By Kristy Scheuble
Sept. 24 (Bloomberg) -- Following is a summary of U.S. existing home sales from the National Association of Realtors.
==============================================================================
Aug. July June May April March 3 month
2008 2008 2008 2008 2008 2008 Average
==============================================================================
Total sales 4.910 5.020 4.850 4.990 4.890 4.940 4.927
Single Family 4.350 4.410 4.260 4.410 4.340 4.360 4.340
Condos/Co-ops 0.560 0.610 0.590 0.580 0.550 0.580 0.587
--------------Monthly Percent Change-------------- -YoY%-
Total sales -2.2% 3.5% -2.8% 2.0% -1.0% -1.8% -10.7%
Single Family -1.4% 3.5% -3.4% 1.6% -0.5% -2.5% -9.6%
Condos/Co-ops -8.2% 3.4% 1.7% 5.5% -5.2% 3.6% -19.0%
-------------------Months Supply------------------ 3mth Avg.
Total sales 10.4 10.9 11.1 10.8 11.2 10.0 10.8
Single Family 10.0 10.4 11.0 10.5 10.7 9.6 10.5
Condos/Co-ops 14.0 15.3 12.1 14.1 14.2 12.8 13.8
------------------------------------------------------------------------------
==============================================================================
Aug. July June May April March
2008 2008 2008 2008 2008 2008 -YoY%-
==============================================================================
--------------------Median Price------------------
Total sales $203,100 $210,300 $215,100 $207,900 $201,200 $200,100 -9.5%
Single Family $201,900 $208,900 $213,600 $206,000 $199,600 $197,600 -9.7%
Condos/Co-ops $212,600 $220,500 $225,900 $222,500 $213,400 $218,500 -7.2%
-------------------Average Price-----------------
Total sales $245,400 $253,300 $257,900 $252,600 $247,200 $247,100 -8.9%
Single Family $244,700 $252,400 $256,800 $251,200 $246,200 $245,400 -9.3%
Condos/Co-ops $251,200 $259,700 $265,500 $263,400 $255,000 $259,600 -5.7%
==============================================================================
NOTE: All levels are in millions and seasonally adjusted
at annual rates except for prices.
SOURCE: National Association of Realtors
To contact the reporter on this story: Kristy Scheuble in Washington at kmckeaney@bloomberg.net
Read more...
Wednesday, September 24, 2008
Pakistan May Seek Aid Amid Concern of Debt Default
By Michael Dwyer
Sept. 24 (Bloomberg) -- Pakistan President Asif Ali Zardari will ask the U.S., U.K. and other industrial nations for financial aid amid concern South Asia's second-largest economy is in danger of defaulting on its debt.
Zardari will seek ``economic assistance'' at a meeting in New York on Sept. 26 with U.S. Secretary of State Condoleezza Rice and representatives of other Group of Eight countries, according to the state-run Associated Press of Pakistan. Moody's Investors Service lowered Pakistan's credit outlook to negative yesterday, citing a risk of ``missed repayments.''
``Pakistan has no other option but to extend a begging bowl,'' said Haider Hussain, an economist at Elixir Securities Ltd. in Karachi. ``A negative outlook may damage Pakistan's overall posture, eroding foreign investors' confidence.''
Pakistan is the world's riskiest government borrower, according to credit-default swap prices from CMA Datavision, with investors concerned by a deterioration in security that saw 53 people killed in a weekend bomb attack on the Islamabad Marriott hotel. The nation is running short of money to repay state debt, as foreign-exchange reserves have almost halved to $9.16 billion in early September from $16.5 billion a year ago.
``The fall in forex reserves, especially if combined with substantial capital flight, could see Pakistan resort to borrowing from international agencies,'' said Maheen Rahman, head of research at BMA Capital Management Ltd. in Karachi. ``The pressure is intense and will only get worse in the absence of significant foreign inflows to fund the external deficit.''
The Pakistani rupee has plunged 21 percent against the dollar this year amid higher payments for imported oil that widened the current account deficit to a record $14 billion in the year ended June 30.
Foreign Reserves
The currency gained 0.04 percent to 78.17 per dollar as of 5 p.m. in Karachi. The government's bond due 2036 rose for the first time in nine days, lowering the yield to 10.29 percent from 10.32 percent.
``In the end I can imagine there will be some assistance from foreign countries, maybe some IMF program, some help from other sovereign national organizations,'' said Anton Hauser, a fund manager who helps oversee $2.4 billion of emerging-market debt at Vienna-based Erste Sparinvest KAG, and owns about $6 million of Pakistan's dollar-denominated debt. ``There'll definitely be conditions from the IMF program in fiscal policies, leading to some adjustment in the current account.''
Finance Minister Naveed Qamar announced a four-point ``economic stabilization plan'' at a press conference on last week with central bank governor Shamshad Akhtar, aiming to restore investor confidence in the $146 billion economy.
Pakistan will increase domestic finances through asset sales, eliminate subsidies on power and fuel by June 2009 and raise funds from overseas, Qamar told reporters in Islamabad.
Political Uncertainty
The measures may help revive a sliding economy that's forecast to grow at the slowest pace since 2003 and bridge the budget deficit, which is at 10-year high. Qamar's efforts have been hampered by six months of political uncertainty following the March election of Pakistan's first civilian government since 1999 and strained relations with the U.S. after the ruling coalition forced President Pervez Musharraf to resign in August.
The Bush administration has increased pressure on Prime Minister Yousuf Raza Gilani's government to do more to curb rising militancy in Pakistan and the U.S.-led forces in neighboring Afghanistan have increased cross-border raids against pro-Taliban and al-Qaeda militants.
Default Risk
Investors aren't convinced that government efforts to stimulate economic growth will succeed.
Karachi's KSE100 Index has lost more than a third of its value this year, ranking behind only China and Vietnam as Asia's worst-performing benchmark stock index. The index fell 0.1 percent to 9,190.75 after a one-month ban on short selling started today.
Credit-default swaps on Pakistan's $2.7 billion of dollar- denominated bonds outstanding have jumped to 1,500 basis points. That means it costs $1.5 million annually to protect $10 million of the country's debt from default for five years, triple the cost on Lebanon's debt, according to data compiled by Bloomberg.
Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. An increase indicates a deterioration in the perception of credit quality.
``Investors feel that their funds will not be safe and that is why they are reluctant to invest,'' said Mohammed Sohail, director of research at JS Global Capital Ltd. in Karachi.
`Corrective Measures'
Governor Akhtar said last week that ``corrective measures'' have been taken to prevent the slide of the rupee and that the central bank doesn't want to manage the exchange rate.
The State Bank of Pakistan raised its benchmark interest rate by one percentage point to 13 percent on July 29, the third increase in 2008 to ease inflation that reached a 30-year high last month.
``The government's inability thus far in securing external financing is fast draining forex reserves, causing the rupee to slide endlessly,'' said Asif Ali Qureshi, head of research at Invisor Securities Ltd. in Karachi. ``It may well be the time for the authorities to reconsider their pledge to the flexible exchange-rate regime.''
To contact the reporter on this story: Michael Dwyer in Singapore at Mdwyer5@bloomberg.net.
Read more...
Pakistan May Seek Aid Amid Concern of Debt Default
By Michael Dwyer
Sept. 24 (Bloomberg) -- Pakistan President Asif Ali Zardari will ask the U.S., U.K. and other industrial nations for financial aid amid concern South Asia's second-largest economy is in danger of defaulting on its debt.
Zardari will seek ``economic assistance'' at a meeting in New York on Sept. 26 with U.S. Secretary of State Condoleezza Rice and representatives of other Group of Eight countries, according to the state-run Associated Press of Pakistan. Moody's Investors Service lowered Pakistan's credit outlook to negative yesterday, citing a risk of ``missed repayments.''
``Pakistan has no other option but to extend a begging bowl,'' said Haider Hussain, an economist at Elixir Securities Ltd. in Karachi. ``A negative outlook may damage Pakistan's overall posture, eroding foreign investors' confidence.''
Pakistan is the world's riskiest government borrower, according to credit-default swap prices from CMA Datavision, with investors concerned by a deterioration in security that saw 53 people killed in a weekend bomb attack on the Islamabad Marriott hotel. The nation is running short of money to repay state debt, as foreign-exchange reserves have almost halved to $9.16 billion in early September from $16.5 billion a year ago.
``The fall in forex reserves, especially if combined with substantial capital flight, could see Pakistan resort to borrowing from international agencies,'' said Maheen Rahman, head of research at BMA Capital Management Ltd. in Karachi. ``The pressure is intense and will only get worse in the absence of significant foreign inflows to fund the external deficit.''
