Unrepentant Scrooge

My personal bank account with HSBC is housed in a new office, and I visited for the first time yesterday. One of the two ATMs in the lobby doesn't work and there was a seriously long line at the human cashier's booth. An earnest Chinese-American clerk eventually took my deposit so I could avoid the queue, and blithely announced that ATMs work better in Asia and Europe than in the USA. So I responded that given its Asian origins, HSBC (once Hongkong & Shanghai Bank Corp.) should have mastered ATM technology by now. To which the fellow responded that HSBC is British to the core. Well, not exactly.

HSBC it is threatening to exit the UK if too many impediments and taxes are imposed on its operations. And the two likely new homes are either back to Hong Kong or reincorporating in the USA, where it has grown with several acquisitions, including that of Republic National Bank (how they got my account started with Williamburgh Savings Bank where we got a mortgage). It is comforting that US banking regulations are not so off-putting that HSBC is now tempted by our business.

One reason HSBC may remain in the British motherland of its former Hong Kong colony was that it and all other UK banks today passed a new stress test set by the Bank of England, their central bank. Governor Mark Carney said: “with today's announcement, the basic amount of capital our system requires is settled.” That means the banksters do not need to raise more capital to handle potential big losses from extreme market conditions. It and Standard Chartered, another old Asia hand, did not get top scores but at least they passed the exam.

Many US charities were out in force on the Internet seeking donations on Giving Tuesday. This silly custom probably cuts the money they are getting since they are competing with each other for donor attention.

Moreover, now Facebook (FB) is charging non-profit organizations for their campaigns so some charities have to ask their donors and fans to “like” them, opening the way to irritating emails and ads. Why do those soliciting donations let themselves be manipulated this way?

Today I got another irritating e-mail, a holiday card from a Saskatchewan (Canada) uranium mining company with irritating tinny nuclear music. Since there is no delay for the mail with an e-mail, why did they send it December 1 long before any seasonal holiday?

My anti-virus just blocked an update purporting to come from windows.

As you can see, I am becoming an unrepentant Scrooge.

Services and Light Industry

*Bank of Nova Scotia (BNS) reported mixed results with its Q4 and FY results in C$s and under IFRS. Q4 net of $1.843 bn beat Thomson Reuters forecasts. EPS at C$1.45 after adjustment for amortization and the sale of CIFAF, beat by a loony penny and were up 8% Y/o/Y. Without adjustment the rise was 28%. Prior year Gross revenues came in at C$6.125 bn, flat sequentially.

Full year 2014-5 earnings came in slightly down over prior year at $7.213 bn but after adjustment were up 3%. Both figures beat the consensus forecast of C$6.3 bn handily. Revenues were C$566 bn. Diluted EPS for the FY was up by a penny also at C$5.67 vs prior year's $5.66. It set aside C$551 mn for loan losses vs $574 mn the year before.

As the most internationally diverse Canadian bank, BNS gained from translating its earnings in foreign lands into loonies. Its international banking earnings rose

Both in the quarter and in the year, BNS failed to meet its target of reaching a return on equity of 15-18%, with FY level of 14.6% and Q4 of 14.2%. It also failed to grow its EPS by the target of 5-10%. However BNS did up its dividend to $2.72/sh for the year vs 2.56 in 2013-4.

*A new way to do trials is being pioneered by GlaxoSmithKline (GSK) according to an article in the British Medical Journal on its Salford Lung Study, for patients with chronic obstructive lung disease and asthma being treated with its new Relvar Ellipta head to head with existing medications. GSK is using masses of data from the National Health Service and doctors, hospitals, pharmacies, and academia to create a real-time health records system so it could enroll in its randomized trials people who otherwise would not be accepted because of their co-mordities (other illnesses like heart disease, cancer, diabetes, or even depression.) The resulting database was styled “a tsunami” by Susan Collier, who headed the study in north west England around the city of Salford. By correlating all that data, GSK is able to extract forecasts of how fluticasone furoate and vilanterol (Relvar Ellipta) would work in a general population not limited to those with no other illnesses. The whole region's drugstores were linked to the trial's electronic system along with full and updated medical records—“every blood test, every chest x-ray, every ECG, every clinical note,” to quote Collier.

Britain thanks to the NHS and general practitioner gatekeepers is uniquely able to get this kind of database going. It doesn't work in the US free-for-all environment but GSK has signed up to jointly work with Propeller Health to collect data on compliance and safety for the same drugs linked to patient adherence, and won US FDA approval for this.

*While the news was bad about the Alcon recall, it actually was good for Novartis (NVS), as Frida Ghitis pointed out. The interocular AcrySof IQ Toric lenses caused inflammation and toxic anterior segement syndrome in Japanese patients after cataract surgery for astigmatism. This placement led to a class 1 recall which means there were serious adverse health consequences, including death. Alcon produces other multifocal lenses to treat astigmatism with presbyopia (far-sightedness) or act as bifocal implants which have FDA approval and include glucose measures too. With older people commonly affected by cataracts and presbyopia, adding a glucose measure makes a lot of sense. Frida comments: Measuring glucose levels for diabetes is a major breakthrough. Sales can be huge. (She initially recommended ACL when it was a US stock before its low-ball acquisition by NVS.)

