By Simon Kennedy, Matthew Benjamin and John Rega
March 30 (Bloomberg) -- Leaders of advanced and emerging economies are closing ranks behind plans for tougher rules on financial markets to prevent another collapse like the one that wiped out much of Wall Street.
A global approach to regulation has been gaining momentum ahead of the Group of 20 summit April 2 in London. U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and their G-20 counterparts aim to merge their national blueprints for strengthened regulation into a united front to rein in hedge funds, derivatives trading, executive pay and excessive risk- taking by financial firms.
“There is reason for optimism that progress toward stronger global regulation has begun,” says Daniel Price, who was President George W. Bush’s G-20 negotiator and is now senior partner for global issues at Sidley Austin LLP in Washington. “We’re beginning to see the outlines of a convergence.”
Agreement on a shared regulatory agenda would provide the G-20 summit with a measure of success even as leaders remain at odds over trade policy, fiscal stimulus and the status of the dollar. A joint regulatory approach is crucial to prevent investors from seeking out markets with the most permissive rules, setting off a race to the bottom as countries vie to attract capital.
The call for greater regulation unites China, possessor of the most vibrant economy in the developing world, and the U.S., possessor of the world’s largest economy. China’s central bank governor, Zhou Xiaochuan, challenged the West to fix flaws in financial supervision on March 26, the same day U.S. Treasury Secretary Timothy Geithner outlined a broad initiative designed to do just that.
International Framework
“Having the U.S. and Chinese on board makes it a whole lot more likely” that an international framework will eventually emerge, says Harvard University’s Kenneth Rogoff, former chief economist of the International Monetary Fund.
Rogoff says that “it seems virtually certain that four to five years from now, the world will have either a global financial regulator or, more likely, a treaty on global financial regulation with a secretariat, akin to the World Trade Organization.” Still, he adds, “nothing is going to happen quickly.”
‘Lobbying Ferociously’
John Taylor, a former U.S. Treasury official and now at Stanford University, says the process is “going to be drawn out” as lawmakers in individual countries wrangle over rewriting the rules. That will give financial firms the opportunity to seek changes that dilute new restrictions, says Richard Portes, a professor at the London Business School.
“Banks are lobbying ferociously against anything that will undermine their businesses and pay,” he says.
When G-20 leaders last met in November, with the Bush administration in its final months, the U.S. resisted European suggestions for a single global regulator and government oversight of hedge funds. Now, proposals from the Obama administration are giving the push for a global regulatory overhaul a second wind.
“We must ensure that global standards for financial regulation are consistent with the high standards we will be implementing in the United States,” Geithner told Congress March 26.
Calling for “new rules of the game,” Geithner plans to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic- risk regulator would have power to force companies to increase their capital or cut their borrowing, and authorities would be able to seize them if they came unstuck.
‘More Effective Role’
Geithner suggests empowering the Financial Stability Forum, a group of international market regulators, to “play a more effective role” alongside the IMF and the World Bank in promoting and monitoring new international regulations.
“There now appears to be common interest in pushing for a global systemic regulator,” says Stephen Roach, chairman of Morgan Stanley Asia in Hong Kong. “It won’t be easy, however, for Europe and the U.S. to come to a consensus on who that new regulator should be and what type of enforcement mechanism can be used to empower any such body.”
The U.S., which has long expected other nations to follow its lead on regulations, may now have to yield to more cooperation, says former Federal Reserve Chairman Paul Volcker.
Zhou’s Advice
“The U.S. is no longer in a position to dictate that the world does it according to the way we’ve done it,” Volcker, head of Obama’s Economic Recovery Advisory Board, told a March 6 conference at New York University.
China’s Zhou underscored that point in an article published by the People’s Bank of China March 26 that criticized western economic policies and recommended regulators be allowed to “act boldly and expeditiously without having to go through a lengthy or even painful approval process.”
“China has to be listened to,” says Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “What they are trying to do is exert maximum influence on the design of the new global financial architecture.”
A new collaborative strategy was evident in a working paper released on March 27 by the Canadian government on behalf of the G-20, which comprises 19 developed and emerging economies plus the European Union and represents 85 percent of the world economy.
The working paper recommended that leaders agree to regulate hedge funds and other nonbanking pools of capital that pose “systemic” risks and strengthen rules requiring financial institutions to build up capital cushions.
First Rules
“We have reason to believe that there will be a fair degree of consensus,” Canadian Prime Minister Stephen Harper said in an interview with Bloomberg News.
The EU will propose its first rules for the $1.4 trillion hedge-fund industry next month, while the U.K. is also considering stepping up oversight.
After financial firms raced to raise more than $1 trillion of capital to cover losses, governments want “institutions to take less risk and build up buffers in good times,” says Marco Annunziata, chief economist at UniCredit MIB in London.
The U.K.’s market regulator cites Spain as a model, after preemptive cushioning helped its biggest lenders, including Banco Bilbao Vizcaya Argentaria SA, avoid the need for government recapitalization at the end of a real-estate boom. The country was nevertheless forced to mount its first major bank rescue today, of Caja Castilla-La Mancha savings bank.
Revamp
In addition, central banks and regulators are signed up to a revamp of the so-called Basel II bank-capital standards after a 2003 rewrite was never fully applied in the U.S., leaving European banks to compete under different rules.
G-20 countries are also spurring accounting-standard setters to speed up the work of narrowing differences so investors can compare financial statements around the world.