The Pakistani rupee has plunged 21 percent against the dollar this year amid higher payments for imported oil that widened the current account deficit to a record $14 billion in the year ended June 30.
Foreign Reserves
The currency gained 0.04 percent to 78.17 per dollar as of 5 p.m. in Karachi. The government's bond due 2036 rose for the first time in nine days, lowering the yield to 10.29 percent from 10.32 percent.
``In the end I can imagine there will be some assistance from foreign countries, maybe some IMF program, some help from other sovereign national organizations,'' said Anton Hauser, a fund manager who helps oversee $2.4 billion of emerging-market debt at Vienna-based Erste Sparinvest KAG, and owns about $6 million of Pakistan's dollar-denominated debt. ``There'll definitely be conditions from the IMF program in fiscal policies, leading to some adjustment in the current account.''
Finance Minister Naveed Qamar announced a four-point ``economic stabilization plan'' at a press conference on last week with central bank governor Shamshad Akhtar, aiming to restore investor confidence in the $146 billion economy.
Pakistan will increase domestic finances through asset sales, eliminate subsidies on power and fuel by June 2009 and raise funds from overseas, Qamar told reporters in Islamabad.
Political Uncertainty
The measures may help revive a sliding economy that's forecast to grow at the slowest pace since 2003 and bridge the budget deficit, which is at 10-year high. Qamar's efforts have been hampered by six months of political uncertainty following the March election of Pakistan's first civilian government since 1999 and strained relations with the U.S. after the ruling coalition forced President Pervez Musharraf to resign in August.
The Bush administration has increased pressure on Prime Minister Yousuf Raza Gilani's government to do more to curb rising militancy in Pakistan and the U.S.-led forces in neighboring Afghanistan have increased cross-border raids against pro-Taliban and al-Qaeda militants.
Default Risk
Investors aren't convinced that government efforts to stimulate economic growth will succeed.
Karachi's KSE100 Index has lost more than a third of its value this year, ranking behind only China and Vietnam as Asia's worst-performing benchmark stock index. The index fell 0.1 percent to 9,190.75 after a one-month ban on short selling started today.
Credit-default swaps on Pakistan's $2.7 billion of dollar- denominated bonds outstanding have jumped to 1,500 basis points. That means it costs $1.5 million annually to protect $10 million of the country's debt from default for five years, triple the cost on Lebanon's debt, according to data compiled by Bloomberg.
Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. An increase indicates a deterioration in the perception of credit quality.
``Investors feel that their funds will not be safe and that is why they are reluctant to invest,'' said Mohammed Sohail, director of research at JS Global Capital Ltd. in Karachi.
`Corrective Measures'
Governor Akhtar said last week that ``corrective measures'' have been taken to prevent the slide of the rupee and that the central bank doesn't want to manage the exchange rate.
The State Bank of Pakistan raised its benchmark interest rate by one percentage point to 13 percent on July 29, the third increase in 2008 to ease inflation that reached a 30-year high last month.
``The government's inability thus far in securing external financing is fast draining forex reserves, causing the rupee to slide endlessly,'' said Asif Ali Qureshi, head of research at Invisor Securities Ltd. in Karachi. ``It may well be the time for the authorities to reconsider their pledge to the flexible exchange-rate regime.''
To contact the reporter on this story: Michael Dwyer in Singapore at Mdwyer5@bloomberg.net.
Read more...
U.S. Must Save Bank System, Argentina Ex-Governor Blejer Says
By Brian Swint and Paul George
Sept. 24 (Bloomberg) -- Mario Blejer, governor of the Argentinean central bank following the 2001 default and a former Bank of England official, said that U.S. authorities must be prepared to do anything to save the banking system.
``We learned the lesson that was it crucial to take every single measure necessary to save the financial sector, and it's important to save the financial sector at practically any cost,'' Blejer said today on Bloomberg Television. ``Later on you can correct problems of moral hazard, of fiscal imbalance.''
U.S. Treasury Secretary Henry Paulson has asked Congress for $700 billion to stem the financial crisis by purchasing devalued securities a week after Lehman Brothers Holdings Inc. filed for bankruptcy. Some lawmakers weren't persuaded in testimony yesterday, arguing that the legislation doesn't allow for enough oversight and that taxpayers would take on too much risk.
``Allowing the financial sector to collapse would take decades to rebuild,'' Blejer said in the interview. ``This is the lesson and this is what American authorities are trying to do now, maybe a little late.''
Blejer was director of the Centre for Central Bank Studies at the Bank of England and an adviser to Governor Mervyn King on financial stability until the end of March.
He ran Argentina's central bank for six months until June 2002. During his term, the then President Eduardo Duhalde devalued the currency, forcibly converted U.S. dollar bank savings and loans into pesos and struggled to find creditors after defaulting on $95 billion of bonds.
Global Role
Blejer said today that all countries must also play a role in stemming contagion from the financial crisis.
``If Europe relies on the U.S. to fix the problem, they are relying on something that's out of their control,'' he said. ``Measures have to be taken as soon as possible everywhere to avoid the spreading of these problems.''
Blejer acknowledged that measures to keep the financial system running and banks lending to each other may also cause damage themselves.
``When confidence starts returning to the market, you know the fire is out,'' he said. ``But as you know in a fire, most of the damage comes from the water. And in this case we're talking about liquidity. We have to be careful. But the right thing to do now is to put down the fire.''
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Paul George in London at paulgeorge@bloomberg.net
Read more...
Sept. 24 (Bloomberg) -- Mario Blejer, governor of the Argentinean central bank following the 2001 default and a former Bank of England official, said that U.S. authorities must be prepared to do anything to save the banking system.
``We learned the lesson that was it crucial to take every single measure necessary to save the financial sector, and it's important to save the financial sector at practically any cost,'' Blejer said today on Bloomberg Television. ``Later on you can correct problems of moral hazard, of fiscal imbalance.''
U.S. Treasury Secretary Henry Paulson has asked Congress for $700 billion to stem the financial crisis by purchasing devalued securities a week after Lehman Brothers Holdings Inc. filed for bankruptcy. Some lawmakers weren't persuaded in testimony yesterday, arguing that the legislation doesn't allow for enough oversight and that taxpayers would take on too much risk.
``Allowing the financial sector to collapse would take decades to rebuild,'' Blejer said in the interview. ``This is the lesson and this is what American authorities are trying to do now, maybe a little late.''
Blejer was director of the Centre for Central Bank Studies at the Bank of England and an adviser to Governor Mervyn King on financial stability until the end of March.
He ran Argentina's central bank for six months until June 2002. During his term, the then President Eduardo Duhalde devalued the currency, forcibly converted U.S. dollar bank savings and loans into pesos and struggled to find creditors after defaulting on $95 billion of bonds.
Global Role
Blejer said today that all countries must also play a role in stemming contagion from the financial crisis.
``If Europe relies on the U.S. to fix the problem, they are relying on something that's out of their control,'' he said. ``Measures have to be taken as soon as possible everywhere to avoid the spreading of these problems.''
Blejer acknowledged that measures to keep the financial system running and banks lending to each other may also cause damage themselves.
``When confidence starts returning to the market, you know the fire is out,'' he said. ``But as you know in a fire, most of the damage comes from the water. And in this case we're talking about liquidity. We have to be careful. But the right thing to do now is to put down the fire.''
To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Paul George in London at paulgeorge@bloomberg.net
Read more...
Bringing Down Wall Street as Ratings Let Loose Subprime Scourge
By Elliot Blair Smith
Sept. 24 (Bloomberg) -- Frank Raiter says his former employer, Standard & Poor's, placed a ``For Sale'' sign on its reputation on March 20, 2001. That day, a member of an S&P executive committee ordered him, the company's top mortgage official, to grade a real estate investment he'd never reviewed.
S&P was competing for fees on a $484 million deal called Pinstripe I CDO Ltd., Raiter says. Pinstripe was one of the new structured-finance products driving Wall Street's growth. It would buy mortgage securities that only an S&P competitor had analyzed; piggybacking on the rating violated company policy, according to internal e-mails reviewed by Bloomberg.
``I refused to go along with some of this stuff, and how they got around it, I don't know,'' says Raiter, 61, a former S&P managing director whose business unit rated 85 percent of all residential mortgage deals at the time. ``They thought they had discovered a machine for making money that would spread the risks so far that nobody would ever get hurt.''
Relying on a competitor's analysis was one of a series of shortcuts that undermined credit grades issued by S&P and rival Moody's Corp., according to Raiter. Flawed AAA ratings on mortgage-backed securities that turned to junk now lie at the root of the world financial system's biggest crisis since the Great Depression, according to Raiter and more than 50 former ratings professionals, investment bankers, academics and consultants.
