Nomura Financial Results, FirstQuarter, Year Ended March 2010

Deutsche Bank Returns to Profit in Q1
2009-04-28 07:18:35.619 GMT

FRANKFURT (AP) — Deutsche Bank AG, Germany's biggest bank, said Tuesday that it returned to a profit in the first quarter
on a solid improvement in revenue after suffering big losses last year.

The Frankfurt-based bank said net profit for the January - March period came in at euro1.2 billion ($1.56 billion). It had a net loss of euro141 million in last year's first quarter. Revenue increased 57 percent to euro7.2 billion ($9.45 billion) from euro4.6 billion in the first quarter of 2008. Pretax earnings were euro1.8 billion ($2.36 billion) — a contrast with a loss of euro254 million a year earlier. Deutsche Bank said its tier 1 capital ratio, a measure of its liquidity, was 10.2 percent at the end of the first quarter, above its stated target of 10 percent.

"This was a key quarter for Deutsche Bank. Once again, we demonstrated our strength, as we have consistently throughout this crisis," CEO Josef Ackermann said in a statement. "But in this quarter, we also proved our earnings power," he added. "We have consistently delivered capital strength and balance sheet discipline, and sustained a healthy liquidity and funding position." Ackermann said the company sees continued challenges for 2009, but did not offer a more detailed outlook. The first-quarter profit compared with a huge euro4.8 billion net loss in last year's fourth quarter, which was blamed largely on big trading losses. That helped push Deutsche Bank to a full-year loss of euro3.9 billion.

For the first quarter, Deutsche Bank reported large year- on-year revenue increases in several areas. It had a 226 percent increase in corporate and investment banking revenues to euro4.9 billion ($6.43 billion), compared with euro1.5 billion in the first quarter of 2008. The corporate banking and securities division saw a 377 percent increase in revenues, to euro4.2 billion ($5.51 billion) from euro880 million.

The division saw strong year-on-year growth in sales and trading of debt and in so-called flow products, including foreign exchange, money market and interest rate trading. Those products contributed euro3.8 billion ($4.99 billion) to the division's revenues, a 185 percent increase from a year earlier. Global transaction banking revenues improved marginally to euro666 million. However, the asset and wealth management division's revenues were 49 percent lower, falling to euro515 million ($675.9 million) from around euro1 billion.
   
The private clients and asset management division, and the private and business clients unit, also saw revenues decline. Although Deutsche Bank did not immediately offer a detailed outlook Tuesday, its recently published annual report cautioned that "revenues will be adversely impacted by softening demand from clients in some product areas" amid the economic slowdown and market wariness.
   
On Monday evening, Deutsche Bank said it had decided to extend Ackermann's contract for another three years until 2013. Supervisory board chief Clemens Boersig said that "Ackermann has strategically and successfully guided the bank through the crisis."
   
Unlike several others, such as rival Commerzbank AG, Deutsche Bank has not sought help from a German government bank rescue fund. Before that announcement, shares of Deutsche Bank had closed 5.3 percent higher at euro43.25 Monday.

    ___
    On the Net:
    http://www.db.com

In depth information about Citi's Financial position

Budget 2009 - Structured Products Update
Speed Read (Issued by Allen & Overy LLP 22/04/09)
 
This bulletin examines Budget 2009 announcements of particular relevance in relation to investments by UK resident individuals in closed-ended, defined return preference shares.
 
Contents
The definition of offshore fund
Taxation of dividends
ISAs - increase in subscription limits