Any agreement at the G-20 would hand leaders a way of papering over other policy differences. European governments have resisted a U.S. push for more stimulus spending. The World Bank says most G-20 members have taken actions that restrict trade, even after pledging to avoid protectionism.
A fresh split emerged last week as China proposed the creation of a new international reserve currency, only to run into immediate U.S. opposition.
On regulation, at least, “there’s definitely a unified framework forming now,” says Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “Whether it works will only be known when the next crisis hits.”
Monday, March 30, 2009
Tuesday, March 24, 2009
U.K. Inflation Rate Unexpectedly Rose in February (Update1)
By Svenja O’Donnell
March 24 (Bloomberg) -- The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain’s recession deepened.
Consumer prices climbed 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent. Bank of England Governor Mervyn King wrote in a letter to the Treasury explaining the increase from the 3 percent limit that a “sharp decline” in the inflation rate is likely to resume.
Bank of England officials say the higher cost of imports from the British currency’s drop may make inflation volatile while the recession defuses prices pressures in the economy. The bank has started printing money to fight the slump and King told lawmakers today that the outlook for consumer prices will guide how long that policy will last.
“It’s a big surprise,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “We see inflation dropping really quite sharply in next few months” and this data is “a hiccup along the way,” he said.
The pound touched its highest level in more than a month against the dollar. The currency rose as much as 1.4 percent to $1.4779, the highest level since Feb. 10, and was at $1.4669 by 10:28 a.m. in London. The pound has dropped about 26 percent against the dollar in the past year.
Inflation Forecasts
Inflation accelerated from 3 percent in January, the statistics office said. The rate increased for the first time in five months. It has exceeded the median forecast of Bloomberg News’s survey of economists in the past four months.
Prices of food and non-alcoholic drinks increased, boosted by gains in the cost of vegetables after poor crops in Spain of cucumbers and courgettes, the statistics office said. The data also showed the effects of the exchange rate pushed up the cost of imports, influencing this month’s figures.
The pound’s “continued weakness” has forced Ford Motor Company to increase the price of all its models in the U.K. starting next month, the company said in a statement today. Prices for its cars will rise by an average of 3.75 percent.
The U.K. central bank last month forecast that inflation will slow to 0.3 percent in 2011, below the 2 percent target.
Lower energy costs are still eroding inflation pressures. Scottish Power Ltd., the British unit of Iberdrola SA, said on Feb. 27 it will cut U.K. electricity and natural-gas prices on March 31 as wholesale costs decline. Centrica, Britain’s largest supplier, lowered gas prices by 10 percent last month.
‘Volatile’ Outlook
“February’s inflation outturn is somewhat higher than expected,” King wrote to Chancellor of the Exchequer Alistair Darling. “It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile.”
The Bank of England has to do whatever is necessary to get Britain away from disinflation, policy maker David Blanchflower said yesterday.
Retail-price inflation, a measure of the cost of living used in pay bargaining, slowed to 0 percent, the lowest level since March 1960, the statistics office said.
U.K. wage negotiators clinched the smallest annual raises in six years during the three months through February as the recession deepened, a survey by Industrial Relations Services showed last week.
Meanwhile, the economy is still shrinking. Manufacturers’ forecasts for output matched the gloomiest since records began in 1975 as the recessions in the U.K. and overseas wiped out demand for their goods, the Confederation of British Industry said on March 19.
A survey of independent economists compiled by the Treasury last month shows gross domestic product will contract by 2.8 percent this year, almost three times greater than Darling forecast in November.
March 24 (Bloomberg) -- The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain’s recession deepened.
Consumer prices climbed 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent. Bank of England Governor Mervyn King wrote in a letter to the Treasury explaining the increase from the 3 percent limit that a “sharp decline” in the inflation rate is likely to resume.
Bank of England officials say the higher cost of imports from the British currency’s drop may make inflation volatile while the recession defuses prices pressures in the economy. The bank has started printing money to fight the slump and King told lawmakers today that the outlook for consumer prices will guide how long that policy will last.
“It’s a big surprise,” said Stewart Robertson, an economist at Aviva Investors in London, which manages about $230 billion in assets. “We see inflation dropping really quite sharply in next few months” and this data is “a hiccup along the way,” he said.
The pound touched its highest level in more than a month against the dollar. The currency rose as much as 1.4 percent to $1.4779, the highest level since Feb. 10, and was at $1.4669 by 10:28 a.m. in London. The pound has dropped about 26 percent against the dollar in the past year.
Inflation Forecasts
Inflation accelerated from 3 percent in January, the statistics office said. The rate increased for the first time in five months. It has exceeded the median forecast of Bloomberg News’s survey of economists in the past four months.
Prices of food and non-alcoholic drinks increased, boosted by gains in the cost of vegetables after poor crops in Spain of cucumbers and courgettes, the statistics office said. The data also showed the effects of the exchange rate pushed up the cost of imports, influencing this month’s figures.
The pound’s “continued weakness” has forced Ford Motor Company to increase the price of all its models in the U.K. starting next month, the company said in a statement today. Prices for its cars will rise by an average of 3.75 percent.
The U.K. central bank last month forecast that inflation will slow to 0.3 percent in 2011, below the 2 percent target.
Lower energy costs are still eroding inflation pressures. Scottish Power Ltd., the British unit of Iberdrola SA, said on Feb. 27 it will cut U.K. electricity and natural-gas prices on March 31 as wholesale costs decline. Centrica, Britain’s largest supplier, lowered gas prices by 10 percent last month.
