Prometheus Labs Acquires Right to Novartis Kidney Cancer Drug

Prometheus Laboratories Inc., a San Diego-based drug and diagnostics company, has acquired U.S. licensing rights to Proleukin, a treatment in adults with metastatic melanoma and metastatic kidney cancer, from Novartis. No pricing terms were disclosed for the deal, which includes an up-front fee and possible milestone payments. Net U.S. sales last year for Proleukin were $75 million.

Prometheus is in registration for a $100 million IPO, and has raised around $73 million in VC funding from DLJ Merchant Banking Partners (21.4% stake), Split Rock Partners (17.4%), New Leaf Ventures (12.5%), Apax Partners (11%) , Wachovia Capital Partners (11%) and Brentwood Venture Capital (7.5%).


Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostic company, today announced the execution of a commercialization agreement with Novartis under which Prometheus acquired exclusive rights to distribute, promote and sell PROLEUKIN® (aldesleukin) in the United States. Proleukin is a recombinant human interleukin-2 for treatment in adults with metastatic melanoma and metastatic kidney cancer. Net sales for Proleukin were approximately $75 million in the U.S. in 2009.

Under the terms of the agreement, Novartis received an upfront fee and will receive royalties on net sales of Proleukin in the U.S. Novartis is also eligible to receive potential sales milestone payments. Prometheus will have the option to extend the initial six-year term on an annual basis for up to an additional six years. In addition, the companies will have an option to amend the agreement to include the rest of the world upon the completion of certain conditions.

“This represents a transformational event for Prometheus as we continue to build our oncology presence and execute on our integrated therapeutics and diagnostics business model,” said Joseph M. Limber, President and Chief Executive Officer of Prometheus. “We have established ourselves as a leader in the gastroenterology market by offering a complementary portfolio of pharmaceutical and diagnostic products promoted via Prometheus’ highly trained sales force. Now, following the recent launch of our three ProOncDx microRNA-based diagnostic tests and the continued development of our emerging and proprietary diagnostics platform, we are well positioned to repeat this success in the oncology market.”

A portion of the proceeds from Prometheus’ previously announced $260 million Senior Secured Credit Facility was used to finance this transaction.

About Proleukin

PROLEUKIN® (aldesleukin) for injection is a recombinant human interleukin-2 for treatment in adults with metastatic melanoma and metastatic kidney cancer. Proleukin therapy is a form of immunotherapy that enhances the body’s natural immune system to help fight these types of cancer. Proleukin has been used for over 10 years in the treatment of metastatic melanoma and over 15 years in the treatment of metastatic kidney cancer (renal cell carcinoma). For complete prescribing information, please visit

Rise of the news-reading machines

From the FT — some giant leaps for robot-kind in the world of trading:

The arms race in trading technology is set to intensify this week as Thomson Reuters, the news and market data company,...

Canon Net Surges; NEC Electronics Sales Down 8%

Canon Inc fourth quarter sales fell 4.1% to ¥954.1 billion and net profit rose 431% to ¥61.6 billion. NEC Electronics Corporation third quarter sales fell 8% to ¥117.9 billion and net loss was ¥14.3 billion or ¥115.53 a share.

Observations On Bernanke

Like Paul Krugman, I am torn over the issue of Bernanke’s confirmation.  Certainly, he was instrumental in bringing us back from the brink.  Regrettably, he was also instrumental in getting us there in the first place.  Here are some of my observations about Dr. Bernanke over the past several years.

On August 9, 2005, Bernanke, then chairman of president George W. Bush’s Council of Economic Advisors, met with the president and subsequently fielded questions from the media.  I recall the question below as if it were only yesterday.  (Director Hubbard is Al Hubbard, then Director of the National Economic Council.)

Q Did the housing bubble come up at your meeting? And how concerned are you about it?

DIRECTOR HUBBARD: Let me let Ben answer that question.

CHAIRMAN BERNANKE: We talked some about housing. There’s a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. The issue of the housing bubble is one that people have — whether there is a housing bubble is one that people have raised. Housing prices certainly have come up quite a bit. But I think it’s important to point out that house prices are being supported in very large part by very strong fundamentals.

