Bear Stearns ex-managers arrested

Two former managers at investment bank Bear Stearns have been arrested in New York over the collapse of the bank's hedge fund last year.

Reports say Ralph Cioffi and Matthew Tannin will face charges in connection with their management of hedge funds that collapsed in June 2007.

The bank's hedge funds bet on the high-risk sub-prime mortgage market in the US before it collapsed.

Authorities in Brooklyn are due to give details about the case later.

FBI spokesman Jim Margolis told the BBC the men faced criminal charges of "securities fraud related to their management of two Bear Stearns hedge funds".

The men are due to appear in the US Federal Court in Brooklyn later this afternoon local time.

If charged, the men would become the first Wall Street executives to face criminal charges related to the US sub-prime mortgage crisis.

Sub-prime mortgages, loans issued to people with a poor credit history, were repackaged as securities and sold across the globe.

The collapse of these hedge funds preceded Bear Stearns' own demise earlier this year.

In March, JP Morgan agreed to buy Bear Stearns with backing of the US Federal Reserve. The deal was approved by Bear Stearns shareholders last month.

Bear Stearns was one of the most high-profile victims of the credit crunch, which was triggered by bank losses linked to the US housing market.

The Fed took swift action over the situation at Bear Stearns to prevent problems spreading to the rest of the international financial sector.

Taken From : www.news.bbc.co.uk




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UK Retail Sales Should Be Taken With a Grain of Salt, Say Economists

European Economy | Written by CEP News

Economists and analysts are taking May's results in UK retail sales with a grain of salt after the Office of National Statistics announced a 3.5% month-over-month rise in sales, up from both the 0.1% fall expected and the 0.3% decline recorded in the previous month.

April's figure was revised down from an initial decline of 0.2%.

Annual retail sales jumped 8.1%. Economists had expected an increase of 4.1% in May following April's 3.8% rise, revised down from an initial growth rate of 4.2%.

Raymond Van der Putten of BNP Paribas does not think the Bank of England will take the data very seriously. "It is unlikely that the MPC will blindly accept today's data. It tends to give greater weight to the observations by its own regional contacts," adding, "In the June Minutes, the Committee noted that the observed strength in consumer spending in Q1 is likely to be revised down once more data have become available."

The data was also sharply different from a survey conducted by the Confederation of British Industry for May which saw a reading of -14 compared to -26 in April.

"Given the backdrop of sharply rising inflation and plummeting confidence, we continue to think that the official sales figures should be taken with a pinch of salt," said Ben May of Capital Economics. "Indeed, the CBI retail sales survey and the official figures have recently diverged sharply."

Meanwhile the British Retail Consortium issued a statement saying "These official figures confirm our own findings that retail sales growth was lifted by the final arrival of warm weather in early May. As the sun came out so did shoppers, boosting sales of summer food and drink and particularly clothing which had been struggling."

The BRC's total retail sales figure for May grew 4.6% month-over-month and same store sales moved higher by 1.9%. On a three-month basis, total sales advanced by 2.1% in May, but same store sales declined 0.5%.

"However, the economic fundamentals remain weak. Much of this sales growth is the result of discounts and promotions and people are still reluctant to buy more expensive items, such as furniture and electricals," added the BRC press release on Thursday.

The data also have economists speculating on how the Bank of England will interpret the news.

"The number is surprising in two ways: 1) Surveys have been weak across the board, and 2) Fundamentals for UK consumers are weak, with inflation expectations rising. We are a bit sceptical of the strength but it does increase the risk that the Bank of England could follow the ECB and send a "warning shot" to anchor inflation expectations," according to a research note from Danske Bank. "We still believe this probability is below 50%, though, and hence are not changing our forecast of the Bank of England on hold for now, followed by rate cuts next year."

On Wednesday evening, Bank of England Governor Mervyn King said, "Growth is now slowing quite sharply," speaking at the Lord Mayor's Banquet for Bankers and Merchants in London, and commented that it is "impossible to judge now" where interest rates must go to bring inflation back to target levels.