``I view the ratings agencies as one of the key culprits,'' says Joseph Stiglitz, 65, the Nobel laureate economist at Columbia University in New York. ``They were the party that performed that alchemy that converted the securities from F- rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.''
Gold Standard
Driven by competition for fees and market share, the New York-based companies stamped out top ratings on debt pools that included $3.2 trillion of loans to homebuyers with bad credit and undocumented incomes between 2002 and 2007. As subprime borrowers defaulted, the companies have downgraded more than three-quarters of the structured investment pools known as collateralized debt obligations issued in the last two years and rated AAA.
Without those AAA ratings, the gold standard for debt, banks, insurance companies and pension funds wouldn't have bought the products. Bank writedowns and losses on the investments totaling $523.3 billion led to the collapse or disappearance of Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. and compelled the Bush administration to propose buying $700 billion of bad debt from distressed financial institutions.
McCain, Obama
``This is appalling,'' says Douglas Holtz-Eakin, the former director of the Congressional Budget Office from 2003 to 2005 who is now a senior policy adviser to the presidential campaign of Republican Senator John McCain. ``It is exactly the kind of behavior that has so badly hurt the financial markets.''
Senator Barack Obama, the Democratic nominee, said in a Sept. 15 interview, ``There's a lot of work that has to be done in examining the degree to which ratings agencies were involved in making some of this debt -- some of the leverage taken on -- look like it was much safer and less risky than it was.''
S&P, a unit of McGraw-Hill Cos., and Moody's substituted theoretical mathematic assumptions for the experience and judgment of their own analysts. Regulators found that Moody's and S&P also didn't have enough people and didn't adequately monitor the thousands of fixed-income securities they were grading AAA.
Raiter and his counterpart at Moody's, Mark Adelson, say they waged a losing fight for credit reviews that focused on a borrower's ability to pay and the value of the underlying collateral. That was the custom of community bankers who extended credit only as far as they could see from their front porch.
`Didn't Want to Know'
``The part that became the most aggravating -- personally irritating -- is that CDO guys everywhere didn't want to know fundamental credit analysis; they didn't want to know from being in touch with the underlying asset,'' says Adelson, 48, who quit Moody's in January 2001 after being reassigned out of the residential mortgage-backed securities business. ``There is no substitute for fundamental credit analysis.''
S&P hired him in May 2008 as chief credit officer, responsible for setting the company's ratings criteria as part of a broader management shakeup. Raiter served on the S&P structured-finance group's executive rating committee until 2000, when he says he was demoted for his clashes with his bosses. The former marine and community banker retired in March 2005, when he became eligible for company-paid medical benefits.
Beating Exxon's Margin
The rating companies earned as much as three times more for grading complex structured finance products, such as CDOs, as they did from corporate bonds. Through 2007, they had record revenue, profits and share prices. Moody's operating margins exceeded 50 percent for the past six years, three to four times those of Exxon Mobil Corp., the world's biggest oil company.
By 2000, structured finance was the companies' leading source of revenue, their financial reports show. It accounted for just under half of Moody's total ratings revenue in 2007.
While prospectuses don't disclose fees, Moody's says it charged as much as 11 basis points for structured products, compared with 4.25 points for corporate debt. A basis point is a hundredth of a percent. S&P says its fees were comparable. A typical CDO paid 6 to 8 basis points, according to Richard Gugliada, 46, S&P's global ratings chief for CDOs until 2005. That would make rating the Pinstripe deal worth $300,000 or more.
Toughening Criteria
Now facing the threat of lawsuits and tighter regulation, Moody's and S&P say they are adopting tougher criteria to more accurately evaluate and monitor the debt. In January, S&P reassigned Joanne Rose, 51, its top structured-finance ratings executive since 1999, to a new position as executive managing director for risk and quality policy. In May, Brian Clarkson, 52, resigned as president of Moody's Investors Service. He was the company's top structured-finance executive for most of this decade.
``Independence, integrity and quality remain the cornerstones of everything we do and everything we stand for,'' S&P Vice President of Communications Chris Atkins said last week in a written response to Bloomberg questions. ``We have an important role to play in helping to restore confidence and increase transparency in the credit markets, and we are determined to play a leadership role.''
``We are certainly not going to respond to a disaffected ex-employee's statements,'' Atkins added in an e-mail, without specifying any individual.
Anthony Mirenda, a Moody's spokesman, declined to respond to questions submitted in writing and by phone.
Rise of the Quants
AAA ratings on subprime mortgage investments can be traced to the rise on Wall Street of quantitative analysts, or quants, with advanced degrees in math, physics and statistics. They developed computer-driven models that didn't rely on historical performance data, according to Raiter and others. If the old rating methods were like Rembrandt's portraiture, with details painted in, the new ones were Monet impressionism, with only a suggestion of the full picture.
S&P and Moody's built their reputations over generations, starting with Henry Varnum Poor's publication in 1860 of ``History of Railroads and Canals in the United States'' and John Moody's ``Moody's Manual of Industrial and Miscellaneous Securities'' in 1900. Since the Great Depression, U.S. agencies have relied on the companies to help evaluate the credit quality of investments owned by regulated institutions, gradually bestowing on them quasi-regulatory status. Yet as the 21st century began, much of that knowledge became obsolete.
Moody's Spinoff
Banks were combining thousands of fixed-income assets into custom blends of high-yield bonds, aircraft leases, franchise loans, mutual fund fees and mortgages. These structured investment pools didn't have the performance history that lay behind the corporate bonds.
The spinoff of Moody's by Dun & Bradstreet Corp. in September 2000 changed the service's focus from informing investors to responding to the demands of banking clients and shareholders, say several former Moody's analysts. They requested anonymity because they signed non-disclosure agreements when leaving or because they now do business with the company.
``Up until that point, there was a significant emphasis on who's got the right criteria,'' says Gugliada, the former S&P global ratings chief for CDOs. He retired in 2006. ``Then Moody's went public. Everybody was looking to pick up every deal that they could.''
Clarkson became Moody's group managing director for structured finance in August 2000, a month before the spinoff. He replaced Adelson and other analysts to make the residential mortgage securities unit more responsive to clients, say several former Moody's professionals who requested anonymity because of confidentiality agreements.
`Less Collegial'
The executive visited Wall Street banking customers to pledge a closer, more cooperative relationship and asked whether any of his analysts were particularly difficult to work with, former Moody's managers say.
``Things were becoming a lot less collegial and a lot more bottom-line driven,'' says Greg Gupton, senior director of research in Moody's quant group at the time. He is now managing director of quantitative research at New York-based Fitch Solutions, a consulting unit of Fimalac SA, based in Paris. Fimalac also owns Fitch Ratings, the third-largest bond analysis company.
Clarkson didn't respond to requests for comment in messages on his home answering machine and in a note left on his door in Montclair, New Jersey.
The efforts initially produced results. Moody's share of rating mortgage-backed securities jumped to 78 percent in 2001 from 43 percent a year earlier, according to the industry publication Inside Mortgage Finance in Bethesda, Maryland.
Rating Pinstripe Deal
It was in this environment that the Pinstripe deal landed on Raiter's desk. The underwriters were units of what now are the investment banks Credit Suisse Group AG, based in Zurich, and RBS Greenwich Capital Markets Inc., in Greenwich, Connecticut.
The CDO packaged residential mortgage securities and real estate investment trusts, according to Fitch Ratings, which, unlike S&P, had reviewed the underlying loans, according to Raiter.
``We must produce a credit estimate,'' Gugliada, a member of the structured-finance rating group's executive committee, wrote to Raiter in a March 2001 e-mail. ``It is your responsibility to provide those credit estimates, and your responsibility to devise a method for doing so. Please provide the credit estimates requested!'' he wrote, signing off with his nickname ``Guido.''
``He was asking me to just guess, put anything down,'' says Raiter, interviewed at his home in rural Virginia, 69 miles (111 kilometers) west of Washington. ``I'm surprised that somebody didn't say, `Richard, don't ever put this crap in writing.'''
`Self-Delusion'
Gugliada, like Raiter, now says that he views as flawed many of the ratings S&P and Moody's assigned.
``There was the self-delusion, which hit not just rating agencies but everybody, in the fact that the mortgage market had never, ever, had any problems, and nobody thought it ever would,'' Gugliada says.
Drawing on a competitor's analysis, and assigning a slightly lower rating because of the uncertainty of the judgment, is called ``notching.'' Securities and Exchange Commission Chairman Christopher Cox proposed in June 2008 to prohibit a government-recognized rating service from issuing a grade unless it has information on the underlying asset.