The definition of offshore fund
Today the Government has confirmed that legislation will be introduced into Finance Bill 2009 to introduce a new characteristics-based definition of an offshore fund and to enable the modernisation of the offshore funds regime by regulations. Revised draft legislation has not been published at this stage. However, the Government has confirmed that the new definition includes exceptions to ensure that fixed share capital arrangements that do not mimic open-ended arrangements will remain outside the definition. This seems to be positive news at this stage for closed-ended, defined return preference share issuing companies, although the drafting of the legislation and the conditions imposed to fall within this exception will of course be critical. We are expecting the Finance Bill containing the proposed legislation to be published on 30 April.
It has also been announced today that the new regime will have effect from 1 December 2009 rather than 1 October 2009 as previously contemplated. It is expected that the primary legislation will contain transitional or "grandfathering" rules for investors in existing arrangements. If this follows the approach taken in the Offshore Funds: Further Steps document published by HM Treasury in December 2008, it would mean that any investment made in arrangements after the commencement date would need to be considered in light of the new definition. For example, an investor purchasing existing shares after 1 December 2009 would have to consider the new definition of offshore fund in determining its tax treatment.
By way of background, the definition of an offshore fund is very important because a gain arising to a UK resident person on the disposal of a material interest in an offshore fund is charged to tax as income rather than capital, unless the fund has distributor fund status. In addition, and subject to the changes announced today in relation to dividend taxation outlined below, a UK resident individual receiving a dividend from a company that is an offshore fund will not be entitled to a tax credit in respect of that dividend.
The announcement today follows a long period of consultation in which we have been closely involved. This began back in October 2007 when HM Revenue and Customs published a consultation document on an extensive reform of the UK offshore funds tax regime. One key area of proposed reform related to the definition of "offshore fund". The current definition utilises a modified version of the "collective investment scheme" definition used in the UK's financial services legislation, and it was proposed that it should be replaced with the new characteristics-based approach to the definition that is now being taken forward. Draft legislation relating to this proposed new definition was published for consultation in December 2008 as part of the Offshore Funds: Further Steps paper. As had been promised, the new definition did not utilise the definition of a "collective investment scheme". Instead, a new tax definition was put forward for use in determining whether or not a foreign company, trust or other arrangement is an offshore fund for UK tax purposes. Our client alert of 8 January 2009 contained a detailed analysis of the legislation proposed at that time. The Government has stated that changes have been made to that draft legislation following the consultation, so we look forward to the publication of the details of those changes in the Finance Bill next week.
 
Taxation of dividends
Individuals in receipt of dividends from non-UK resident companies in which they have a shareholding of less than 10% are entitled to a non-payable dividend tax credit in certain circumstances. For higher rate taxpayers the tax credit reduces the effective rate of tax on dividends from 32.5% to 25%. When the dividend tax credit for UK individuals with shareholdings of less than 10% in a non-UK resident company was introduced in Finance Act 2008, it was not made available in respect of dividends from offshore funds. The Government has announced today that legislation will be introduced in Finance Bill 2009 to make the tax credit available to shareholders in respect of offshore funds which invest largely in equities. Where more than 60% of an offshore fund's investments are made in interest-bearing (or economically similar) assets, individuals receiving distributions will be treated for tax purposes as having received interest and not a dividend. That would mean that no tax credit would be available and the higher rates of tax applicable to interest would apply.
The Government announced in the 2008 Budget that the availability of tax credits relating to foreign dividends received by individuals would be extended, in certain circumstances, to individuals who own a 10% or greater shareholding in the distributing non-UK resident company. However, following the publication of draft legislation earlier this year, it became clear that the proposals were that this extension would only apply if the distributing company is resident in a territory with which the UK has a double taxation treaty that contains a non-discrimination article. The announcement today confirms that this is the approach that is being taken forward and that legislation will be introduced to that effect in Finance Bill 2009. These proposals mean that it is unlikely that the extension of the tax credit will apply in respect of dividends received from companies resident in many offshore financial centres, including Jersey and Guernsey.
The Government has also announced today that there will be three rates of tax for dividends from 2010-2011. This is the result of the introduction of an additional higher rate of tax on dividends at 42.5% for taxable income above £150,000.
 
ISAs
Increase in subscription limits
The ISA limit is being raised to £10,200 from 6 October 2009 for people aged 50 or over and from 6 April 2010 for all ISA investors. Up to £5,100 of that limit may be invested in cash.

Equities Cult Under Attack

Excellent, thought provoking piece of research from Robert Buckland and team at Citicorp.

Re-issue of Four Popular Existing Autocallable Shares (Incl. Gilt-backed)

We are today issuing new shares in the following four popular Autocallable series:

Symphony Gilt Backed Defensive FTSE Auto-Call (10.5%) - JE00B3D6HJ35 - http://www.catleylakeman.com/product_169.html

Symphony FTSE Auto-Call 7 (23%) - JE00B3F15Z83 - http://www.catleylakeman.com/product_171.html

Symphony Defensive FTSE Auto-Call 5 (15% / -20%) - JE00B3F16669 - http://www.catleylakeman.com/product_172.html

Symphony Gilt Backed Defensive FTSE Auto-Call 2 (15% / -20%) - JE00B3K51914 - http://www.catleylakeman.com/product_176.html

Orders collated to day for trade on market close tonight at the prevailing market price (please note that spreads will be temporarily increased to cover issuance costs).  We will over-issue so there should be inventory at the prevailing market price from Monday - please call if you are looking to pick up a significant amount, as we have experienced strong demand for these issues and obviously need to be precise with managing the issuance of the Gilt-backed series' in particular.