And particularly, we have a strong economy, we have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason for why housing prices have risen as much as they have.

I think over a period of time, the housing prices are likely to stabilize. I don’t expect them to keep rising at this rate indefinitely; I don’t think anybody really does. But, again, I do think that the bulk of the increases are associated with strong economic fundamentals.

Bernanke’s position on housing would soon begin to evolve, and continue to do so over the next couple of years, as economist David Rosenberg — then plying his trade for Merrill Lynch – chronicled beautifully in August 2007:

“Low mortgage rates, together with expanding payrolls and incomes and the need to rebuild after the hurricanes, should continue to support the housing market. Thus, at this point, a leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although significant uncertainty attends the outlook for home prices and construction. In any case, the Federal Reserve will continue to monitor this sector closely.” (15 February 2006).

“At this point, the available data on the housing market, together with ongoing support for housing demand from factors such as strong job creation and still-low mortgage rates, suggest that this sector will most likely experience a gradual cooling rather than a sharp slowdown.” (27 April 2006).

“Home prices, which have climbed at double-digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. These developments in the housing market are not particularly surprising, as the sustained run-up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes.” (9 July 2006).

“Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets.” (28 November 2006).

“Some tentative signs of stabilization have recently appeared in the housing market: New and existing home sales have flattened out in recent months, mortgage applications have picked up, and some surveys find that homebuyers’ sentiment has improved. However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels … Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.” (14 February 2007).

“Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency. We will continue to monitor this situation closely.” (28 March 2007).

“The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable”. (17 May 2007).

“Of course, the adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected. Thus far, however, we have not seen major spillovers from housing onto other sectors of the economy … However, fundamental factors–including solid growth in incomes and relatively low mortgage rates–should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.” (5 June 2007).

“Rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities — problems that likely will get worse before they get better … even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further as builders work down stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.” (17 July 2007).

Now let’s get back to Bernanke’s August 2005 presser.  The fundamentals were anything but strong, as Rosenberg had pointed out in this prescient piece (a true gem of research) he penned in August of 2004, which I wrote up over at after the bubble had popped.

In response to Bernanke’s affordability comment at the press conference, I dropped him a note through then Chief of Staff Gary Blank:

Dear Mr. Blank:

On August 9, Dr. Bernanke participated in a press briefing during which he fielded questions about his meeting with the president.

Among the questions Dr. Bernanke was asked was this one:

Did the housing bubble come up at your meeting?  And how concerned are you about it?

Dr. Bernanke’s answer, in part, follows [emphasis mine]:

We talked some about housing.  There’s a lot of good news on housing.  The rate of home ownership is at a record level, affordability still pretty good.

I have reproduced below two charts created by brokerage firm Merrill Lynch using data compiled from the National Association of Realtors.

The charts speak for themselves:  First-time buyer affordability has collapsed to a 16-year low, and overall homeowner affordability has plunged to a 14-year low.

So, Mr. Blank, my question is simply this:  Given the hard data, on what basis did Dr. Bernanke make the claim that housing affordability is “still pretty good”?

Below is an updated chart of the National Association of Realtors Monthly Housing Affordability Index, one of two I’d included in my letter.  At the time Dr. Bernanke spoke (solid line), the fact of the matter is that housing affordability was already at about a 14-year low — hardly “still pretty good.”  (The dotted line is where it’s gone since, which actually is “pretty good.”)

[Source: National Association of Realtors]

I never did get a response.  Fancy that.

Regardless, unlike Calculated Risk, I’m not sure we should be looking for a better steward for the Fed at this time.  I believe the economy is still way too fragile and the risks of new Fed leadership at this time are too great.  Personally, I’m with the “Don’t Block Ben” crowd.  If Bernanke’s confirmation is not to be, however, my preference would be to see San Fran Fed president Janet Yellen get the job.

Links Australia Day

If you are down under, pet a roo for me today!