``Because credit-rating agencies relied on others to verify the quality of the assets underlying the structured products they rated, it is very likely those ratings were often based on incorrect information,'' Cox said in a statement at the time.
Over Raiter's objections, S&P graded 73 percent of the Pinstripe bonds AAA. Managed by New York-based Alliance Capital Management, now AllianceBernstein Holding LP, the CDO paid off investors in November 2004. Other deals wouldn't fare as well.
Not `Straw to Gold'
S&P outlined the alchemy of structured finance in a March 2002 paper for clients entitled ``Global Cash Flow and Synthetic CDO Criteria.'' While arguing that the process wasn't ``turning straw into gold,'' the authors said ``the goal'' was to create a capital structure with a higher credit rating than the underlying assets would qualify for without financial engineering.
By estimating the percentage of a debt pool that would pay off, the raters could assign AAA grades to the safest portion of the investment and lower marks on the rest. About 85 percent of structured finance CDOs qualified for the top grade, according to Moody's.
The deal sponsors could bolster the structure by buying protection from the two largest bond insurers, New York-based Ambac Financial Group Inc. and MBIA Inc. of Armonk, New York.
Strategos Capital CDOs
This way, subprime mortgages with elevated default risks could be pooled into CDOs with top ratings. As lending standards fell, earlier deals performed better than later ones.
Strategos Capital Management LLC, an affiliate of Philadelphia-based Cohen & Co., which manages more than $30 billion in CDOs and other investments, packaged three Kleros Real Estate CDO Ltd. investments between June and November of 2006.
All three Kleros CDOs defaulted after credit downgrades last year. While Strategos liquidated Kleros III, the most recent of the investment pools, in June, it still manages the two earlier ones for investors.
The annual volume of mortgage securities sold to private investors tripled to $1.2 trillion between 2002 and 2005, according to Inside Mortgage Finance. The subprime portion of the CDOs rose fourfold, to $456.1 billion.
Low interest rates fueled the home-financing boom while investor demand for yields encouraged banks to structure subprime mortgages into higher-paying securities. Between 2001 and 2005, the annual value of asset-backed CDOs surged 11-fold to $104.5 billion, and then more than doubled to $226.3 billion in 2006, according to the industry newsletter Asset-Backed Alert in Hoboken, New Jersey.
Basic Conflict
Through it all, the rating companies had a basic conflict: They were paid by the businesses whose products they rated. Moody's told the Paris-based Committee of European Securities Regulators in November 2007 -- in the 49th footnote of a 35-page response to its questionnaire on structured-finance -- that it allowed managers who supervised analysts to ``provide expert input'' on fees ``in a limited range of circumstances.''
SEC Chief Cox said in June that the rating companies engaged in the ``lucrative business of consulting with issuers on exactly how to go about getting'' top ratings.
In a July report that examined the credit rating companies' practices, the SEC said they ``appeared to struggle'' in hiring adequate staff to handle the growth of their business, particularly for evaluating CDOs.
`Spread Very Thin'
The government agency didn't quantify the problem. Moody's annual financial statements show that the company's global employment more than doubled to 3,600 between 2001 and 2007. Its structured-finance revenue more than tripled during that time, peaking at $885.9 million last year.
``It was very difficult to get people in, train them up sufficiently to really understand this stuff -- from structure to quantitative issues -- and then to keep them, because investment banks were very keen to get good people to help them optimize their trade ideas,'' says Kai Gilkes, 40, a former S&P quantitative analyst in London who left in April 2006.
``Analysts were getting spread very thin,'' Gilkes says. ``I remember analysts who would keep their phones on voice mail 24 hours a day. They would only check messages and decide who to get back to. It was crazy.''
Some investors became nervous that the rating companies' mathematical models and AAA grades were out of touch with reality.
`Train Wreck Waiting'
``There was no model -- there was nothing -- that could work for modeling interest-only, adjustable, non-payment liar's loans,'' says Stephen Berger, 69, chairman of Odyssey Investment Partners LLC, a New York-based private equity firm.
In California, fixed-income investor Julian Mann feared the worst as subprime lending fanned out across the country.
``We said this is a train wreck waiting to happen,'' says Mann, 49, a vice president of the Los Angeles-based investment management firm First Pacific Advisors LLC.
The 90-day delinquency rate on subprime mortgages rose from 5.14 percent in 2003 to 6.37 percent in 2004 and 8.63 percent in 2005, according to First American Core Logic Inc., a San Francisco-based data provider.
S&P's Raiter says he was urging management to develop more sophisticated financial models and buy more detailed loan data for monitoring securities the company graded.
``We knew the delinquencies were bad,'' he says. ``The fact was, if we could have hired a supreme being to tell us exactly what the loss was on a loan, they wouldn't have hired him because the Street wasn't going to pay us extra money to know that.''
Subprime Tour Fails
In late 2005, First Pacific's Mann says, he invited East Coast investors to take a subprime mortgage tour up California's main interstate artery, to see the problem for themselves. The I-5 runs from San Diego to Sacramento, passing through Orange County, Bakersfield and Stockton.
``Nobody wanted to do it,'' he says. ``Unfortunately, most of the models were constructed by people who hadn't seen most of America and certainly weren't familiar with the areas they were rating.''
That September, Mann's boss, Thomas Atteberry, acted while others hesitated. He told investors in a monthly letter that he was liquidating the highest-risk real estate securities in First Pacific's New Income fund, which held $1.85 billion in bonds.
Atteberry, 55, wrote that he was ``very concerned about the subprime sector'' and ``that these trends may be a very early sign of the emergence of credit quality deterioration in general.'' It was 22 months before S&P and Moody's started downgrading mortgage securities and CDOs that held similar loans.
He had no idea how right he would be.
(Failing Grades on Wall Street: Part 1 of 2. Tomorrow: S&P, Moody's engage in ``race to the bottom'' by easing ratings criteria.)
To contact the reporter on this story: Elliot Blair Smith in Washington at esmith29@bloomberg.net.
Read more...
Paulson, Bernanke Put Bank Aid Ahead of Best Deal
By Rebecca Christie and Jody Shenn
Sept. 24 (Bloomberg) -- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke signaled that their priority is shoring up the nation's banks even if it means they don't get taxpayers the cheapest prices for the devalued assets the government buys.
Bernanke told lawmakers yesterday the government won't pay ``fire-sale prices'' for the mainly mortgage-related securities Paulson aims to buy in a proposed $700 billion rescue. Instead, officials want to set a long-term value on assets, intending to hold them until they mature or markets improve.
Insisting on paying higher prices may increase complaints from legislators, who will pepper Bernanke and Paulson with questions in a second day of hearings today, that the government is bailing out Wall Street at the expense of Main Street. At the same time, setting values too low may roil financial markets further and tip the economy into a deep recession.
``If the prices are too low, nothing will happen; if the prices are too high, you're going to end up with horrible losses for the taxpayer,'' said L. William Seidman, a former chairman of the Resolution Trust Corp., the agency that liquidated failed thrifts after the savings-and-loan crisis of the 1980s. ``I'm equally concerned in both directions.''
Three days after the first draft of the plan was released, Bernanke told the Senate Banking Committee yesterday that policy makers still don't know the ``best design'' for executing it. The Fed chief testifies on the economic outlook from 10 a.m. at the congressional Joint Economic Committee, then appears at 2:30 p.m. with Paulson at the House Financial Services Committee.
Economy Warning
The government can help restore liquidity to the banking system by buying depreciated assets at ``a price close to the hold-to-maturity price,'' rather than the price they would fetch in the market today, Bernanke said. He also warned the economy will contract ``if the credit markets are not functioning.''
Seidman, who also served as Federal Deposit Insurance Corp. chairman, said a 1990s attempt by Japan to halt that nation's banking crisis failed because the government offered prices that would have drained companies' capital.
Paulson said the plan needs to be large, have few restrictions and leave open what the government would buy in order to have the biggest impact on stabilizing markets. Lawmakers balked at accepting Paulson's terms.
``I agree we need to act'' but ``I am not going to be stampeded into rubber-stamping this proposal,'' Democratic Senator Robert Menendez of New Jersey said at yesterday's hearing. Richard Shelby, the top Republican on the Senate banking panel, told reporters Paulson understood his plan wouldn't speed through Congress.
Democrats to Gather
House and Senate Democratic staff plan to gather tomorrow to work out a counter-proposal to Paulson's presentation. Democratic Senator Charles Schumer of New York, who chairs the Joint Economic Committee, suggested an initial investment of $150 billion, rather than approving Paulson's full $700 billion.
