Lehman Brothers Q2 losses stun Wall Street - Big cash call looms

Lehman exposed it's problems and expected losses in Q2 - the quarter ending May 31sts of US $2.8 billion, or US $5.14 a share (Q1 they showed a "profit" of US$489 million ). . On top of this they are making a cash call to fill up the holes on the Balance Sheet of US $6 billion -- $2 billion more than the word on the Street before the announcement. Reuters reports that Lehman blamed the projected loss on $3.7 billion of write-downs from trades and hedges gone sour....which ..er..is what they are supposed to do for a living.

Lehman are in deep shit and more shareholders headed for the exit. The stock closed at US$ 29.48 down US$2.81 a drop of -8.70% (it had been down 13% earlier) -- a five-year low.

Rating Agencies have shaved Lehman's rating which will hit their margins - Fitch this morning cut Lehman's long-term issuer default rating one notch to "A-plus," the fifth-highest investment grade, from "AA-minus" and cut Lehman's short-term issuer default rating one notch to "F1," the second-highest rating, from "F1-plus."The outlook is negative, indicating an additional rating cut is more likely over the next one to two years.

This follows S&P who cut Lehman's long term rating to "A," the sixth-highest investment grade, from "A-plus," on June 2nd. Moody's Have however affirmed Lehman's senior debt rating at "A1," the fifth-highest investment grade, but changed the outlook to negative, from stable.

Lehman CEO Richard Fuld Jr.said it cut its exposure to risky residential and commercial mortgages by as much as 20% in the quarter. They had also sharply boosted liquidity -- to US $45 billion from US $34 billion at the end of the first quarter.

Lehman will (?) raise US $4 billion by selling 143 million shares of common stock at US$28 each, increasing shares in issue by 26%. It’s also selling $2 billion of preferred shares that will pay an 8.75% annual dividend yield.

Now that Bear Stearns has been folded into a larger entity stifling all the bad news, the market has turned to the next smallest bank - Lehman Bros. The Vulture funds will be moving silently, sniffing their prey.

Kazakh oil / National Energy - Russia - China - India and territorial / economic dominance

The Kazkah government looked set to approve by the end of December the China International Trust & Investment Corp (CITIC) . bid to $1.9 billion to buy the Kazakhstan oil assets of Canada's Nations Energy Co., The deal is dependent upon several approvals including the waiver of pre-emptive rights of the Kazakh government, which last year amended laws to give it first option on the sale of mineral resources and possibly on corporate deals.

It is further evidence of China's ruthless quest to hoover up oil supplies, to meet their massive growth in demand.

CITIC is reported to be planning a "medium-size'' oil refinery in the Mangistau Oblast region when they have found some strategic Kazakh partners.

CITIC quoted in Hong Kong rose 1% to HK$1.62 , their biggest gain in a year.
www.cnpc.com.cn/english/

However Russian news service Interfax reports (16th Nov) from (old) Kazakh capital Almaty (pic of Statue of Indpendence) that Energy and Natural Resources Minister Baktykozha Izmukhambetov told a committee of the Kazakh parliament that the proposed sale should be blocked and

"We should, or rather I should in the first place, take urgent measures to stop this agreement over Karazhanbasmunai,"

Karazhanbasmunai is the unit of Nations Energy that operates the Karazhanbas oilfield in western Kazakhstan.

Kazakh Channel 13 TV reports (BBC monitoring 16th Nov) that fear of Chinese expansion is today's political fashion. MPs who recently had an outburst of China phobia are setting the tone for xenophobia. Some MPs say that if China continues to buy out Kazakh oil, the republic would soon become merely raw materials appendage to Beijing.

China National Petroleum Corporation (CNPC) acquired Calgary based PetroKazakhstan Inc. in a US$ 4.18 Mn (HK$32.6 billion) deal on October 26th 2005 which bought them the Karazhanbasmunay bloc, the second biggest (known) production asset in Kazakhstan and co-operation with KazMunaiGaz to operate and manage the PK project. It was said at the time that oil hungry India's Oil & Natural Gas Corp was also in the bidding. (see connection to LUKoil below)

Part of the deal involved the development of the Darkhan field in the North caspian 60 Km south of Bautino in working waters of 3-5 metres which is said to have 480Mn Tons of fuel equivalent.

KazMunaiGaz produces about 16 % if Kazakh oil output. It controls 65 % of Kazakhstan's oil transport routes and 100 percent of gas transport pipelines and in 2005 produced
65 million barrels with revenues of t US$4.7 billion (Ђ3.8 billion), 31.4% up on 2004.

Overall Kazakh oil output , says the Oil Ministry, is planned to grow from the current 1.3 million barrels to 3 million barrels a day by 2015, according to the Oil Ministry.

CITIC , quoted in Hong Kong rose 1% to HK$1.62 , their biggest gain in a year.
http://postmanpatel.blogspot.com/search?q=Nursultan+Nazarbayev+embraces

Readers might remember Lord Patel posting about Kazakh President Nursultan Nazarbayev's ambitions on Thursday, April 6 2006
Nursultan Nazarbayev embraces Mother Russia ... and Putin

"Russian state-controlled media, including the RTR television channel and Radio Mayak, report Kazakhstan’s President Nursultan Nazarbayev’s recent three-day visit to Moscow as a potential turning point in Putin’s struggle for control of the Caspian Basin’s oil and gas reserves...."

or

Monday, March 27 2006
Hashim Djojohadikusumo sells Nations Energy to Vagit Alekperov

"Vagit Alekperov told me over the gaming tables in Northern Cyprus that he has his eyes on Nations Energy – a price tag of $2.5Bn is attached. Expect news any day he said."