Partnered in the struggle for a place to call home Boston Globe

Here comes the new cell phone etiquette ComputerWorld

Consequences of the Mass. Election Bruce Krasting

Fallout Is Wide in Failed Deal for Stuyvesant Town New York Times

Funding Public Health Care With a Publicly Owned Bank: How Canada Did It Ellen Brown, Huffington Post (hat tip reader joebhed)

How to bypass populism and tackle banking Arthur Levitt, Financial Times. I hate the title (so populism is now dirty word?) but the substance is solid.

Wall Street Journal Questions Bernanke’s Credibility and Political Will Mike Shedlock

This Is Such a Disaster in the Making II Brad DeLong On Obama’s lastest “all hat, no cattle” move, his budget freeze that includes very little of the Federal budget. Is Obama constitutionally incapable of doing anything that lives up to its billing?

Dustbin of History Looking Increasingly Attractive to the Obama Administration Tim Bozzo Angry Bear

The Democrat’s Circular Firing Squad Set To Go Into Hyper-Mode After News Of Obama’s Spending Freeze Clusterstock

“Greek crisis over” Eurointelligence

The Press Angle of the Fed’s Backdoor-Bailout Cover-up Columbia Journalism Review

Antidote du jour. From Bill R, who writes:

This is “T,” short for Tyler. He is a rescue Norwegian Elkhound. We got him from the owner through the Elkhound Rescue Association. He is the smartest we have ever owned.

T and I have walked hunderds of miles together while I am out of work (2+ years) in Michigan. I sometimes have him run with me. When I had pneumonia, he would crawl up on top of me and lay on me as while I was under 4 blankets from being cold. He is a rescue Elk Hound, 3 years old in this picture, and a source of comfort. This is the 3rd Elkhound I have owned since 1977. Great family dogs, great with kids and women, and they love the snow and cold weather.


Is There An Overlooked Reason for Fed Secrecy on AIG?

Not that I have the time or patience to dig through 250,000 pages of documents, but I have a nagging suspicion that the people who are pouring through various AIG-related disclosures may be missing key points or snookered into interpretations that may be unduly flattering to various banksters.

The focus of the recent investigations into Fed secrecy relative to AIG takes up the theme that the Fed was anxious to hid the fact that it had paid out 100% of the value of toxic CDOs to various AIG counterparties. That is because that concern crops up repeatedly in internal communications. A second reason cited is that the Fed wanted to hide who benefitted most from the rescues (as in seeing the various transactions would allow one to see which CDOs had the deepest discounts).

I have trouble with theory 2. First, we now know who the biggest recipients of AIG-related subsidies were, even by exposure (ie, securities lending versus Maiden Lane III), yet the Fed even as of last week was writing LONG and clearly bogus defenses of why it needed to keep transaction level details a deep dark secret. Second, the differences in dreckiness among these CDOs is not all that large. Despite BlackRock valuing this paper at an average of less than 50 cents on the dollar (which they can do, this is all model based, they no doubt have estimated defaults and loss severities on these bonds that all tie out nicely), given how low the ratings are across the portfolio (most of the stuff is rated CCC or lower), market prices are more in the 20 cents and below range. In Japan, the expression for making fine distinctions among things that are probably not worth parsing that neatly translates roughly as “a height competition among peanuts.” This sounds like that sort of exercise. Hence, I suspect there may be some interesting, but not scandalous, information to be gleaned in divulging “who sold the worst turkeys to AIG.” This paper ALL performed horridly, that’s why it was stuffed into Maiden Lane III.

To switch to a particular example of how information is being read incorrectly, consider this example from Bloomberg this evening, in which I deem the reporter to have been spun successfully:

Goldman Sachs Group Inc. was the most aggressive bank counterparty to American International Group Inc. before its bailout, demanding more collateral while assigning lower values to real estate assets backed by the insurer, documents obtained by lawmakers show.

A month before the September 2008 rescue, Goldman Sachs approached AIG about tearing up contracts protecting the bank against losses on collateralized debt obligations, or holdings backed by mortgages, according to a BlackRock Inc. presentation dated Nov. 5, 2008. Goldman Sachs was the only counterparty willing to cancel the credit-default swaps and bear the risk of further CDO losses, provided that AIG make payments based on the bank’s larger-than-average estimate of market declines.