‘Volatile’ Outlook
“February’s inflation outturn is somewhat higher than expected,” King wrote to Chancellor of the Exchequer Alistair Darling. “It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile.”
The Bank of England has to do whatever is necessary to get Britain away from disinflation, policy maker David Blanchflower said yesterday.
Retail-price inflation, a measure of the cost of living used in pay bargaining, slowed to 0 percent, the lowest level since March 1960, the statistics office said.
U.K. wage negotiators clinched the smallest annual raises in six years during the three months through February as the recession deepened, a survey by Industrial Relations Services showed last week.
Meanwhile, the economy is still shrinking. Manufacturers’ forecasts for output matched the gloomiest since records began in 1975 as the recessions in the U.K. and overseas wiped out demand for their goods, the Confederation of British Industry said on March 19.
A survey of independent economists compiled by the Treasury last month shows gross domestic product will contract by 2.8 percent this year, almost three times greater than Darling forecast in November.
U.S. Stock-Index Futures Retreat; European Shares Fluctuate
By Adam Haigh
March 24 (Bloomberg) -- U.S. stock-index futures fell and European shares fluctuated as banks and raw-material producers retreated after the biggest rally in the Standard & Poor’s 500 Index in five months. Asian shares advanced.
Bank of America Corp. slid 3.8 percent after surging 26 percent yesterday. Rio Tinto Group and BHP Billiton Ltd. dropped for the first time in four days as copper snapped its longest streak of gains since 2007. Hyundai Engineering & Construction Co. jumped 7.1 percent as South Korea announced a record stimulus package.
Futures on the S&P 500 slipped 0.8 percent at 11:29 a.m. in London. The gauge rallied 22 percent since March 9 as Citigroup Inc., Bank of America and JPMorgan Chase & Co. said they made money in the first two months of 2009 and Treasury Secretary Timothy Geithner unveiled plans by the U.S. yesterday to finance as much as $1 trillion in purchases of distressed assets.
“Questions remain,” said Bill Dinning, Edinburgh-based head of investment strategy at Aegon Asset Management, which oversees $61.6 billion. “I’m not convinced the plan is the complete end game for what ails us in the financial sector,” he said in a Bloomberg Radio interview.
The U.S. plan to help banks dispose of toxic assets spurred investor appetite for higher-yielding currencies, sending the yen to a five-month low against the euro. Treasuries fell for a fourth day as the easing risk of corporate defaults cut demand for government debt.
The S&P 500 soared 7.1 percent yesterday as the Treasury said the U.S. Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion.
BlackRock
BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against the rally in equities.
“The risk is that the economic recovery disappoints in the second half and that equity markets need to revisit their lows in the next few months and maybe go through them,” David Hudson, BlackRock’s Sydney-based manager of the Asset Allocation Alpha Fund, said in an interview March 20.
Europe’s Dow Jones Stoxx 600 Index added 0.5 percent after earlier declining 0.2 percent. The gauge pared an earlier advance of as much as 1.7 percent as Rio Tinto and BHP Billiton retreated. The MSCI Asia Pacific Index increased 1.9 percent.
‘Bear-Market Rally’
“Geithner is all about fixing the banks and that is an essential first step in fixing the economy,” said Richard Lacaille, chief investment officer at State Street Global Advisers, which has about $1.7 trillion under management. Still, “this is a bear-market rally. Describing it as a beginning of a bull run is extremely premature,” he said in a Bloomberg Television interview in London.
Bank of America slipped 3.8 percent to $7.50. Citigroup, which rallied 19 percent yesterday, lost 4.8 percent to $2.98.
Investors should sell bank stocks because the Treasury Department’s plan won’t stop profits from dropping, Bank of America’s Richard Bernstein said. Analysts project profit at financial companies in the S&P 500 will decline 33 percent this quarter and 34 percent in the next, according to estimates compiled by Bloomberg.
A gauge of European raw-material producers slid 3.5 percent for the biggest retreat among 19 industry groups in the Stoxx 600. Copper futures in Shanghai climbed 17 percent in seven days on speculation demand from the world’s largest consumer of the metal may be rising as imports doubled amid falling inventories.
Rio Tinto, BHP
Rio Tinto, the world’s third-biggest mining company, fell 6.7 percent to 2,139 pence. BHP Billiton, the largest, declined 5.2 percent to 1,429 pence.
Hyundai Engineering jumped 7.1 percent to 59,200 won. GS Engineering & Construction Corp., South Korea’s third-biggest builder by market value, climbed 5.3 percent to 61,600 won.
The country’s government plans to spend a record 17.7 trillion won ($13 billion) on cash handouts, cheap loans, infrastructure and job training.
Swiss Life Holding AG added 1.7 percent to 73.35 francs. Germany’s Talanx AG agreed to buy as much as 9.9 percent of Switzerland’s biggest life insurer. Talanx will also buy 8.4 percent of MLP AG from Swiss Life.
The S&P 500’s gain yesterday pushed the index’s increase since sinking to a 12-year low on March 9 to 22 percent, the steepest two-week advance since 1938.
The S&P 500 needed only 10 days to enter a bull market after taking seven weeks to fall 20 percent and give President Barack Obama a bear market.
March 24 (Bloomberg) -- U.S. stock-index futures fell and European shares fluctuated as banks and raw-material producers retreated after the biggest rally in the Standard & Poor’s 500 Index in five months. Asian shares advanced.