Lawmakers yesterday also questioned Paulson and Bernanke on how the government would make the purchases. The Treasury chief said the fund would probably start with ``something simple like mortgage-backed securities'' and a ``smaller'' amount.
The Treasury plan would use ``market mechanisms'' to set prices as fairly and accurately as possible, Paulson said, in part through consulting with outside experts. One option is a reverse auction system, where the government would accept the lowest price offered by banks selling a type of asset.
`Biggest Problem'
``Right now, our biggest problem in this industry is that no one really knows what anything is worth,'' said Tim Ryan, head of the Securities Industry and Financial Markets Association and former director of the Office of Thrift Supervision. ``People don't sell assets because they think the price is significantly different than they have it marked, or they just don't know what the price is.''
The Treasury would almost certainly pay more than ``bottom feeders,'' who right now represent the only market for many kinds of mortgage assets, said Alfred DelliBovi, president of the Federal Home Loan Bank of New York, who served on the RTC's five- member oversight board. The prices the government pays may end up better reflecting some assets' underlying values, because most borrowers are still paying their loans on time, he said.
With mortgage-bond prices at record lows amid the credit crisis, yields on the securities have risen to between 15 percent and 25 percent, according to Merrill Lynch & Co. That leaves room for taxpayers to make a profit buying the bonds, even at higher prices.
Dodd Proposal
Senate Banking Committee Chairman Christopher Dodd has proposed that the Treasury potentially receive equity stakes in some companies that sell assets to the government. The stakes would ``vest'' in an amount equal to the 125 percent of the dollar value of the loss realized by the Treasury on the sale of the assets.
That type of ``loss participation'' proposal would endanger companies' ability to raise private capital afterwards, Jeffrey Rosenberg, head of credit strategy research at Bank of America Corp. in New York, wrote in a report yesterday. The consequence of a program seeking the lowest upfront prices is the program may be of little use to many banks, he wrote earlier this week.
Lawmakers insisted on strict oversight of the fund, a sentiment echoed by Seidman and DelliBovi. Scrutiny will need to extend to when the Treasury eventually sells off any assets, DelliBovi added.
``All of the crooks on Wall Street are still alive; they haven't all been shot,'' he said. ``They'll probably go into new businesses and try to pick up assets and you'll have to worry about that.''
To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.
Read more...
Europe Confidence Drops as Financial Turmoil Worsens
By Fergal O'Brien
Sept. 24 (Bloomberg) -- Business confidence in the euro area's three largest economies declined more than forecast this month as the worsening financial crisis in the U.S. imperiled expansion around the world.
In Germany, Europe's biggest economy, the Munich-based Ifo institute's business climate index fell to a three-year low of 92.9 from 94.8 in August, below the 94.3 median forecast of 41 forecasts in a Bloomberg News survey. Business confidence in France declined to the weakest in five years, while sentiment in Italy dropped to a seven-year low, separate reports showed.
Europe's economy is struggling after shrinking in the second quarter as the yearlong credit squeeze leads to bankruptcy filings and bailouts on Wall Street and cooling economic growth damps demand. Even as expansion slows, the European Central Bank is resisting any cut in interest rates as it seeks to curb inflation that reached a 16-year high in July.
``Today's Ifo and yesterday's purchasing managers' index contradict any scenario of an imminent recovery in the euro-area business cycle,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``While the ECB will likely acknowledge the weaker growth trajectory at the next policy meeting, it is unlikely in our view to be a step toward an imminent rate cut.''
Below Forecasts
In France, the second-biggest euro-area economy, a gauge of business sentiment dropped to 92 this month from a revised 97 in August, below forecasts for a September reading of 97. Italy's business confidence index dropped to 82.7 from 83.5 last month. That is the lowest since October 2001 and less than the median forecast of 83.2.
Bonds rose after the reports, with the yield on the two- year German note dropping 11 basis points to 3.78 percent as of 12:10 p.m. in London. The yield on the 10-year German bund, the euro region's benchmark government debt security, declined 5 basis points to 4.18 percent.
The ECB on Sept. 4 kept its key rate at 4.25 percent for a second month, suggesting it's more concerned about faster inflation than slowing growth. ECB Governing Council member Axel Weber said yesterday that while the bank is aware there is a ``phase of weakening,'' slower growth ``won't magic away the inflation problem.''
Euro-area manufacturing and services contracted for a fourth month in September. The European Commission cut its euro- region growth forecast for this year on Sept. 10 to 1.3 percent from 1.7 percent and projected recessions in Germany and Spain.
Worsening Prospects
The cooling economy is taking its toll on companies. Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. German tire maker Continental AG cut its profit target for fiscal 2008 earlier this month, citing worsening prospects for sales and rising raw-material prices.
The economic outlook is ``clouded'' by the turmoil in financial markets, the European Forecasting Network said yesterday. In the U.S., Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are pushing Congress to approve a $700 billion plan to remove illiquid assets from the banking system and calm a crisis that already has claimed Lehman Brothers Holdings Inc. and prompted U.S. authorities to bail out American International Group Inc.
Financial institutions worldwide have reported more than $520 billion in losses and writedowns since the lending crisis started. The Dow Jones Euro Stoxx 600 has shed more than a quarter of its value this year.
`Grave Mistake'
Paulson said yesterday it would be ``a grave mistake'' for Congress to delay or curtail the funds he requested to stabilize the financial system.
``The crisis is a reason for concern,'' said Andreas Scheuerle, an economist at Dekabank in Frankfurt. ``We're facing an extremely difficult time with growth rates around stagnation or possibly even worse.''
Companies may get some relief from the drop in the price of crude oil and the euro's decline against the dollar. Oil has fallen from a record close to $150 a barrel in July to around $109 today. The euro has dropped 7.8 percent from its July 15 record and was at $1.4660 today.
Lanxess AG, Germany's largest publicly traded specialty- chemicals maker, said on Sept. 17 it will meet its full-year profit goals as faster growth in Asian economies compensates for the U.S. slowdown. The third quarter is ``going well,'' Lanxess Chief Executive Officer Axel Heitmann said.
``Consumption is very weak and it will be getting worse over the coming quarters,'' said Paolo Pizzoli, an economist for ING Bank NV in Milan. ``The only hope is if oil stays around $100 a barrel, and that should give some relief. Still, with the financial crisis causing uncertainty, the future doesn't look good.''
To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.
Read more...
Bernanke Sees `Grave Threats' to Financial Stability
By Craig Torres
Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.
``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''
Bernanke's remarks may stoke investors' expectations for the Fed to lower interest rates by year-end to alleviate the impact of the worst financial crisis since the Great Depression. The Fed chief reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion rescue fund to remove devalued assets from the banking system.
Recent financial stress ``will make lenders still more cautious about extending credit to households and businesses,'' Bernanke said. ``The downside risks to growth thus remain a significant concern.''
The rate-setting Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 74 percent chance of a reduction, futures prices show.
`Market Relief'
Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''
After their Sept. 16 meeting, policy makers said ``growth appears to have slowed recently.''
The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.''
Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey.
Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.
``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''
Construction, Investment
Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Slowing growth abroad could reduce the lift the U.S. economy received from exports in the first half, he also said.
``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said.
Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.
``The inflation outlook remains highly uncertain,'' Bernanke said. ``The upside risks to inflation remain a significant concern.''
The Fed chief's remarks are the second of three testimonies in two days. Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly. He appears later today at the House Financial Services Committee.
Rescue Plan
Bernanke today reiterated his support for what would be the biggest federal intrusion into markets since the New Deal. Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year.
The Treasury this month also took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.
Pump Dollars
The Fed has also pumped billions of dollars into banks to try and restore liquidity, while invoking extraordinary powers to loan to securities firms.
Along with the bailout, Bernanke supports a regulatory overhaul for a U.S. financial industry upended by $523 billion in losses from the collapse of mortgage credit. The Fed approved this week bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending an investment banking era sealed last week by the bankruptcy of Lehman Brothers Holdings Inc.
Merrill Lynch & Co. agreed to a merger with Bank of America Corp. earlier this month.
Some 6.41 percent of outstanding mortgages were delinquent at the end of June, and 2.75 percent were in foreclosure, according to the Mortgage Bankers Association.
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.
Read more...
Sept. 24 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the U.S. is facing ``grave threats'' to financial stability and warned that the credit crisis has started to damage household and business spending.
``Economic activity appears to have decelerated broadly,'' Bernanke said today to a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. ``Stabilization of our financial system is an essential precondition for economic recovery.''