“Goldman Sachs is the least risk-averse counterparty,” according to the presentation, which was prepared by the asset manager for AIG and later given to the Federal Reserve Bank of New York. The firm is “the only counterparty willing to tear up CDS with AIG at agreed-upon prices and retain CDO exposure.”

Yves here. I wouldn’t call Goldman’s actions “least risk averse” as BlackRock did. I’d call it MOST risk averse. They were marking their deals more aggressively than anyone else, which had the effect of allowing them to suck more collateral out of AIG. What would you rather have? A. Cash. B. A contract for possible future payments with a counterparty whose credit quality is falling like a rock. C. Toxic CDOs that no one will buy at this moment, and current conditions may well prove permanent. Tell me, how a strategy to maximize your current cash is NOT risk averse? Marking down your CDOs aggressively and seeing if you can get AIG to cancel the contract at the value you’ve marked it at is a current cash maximizing approach. (And I’d like to know what sexual favors were exchanged to get BlackRock to issue such a Goldman-favoring report).

Goldman’s willingness to tear up the agreements could just as well reflect its willingness to reduce its exposure to AIG if it could settle on its current marks, ie, show no loss on contract cancelation. One of the anomalies we identified in our effort to drill into Maiden Lane III transaction-level detail was that AIG appeared to be somehow getting away with posting less collateral with counterparties than was contractually stipulated. That would make it even more rational for Goldman to be willing to accept a deal in which AIG settled up:

The collateral calls also appear to be a smaller amount than the marks (after taking into account the thresholds) would indicate. Put another way, based on the marks, the collateral calls should have been larger than they were, in aggregate and by counterparty, than they were described in the AIG memo [of 11/07].

Goldman was not only heavily exposed to AIG (unlike other firms, it got CDS guarantees on CDOs only from AIG, while other firms used monolines as well) but it also had a far better idea of total AIG exposures than any other bank. Our look into transaction-level detail suggests that of the AIG ABS CDO transactions on which we found counterparty detail (nearly 80% of the deals identified in an 11/07 AIG memo; all save the strongest appear to have gone into Maiden Lane III), Goldman was either the dealer manager (it originated a CDO guaranteed by AIG, although in many cases another bank had purchased it and was therefore the counterparty) or the counterparty (via having bought an AIG-guaranteed CDO from another dealer) on over 50% of the deals.

Now consider what that means. When it was the bank that had created the CDOs guaranteed by AIG, Goldman was able to generate marks (it knew what the CDO contained); indeed, many of the counterparties would come to Goldman to get marks (although that does not necessarily mean they used them; these trades could be and were marked to model, so a counterparty had latitude to tweak prices). And on deals in which Goldman was the counterparty on deals created by other bank, AIG would ask it what its marks were. Goldman, being Goldman (and per the Bloomberg story, being consistently aggressive) probably provided its own marks. But either way, Goldman had point of view of the value of over 50% of the multi-sector CDO portfolio. And Goldman may well have known that; AIG in some investor presentation discussed that portfolio separately (the total amount as well as an overview of its ratings profile and other portfolio-wide statistics). So Goldman also probably knew or could make an informed stab at how representative the half of the portfolio it saw compared, in crude terms to the other half.

To put it more crudely, Goldman probably at some point had a much better sense of how quickly AIG was decaying than the other counterparties. And then we get into interesting questions. Did Goldman have any conversations with the officialdom prior to AIG starting its terminal decay? How was Goldman positioning itself? Did Paulson and other ex-Goldman officials handle the conflicts appropriately?

There is an thought-provoking albeit somewhat flawed, related story up at Huffington Post by David Fiderer, which argues that Goldman set out to kill AIG and collect a bounty. The big problem I have with it is that he posits that Goldman orchestrated quite a few events in the AIG unraveling to its advantage. Up to a point, that’s plausible; if you have read Roger Lowenstein’s How Genius Failed, on the LTCM bailout. you get an amazing display of how Goldman got its attorney in a key position in the negotiations, then had him act 100% in the interest of Goldman, not the entire rescue group. They were unabashed pigs and did not care at all about playing fairly.

And I’ve seen this first hand. Goldman is adept at understanding a fluid situation and figuring out how to play it to maximum advantage.