"It is, however, also worth bearing in mind that BoE Governor King would have known this number when he gave his Mansion House speech last night," said Simon Hayes of Barclays Capital Economics. "Notwithstanding that fact, Mr King was downbeat on growth and household demand, saying that growth was 'slowing quite sharply' and that both house prices and consumer spending would weaken further in response to the squeeze in real household incomes. This suggests that he at least does not set too much store by this number as a guide to future activity."

Nevertheless, markets took the news seriously, according to a report from RBC Capital Markets. "GBP/USD rallied to a high of 1.9717 and EUR/GBP fell to just above the month's low after an extremely upbeat May UK retail sales report and as implied forward UK rates rose as much as 25bp," according to Adam Cole, head of FX strategy in London.

"While, like ourselves, the Bank will likely take this report with a pinch of salt, this release underlines the fact that the threat of an ECB-style 'fine tuning' hike will remain significant over the near term. We suspect that August represents the most likely date for just such a move (coinciding with the next Inflation Report) but the risk is now clearly slanted to those members who discussed a pre-emptive hike in June, voting for higher rates in July," he added.

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Darling sets out new Bank remit

Chancellor Alistair Darling has outlined plans to give the Bank of England new responsibilities in his Mansion House speech.

Speaking in his first keynote address to business leaders, the chancellor said the Bank would now be accountable for the UK's financial stability.

This is in addition to its statutory objective of setting interest rates.

The radical new measures come in the wake of the collapse of Northern Rock amid global credit problems.

Part of the reforms will include setting up a new Financial Stability Committee, which will guide the Bank's operations in this field.

"It will bring valuable, external expertise with City experience to bear on the Bank's decision making," he said.

"The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions," Mr Darling added.

He intimated that the proposals would clarify and enhance the powers of the Bank of England and the UK financial watchdog, the Financial Services Authority, and improve co-ordination between the regulators.

More details will come in a letter to the Treasury Select Committee chairman John McFall on Thursday.

'Tough times'

Mr Darling also addressed inflation risks, saying "times are tough".

He said consumer inflation, which reached 3.3% in May, must be tackled and called again for pay restraint in both the private and public sector.

But he dismissed suggestions that the most recent inflation figures show we are returning to the days of the 1970s when economic growth was falling, while prices were rising by 26%.

Upbeat that the UK would continue to grow despite "global difficulties", he said: "Independent forecasters expect UK inflation to fall back next year.

"Employment is at a record high. Many order books are full. British business is competing and winning all over the world. Our economy is flexible and resilient."

The chancellor's optimism was tempered by comments from the Bank of England Governor Mervyn King, who offered a grimmer picture of the economic reality.

He said that rising fuel, gas, electricity and food prices will mean that average take-home pay will "stagnate" this year, but warned that pay settlements must remain low to bring inflation back to the government's target of 2%.

Insisting that the Bank's rate-setting Monetary Policy Committee (MPC) "is prepared to take whatever action is needed" to bring inflation down, the suggestion is that higher wage settlements may result in higher interest rates.

'Right framework'

He said that the Bank had the "right framework" to make sure inflation returns to the government's 2% target and that economic growth recovers.

But he added that no monetary policy could prevent the current effects of rising food and energy prices on living standards.

Neither could interest rate cuts coax banks, which are currently re-evaluating risk and keeping a tight grasp on their balance sheet, to be more generous in their lending to house buyers.

And he warned that higher living costs were likely to restrain consumer spending to a far greater extent than tighter lending conditions as a result of the credit crisis.

"It will not be an easy time, and I know that some families will find it particularly difficult."

But he said these pressures would be temporary - the opposite side of the coin to the falls in price of manufactured goods from countries such as India and China, which over the past few years allowed our standard of living to rise at a rate faster than productivity.

Mr King also welcomed the chancellor's plans to increase the Bank's responsibilites that will come in the form of a Banking Bill.

This he said provided an opportunity to put in place a set of reforms that "provide a coherent framework for banking regulation".

"It is an opportunity we must not throw away," he added.

Criticised

The chancellor's speech was criticised by the Conservative Party.