Bank of America Corp. slid 3.8 percent after surging 26 percent yesterday. Rio Tinto Group and BHP Billiton Ltd. dropped for the first time in four days as copper snapped its longest streak of gains since 2007. Hyundai Engineering & Construction Co. jumped 7.1 percent as South Korea announced a record stimulus package.
Futures on the S&P 500 slipped 0.8 percent at 11:29 a.m. in London. The gauge rallied 22 percent since March 9 as Citigroup Inc., Bank of America and JPMorgan Chase & Co. said they made money in the first two months of 2009 and Treasury Secretary Timothy Geithner unveiled plans by the U.S. yesterday to finance as much as $1 trillion in purchases of distressed assets.
“Questions remain,” said Bill Dinning, Edinburgh-based head of investment strategy at Aegon Asset Management, which oversees $61.6 billion. “I’m not convinced the plan is the complete end game for what ails us in the financial sector,” he said in a Bloomberg Radio interview.
The U.S. plan to help banks dispose of toxic assets spurred investor appetite for higher-yielding currencies, sending the yen to a five-month low against the euro. Treasuries fell for a fourth day as the easing risk of corporate defaults cut demand for government debt.
The S&P 500 soared 7.1 percent yesterday as the Treasury said the U.S. Public-Private Investment Program will use $75 billion to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion.
BlackRock
BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against the rally in equities.
“The risk is that the economic recovery disappoints in the second half and that equity markets need to revisit their lows in the next few months and maybe go through them,” David Hudson, BlackRock’s Sydney-based manager of the Asset Allocation Alpha Fund, said in an interview March 20.
Europe’s Dow Jones Stoxx 600 Index added 0.5 percent after earlier declining 0.2 percent. The gauge pared an earlier advance of as much as 1.7 percent as Rio Tinto and BHP Billiton retreated. The MSCI Asia Pacific Index increased 1.9 percent.
‘Bear-Market Rally’
“Geithner is all about fixing the banks and that is an essential first step in fixing the economy,” said Richard Lacaille, chief investment officer at State Street Global Advisers, which has about $1.7 trillion under management. Still, “this is a bear-market rally. Describing it as a beginning of a bull run is extremely premature,” he said in a Bloomberg Television interview in London.
Bank of America slipped 3.8 percent to $7.50. Citigroup, which rallied 19 percent yesterday, lost 4.8 percent to $2.98.
Investors should sell bank stocks because the Treasury Department’s plan won’t stop profits from dropping, Bank of America’s Richard Bernstein said. Analysts project profit at financial companies in the S&P 500 will decline 33 percent this quarter and 34 percent in the next, according to estimates compiled by Bloomberg.
A gauge of European raw-material producers slid 3.5 percent for the biggest retreat among 19 industry groups in the Stoxx 600. Copper futures in Shanghai climbed 17 percent in seven days on speculation demand from the world’s largest consumer of the metal may be rising as imports doubled amid falling inventories.
Rio Tinto, BHP
Rio Tinto, the world’s third-biggest mining company, fell 6.7 percent to 2,139 pence. BHP Billiton, the largest, declined 5.2 percent to 1,429 pence.
Hyundai Engineering jumped 7.1 percent to 59,200 won. GS Engineering & Construction Corp., South Korea’s third-biggest builder by market value, climbed 5.3 percent to 61,600 won.
The country’s government plans to spend a record 17.7 trillion won ($13 billion) on cash handouts, cheap loans, infrastructure and job training.
Swiss Life Holding AG added 1.7 percent to 73.35 francs. Germany’s Talanx AG agreed to buy as much as 9.9 percent of Switzerland’s biggest life insurer. Talanx will also buy 8.4 percent of MLP AG from Swiss Life.
The S&P 500’s gain yesterday pushed the index’s increase since sinking to a 12-year low on March 9 to 22 percent, the steepest two-week advance since 1938.
The S&P 500 needed only 10 days to enter a bull market after taking seven weeks to fall 20 percent and give President Barack Obama a bear market.
Tuesday, March 17, 2009
Euro Strengthens for Fourth Day Against Yen as Stocks Advance
By Theresa Barraclough and Ron Harui
March 17 (Bloomberg) -- The euro rose for a fourth day against the yen, the longest winning streak in three weeks, as Asian stocks extended a global rally, spurring investors to buy higher-yielding assets.
Europe’s single currency approached the highest level against the yen since December after Handelsblatt reported European Central Bank Executive Board member Juergen Stark saying there was limited room for more interest-rate cuts. The yen weakened for a sixth day versus the New Zealand dollar after Standard Chartered Plc Chief Executive Officer Peter Sands said the bank had a “strong” first two months of the year.
“The backdrop of improving risk appetite is encouraging investors to trim ‘safe-haven’ currency bets,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is likely to result in a generally weaker dollar and solid demand for yen crosses.”
The euro climbed to 128.35 yen as of 7:11 a.m. in London, from 127.32 yen late in New York yesterday, when it reached 128.73 yen, the highest level since Dec. 29. It traded at $1.2973, trimming a gain of as much as 0.5 percent, from $1.2968. The euro strengthened 2.2 percent versus the dollar last week, the first weekly advance since early February.
Japan’s currency declined to 98.79 per dollar from 98.18 yesterday, and dropped to 52.38 versus the New Zealand currency from 52.02. The yen fell against all 16 most active currencies this week after the Group of 20 finance chiefs vowed on the weekend to clean up toxic assets that helped trigger the crisis.