But masterful orchestrated multi-step game plans are another matter. That’s not a GS specialty, for an obvious reason: it’s a bad bet. Anything with a lot of moving parts ultimately has high odds of not working out. If you need 7 things to happen for you to get a payoff, and each of them has 90% odds, your odds of winning are less than 50%.

Thus his argument amounts to assuming unmitigated Goldman genius, when buddies of mine have seek big Goldman cock-ups first hand.

So this HuffPo piece, which I recommend, does a very useful job of digging and exposing some interesting (as in suspicious) connections, but pushes them further than I consider plausible.

RHJ’s Gerd Haeusler To Become CEO of BayernLB

MUNICH (Reuters) - Stricken German landesbank BayernLB was poised on Tuesday to name deputy chairman and private equity executive Gerd Haeusler as its new chief executive, a source close to the situation said.

Its supervisory board was meeting to select a replacement for Michael Kemmer, who left last month after a disastrous investment in Austrian bank Hypo Group Alpe Adria that has cost taxpayers 3.7 billion euros ($5.23 billion).

Haeusler is an executive at RHJ International (RHJI.BR) — which made unsuccessful bids for German carmaker Opel and bank IKB — as well as being deputy chairman of BayernLB, Germany’s second-biggest landesbank.

BayernLB declined to comment. The Sueddeutsche Zeitung first reported that Haeusler was to be named as new CEO. ($1=.7072 euros)

(Reporting by Christian Kraemer; Writing by Michael Shields; Editing by Greg Mahlich

Guest Hosting Bloomberg 1/26, 7:00-10:00 am


If you are anywhere near a radio Tuesday morning, I will be the guest host of “Bloomberg Surveillance” with Ken Prewitt from 7:00am to 10:00 am. (Tom Keene is in Davos)

You can catch my dulcet tones live, or via podcast at either Bloomberg or at iTunes.

The lineup for tomorrow is top notch:

7:07a Jeffrey Saut
7:37a Jim Bianco
8:07a David Rosenberg (for the entire hour)
9:07a Brad Hunter of MetroStudy to cover Case/Shiller
9:37a Josh Rosner

As you can see, I cheated, stacking the guest list with very insightful people who will make my job easier.

Tune in — should be fun!

Markets Live transcript 26 Jan 2010

Markets Live chat transcript for the chat ending at 12:14 on 26 Jan 2010. Participants in this chat were: Neil Hume, FT Bryce Elder

NH Hi there

NH Good morning

NH and welcome...

The trials of Papaconstantinou

While Greece may have side-stepped immediate funding catastrophe with its successfully placed five-year bond issue, that’s not to say there aren’t further trials for...

Cram and Jam

Insurance is probably the most complex industry as far as accounting goes.  Why?  When you sell the policy, you have a vague  idea of what the costs will be, and when those cash flows will occur.

That leaves room for a wide variety of games as far as the accounting goes.  Because hitting operating return on equity targets is often the “be all” and “end all” of management reporting, one of the holy grails was taking capital losses and turning them into operating income.  Net result on income is zero, but it looks like you are making a lot of returns off of operations.

At one company that I worked for, the new CEO want to great pains to declare how ethical the new CFO was.  I murmured to my boss, “Not ethical, but clever.”  He gave me a smile.  She had pulled that very trick, and if one reconciled the Statutory and GAAP accounting, the chicanery was obvious.

At AIG, my managers were quite concerned about what went above the line and below the line.  If an accounting item didn’t figure into net income my managers didn’t care about it, even if it diminished shareholders equity.

As an investor, this made me skeptical about income statements.  But if you don’t have an income statement, what do you do to estimate profitability?

Well, you could look at the change in tangible net worth due to common shareholders, and add back dividends, including the value of spinoffs, and net money spent on buybacks.  That is what a shareholder earns, in book value terms.  Back when I was an analyst of the insurance industry, there were companies run by value investors that would present their returns that way showing the the growth in fully converted book value over time.  In a sense , Berkshire Hathaway does that as well, but it doesn’t pay a dividend, so it is simply the increase in book value.