Bernanke's remarks may stoke investors' expectations for the Fed to lower interest rates by year-end to alleviate the impact of the worst financial crisis since the Great Depression. The Fed chief reiterated his call for Congress to pass Treasury Secretary Henry Paulson's plan for a $700 billion rescue fund to remove devalued assets from the banking system.
Recent financial stress ``will make lenders still more cautious about extending credit to households and businesses,'' Bernanke said. ``The downside risks to growth thus remain a significant concern.''
The rate-setting Federal Open Market Committee left its benchmark rate unchanged at 2 percent this month for a third straight meeting after seven cuts since September 2007. Policy makers next gather Oct. 28-29, when traders see a 74 percent chance of a reduction, futures prices show.
`Market Relief'
Bernanke is ``very much leaning to seeing downside risks to growth as much greater,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut. ``If we don't get credit market relief, the risks tilt overwhelmingly to growth rather than inflation.''
After their Sept. 16 meeting, policy makers said ``growth appears to have slowed recently.''
The Fed chairman's testimony today signaled that restrictive credit has now slowed the economy from its 3.3 percent annualized pace in the second quarter to a pace ``appreciably below its potential rate.''
Tumbling housing prices and waning mortgage credit have pushed up borrowing costs for both banks and consumers, and will probably slow the expansion to a 1.7 percent annual rate in 2008, according to the median forecast of 80 economists in a Bloomberg News survey.
Unemployment rose in August to a five-year high of 6.1 percent and payrolls have fallen for eight straight months.
``The weakness in fundamentals underlying consumer spending suggest that household expenditures will be sluggish, at best, in the near term,'' the Fed chairman said. ``The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions.''
Construction, Investment
Bernanke said construction of commercial office buildings and business spending on equipment and software are likely to slow. Slowing growth abroad could reduce the lift the U.S. economy received from exports in the first half, he also said.
``If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,'' Bernanke said.
Bernanke also said slowing growth should help moderate inflation pressures. The consumer price index rose 5.4 percent for the year ending in August.
``The inflation outlook remains highly uncertain,'' Bernanke said. ``The upside risks to inflation remain a significant concern.''
The Fed chief's remarks are the second of three testimonies in two days. Bernanke yesterday told the Senate Banking Committee in a joint appearance with Paulson that lawmakers should pass the rescue plan quickly. He appears later today at the House Financial Services Committee.
Rescue Plan
Bernanke today reiterated his support for what would be the biggest federal intrusion into markets since the New Deal. Fed officials have so far failed to stem the credit crisis even after the steepest rate cuts in two decades and interventions in Bear Stearns Cos. and American International Group Inc. this year.
The Treasury this month also took over Fannie Mae and Freddie Mac as the turmoil engulfed the two largest mortgage finance companies.
Lawmakers have balked at approving the Treasury's proposal to buy illiquid assets from financial institutions without changes. Republicans resisted the plan's size and scope and Democrats demanded support for homeowners and limits on executive pay.
Pump Dollars
The Fed has also pumped billions of dollars into banks to try and restore liquidity, while invoking extraordinary powers to loan to securities firms.
Along with the bailout, Bernanke supports a regulatory overhaul for a U.S. financial industry upended by $523 billion in losses from the collapse of mortgage credit. The Fed approved this week bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending an investment banking era sealed last week by the bankruptcy of Lehman Brothers Holdings Inc.
Merrill Lynch & Co. agreed to a merger with Bank of America Corp. earlier this month.
Some 6.41 percent of outstanding mortgages were delinquent at the end of June, and 2.75 percent were in foreclosure, according to the Mortgage Bankers Association.
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.
Read more...
Nexen Says Some Gulf Fields Will Be Shut Until 2009
By Angela Macdonald-Smith
Sept. 24 (Bloomberg) -- Nexen Inc., a Calgary-based oil and gas producer, said some of its Gulf of Mexico fields will be shut until next year because of damage to platforms from Hurricane Ike.
Production will be ``minimal'' from the Gulf for the rest of this quarter, while output in the fourth quarter will range between 10,000 and 20,000 barrels of oil equivalent a day, Nexen said in a statement distributed on Market Wire. Full-year production for the year will be ``slightly below the low end'' of its forecast.
Nexen normally produces the equivalent of about 30,000 barrels a day in the Gulf and had been restoring that output after Hurricane Gustav passed through the region on Sept. 1. Ike made landfall on Sept. 13, flooding Galveston and forcing the evacuation of 2.3 million people from eastern Texas. About 67 percent of Gulf oil output and 62 percent of gas production is still idled, the Minerals Management Service said yesterday.
Nexen's Green Canyon 6, 50 and 137 deepwater fields are closed after a processing platform owned by a third party toppled and the company said it is ``evaluating alternative production options.'' The Vermilion 321/340 venture suffered ``substantial damage'' to the lower decks of some platforms and won't restart until next year, it said. These fields usually produce the equivalent of 5,600 barrels of oil a day.
Initial assessments of other ventures on the shelf indicate ``minor damage'' to a number of systems, which will require repairs and won't restart until later this year, Nexen said. In the deep water, the Gunnison venture had ``minor damage,'' while third-party facilities were damaged at Aspen and Wrigley. The timing of the restart of these fields, which should be this year, ``is uncertain because of reliance on third-party repairs,'' it said.
``A number'' of fields have been restarted, while others are ready to resume output when allowed, Nexen said in the Sept. 23 statement. The company has insurance for damage by hurricanes, subject to some deductions, it said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Sept. 24 (Bloomberg) -- Nexen Inc., a Calgary-based oil and gas producer, said some of its Gulf of Mexico fields will be shut until next year because of damage to platforms from Hurricane Ike.
Production will be ``minimal'' from the Gulf for the rest of this quarter, while output in the fourth quarter will range between 10,000 and 20,000 barrels of oil equivalent a day, Nexen said in a statement distributed on Market Wire. Full-year production for the year will be ``slightly below the low end'' of its forecast.
Nexen normally produces the equivalent of about 30,000 barrels a day in the Gulf and had been restoring that output after Hurricane Gustav passed through the region on Sept. 1. Ike made landfall on Sept. 13, flooding Galveston and forcing the evacuation of 2.3 million people from eastern Texas. About 67 percent of Gulf oil output and 62 percent of gas production is still idled, the Minerals Management Service said yesterday.
Nexen's Green Canyon 6, 50 and 137 deepwater fields are closed after a processing platform owned by a third party toppled and the company said it is ``evaluating alternative production options.'' The Vermilion 321/340 venture suffered ``substantial damage'' to the lower decks of some platforms and won't restart until next year, it said. These fields usually produce the equivalent of 5,600 barrels of oil a day.
Initial assessments of other ventures on the shelf indicate ``minor damage'' to a number of systems, which will require repairs and won't restart until later this year, Nexen said. In the deep water, the Gunnison venture had ``minor damage,'' while third-party facilities were damaged at Aspen and Wrigley. The timing of the restart of these fields, which should be this year, ``is uncertain because of reliance on third-party repairs,'' it said.
``A number'' of fields have been restarted, while others are ready to resume output when allowed, Nexen said in the Sept. 23 statement. The company has insurance for damage by hurricanes, subject to some deductions, it said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
ECB's Bonello Sees Economy Past Worst by Year-End
By Gabi Thesing and Blanche Gatt
Sept. 24 (Bloomberg) -- European Central Bank Governing Council member Michael Bonello said the euro region's economy will probably recover in the fourth quarter, suggesting he sees no need to lower interest rates after the global credit squeeze worsened.
``I still think by the fourth quarter we should be out of the lowest point, at least past the trough,'' Bonello, who also heads the central bank of Malta, said in an interview in his office in Valletta yesterday. ``Monetary policy cannot fix'' the financial system and inflation risks are ``all on the upside,'' he said.
Business confidence in the euro area's three largest economies fell this month more than economists forecast as financial turmoil in the U.S. imperiled growth around the world, industry surveys showed today. The ECB has so far said slowing growth isn't enough to overcome concern that the fastest inflation in 16 years will become entrenched through a wage-price spiral.
In the past two weeks, Lehman Brothers Holdings Inc. collapsed and the U.S. government took over American International Group Inc. The world's biggest financial companies have posted more than $520 billion in writedowns and credit losses since the start of last year after record defaults on housing loans to consumers with poor credit histories, pushing up borrowing costs as banks became reluctant to lend to each other.
No Silver Lining
An economic slump in the U.S. risks dragging the world economy down by hurting exports. Growth in China and Germany, Europe's biggest economy, has been driven by sales abroad. Some say the ECB needs to start considering rate cuts.