March 17 (Bloomberg) -- The euro rose for a fourth day against the yen, the longest winning streak in three weeks, as Asian stocks extended a global rally, spurring investors to buy higher-yielding assets.
Europe’s single currency approached the highest level against the yen since December after Handelsblatt reported European Central Bank Executive Board member Juergen Stark saying there was limited room for more interest-rate cuts. The yen weakened for a sixth day versus the New Zealand dollar after Standard Chartered Plc Chief Executive Officer Peter Sands said the bank had a “strong” first two months of the year.
“The backdrop of improving risk appetite is encouraging investors to trim ‘safe-haven’ currency bets,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is likely to result in a generally weaker dollar and solid demand for yen crosses.”
The euro climbed to 128.35 yen as of 7:11 a.m. in London, from 127.32 yen late in New York yesterday, when it reached 128.73 yen, the highest level since Dec. 29. It traded at $1.2973, trimming a gain of as much as 0.5 percent, from $1.2968. The euro strengthened 2.2 percent versus the dollar last week, the first weekly advance since early February.
Japan’s currency declined to 98.79 per dollar from 98.18 yesterday, and dropped to 52.38 versus the New Zealand currency from 52.02. The yen fell against all 16 most active currencies this week after the Group of 20 finance chiefs vowed on the weekend to clean up toxic assets that helped trigger the crisis.
Friday, March 13, 2009
Fed Program to Spur Loans May Start With Few Deals (Update2)
By Scott Lanman and Sarah Mulholland
March 13 (Bloomberg) -- The Federal Reserve’s program to revive the market for securities backed by consumer loans may start with just a handful of deals, according to participants in the preparations, delaying its prospects of easing the credit crunch.
Today, the Fed delayed by two days the March 17 deadline for submissions of proposed packages of debt that investors can buy with Fed financing. No agreements have been announced yet for proposed securities. Brokers and investors have had difficulty agreeing over contract terms for the Term Asset-Backed Securities Loan Facility, the people said.
“The stakes are quite large,” and it will be critical that the start of the program “gives reason for hope” that investors will ramp up demand in subsequent operations, said former Fed governor Lyle Gramley. “If they were to dilly-dally not just for weeks, but for months, it would be a black eye.”
Treasury Secretary Timothy Geithner is counting on the so- called TALF, a joint program with the Fed, to expand to as much as $1 trillion to unfreeze credit markets. Any sign of failure of the effort may leave lenders less willing to boost lending for everything from car purchases to farming equipment.
The TALF’s $200 billion first phase would finance AAA rated securities containing loans for autos, education, credit cards and small businesses. Officials eventually plan to finance other assets, including commercial mortgage-backed securities.
First Round
Fed Chairman Ben S. Bernanke and fellow policy makers may be watching the results of the TALF’s first round as they meet March 17-18 in Washington. The Federal Open Market Committee’s last statement, on Jan. 28, said officials will continue to “assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity.”
The New York Fed bank is administering the program, which was announced in November. The bank said in a statement today on its Web site that the two-day extension “was requested by market participants in order to allow more time for borrowers to complete the documentation associated with the initiation of the program.”
“We’ll see a slow ramp-up in this process as people get more comfortable with their obligations,” said Reed Auerbach, co-chief executive officer of law firm McKee Nelson LLP in New York, who is working with issuers and underwriters on the TALF. “I don’t think this month will be indicative of the level of activity going forward.”
Original Plan
The Fed originally planned to start the TALF in February, then delayed the start to ensure “all our legal and procedural steps had been taken,” Bernanke said in congressional testimony Feb. 25. On March 3, the Fed and Treasury said applications for the first deals would be due on March 17, with loans disbursed on March 25.
The program has been complicated by the number and variety of interested parties, including underwriters, issuers, dealers and investors.
Under the TALF, investors such as hedge funds would borrow $84 to $95 from the Fed for every $100 in ABS posted as collateral, meaning they will put up $5 to $16 of their own capital, depending on the type of security.
Initial interest rates on the Fed’s three-year loans will vary from about 1 percent to 3 percent, also depending on the collateral. Investor returns will stem from the pricing of the securities.
Treasury is providing $20 billion in capital from the Troubled Asset Relief Program to protect the Fed from losses. Geithner plans to increase the contribution to $100 billion, allowing the Fed to expand the TALF to $1 trillion and add other assets such as commercial mortgage-backed securities.
Cornerstone of Plans
President Barack Obama has characterized the TALF as a cornerstone of his plans to reverse a self-reinforcing cycle of shrinking credit and economic contraction.
“This administration is moving swiftly and aggressively to break this destructive cycle, to restore confidence and restart lending,” Obama said to a joint session of Congress on Feb. 24, without mentioning the program by name.
Geithner told lawmakers yesterday that the TALF is “a very powerful program to help jumpstart lending to small businesses, student loan markets, consumer credit markets, auto finance markets.” He said at a Senate Budget Committee hearing that the effort “goes around the banking system to try to get the securities markets working again.”
The Managed Funds Association, the main trade group for hedge funds, circulated a “fact sheet” on March 11 outlining 15 concerns of its members with a customer agreement provided by primary dealers, the 16 brokers who trade with the New York Fed’s markets desk and help the central bank implement monetary policy.
Signed Off
Attorneys for the dealers revised the contract, though many investors hadn’t signed off on the terms, one participant said on condition of anonymity.