In the short run the market is influenced by net income due to common shareholders.  But there is a difference between the two measures of income, and I call the difference “cram.”  Cram is the amount of extra income reported through the income statements that does not makes its way through the balance sheet.

That said, I have another measure that I nickname “jam.”  Jam is the amount of money gained/lost from buying back stock.  In general, when companies buy back stock they dilute value for investors.  Better to retain and reinvest.

How do I know this?  I have been working on an accounting quality model, which is still a work in progress.  An aside, I have had my share of calls from consultants who tell me they have an earnings quality model that covers the whole market.  When they call me I ask them how they analyze financial companies.  I get the intelligent equivalent of a shrug.  The reason is that accruals on the financial statements of industrials and utilities are quite similar, but for financials, they are quite different.

Here are some of the results of my model on the S&P 100:

The data covers the last 4 3/4 fiscal years.  Why did I use fiscal years? Because data capture with companies is most complete at fiscal year ends, when they file their 10Ks.

What did I find?  In general, most companies lose money off of buybacks, whether it is 24% of cumulative net income, or 32% of final tangible net worth.  Individual company performance varies a great deal.  More surprising to me was that cram on average was only 1% of cumulative net income.  Maybe GAAP isn’t so bad on average after all.  But averages conceal a lot of variation — I would not want to own companies that lose a lot of money off of buybacks, or those that inflate net income versus growth in tangible book.

If buybacks ceased, companies might have a lot of slack assets on hand.  I know that companies keep themselves slim to avoid takeovers,  A large amount of slack assets invites others to come in and buy the assets to manage them.  Still, it seems that most buybacks waste the money of shareholders.  This seems to be another example of the agency problem, wheremanagers take an action that benefits them, but harms shareholders.

I would be negative on both cram and jam.  Good companies don’t report earnings in excess of what shareholders obtain, and they don’t buy back stock except when it is cheap.

Full disclosure: long ALL COP CVX ORCL PEP

Economists: ‘Desperately Disappointing’ U.K. GDP Figures

The U.K. economy crept back into growth in the fourth quarter, data out Tuesday showed, narrowly emerging from a deep recession that began in the second quarter of 2008. However, growth in the fourth quarter was far less than expected, raising questions about a possible extension of the Bank of England’s quantitative easing, or QE, policy and worries about a double-dip recession. Below, economists react.

Very disappointing. This is crawling out of recession. Not just disappointment on the services side, but also the industrial production figures. We seem to have ended the quarter in pretty weak shape. I think it will reopen the debate about whether the Bank of England will consider expanding QE at its February meeting. – Brian Hilliard, Societe Generale

The U.K. last recorded positive GDP growth in 1Q08 and has since contracted by 6% in what has been the most severe recession since the depression era. At this stage we only get an industry breakdown, which showed that services grew also by only 0.1%, as did production, while construction was flat. …. At the moment lead indicators are pointing to a robust recovery, with purchasing managers’ indices consistent with GDP growth of 2%+ in year-over-year terms. However, we are concerned that these are maybe a little optimistic. – James Knightley, ING Bank

Clearly a lot weaker than the market was expecting. And I guess more importantly weaker than the Bank of England was forecasting in the November inflation report. Clearly the economy has emerged from recession, albeit with a whimper and I think it underscores the challenges that the U.K. economy continues to face as we go through this year. … On the basis that the [BOE's] GDP forecast has been undershot one imagines all things being equal the inflation forecast similarly will be undershot in the medium term…it does suggest the Bank of England will be thinking seriously about undertaking more policy stimulus…You have got to think now that the odds of further stimulus measures in February are increasing. £25 billion would be the obvious possible number, but there’s also uncertainty about how they spread it. – Adam Chester, Lloyds Corporate Markets

This is another desperately disappointing GDP release. While the U.K. officially exited recession in the fourth quarter of 2009, it could only crawl out. GDP growth of 0.1% quarter-on-quarter was well below expectations, with service sector output and industrial production only edging up by 0.1%. Construction output only stagnated after expanding in the previous two quarters. … Indeed, serious economic and financial obstacles stand in the way of significant, sustainable growth, and only marginal growth in the fourth quarter of 2009 reinforces our suspicion that recovery will be gradual and prone to losses of momentum. Straight away at the start of 2010, for example, the economy faces VAT rising back up from 15% to 17.5% while the car scrappage scheme is drawing to a close. – Howard Archer, IHS Global Insight