Shadow chief secretary to the Treasury Philip Hammond called it a "missed opportunity".

"Gordon Brown's reputation for economic competence has gone bust and this was the big test of whether the chancellor had the vision to steer Britain's economy through these difficult times," he said.

"What Britain needed from the Mansion House speech was a display of economic leadership. Instead all we got were re-hashed announcements and no new ideas."

Taken From: http://news.bbc.co.uk

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U.S., China Agree to Investment Treaty Talks, Clash on Currency

By John Brinsley and Li Yanping

June 19 (Bloomberg) -- China and the U.S. agreed to negotiate an investment treaty and urged each other to strengthen their exchange rates in the fourth round of semiannual economic talks.

Treasury Secretary Henry Paulson said he was content to have ``frank'' exchanges on currency issues and hailed the Strategic Economic Dialogue for deepening the two nations' engagement. The countries also signed a 10-year deal aimed at ensuring the world's two biggest oil-consuming nations have enough energy to power their economies.

The Treasury chief, who started the SED in 2006, steered the forum toward energy security, environmental protection and financial-market access that can be taken up by the next U.S. administration after January.

``Paulson will be making the case that there's been enough progress in opening China's markets to continue this dialogue in some form in the next administration,'' said Charles Freeman, a fellow at the Center for Strategic and International Studies and a former top U.S. trade official on China.

Paulson and China's Vice Premier Wang Qishan led two days of talks in Annapolis, Maryland that spanned trade and investment issues to food safety, intellectual property rights and protecting the environment.

Heading into the meetings, Paulson called on China to end price controls on domestic fuels, a request that went unheeded during the SED. As at past gatherings, he urged China to let markets play a bigger role in setting the yuan's value, and on that issue China also gave no new ground.

Pressing on Yuan

``I welcome the recent increased pace of appreciation of the renminbi,'' Paulson said in a press conference in Washington yesterday, using another term for the yuan. Greater ``flexibility'' in the yuan is ``a crucial tool in controlling inflation'' for China, he said.

China's officials responded by flagging concerns about the dollar's decline, which People's Bank of China Governor Zhou Xiaochuan said had pushed up commodity prices around the world.

``Emerging economies are feeling the pinch,'' Zhou said on June 17. ``A weakening dollar may push up prices of commodities such as crude oil.''

Chinese Assistant Finance Minister Zhu Guangyao said yesterday that ``excessive depreciation is not to the interest of all countries including the U.S.'' Zhu urged the U.S. to ``plan a responsible role in terms of the dollar issue.''

Paulson said he didn't have an issue with the comments, reiterating his confidence that U.S. competitiveness is ``going to be reflected in our currency value.''

`On the Offensive'

China ``has also gone on the offensive'' on exchange-rate discussions, Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients.

Paulson and Wang signed an accord between the world's two biggest greenhouse-gas emitters to cooperate on energy and the environment, focusing on air, water, clean sources of power, transportation, and conservation of forests and wetlands.

U.S. officials have urged China to drop tariffs on environmental equipment, saying such barriers hinder efforts to clean up a country that the World Bank says has 16 of the world's 20 most-polluted cities.

The two sides also agreed to start negotiations on an investment treaty that would grant easier access for companies to buy assets in the other country.

The talks may take at least a year to complete, one U.S. official said on condition of anonymity yesterday. That puts them beyond President George W. Bush's administration, which ends Jan. 20.

Timing Issue

``We are concerned about the timing,'' House Ways and Means Committee Chairman Charles Rangel, a New York Democrat, wrote in a letter to Paulson. The administration ``should make clear to China that all major decisions in the negotiations will necessarily be left to the next president,'' he wrote.

China would be the largest country with which the U.S. signed an investment treaty, and the talks come as American firms seek greater access to the world's fastest-growing major economy. U.S. business groups representing companies such as Citigroup Inc. have pushed China to allow a greater role for overseas enterprises.

An investment pact may also benefit China as it pushes state-owned companies including oil explorer Cnooc Ltd. and smelter Aluminum Corp. of China Ltd. to buy oilfields and mines abroad to feed its expanding economy. Cnooc in 2005 failed in a bid to buy El Segundo, California-based Unocal Corp. because of U.S. lawmaker opposition.