The primary dealers include securities units of Goldman Sachs Group Inc., Morgan Stanley and UBS AG.
Each round of debt offerings after the first will be due to the Fed on the first Tuesday of every month through December, the current end of the program’s authorization by the Fed’s Board of Governors.
The April round will add further types of securities, including ABS backed by vehicle-fleet leases and loans for business, construction and farm equipment.
“This is for restarting a credit market that has been frozen,” said John Ryding, founder of RDQ Economics LLC and a former Fed economist. “That’s a process that’s going to take time.” Eventually, “it’s going to work and it’s going to work very significantly over time,” he said.
March 13 (Bloomberg) -- The Federal Reserve’s program to revive the market for securities backed by consumer loans may start with just a handful of deals, according to participants in the preparations, delaying its prospects of easing the credit crunch.
Today, the Fed delayed by two days the March 17 deadline for submissions of proposed packages of debt that investors can buy with Fed financing. No agreements have been announced yet for proposed securities. Brokers and investors have had difficulty agreeing over contract terms for the Term Asset-Backed Securities Loan Facility, the people said.
“The stakes are quite large,” and it will be critical that the start of the program “gives reason for hope” that investors will ramp up demand in subsequent operations, said former Fed governor Lyle Gramley. “If they were to dilly-dally not just for weeks, but for months, it would be a black eye.”
Treasury Secretary Timothy Geithner is counting on the so- called TALF, a joint program with the Fed, to expand to as much as $1 trillion to unfreeze credit markets. Any sign of failure of the effort may leave lenders less willing to boost lending for everything from car purchases to farming equipment.
The TALF’s $200 billion first phase would finance AAA rated securities containing loans for autos, education, credit cards and small businesses. Officials eventually plan to finance other assets, including commercial mortgage-backed securities.
First Round
Fed Chairman Ben S. Bernanke and fellow policy makers may be watching the results of the TALF’s first round as they meet March 17-18 in Washington. The Federal Open Market Committee’s last statement, on Jan. 28, said officials will continue to “assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity.”
The New York Fed bank is administering the program, which was announced in November. The bank said in a statement today on its Web site that the two-day extension “was requested by market participants in order to allow more time for borrowers to complete the documentation associated with the initiation of the program.”
“We’ll see a slow ramp-up in this process as people get more comfortable with their obligations,” said Reed Auerbach, co-chief executive officer of law firm McKee Nelson LLP in New York, who is working with issuers and underwriters on the TALF. “I don’t think this month will be indicative of the level of activity going forward.”
Original Plan
The Fed originally planned to start the TALF in February, then delayed the start to ensure “all our legal and procedural steps had been taken,” Bernanke said in congressional testimony Feb. 25. On March 3, the Fed and Treasury said applications for the first deals would be due on March 17, with loans disbursed on March 25.
The program has been complicated by the number and variety of interested parties, including underwriters, issuers, dealers and investors.
Under the TALF, investors such as hedge funds would borrow $84 to $95 from the Fed for every $100 in ABS posted as collateral, meaning they will put up $5 to $16 of their own capital, depending on the type of security.
Initial interest rates on the Fed’s three-year loans will vary from about 1 percent to 3 percent, also depending on the collateral. Investor returns will stem from the pricing of the securities.
Treasury is providing $20 billion in capital from the Troubled Asset Relief Program to protect the Fed from losses. Geithner plans to increase the contribution to $100 billion, allowing the Fed to expand the TALF to $1 trillion and add other assets such as commercial mortgage-backed securities.
Cornerstone of Plans
President Barack Obama has characterized the TALF as a cornerstone of his plans to reverse a self-reinforcing cycle of shrinking credit and economic contraction.
“This administration is moving swiftly and aggressively to break this destructive cycle, to restore confidence and restart lending,” Obama said to a joint session of Congress on Feb. 24, without mentioning the program by name.
Geithner told lawmakers yesterday that the TALF is “a very powerful program to help jumpstart lending to small businesses, student loan markets, consumer credit markets, auto finance markets.” He said at a Senate Budget Committee hearing that the effort “goes around the banking system to try to get the securities markets working again.”
The Managed Funds Association, the main trade group for hedge funds, circulated a “fact sheet” on March 11 outlining 15 concerns of its members with a customer agreement provided by primary dealers, the 16 brokers who trade with the New York Fed’s markets desk and help the central bank implement monetary policy.
Signed Off
Attorneys for the dealers revised the contract, though many investors hadn’t signed off on the terms, one participant said on condition of anonymity.
The primary dealers include securities units of Goldman Sachs Group Inc., Morgan Stanley and UBS AG.
Each round of debt offerings after the first will be due to the Fed on the first Tuesday of every month through December, the current end of the program’s authorization by the Fed’s Board of Governors.
The April round will add further types of securities, including ABS backed by vehicle-fleet leases and loans for business, construction and farm equipment.
“This is for restarting a credit market that has been frozen,” said John Ryding, founder of RDQ Economics LLC and a former Fed economist. “That’s a process that’s going to take time.” Eventually, “it’s going to work and it’s going to work very significantly over time,” he said.
Sunday, March 8, 2009
Retail Sales Probably Fell in February: U.S. Economy Preview
By Shobhana Chandra
March 8 (Bloomberg) -- Sales at U.S. retailers probably fell in February for the seventh time in eight months as soaring unemployment battered consumers, economists said before a government report this week.