REC 06/02/09

Citi's Latest Results and Proposed Restructure

This effectively creates the "Good Bank / Bad Bank" scenario.  The credit and derivative swaps held within Symphony, Allegro and CIP form part of the new core business, which will revert back to the old name of Citicorp.  This business holds all of Citi's core global businesses including, crucially, the consumer banking business.  This is effectively the "Good Bank". 

Press release from Citi attached, including detailed information on the split and latest Credit Ratings for Citi and its peer group of Investment Banks:

2008 and Everything After

Tentatively back into the fray after last year's car crash.  We are still somewhat unsure what we witnessed if we are honest - is this the end of capital markets as we know them?  My own personal view would be that it is not.  The basis for this is that I believe we are too resilient, too resourceful to let something go that is, I think most respected commentators agree, at the very least "the devil we know!"

I do think that things will change radically - banking already has.  The fundamental concept of consumer banking, that of depositing and lending, will recover.  In fact reports of its demise have been massively exaggerated - of course, if you're trying to refinance your umpteenth buy-to-let property, quite rightly, you don't have a chance.  However, anecdotal evidence has it that if responsible people seek a mortgage, within their means, to buy a home with some equity, they have plenty of choice - same goes for asset finance.  Now that takes me back - my father always maintained that in his day your mortgage payment and other debt interest (usually fixed) could not be more than one quarter of your net monthly income.  Makes sense if you think about it?

Investment Banking will recover also, in terms of equity and debt issuance and trading - companies need capital and investors need investments, that's how it works if we think back.  The old adage that financial crisis happens when the last executive who remembers the last crisis retires is an interesting one this time around - many banking executives are in their early 30s and given the decimation of bank share values, will be working for some considerable time yet.

So where does that leave derivatives?  Well, as we have always maintained, derivatives, equity or otherwise, play an important part in portfolio management.  Whether bought as a securitised product in the way we package them for tradability, or as an OTC hedge, demand for derivatives has risen rapidly with the huge rise in volatility.  This of course makes sense.  The risk within well constructed, institutionally priced structured products is often misconstrued - as recent times have shown us there is risk in everything - being able to define and manage that risk is everything.  Our products have "done what they said on the tin" and Citi is still there to pay you back.  In fact on this very issue...........

There are a couple of notable points to take from the last eighteen months, in relation to structured products in general.  Our thoughts about consumer banks have been borne out, in that Government's can't afford to let them go.  Secondly, I would like to draw attention to the performance of Citi's secondary market traders who, in a small minority, have not only traded out of all issues at screen price, but have managed the book honoring (with the usual exceptions of commodities and EMs) the spread of 1p - this has been incredibly difficult to achieve with 50%+ volatility and we have worked extremely hard with them to manage this.  It helps of course that Tom May ran this team at Citi before joining us in late August. 

I know that many of our clients are grateful for this, but I would ask you all to think about the actual liquidity you are experiencing across all holdings and put this into context, given where we now stand.  Of the few banks that have stood up to be counted and you know who they are, Citi stands out.  Please continue to support those you feel have supported you - not just our partners, but competitors also.

So what for 2009?  We will have Deutsche Bank's new CGT platform ready in late January.  Substantially the same as Symphony, albeit Guernsey not Jersey, we expect to be able to offer the same service with DB risk.  We are also in discussion with two new counterparties of substance and will choose one to partner, hopefully by mid-Q1.  I have no idea what markets have in store for us, but can assure you that we will work hard to create opportunities within them.

Happy and successful 2009 to all.

REC 041209

US Treasury Statement on Citigroup Inc.

Washington, DC- The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital.

11-24-2008

Whilst the last week has seen most of the Symphony products recover with reasonable Delta against their underlying as expected, there are some products, mainly struck around the peaks in Western markets last Autumn, which are a long way from their strikes.  We are working hard with Citi to offer potential value through restructuring some of these trades - please call us if you are considering selling significant holdings at the current time as we may be working on options on that specific issue.

The two main areas these might offer value are the Asia and Emerging Markets trades which were broadly capital protected and the larger European Autocalls that have breached their knock-in put barriers.  Both of these structures have benefitted from Citi's benevolent treatment of the underlying bond values and restructuring opportunities are possible due to their continued commitment to supporting the Private Placement market.  Do call if you would like details of these restructures and how they might work.