Financial Deals

The Treasury said China agreed to allow non-deposit-taking foreign companies provide consumer finance ``on a pilot-project basis'' and to let foreign firms list on its stock exchanges through issuing shares or depository receipts.

China will also ease requirements for foreign banks to issue subordinated, yuan-denominated bonds. Authorities will conduct a review by year-end of foreign participation in Chinese securities, futures and fund management firms and make policy recommendations, according to a joint statement released by the two sides.

China pledged to consider participating with other countries to ease oil-market disruptions, through an International Energy Agency initiative.

John Engler, president of the U.S.'s National Association of Manufacturers, said the SED, ``while not achieving everything we had hoped, has had a positive effect.''

Washington-based Engage China, a coalition of 10 financial- services trade groups, called the results ``modest.''

The next SED meeting is scheduled for December in Beijing.

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.netRob Delaney in Washington at robdelaney@bloomberg.net

Last Updated: June 18, 2008 20:55 EDT

Taken From :http://www.bloomberg.com


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Bernanke May Regret Interest-Rate Cuts, Lawson Says

By Kim-Mai Cutler

June 18 (Bloomberg) -- Former U.K. Chancellor of the Exchequer Nigel Lawson said Federal Reserve Chairman Ben S. Bernanke may be ``regretting'' the fastest pace of U.S. interest-rate cuts since 1984 as global inflation accelerates.

The Fed reduced its benchmark rate by 3.25 percentage points to 2 percent between September and April 30 to stave off a recession following the collapse of the U.S. subprime-mortgage market. The Bank of England, also facing a slowdown, cut its key rate by 0.75 percentage point to 5 percent. The European Central Bank left rates unchanged at 4 percent for a year and signaled this month it may raise them in July.

``The Bank of England has been very cautious and careful and it has been much closer to the views of the European Central Bank,'' Lawson, 76, who was finance minister from 1983 to 1989 under former Prime Minister Margaret Thatcher, said in a telephone interview. ``It has not gone conspicuously the way of the Fed, where I suspect that Mr. Bernanke's now regretting it.''

U.S. consumer prices rose 0.6 percent in May, the most since November, the Labor Department said June 13. Inflation in the euro area accelerated last month to a 3.7 percent annual rate, the fastest since June 1992, the European Union reported June 16.

Inflation caused by rising commodity prices is the biggest threat to the world economy, eclipsing concern about the seizure in the credit markets, finance ministers from the Group of Eight nations said June 14. The World Bank said on June 10 that global economic growth will probably slow to 2.7 percent this year from 3.7 percent in 2007.

Oil `Bubble'

Rising food prices and a ``speculative bubble'' in oil markets will prompt central banks to lift rates, leading to a ``growth recession'' where the rate of expansion is lower than historical trends, Lawson said in the interview.

Crude oil rose 95 percent from a year ago and traded at an all-time high of $139.89 a barrel in New York June 16. Corn for December delivery also traded at a record $7.915 in Chicago.

``Most of the central banks are very, very clear on just how dangerous it is to let inflationary expectations get out of hand,'' he said.

Traders see a 48 percent chance the Fed will raise its target rate for overnight bank loans from 2 percent as early as August, up from 4.1 percent odds a month ago, futures contracts on the Chicago Board of Trade show. The chances of an increase in October are 99 percent, the contracts show.

Michelle Smith, a Fed spokeswoman in Washington, declined to comment on Lawson's remarks.

`Shallow' Recession

The slowdown in the U.K. is going to last ``longer than most people expect,'' while remaining ``shallow,'' Lawson said. The economy, the second-largest in Europe, grew 0.4 percent in the first quarter, its weakest pace since 2005, as higher credit costs hurt construction and business services slowed, according to the Office for National Statistics.

``This is the hangover after the binge,'' Lawson said. ``It's going to be very, very difficult for the next two to three years for the global economy.''

