THE FINTAG NEWSLETTER
@ Tue 24 June 2008 : GMT

Fears of job cuts in the finance sector heightened on news that investment banks Goldman Sachs and Citigroup are to shed more jobs.

Goldman cut staff at its investment banking arm last week and is seen reducing staff levels by 10% in the division.

Citigroup is also expected to make cuts in its mergers and acquisitions division. The group is looking to reduce numbers by 6,500 in its investment banking arm and is already said to have made half of the lay-offs.

HBOS closed below its rights issue price for the first time yesterday, as some of the best-known hedge funds in London and New York revealed that they were betting the bank's stock will fall.

Shares in Britain's biggest mortgage lender closed down 4.25 per cent at 270.25p a share, compared with the 275p price of subscription to the bank's £4 billion rights issue. Shareholders will vote on the capital-raising on Thursday at the bank's extraordinary general meeting.

It is the third time that HBOS's share price has slipped below the subscription price, amid wild fluctuations since the rights issue was announced in April. Rules introduced by the Financial Services Authority (FSA) last Friday to stop those betting on stock price falls - short-sellers - from manipulating the market in the shares did little to prevent a further slide. HBOS is one of the most heavily shorted stocks in the FTSE 100, with 8.5 per cent of its market capitalisation on loan to short-sellers. According to Data Explorers, which monitors stock lending, a key element of the shorting process, this figure has risen from 4 per cent on June 5, and is well above the market average of 4.5 per cent of stock on loan.

Under the FSA's new rules, investors shorting more than 0.25 per cent of a company during a rights issue must declare their position. The regulator may bring in even stricter rules, such as a ban on lending the shares of companies carrying out rights issues.

Lansdowne Partners, the London hedge fund manager, said yesterday that it was shorting 0.58 per cent of HBOS's market capitalisation. Of this position, 0.49 per cent is held by Lansdowne's global financials fund.

Harbinger Capital Partners, the $25 billion (£12.7 billion) American hedge fund manager, is shorting 3.29 per cent of HBOS. Harbinger was founded by Philip Falcone, an activist investor who recently forced The New York Times to elect two new board members after criticising the newspaper company for being too slow to develop its internet offerings.

Mediator Capital Management, a London hedge fund manager, has a 0.3 per cent short position in HBOS. Mediator, along with GLG Partners, UBS O'Connor and Ferox Capital Management, was fined by the French financial regulator last June for using inside information to trade shares ahead of a bond issue by Vivendi, the French media company.

Standard & Poor's (S&P) and SuperDerivatives have agreed a deal to combine their valuation services for a spectrum of fixed income and OTC and exchange traded derivatives, which will now be available via a single channel.

The companies said the alliance will offer the broadest coverage of asset classes and geographies in the market, enabling clients to more efficeintly manage their investment and operational risk and regulatory compliance.

Lou Eccleston, executive managing director, Standard & Poor's, said the move was driven by market demand for "more global coverage and depth for their derivatives portfolio valuations".

130/30 funds is one of the trends Standards & Poor's (S&P) will watch closely in 2009, according to Srikant Dash, global head of research and design at S& P Index and Portfolio Services (S&P).

Dash said he thought around a quarter of the share of traditional active funds will be eaten into by 130/30 funds in the near future. He was speaking at an S&P briefing in London.

“130/30 funds combine the best of indexing and asset management. You have beta exposure and the ability to express market preferences. Asset managers are moving into this area and eventually these funds will take a significant share from traditional active funds,” he said.

Two former Citigroup executives who oversaw some of the Wall Street giant's huge losses are starting a hedge fund.

Randy Barker and Geoff Coley, who headed fixed-income at Citi before their departures late last year, are in the early stages of planning the fund and have spoken with some potential investors, according to Reuters. The fund is expected to focus on distressed debt and other credit strategies.

The launch means areas such as timber and currency are no longer restricted to high net worth investors as you can invest as little as £50 a month, or a lump sum of £1,000.

Multi-managers have traditionally focused on delivering returns by selected fund managers in their respective areas and combining them in one fund. However, this fund will focus on the 10 best sectors with a single fund representing each area.

For example, the fund will invest in a timber fund that uses derivatives to get exposure to the largest listed timber companies involved in areas such as paper products and packaging.

Besides investing in esoteric asset classes, it will also give investors exposure to wellknown alternative assets such as gold and commodities that are more readily available.

Hedge funds have taken out bets worth £60m that shares in Bradford & Bingley will continue to fall. The positions are worth more than 15% of the market value of the troubled buy-to-let lender and were disclosed for the first time yesterday under a new regime introduced by the Financial Services Authority for companies conducting rights issues.

43-year-old former UBS privte banker Bradley Birkenfeld appears to be singing like a canary, after agreeing to assist US authorities in their quest to ascertain whether UBS helped clients conceal assets in a bid to evade taxes.

Birkenfield, who has already pleaded guilty to involvement in a tax evasion schemes, declared in the written statement accompanying his plea that 'rather than risk losing the approximately $20bn of assets under management in the United States undeclared business', UBS 'assisted these wealthy US clients in concealing ownership of the assets held offshore'. Bloomberg reports that Birkenfeld admitted that he even agreed to buy diamonds for a wealthy US client using Swiss funds, and smuggled them into the US in a toothpaste tube!

Fortress Investment Group is considering adding another $1 billion to the war chest it has amassed to take advantage of the pain being felt on Wall Street, The New York Post reported.

There was a significant decline in the number of hedge funds around the world reporting returns in excess of 10% from calendar year 2006 to 2007 according to a study by Greenwich Associates and Global Custodian.

Of hedge funds participating, the proportion reporting returns better than 10% dropped from 62% for calendar year 2006 to just 52% for 2007. Over the same period the share of funds reporting returns of 5%-10% increased to 23% from 21% and the proportion reporting below 5% returns rose to 15% from 12%. Within this group of 1,355 hedge funds, the proportion reporting negative returns jumped to 9% in calendar year 2007 from 5% in 2006.