then six months ago as head fo the Europe, Middle East and Africa units.
2) A number of publications are posting stories about the Volcker Rule drafts. EThere are expectations for a proposal on the Volcker Rules to be released in October but there are some leaks as to what to expect in the draft. The issue causing the biggest concern right now are for the way market making activity will be compensated with traders expected to see big losses under current plans. The Volcker rule would exempt trades related to market-making as long as the activity met at least seven standards, or principles. One principle would be that traders get paid from fees and the spread of the transactions rather than the appreciation or profit from their positions, according to a copy of the draft
3) There is a JP Morgan analyst note out this morning suggesting that the European TARP could amount to EUR 150 bln injection into the system. France could be the lead country in the move as its banks remain under pressure.
4) Berkshire Hathaway announces that the Board has authorized Berkshire Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares. "In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise. If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest. Berkshire plans to use cash on hand to fund repurchases, and repurchases will not be made if they would reduce Berkshire's consolidated cash equivalent holdings below $20 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire."