[W]ith such a significant divergence between the hard and soft data, this release looks like a candidate for revision. However, as things stand, the conclusion we must draw is that the recovery in the U.K. remains tepid. That is very disappointing, both relative to the euro area and in the context of the unprecedented loosening of financial and monetary conditions over the past 12 months. – BNP Paribas

Today’s data … present a big problem for the MPC [the BOE's monetary policy committee] which has been expecting strong GDP growth to keep inflation on target in the medium term. The biggest impact of the MPC’s past cuts in interest rates has probably already been felt, but with the economy still clearly in intensive care, there is a strong case for more support from policy to boost growth and job creation. – Daiwa Capital Markets Europe

The main aim now must be to ensure that the modest recovery consolidates and slowly gathers momentum. It is critical for both the government and the Monetary Policy Committee to pursue policies that make it possible for business to invest and export. Regulatory burdens must be removed wherever possible, and access to finance improved. A double-dip recession must be avoided at all costs. – David Kern, British Chambers of Commerce

The sands of Greek bond issuance

Greece’s new sovereign five-year issue received unexpectedly high demand in initial price talk on Monday.

The bond gets officially priced mid week, and on that matter Standard...

UK Claims Global Support Increasing for Transaction Tax

We’ve said that a Tobin tax, meaning a tax on transactions, could help both as a financial reform measure and as a tax generator. The logic is that trading, particularly OTC trading, involves costs (periodic taxpayer-funded bailouts) that are not borne by the buyers and seller (ie, they should be paying for rescue insurance as part of their cost of being engaged in a type of business that periodically blows up and forces uninvolved parties to pony up; the transaction tax would be a way to go about doing that). Any such tax would need to be though through carefully (as in plain vanilla, socially productive transactions like foreign exchange would not be taxed heavily, while high margin products with little to no redeeming value like credit default swaps would be taxed heavily.

But of course, who is opposed to such a sensible idea? The US, natch, with its pols bought and paid for by the financiers.

From the Independent:

Proposals for a global transaction tax on banks are “gaining traction”, Gordon Brown claimed yesterday, as Britain sought to push its reform agenda with other G7 economies ahead of rival American plans for regulatory overhaul.

The US is the main obstacle to a so-called “Tobin tax”, which remains popular across Europe as a way of building up a fund to ensure that banks no longer have to call on taxpayers’ cash if they run into problems.

Treasury officials believe President Barack Obama’s suggestion of a “risk-based” levy on US banks to recoup federal aid already spent means that the Americans could be persuaded of the merits of a transaction levy to deal with future crises.

Yves here. The proposed US “TARP fee” is paltry, yet the banks are already clamoring for it to be cut back, so it appears to be yet another Potemkin reform that will be diluted down to nothing. So I don’t think observers can make overmuch of it. Back to the story:

One Treasury official said: “[Mr Obama's plans] address specific problems in the US, where there are large investment banks. They would not be appropriate here. And you have to remember that it was narrow banks such as Lehman Brothers or Dunfirmline Building Society that failed.” This point has been pushed by “universal” banks such as Barclays, which has a substantial investment banking division but did not need to ask the state for financial support. The British Bankers’ Association has also been lobbying on this point. As Lord Myners opened the talks at 11 Downing Street, he said the costs of failures should be “distributed more fairly”, with financial institutions and investors shouldering more of the burden. “There is clearly a strong rationale to charge for the externality caused by the financial sector and financial institutions should shoulder the responsibilities for losses they may face,” he added.

It’s over

After six quarters the UK’s longest, and possibly deepest recession since the second world war has ended – but only JUST.

Q4 GDP rose 0.1 per cent quarter-on-quarter,...

S&P fires warning shot at Japan

Probably not a huge surprise, given the nation’s bloated finances but Tuesday’s threat by S&P to cut Japan’s credit rating unless it gets its house in order...