Purchases dropped 0.5 percent, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due on March 12. Another report may show the trade gap shrank in January as Americans bought fewer goods made abroad.
Consumers are shopping at discounters like Wal-Mart Stores Inc. to make ends meet as home values plunge and the jobless rate climbs, forsaking purchases of expensive items like automobiles. President Barack Obama, trying to maintain support for his $787 billion stimulus plan, last week said the deteriorating economy demands “bold action and big ideas.”
“The headwinds are coming from everywhere,” said Jonathan Basile, an economist at Credit Suisse Holdings in New York. “Persistent job losses and reports of pay cuts have become embedded in consumer expectations and they think that incomes are going to shrink.”
A Labor Department report last week showed employers eliminated 651,000 jobs in February and the unemployment rate jumped to 8.1 percent, the highest level since December 1983. Job losses have now exceeded 600,000 for three straight months, the first time that’s happened since records began in 1939.
While Obama’s stimulus plan aims to create or save 3.5 million jobs, the nation has now already lost 4.4 million since the recession began in December 2007.
Wal-Mart Gains
Lower home values and stricter lending rules have made consumers reluctant to spend beyond necessities. Wal-Mart, the world’s largest retailer, last week said sales at stores open at least a year rose 5.1 percent in February as cash-strapped shoppers sought cheaper gasoline and groceries.
“It’s almost like a significant percentage of consumers realize that they might have been living beyond their real means,” Eduardo Castro-Wright, Bentonville, Arkansas-based Wal- Mart’s head of U.S. stores, said in a Feb. 26 interview.
Others didn’t fare as well. Retailers from Macy’s Inc., the second-biggest U.S. department-store company, to Gap Inc., the largest U.S. apparel chain, and luxury seller Saks Inc. reported declines.
Retailers’ March same-store sales may drop as much as 1 percent, according to Mike Niemira, chief economist at the New York-based International Council of Shopping Centers.
Fewer Autos
Commerce’s report may also show that excluding automobiles, sales declined 0.1 percent last month, the survey showed. Total sales rose 1 percent in January.
Auto dealers are struggling. Sales in February fell to the lowest level since 1981, industry data showed last week. General Motors Corp., surviving with the help of government loans, said sales plunged 53 percent, while Ford Motor Co. had a 48 percent decline.
“This is still a deepening recession and a deepening credit crunch,” Treasury Secretary Timothy Geithner said at a Senate hearing last week.
The ailing economy is weighing on Americans’ confidence. A March 13 report by Reuters/University of Michigan may show its consumer sentiment index fell this month to the lowest level since 1980, according to the survey median.
As demand cools, imports also are falling. The trade deficit probably narrowed in January to $38 billion, the smallest in more than six years, the survey showed. Exports also will keep sliding in the face of economic slumps from Europe to Japan. Commerce will report the figures on March 13.
The same day, a Labor report may show the cost of imported goods fell in February for the seventh consecutive month as waning sales eroded companies’ pricing power, economists said.
Bloomberg Survey
=================================================================
Release Period Prior Median
Indicator Date Value Forecast
=================================================================
Whlsale Inv. MOM% 3/10 Jan. -1.4% -1.0%
Federal Budget $ Blns 3/11 Feb. -195.6 -205.0
Retail Sales MOM% 3/12 Feb. 1.0% -0.5%
Retail ex-autos MOM% 3/12 Feb. 0.9% -0.1%
Initial Claims ,000’s 3/12 Mar 639 642
Cont. Claims ,000’s 3/12 Feb. 28 5106 5150
Business Inv. MOM% 3/12 Jan. -1.3% -1.1%
Trade Balance $ Blns 3/13 Jan. -39.9 -38.0
Import Prices MOM% 3/13 Feb. -1.1% -0.7%
Import Prices YOY% 3/13 Feb. -12.5% -13.6%
U of Mich Conf. Index 3/13 March P 56.3 55.0
=================================================================
March 8 (Bloomberg) -- Sales at U.S. retailers probably fell in February for the seventh time in eight months as soaring unemployment battered consumers, economists said before a government report this week.
Purchases dropped 0.5 percent, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due on March 12. Another report may show the trade gap shrank in January as Americans bought fewer goods made abroad.
Consumers are shopping at discounters like Wal-Mart Stores Inc. to make ends meet as home values plunge and the jobless rate climbs, forsaking purchases of expensive items like automobiles. President Barack Obama, trying to maintain support for his $787 billion stimulus plan, last week said the deteriorating economy demands “bold action and big ideas.”
“The headwinds are coming from everywhere,” said Jonathan Basile, an economist at Credit Suisse Holdings in New York. “Persistent job losses and reports of pay cuts have become embedded in consumer expectations and they think that incomes are going to shrink.”
A Labor Department report last week showed employers eliminated 651,000 jobs in February and the unemployment rate jumped to 8.1 percent, the highest level since December 1983. Job losses have now exceeded 600,000 for three straight months, the first time that’s happened since records began in 1939.
While Obama’s stimulus plan aims to create or save 3.5 million jobs, the nation has now already lost 4.4 million since the recession began in December 2007.
Wal-Mart Gains
Lower home values and stricter lending rules have made consumers reluctant to spend beyond necessities. Wal-Mart, the world’s largest retailer, last week said sales at stores open at least a year rose 5.1 percent in February as cash-strapped shoppers sought cheaper gasoline and groceries.