The U.K. won't adopt the euro in place of the pound as a global slowdown heightens tensions between members of the 27- nation European Union, Lawson said. Ireland vetoed the bloc's new government treaty June 13, sinking an agreement that needed ratification by all EU countries.

``There are going to be considerable strains within the euro area,'' Lawson said. ``There are going to be a number of countries that found the single currency satisfactory during the benign period, that are now going to hurt much more under these difficult conditions.''

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Last Updated: June 18, 2008 08:02 EDT

Taken From :http://www.bloomberg.com

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Gold, Silver Rise on Speculation Fed Won't Raise Rates Soon

By Pham-Duy Nguyen

June 18 (Bloomberg) -- Gold and silver rose on speculation that a slowing U.S. economy will deter the Federal Reserve from raising borrowing costs, boosting the appeal of precious metals as alternative investments to the dollar.

Financial futures show a 12 percent chance the Fed will raise the benchmark interest rate by 0.25 percentage point to 2.25 percent next week, compared with a 26 percent chance yesterday. Gold rallied 39 percent from Sept. 17 to March 17 as the Fed reduced rates from 5.25 percent.

``The odds of rate increases have gone down,'' said Matt Zeman, a trader at LaSalle Futures Group in Chicago. ``We're still losing jobs, and housing is incapable of turning around. The dollar has very limited upside potential.''

Gold futures for August delivery rose $6.60, or 0.7 percent, to $893.50 an ounce on the Comex division of the New York Mercantile Exchange.

Silver futures for July delivery rose 26.5 cents, or 1.6 percent, to $17.34 an ounce. The price has advanced 16 percent this year, while gold climbed 6.6 percent.

Silver has climbed 2.9 percent in the past week. A drop to $16 or a rally above $18.20 will attract buyers, Zeman said.

Gold generally moves in the opposite direction of the dollar, which was little changed against a weighted basket of six major currencies after dropping 0.9 percent in the previous two days.

Home Foreclosures

The Mortgage Bankers Association this month reported that the number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their properties.

Investors also purchased precious metals to hedge against inflation. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials climbed for a sixth straight session to a record 1650.68. Gold reached an all-time high of $1,033.90 an ounce on March 17, and crude oil, gasoline, copper, corn, soybeans and wheat climbed to records this year.

``There's a tremendous amount of inflation percolating through this system,'' said Frank McGhee, the head metals trader at Integrated Brokerage Services LLC in Chicago. ``Any weakness in the dollar and strength in crude will allow gold to rally significantly.''

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Last Updated: June 18, 2008 14:20 EDT

Taken From :http://www.bloomberg.com


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Bank and economic fears drive Dow to 3-month low

Wed Jun 18, 2008 7:01pm EDT

By Walker Simon

NEW YORK (Reuters) - The Dow industrials sank to their lowest close in three months on Wednesday after slipping below 12,000 for the first time since mid-March, as worries about a weak economy compounded credit sector concerns and drove shares of banks, autos and transportation companies sharply lower.

Triggering fears of a slowing economy, FedEx Corp, forecast dismal profits as rising fuel costs could sap demand. Shares of the package delivery company, closely watched by Wall Street as a proxy for U.S. business activity, fell 2.1 percent to $82.60 on the New York Stock Exchange.

Adding to the bleak outlook for bank stocks, Fifth Third Bancorp sank 27 percent to $9.26 and ranked among the Nasdaq's biggest percentage losers. The Midwestern bank said it would cut its dividend and raise $2 billion in capital, stirring fears that the credit crisis was tightening its grip on commercial banks.

A 2 percent rise in oil prices above $136 a barrel compounded concerns about rising raw material costs.

The Dow fell to an intraday low at 11,993.64 -- its lowest level since the Federal Reserve's mid-March rescue of Bear Stearns rattled investors who were already worried about the health of the banking sector.

"The autos, financials and transport sectors are very sensitive to the perception that economic growth is waning," said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. "We've had little evidence the economy is at (its) bottom."

Worries were surfacing over the reading of the U.S. second-quarter gross domestic product, due in July, he said. A Reuters poll of economists see the GDP's growth rate slowing to an annual pace of 0.2 percent in the second quarter, which would be the weakest since 2002.