``We don't see a silver lining in the fourth quarter,'' Gernot Nerb, an economist at the Munich-based Ifo institute, said in a Bloomberg Television interview today. ``The time has come to lower interest rates. That doesn't have to happen next week, but the signal should soon come that rates will fall in the next few months.'' Ifo carries out the German executive sentiment survey.
Bonello, 63, didn't rule out that the economy may shrink again in the current quarter.
``The difference between no growth, which is what people were expecting, and slightly negative growth isn't that great,'' he said. ``The world economy is not going into freefall.''
The policy maker said the fact that last week's German ZEW investor confidence index ``didn't deteriorate further in the midst of all this negative news I think points to a certain degree of resilience to the setbacks which the current turmoil would imply.'' The ZEW index rose more than expected last week as the retreat in oil prices and the euro improved the economic outlook.
Delayed Recovery?
``I think the ECB shouldn't be so relaxed'' in the light of recent data, said Kenneth Broux, an economist at Lloyds TSB Group Plc in London. ``The numbers suggest the slowdown might be more protracted and the recovery might be delayed.''
Germany's Ifo business sentiment indicator declined to the lowest level in three years, French business confidence slumped to a five-year low and Italian executives were the most pessimistic in seven years.
In the U.S., Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are cajoling lawmakers to back a $700 billion proposal to use public funds to buy devalued mortgage investments.
Economists at Citigroup Inc. and Societe Generale now forecast that inflation may fall back to below 2 percent as soon as next year as slowing growth keeps a lid on price gains.
Bonello isn't convinced.
Inflation Pressure
``There is no mechanical trade-off between growth and inflation,'' Bonello said. ``Inflation falling below 2 percent next year cannot be excluded, but only if oil prices stabilize and if we don't have any further negative surprises. Given the many sources of upside pressures I feel more confident in saying that inflation should drop toward the 2 percent threshold in 2010.''
Throughout the turmoil the ECB has kept interest rates at a seven-year high. Rebuffing calls from investors to lower borrowing costs, the ECB instead poured cash into the financial system to facilitate lending among commercial banks.
``It's an immediate problem we have today, monetary policy works in the medium term,'' Bonello said. ``Central banks' primary role is to secure price stability.''
Economists expect the ECB to keep rates on hold until February 2009, according to the median of 21 forecasts in a Bloomberg News survey published yesterday.
Wage Demands
The bank raised its key rate to 4.25 percent in July after record oil prices pushed inflation to 4 percent. Policy makers are concerned that workers will try to compensate for the increase in the cost of living by boosting wage demands. Companies may also seek to raise prices to offset higher raw-material and wage costs.
Even though inflation eased to 3.8 percent in August, it's ``still well above'' the bank's 2 percent limit, Bonello said.
Germany's IG Metall labor union, representing 3.2 million workers, yesterday said it wants wages to rise 8 percent next year. It would be the biggest pay increase in 16 years. The five- year/five-year forward breakeven rate, the ECB's key gauge of medium-term inflation expectations, yesterday rose to 2.69 percent, 1 basis point short of the record high it reached August.
For now, ``it's not the cost of money that is perhaps at the forefront of people's concerns,'' Bonello said. ``The effort worldwide to calm things down in the financial markets, I think that is certainly the priority.''
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.netBlanche Gatt in Malta at bgatt@bloomberg.net
Read more...
Sept. 24 (Bloomberg) -- European Central Bank Governing Council member Michael Bonello said the euro region's economy will probably recover in the fourth quarter, suggesting he sees no need to lower interest rates after the global credit squeeze worsened.
``I still think by the fourth quarter we should be out of the lowest point, at least past the trough,'' Bonello, who also heads the central bank of Malta, said in an interview in his office in Valletta yesterday. ``Monetary policy cannot fix'' the financial system and inflation risks are ``all on the upside,'' he said.
Business confidence in the euro area's three largest economies fell this month more than economists forecast as financial turmoil in the U.S. imperiled growth around the world, industry surveys showed today. The ECB has so far said slowing growth isn't enough to overcome concern that the fastest inflation in 16 years will become entrenched through a wage-price spiral.
In the past two weeks, Lehman Brothers Holdings Inc. collapsed and the U.S. government took over American International Group Inc. The world's biggest financial companies have posted more than $520 billion in writedowns and credit losses since the start of last year after record defaults on housing loans to consumers with poor credit histories, pushing up borrowing costs as banks became reluctant to lend to each other.
No Silver Lining
An economic slump in the U.S. risks dragging the world economy down by hurting exports. Growth in China and Germany, Europe's biggest economy, has been driven by sales abroad. Some say the ECB needs to start considering rate cuts.
``We don't see a silver lining in the fourth quarter,'' Gernot Nerb, an economist at the Munich-based Ifo institute, said in a Bloomberg Television interview today. ``The time has come to lower interest rates. That doesn't have to happen next week, but the signal should soon come that rates will fall in the next few months.'' Ifo carries out the German executive sentiment survey.
Bonello, 63, didn't rule out that the economy may shrink again in the current quarter.
``The difference between no growth, which is what people were expecting, and slightly negative growth isn't that great,'' he said. ``The world economy is not going into freefall.''
The policy maker said the fact that last week's German ZEW investor confidence index ``didn't deteriorate further in the midst of all this negative news I think points to a certain degree of resilience to the setbacks which the current turmoil would imply.'' The ZEW index rose more than expected last week as the retreat in oil prices and the euro improved the economic outlook.
Delayed Recovery?
``I think the ECB shouldn't be so relaxed'' in the light of recent data, said Kenneth Broux, an economist at Lloyds TSB Group Plc in London. ``The numbers suggest the slowdown might be more protracted and the recovery might be delayed.''
Germany's Ifo business sentiment indicator declined to the lowest level in three years, French business confidence slumped to a five-year low and Italian executives were the most pessimistic in seven years.
In the U.S., Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are cajoling lawmakers to back a $700 billion proposal to use public funds to buy devalued mortgage investments.
Economists at Citigroup Inc. and Societe Generale now forecast that inflation may fall back to below 2 percent as soon as next year as slowing growth keeps a lid on price gains.
Bonello isn't convinced.
Inflation Pressure
``There is no mechanical trade-off between growth and inflation,'' Bonello said. ``Inflation falling below 2 percent next year cannot be excluded, but only if oil prices stabilize and if we don't have any further negative surprises. Given the many sources of upside pressures I feel more confident in saying that inflation should drop toward the 2 percent threshold in 2010.''
Throughout the turmoil the ECB has kept interest rates at a seven-year high. Rebuffing calls from investors to lower borrowing costs, the ECB instead poured cash into the financial system to facilitate lending among commercial banks.
``It's an immediate problem we have today, monetary policy works in the medium term,'' Bonello said. ``Central banks' primary role is to secure price stability.''
Economists expect the ECB to keep rates on hold until February 2009, according to the median of 21 forecasts in a Bloomberg News survey published yesterday.
Wage Demands
The bank raised its key rate to 4.25 percent in July after record oil prices pushed inflation to 4 percent. Policy makers are concerned that workers will try to compensate for the increase in the cost of living by boosting wage demands. Companies may also seek to raise prices to offset higher raw-material and wage costs.
Even though inflation eased to 3.8 percent in August, it's ``still well above'' the bank's 2 percent limit, Bonello said.
Germany's IG Metall labor union, representing 3.2 million workers, yesterday said it wants wages to rise 8 percent next year. It would be the biggest pay increase in 16 years. The five- year/five-year forward breakeven rate, the ECB's key gauge of medium-term inflation expectations, yesterday rose to 2.69 percent, 1 basis point short of the record high it reached August.
For now, ``it's not the cost of money that is perhaps at the forefront of people's concerns,'' Bonello said. ``The effort worldwide to calm things down in the financial markets, I think that is certainly the priority.''
To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.netBlanche Gatt in Malta at bgatt@bloomberg.net
Read more...
Wall Street Bust Tests Macau's Economy: William Pesek
Commentary by William Pesek
(Corrects spelling of Ramsay in 20th paragraph.)
Sept. 24 (Bloomberg) -- Taking a break from Macau's teeming card tables one recent evening, four mainland Chinese men sip beer and warily eye two televisions above the bar.
The TVs are tuned to competing business news channels -- one covering the demise of Lehman Brothers Holdings Inc., the other this year's 60 percent plunge in Chinese stocks. Eventually, the gamblers shake their heads and go back across the hall to the Venetian Macau's casino floor.
The juxtaposition aptly brought together some of the world's most gripping economic stories and one of its more intriguing social trends, the latter being the surging popularity of gambling in Asia.