“It’s almost like a significant percentage of consumers realize that they might have been living beyond their real means,” Eduardo Castro-Wright, Bentonville, Arkansas-based Wal- Mart’s head of U.S. stores, said in a Feb. 26 interview.
Others didn’t fare as well. Retailers from Macy’s Inc., the second-biggest U.S. department-store company, to Gap Inc., the largest U.S. apparel chain, and luxury seller Saks Inc. reported declines.
Retailers’ March same-store sales may drop as much as 1 percent, according to Mike Niemira, chief economist at the New York-based International Council of Shopping Centers.
Fewer Autos
Commerce’s report may also show that excluding automobiles, sales declined 0.1 percent last month, the survey showed. Total sales rose 1 percent in January.
Auto dealers are struggling. Sales in February fell to the lowest level since 1981, industry data showed last week. General Motors Corp., surviving with the help of government loans, said sales plunged 53 percent, while Ford Motor Co. had a 48 percent decline.
“This is still a deepening recession and a deepening credit crunch,” Treasury Secretary Timothy Geithner said at a Senate hearing last week.
The ailing economy is weighing on Americans’ confidence. A March 13 report by Reuters/University of Michigan may show its consumer sentiment index fell this month to the lowest level since 1980, according to the survey median.
As demand cools, imports also are falling. The trade deficit probably narrowed in January to $38 billion, the smallest in more than six years, the survey showed. Exports also will keep sliding in the face of economic slumps from Europe to Japan. Commerce will report the figures on March 13.
The same day, a Labor report may show the cost of imported goods fell in February for the seventh consecutive month as waning sales eroded companies’ pricing power, economists said.
Bloomberg Survey
=================================================================
Release Period Prior Median
Indicator Date Value Forecast
=================================================================
Whlsale Inv. MOM% 3/10 Jan. -1.4% -1.0%
Federal Budget $ Blns 3/11 Feb. -195.6 -205.0
Retail Sales MOM% 3/12 Feb. 1.0% -0.5%
Retail ex-autos MOM% 3/12 Feb. 0.9% -0.1%
Initial Claims ,000’s 3/12 Mar 639 642
Cont. Claims ,000’s 3/12 Feb. 28 5106 5150
Business Inv. MOM% 3/12 Jan. -1.3% -1.1%
Trade Balance $ Blns 3/13 Jan. -39.9 -38.0
Import Prices MOM% 3/13 Feb. -1.1% -0.7%
Import Prices YOY% 3/13 Feb. -12.5% -13.6%
U of Mich Conf. Index 3/13 March P 56.3 55.0
=================================================================
Japan Posts First Current-Account Deficit Since 1996 on Exports
By Keiko Ujikane
March 9 (Bloomberg) -- Japan had its first current-account deficit in 13 years in January as the global recession sapped demand for exports.
The deficit stood at 172.8 billion yen ($1.76 billion), the Ministry of Finance said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a gap of 15.3 billion yen. It was the first shortfall since January 1996.
The global slump is eroding earnings at companies from Toyota Motor Corp. to Sharp Corp., prompting them to fire workers and cut production. A government report last week showed Japanese companies cut spending last quarter at the fastest pace in a decade and profits plunged, pushing the nation’s economy toward the worst postwar recession.
“Export declines are accelerating and we could see a current-account deficit continue through the third quarter,” said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo.
Shipments to the U.S. tumbled an unprecedented 52.9 percent in January from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines, according to a separate trade report released last month. Today’s trade figures don’t include regional breakdowns.
The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Toyota and Sharp.
Toyota is expecting its first annual loss in 59 years as vehicle sales plunge in the U.S., Japan and Europe, its biggest markets. Every 1 yen gain against the dollar cuts Toyota’s annual operating profit by 40 billion yen.
Sharp, the country’s largest maker of liquid-crystal- display televisions, will post its first loss in more than five decades and cut 1,500 temporary jobs because of falling sales.
Bank of Japan Governor Masaaki Shirakawa last week said the economy is worsening faster than the central bank expected and the policy board will keep looking for ways to counter the slump.
The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared balance.
March 9 (Bloomberg) -- Japan had its first current-account deficit in 13 years in January as the global recession sapped demand for exports.
The deficit stood at 172.8 billion yen ($1.76 billion), the Ministry of Finance said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a gap of 15.3 billion yen. It was the first shortfall since January 1996.
The global slump is eroding earnings at companies from Toyota Motor Corp. to Sharp Corp., prompting them to fire workers and cut production. A government report last week showed Japanese companies cut spending last quarter at the fastest pace in a decade and profits plunged, pushing the nation’s economy toward the worst postwar recession.
“Export declines are accelerating and we could see a current-account deficit continue through the third quarter,” said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo.
Shipments to the U.S. tumbled an unprecedented 52.9 percent in January from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines, according to a separate trade report released last month. Today’s trade figures don’t include regional breakdowns.
The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Toyota and Sharp.
Toyota is expecting its first annual loss in 59 years as vehicle sales plunge in the U.S., Japan and Europe, its biggest markets. Every 1 yen gain against the dollar cuts Toyota’s annual operating profit by 40 billion yen.
Sharp, the country’s largest maker of liquid-crystal- display televisions, will post its first loss in more than five decades and cut 1,500 temporary jobs because of falling sales.
Bank of Japan Governor Masaaki Shirakawa last week said the economy is worsening faster than the central bank expected and the policy board will keep looking for ways to counter the slump.
The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared balance.
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