The Dow Jones industrial average .DJI tumbled 131.24 points, or 1.08 percent, to 12,029.06 -- its lowest close since March 17.

The Standard & Poor's 500 Index .SPX fell 13.09 points, or 0.97 percent, to 1,337.81. The Nasdaq Composite Index dropped 28.02 points, or 1.14 percent, to 2,429.71.

Shares of General Motors Corp fell 5.9 percent to $14.89, ranking as the Dow's biggest percentage loser. GM touched $14.75, its lowest level since the recession of 1982.

Shares of rival Ford Motor Co fell 5.8 percent to $6.22 on the NYSE.

GM's stock fell after Deutsche Bank cut the industry-wide outlook, saying leading indicators pointed toward continued "recessionary levels" of demand.

The KBW index .BKX, which includes money-center banks like Bank of America, slid 4.2 percent to an intraday low at 62.36, its lowest since October 2002, after Fifth Third's plan prompted investors to dump other banks' shares.

At the close, the KBW bank index was down 2.9 percent at 63.21.

Bank of America shares lost 3 percent to $28.37 on the New York Stock Exchange, while SunTrust Banks, a regional bank company whose stock is also in the KBW index, sank 9 percent to $36.95 in NYSE trading.

Shares of FedEx rival UPS dropped 2.3 percent to $65.80.

A rare bright spot was provided by Boeing, whose shares rose 0.4 percent to $74.65 after the U.S. Government Accountability Office, a nonpartisan auditing arm of Congress, recommended the Air Force reopen a competition to award a refueling tanker program, potentially worth $35 billion.

In February, the Air Force awarded the contract to rival Northrop Grumman Corp and its European partner EADS. Shares of Northrop fell 1.4 percent and stock of EADS, the parent of Airbus, fell 3.4 percent to 13.55 euros.

Only four of the Dow's 30 components finished higher, with Boeing leading that list.

U.S. crude oil for July delivery rose $2.67 to settle at $136.68 a barrel, up 2 percent for the day.

Trading was moderate on the New York Stock Exchange, with about 1.28 billion shares changing hands, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.07 billion shares traded, below last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by a ratio of about 5 to 2 on both the NYSE and the Nasdaq.

Taken From :http://www.reuters.com


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PRECIOUS METALS: Gold, Silver Futures Close Higher, Dollar Drops

Natalie Simmons

18 June 2008 @ 04:19 pm EST

New York - Gold futures rose on Wednesday on speculation that a slumping U.S. economy will prevent the Federal Reserve from lowering interest rates, while soaring oil prices and a weaker dollar boosted the demand for the precious metal.

Gold futures for August delivery rose $6.60, or 0.7 percent, to $893.50 an ounce on the Comex division of the New York Mercantile Exchange. Gold rallied 39 percent from Sept. 17 to March 17 as the Fed reduced rates from 5.25 percent.

"Although as yet unable to break out of the price channel it has carved out recently, gold looked quite a bit more buoyant today," said Jon Nadler, senior analyst at Kitco Bullion Dealers, in a research note.

"However, aside from short-term fund plays following various economic or geopolitical news items, the bulk of would-be players remained sidelined ahead of next week's Fed meeting," he said.

In currency trading, the dollar took a downturn as traders reconsidered bets that the Federal Reserve will be raising interest rates later this year as economic woes continue to hit stocks.

The dollar index , which tracks the performance of the greenback against other major currencies, fell 0.1 percent to 73.44.

Weakness in the U.S. dollar typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies.

Crude-oil futures closed higher Wednesday, recovering from their lowest level in more than a week after a rise in refinery activity helped boost distillate inventories, crude supplies have been declining since mid-May. Crude closed at $136.68 a barrel, its strongest closing level since June 12, up $2.67 on the New York Mercantile Exchange.

Also on the Nymex, July platinum gained $27.60 to $2,091.90 an ounce. September palladium added $7.95 to $471.80 an ounce and July copper futures rose 10 cents to $3.75 a pound.

This article is copyrighted by International Business Times.

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