REC 05/11/08

Market volaltility drives our highest ever autocall coupon

Another unbelievable week ended in dramatic terms for us, with an opportunity from Citi's volatility traders presenting itself early afternoon.  With what can only be described as tremendous dynamism and flexibility, both from our clients and from Citi themselves, resulted in two phenomenal trades striking with by far our highest ever coupons generated on a standard and a defensive (80%) autocall respectively (Term Sheets attached).

I have to say it is still with some degree of disbelief that I can report that we traded what has become known as a "standard" autocall on FTSE with a snowball coupon of 23% per annual observation!  In addition, an "80% defensive", with a snowball coupon of 15% struck with around GBP12mm in each - a fairly impressive level of fundraising in two hours flat!  With Index strikes at 4063.10 (therefore, 3250.48 call barrier for the defensive) and Knock-in Puts at 2031.55 on FTSE (UKX), these may well prove to be the most opportune autocall strikes we have managed in almost four years.  They also provide a glimmer of optimism in what has, in our Chairman's words been "...by far the worst period he has known in forty years of banking."  And Stuart spent the whole of the 1970s working for the Bank of England.....................

REC 20/10/08

Defensive products holding up in surreal markets

Is RBS really worth only 80pps?  I've banked with them since I was at school - technically I've banked with them since they took over Williams & Glyn's Bank in 1985.  By the end of 2002, RBS was the second largest bank in Europe and the fifth largest in the world by market capitalisation.  Whilst I wasn't convinced by the ABN Amro business, the Nat West Group was integrated fairly successfully.  Is it really worth only 17 or 18% of its cyclical peak last summer?

We are constantly looking at our Secondary Market web page in these torrid times, watching the Mark-to-Market of our clients' holdings, looking for opportunities where they might present themselves, but primarily ensuring shares price as we would expect, given pertaining market parameters and their inherent component value.  We have always maintained that defined return products do not eliminate risk, rather, they quantify it and focus it.  Our more defensive products, for example, have held up extremely well under recent market stress tests, as expected.  The following are two examples of widely bought products and their relative performance to date [both issued at GBP1.00]:

Successful launch of Gilt backed product
Unsettled markets at the month end saw us close our first ever Symphony trade backed with UK Government Gilt-edged Securities.  Notwithstanding extreme uncertainty the day after the largest ever one day points fall in US Stock Market history, many of our core clients filled the allocation of GBP20mm in the FTSE Defensive Gilt-backed Autocall (10.5%) Shares, leaving only a small pre-agreed inventory reserved for identified clients between Trade and Issue Dates.  The Trade Fact Sheet is attached for reference.

This issue was designed, in consultation with key clients, to remove underlying credit risk which has, understandably been holding investors back.  The Defensive Autocalls we issued through Symphony over the last eighteen months have held up very well in extreme markets.  Two issues in particular (with substantially similar payoff profiles to the Gilt-backed shares), Defensive FTSE Auotcall 2 and Defensive FTSE Autocall 4, have mid prices around par even though the underlying index has suffered falls approaching 20% since their January Trade dates.

Defensive Autocalls continue to be in demand and continue to "do what they say on the label".  Issues backed with Citi, Deutsche and Nomura credit will be issued over the next couple of weeks for those with credit appetite, but thanks again to those clients who contributed to the success of our first Gilt-backed issue.
REC 03/10/08

Thinking behind new products in the pipeline
Credit has not surprisingly driven many of the product pipeline conversations we have had with clients over the last few weeks, culminating in this week's successful Gilt-backed issue described above - undoubtedly the first of many.  For those with a more pragmatic view of credit, our decision to partner with carefully selected, larger, broad-based banks seems well judged.  Many economists now espouse the personal views we have long held regarding Citi and other consumer banks, that they will not be allowed to go bust. 

Certainly, the fundamentals may well get worse and confidence needs to be restored.  So where does that leave us with products?  Well, we currently have over 25 products being re-priced daily and those constitute our current pipeline - too many to list meaningfully and many are bespoke for specific clients.  The more general, strategic pipeline remains defensive, probably split into three main camps - Defensive Autocalls for most views, Equity Call-spreads for the "Flatliners" and Reverse Convertibles for the income-hungry.  As always, we seek to provide current value where we see it - it will not have escaped your notice that each of these structures sells volatility on average!

As I said, too much to publish meaningfully but do call to discuss - lots of opportunities and a healthy dose of realism!

REC 02/10/08

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