*Novo Nordisk (NVO) which already specializes in diabetes bought the right to Xoma's xMetA allosteric monoclonal antibodies which regulate and activate the insulin receptor. NVO will pay $5 mn up front and up to $290 mn in milestones to XOMA-Q. Xoma works on endocrine diseases and kept these from the NVO deal. NVO also is developing an oral glucagon-like peptide which prevents hyperglycemia and balances glucose which has the beneficial effect of also making the people taking it feel full and stop eating so much, so it works as a diet drug. NVO is Danish but not fattening like the pastry.

*Australia's Benitec (BNTC) rose sharply on some suspension of trading Down Under being halted. I assume there was some news but I cannot find it. BNTC.

*After falling on news it would raise more money with ADR shares or convertible preferreds, Teva (TEVA) was up 4.5%.

*Credit Suisse raised Nokia (NOK) to outperform prior to its takeover of Alcatel Lucent.Analyst Kulbinder Garcha wrote that the merger will achieve nearly double the synergies that NOK forecasts, about euros 1.7 bn/yr by 2018, vs 900 mn predicted by the Finnish company. Euros 1.1 bn will come from eliminating duplicate infrastructure operations; euros 480 mn by moving production to cheaper labor areas. He thinks that before tax earnings can double to euros 4.3 bn in 3 years. NOK was up sharply starting with a 2.6% rise in London.

*Vodafone (VOD) was raised to a buy with a GBX250 target price by Nomura.

Heavy Industry

*Vale (VALE) has cut its forecast iron ore production forecast for 2016 to 340-350 mn metric tonnes vs an earlier level of 376 mn, reflecting the lost output from its half of the shut-in Samarco mine (with BHP) whose tailing dam burst and a neighboring wholly-owned facility. It expects to close out 2015 with output at 340 mn tonnes. The stock was off another 1.8% and bought more at $3.32. While fines and shut-ins are not fun, the steadily declining Brazilian real cements VALE's position as the global cheap iron miner.

*Schlumberger Ltd, (SLB) the Dutch Antilles-based oil services firm, will cut its labor force some more because of overlap with its acquired Cameron business and take $350 mn in related charges for restructuring in the current Q4. It has already killed 10,000 jobs YTD as oil drilling spending drops around the world with lower oil prices. The stock is up ~1%.

*Fiat Chrysler (FCAU) had another good month in Nov. with sales up 3% overall, although its marquee name brands were down 3% and 12% respectively. The boom came in Jeeps and a new line of pricey vehicle, Alfa Romeo. The average sales price of its vehicles rose 3.5% to $34,353 according to KBB, a tracking service. Its inventories rose to 86 days from 76 days in Nov. 2014. Year-to-date FCAU US sales have risen 7% to $2.026 bn. FCAU is Italian but HQ'd in Luxembourg and its primary stock market is Amsterdam.

*Delek Group (DGRLY), is selling to China's Fosun, an insurer, Israel's Phoenix Insurancefor $464 mn. Mysteriously, DGRLY may also throw in to Fosun two natural gas fields it must divest, Tanin and Karish, which hold a combined 3 trillion cu ft of natural gas, Reuters reported. The Chinese firm apparently outbid Edison and ENI, both of Italy, which have been haggling over the fields. To move faster, Delek bought out its 47% partner in the fields, Noble Energy, for $67 mn.

*The seasonal greeting card which bugged me came from Cameco, CCJ.

Funds

*Mexico's Fibra Uno closed a transfer of 7.83 mn of its shares to buy “Samara”, an office building along Santa Fe in Mexico City which was negotiated last year for NMP 5.3 bn ($409.6 mn) including NMP 900 mn of debt. The shares being turned over cover NMP 302.6 mn of the non-debt purchase price of NMP 4.4 bn. Eduardo Garcia, writing in www.sentidocomun.co.mx says it is unclear if FBASF has already paid the rest of the bill for the Samara purchase. Apart from offices it includes a supermarket and commercial sites, and a hotel, with a total of 30,000 square meters of space. Eduardo notes that the new shares in circulation come on top of the 3.04884 bn shares which were outstanding last week.

*We bought into Aberdeen Asia Pacific Income Fund which mainly invests in Australian state and local bonds just as the UK-based group reported serious earnings drops because its focus on emerging markets had gone ugly. (The company is run out Scotland so I feel I can quote Robert Burns.) While its recently acquired Scottish Widows funds are focused on developed countries, as are its US closed-end yield funds like FAX and FCO (Aberdeen Global Income Fund) its prime business of running open-end mutual funds to invest in emerging markets is under pressure from customer exits. These require the fund manager to sell portfolio assets just at the worst time. A closed-end fund is priced by the market but open-end funds have to sell stuff to redeem shares. It yields 9.3% because it is so heavily discounted from NAV.

*Yoma was up 2.4% in Singapore. YMAIF is how to invest in Myanmar.