Two lessons :
1. President Nursultan Nazarbayev plays a long game.
2. So does Hashim Djojohadikusumo and his Indonesian pals, owners of National Energy Ltd (until December)
3. Don't hang around gambling tables and expect to be told the truth, the whole truth .....

A 962-kilometer (598-mile) Atasu-Alashankou pipeline completed in December at a cost of $800 million transports crude to China National's refinery in Dushanzi, close to China's northwestern border with Kazakhstan. Russian state owned Transneft have announced the intention to export 7 million tons (51.3 mln bbl) in 2007, to China on this route. Only this week have Transneft announced the final part of the pipeline from Russia to China with the first leg from Taishet in East Siberia to Skovorodino near the Chinese border to be completed by the end of 2008 for which China will pay US$400 Mn.

Carbon - Expanding Black Hole

The boosters of the global carbon market excitedly claim the world market in carbon in the first half of 2006 was 684 millionn tonnes "worth" €12 billion. In value more than the whole of trades in 2005(€9.4 billion) , and 85% of volume traded in the same period (800 millin tonnes).Note that the total of all allowances to end 2007 in the EU = 2.1 Billion tonnes per annum, covering 13,000 industrial installations. Remember also that these allowances can be traded between years, i.e "borrowing" allowances for next year for the current year. (Graph of collapsing EUA price (again) in last 30 days)

Do not lose sight of the fact that the whole EU carbon market is created by politicians through political decisions, a dimension to any market that is beyond calculation and subject to manifold influences, national, ideological, stupidity, lack of information, misinformation, misunderstanding and pure simple corruption.

EU Emissions trading accounted for 440 million tonnes or 65% of the traded volume worldwide. As the market price collapsed in April May traded value declined dramatically.

The flexible Kyoto market mechanisms of Clean Development Mechanisms (CDM) and Joint Implementation (JI) have also seen a considerable growth in volumes and values this year compared to 2005. In total, 226 Mt, worth €1,976 million have been transacted. A major part of this was CDM trades at 193 Mt, worth €1,545 million. In addition, secondary CDM trades increased tenfold compared to 2005.

“This shows that the EU ETS is moving steadily forward and upwards, despite some turbulence during the last few months. The significant increase in traded volumes and values in emissions trading schemes in Australia and the US is also quite promising for the global carbon market as a whole”, says Henrik Hasselknippe, manager in Oslo based Point Carbon’s EU ETS team.

What the informed observer needs to bear in mind however is that all this activity is not related, as in standard commodity markets to actual amounts of actual product but to a notional amount of a product.

What is being "sold / traded" is the right to emit carbon as carbon dioxide from industrial / commercial processes. Typical sellers will or expect to produce less than they are allowed, so they may sell that unused right to emit to someone who emits more than their allocated amount.

The EU Emissions Trading Scheme (ETS) operates in a similiar fashion to the milk licensing scheme. To regulate supplies, and therefore the price of a perishable product, farmers were provided with a quota or license to produce so many litres of
milk, they discovered this was tradeable, and so a market grew, it attracted traders who could buy and sell such licenses.

The EU ETS operates in an identical fashion but the tradeable blocks are bigger, more valuable and therefore attract greater commissions, and with an inherent volatility (derived in part by the uncontrollable weather in Europe - which affects energy demand and hence CO2 production), market price fluctuations which can be exploited by knowledgeable, or lucky traders.

Naturally this market attracts it's snake oil salesmen, just as the booming pensions market did in the 70's / 80's 90's and the trick is to attract as investors, not those who trade carbon as part of running their business - power utilities, steel works, etc., but equity investors.

In the UK, if you invest in a fund, especially a pension at least some of your money will be sinking into this black hole,(eg Fidelity funds have just bought into 0.9% of AgCert International) however you can throw away your money without involving anyone else but a share broker.

There are currently 5 listed companies in which you can invest.
(alphabetically) AgCert International, Climate Exchange,Econergy, Ecosecurities,Trading Emissions.

AgCert International Plc
Apex Building Blackthorn Road Sandyford
Dublin, 18P: +3531.2457400 F: +353.

“Climate change is key to the world’s economic progress and AgCert is determined to play its leadership role in the reduction of greenhouse gases. “ Bill Haskell, AgCert CEO, when announcing results for 2005 on April 6th 2006.(Loss Euros 19,289,830)

AgCert’s business is the production and sale of reductions in greenhouse gas emissions (referred to as "Offsets") from agricultural sources on an industrial scale. Its methods involve the capture and combustion of biogas containing greenhouse gases, primarily methane, emitted from animal waste (shit) management systems ("AWMSs"). To achieve this, AgCert has developed proprietary data systems and processes which have been designed to be fully scalable and adaptable to the AWMSs of large confined animal feeding operations including those for swine, dairy and poultry.

AgCert has developed rapidly, expanding its initial operations in Brazil and Mexico, establishing operations in new geographies, namely Chile and Argentina, and extending its activities to new agricultural sectors, such as dairy and poultry.