It's getting harder to separate Wall Street's plunge and the meltdown in Chinese stocks. It's also likely that Macau will join Las Vegas in dispelling the conventional wisdom that gambling is a recession-proof business.
A year ago, few quibbled with Macau bulls such as Steve Wynn, Sheldon Adelson and, long before the Vegas tycoons showed up, Stanley Ho. Given Macau's proximity to a nation of 1.3 billion potential gambling enthusiasts, it's still hard to bet against this former Portuguese colony.
Yet some important changes are afoot, including the global economic environment. The U.S. is on the verge of a recession and China is bracing for a marked slowdown in its economy.
Weakening growth is hurting stock markets and also showing that Vegas isn't immune to macroeconomics after all.
Measuring Adelson
One measure: Adelson was the biggest loser in this year's Forbes ranking. The Las Vegas Sands Corp. chief executive officer fell to 15th place from third after casino stocks tumbled. Another: Vegas Strip casino gambling revenue dropped for the seventh straight month in July as cash-strapped U.S. consumers curbed entertainment and travel spending. Revenue declined 15 percent in July alone.
A variable that may change is the flow of mainland Chinese to Macau. Shares of Las Vegas Sands, Wynn Resorts Ltd., MGM Mirage, and Melco Crown Entertainment Ltd. dropped in August on news reports that China may increase travel restrictions to what's now the world's biggest gambling center.
Macau's casino gambling revenue rose 55 percent in the first six months of 2008, accelerating from 47 percent growth in 2007.
Will Macau suffer Lehman's fate -- a place oozing confidence a year ago that has now gone bust? It's doubtful, yet the risks suddenly facing Macau tell a few bigger stories.
Knock-On Effects
One is how the ripple effects of the U.S. credit crisis are traveling far and wide. Another is the hubris with which analysts argued that Asia had decoupled from the U.S. Perhaps the most important is the Asia-wide risk of relying so heavily on China, which is itself a developing nation.
The plunge in Chinese shares speaks to the danger of developing economies depending on another emerging one. Macau relies on so-called VIP gamblers. The drop in stocks may mean fewer high-rollers will come Macau's way.
Macau returned to Chinese rule in 1999, and its torrid early growth is being followed by a slowdown in expansion efforts. One might argue Macau is merely taking a much-needed breather. Its casinos have more than doubled to 30 since the government ended billionaire Ho's 40-year monopoly in 2002 and awarded licenses to five other operators.
When I asked Lawrence Ho, Stanley Ho's son and one of Melco Crown Entertainment Ltd.'s two chairmen, about this recently, he pointed out that the only place in China where casinos are legal still lacks the airport and ferry capacity to support its growth.
Deep Breath
``Macau is just taking a deep breath at the moment --nothing more,'' Ho says.
Macau's tourism growth may even support another 16 casinos in the next three to four years if the government builds enough transport infrastructure, says Paul Tso, chief executive officer of property developer L'Arc Macau.
``The growth of incoming tourists, gamblers or not, has way outpaced everything the government has implemented,'' says Tso, whose company is developing the 56-storey L'Arc de Triomphe, Macau's tallest casino project, for about $600 million.
Yet the question of whether U.S. casino operators will change Macau, or if the place changes them, hasn't been answered. Walking around the sprawling luxury-shopping centers tacked on to the Venetian Macau and the new Four Seasons complexes, one gets the impression that Vegas is still struggling to influence Macau. The buildings are lonely, sparsely populated places.
Vegas is as much an entertainment destination as a gambling center. Those tapped out at the tables -- or uninterested -- see shows, shop, take in local attractions or dine at any number of top eateries. Many visitors to Macau don't bother getting hotel rooms or eating out, never mind checking out Louis Vuitton, Prada or Gordon Ramsay's menu.
Efforts to change things are certainly brewing. The planned Vegasization of Macau can be seen in the ambitions of Adelson's Las Vegas Sands, with almost a fifth of Macau's casino market. Adelson plans to invest $12 billion in the project.
The odds are in Macau's favor. The effects of a bust on Wall Street make it a riskier bet.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Macau at wpesek@bloomberg.net
Read more...
(Corrects spelling of Ramsay in 20th paragraph.)
Sept. 24 (Bloomberg) -- Taking a break from Macau's teeming card tables one recent evening, four mainland Chinese men sip beer and warily eye two televisions above the bar.
The TVs are tuned to competing business news channels -- one covering the demise of Lehman Brothers Holdings Inc., the other this year's 60 percent plunge in Chinese stocks. Eventually, the gamblers shake their heads and go back across the hall to the Venetian Macau's casino floor.
The juxtaposition aptly brought together some of the world's most gripping economic stories and one of its more intriguing social trends, the latter being the surging popularity of gambling in Asia.
It's getting harder to separate Wall Street's plunge and the meltdown in Chinese stocks. It's also likely that Macau will join Las Vegas in dispelling the conventional wisdom that gambling is a recession-proof business.
A year ago, few quibbled with Macau bulls such as Steve Wynn, Sheldon Adelson and, long before the Vegas tycoons showed up, Stanley Ho. Given Macau's proximity to a nation of 1.3 billion potential gambling enthusiasts, it's still hard to bet against this former Portuguese colony.
Yet some important changes are afoot, including the global economic environment. The U.S. is on the verge of a recession and China is bracing for a marked slowdown in its economy.
Weakening growth is hurting stock markets and also showing that Vegas isn't immune to macroeconomics after all.
Measuring Adelson
One measure: Adelson was the biggest loser in this year's Forbes ranking. The Las Vegas Sands Corp. chief executive officer fell to 15th place from third after casino stocks tumbled. Another: Vegas Strip casino gambling revenue dropped for the seventh straight month in July as cash-strapped U.S. consumers curbed entertainment and travel spending. Revenue declined 15 percent in July alone.
A variable that may change is the flow of mainland Chinese to Macau. Shares of Las Vegas Sands, Wynn Resorts Ltd., MGM Mirage, and Melco Crown Entertainment Ltd. dropped in August on news reports that China may increase travel restrictions to what's now the world's biggest gambling center.
Macau's casino gambling revenue rose 55 percent in the first six months of 2008, accelerating from 47 percent growth in 2007.
Will Macau suffer Lehman's fate -- a place oozing confidence a year ago that has now gone bust? It's doubtful, yet the risks suddenly facing Macau tell a few bigger stories.
Knock-On Effects
One is how the ripple effects of the U.S. credit crisis are traveling far and wide. Another is the hubris with which analysts argued that Asia had decoupled from the U.S. Perhaps the most important is the Asia-wide risk of relying so heavily on China, which is itself a developing nation.
The plunge in Chinese shares speaks to the danger of developing economies depending on another emerging one. Macau relies on so-called VIP gamblers. The drop in stocks may mean fewer high-rollers will come Macau's way.
Macau returned to Chinese rule in 1999, and its torrid early growth is being followed by a slowdown in expansion efforts. One might argue Macau is merely taking a much-needed breather. Its casinos have more than doubled to 30 since the government ended billionaire Ho's 40-year monopoly in 2002 and awarded licenses to five other operators.
When I asked Lawrence Ho, Stanley Ho's son and one of Melco Crown Entertainment Ltd.'s two chairmen, about this recently, he pointed out that the only place in China where casinos are legal still lacks the airport and ferry capacity to support its growth.
Deep Breath
``Macau is just taking a deep breath at the moment --nothing more,'' Ho says.
Macau's tourism growth may even support another 16 casinos in the next three to four years if the government builds enough transport infrastructure, says Paul Tso, chief executive officer of property developer L'Arc Macau.
``The growth of incoming tourists, gamblers or not, has way outpaced everything the government has implemented,'' says Tso, whose company is developing the 56-storey L'Arc de Triomphe, Macau's tallest casino project, for about $600 million.
Yet the question of whether U.S. casino operators will change Macau, or if the place changes them, hasn't been answered. Walking around the sprawling luxury-shopping centers tacked on to the Venetian Macau and the new Four Seasons complexes, one gets the impression that Vegas is still struggling to influence Macau. The buildings are lonely, sparsely populated places.
Vegas is as much an entertainment destination as a gambling center. Those tapped out at the tables -- or uninterested -- see shows, shop, take in local attractions or dine at any number of top eateries. Many visitors to Macau don't bother getting hotel rooms or eating out, never mind checking out Louis Vuitton, Prada or Gordon Ramsay's menu.
Efforts to change things are certainly brewing. The planned Vegasization of Macau can be seen in the ambitions of Adelson's Las Vegas Sands, with almost a fifth of Macau's casino market. Adelson plans to invest $12 billion in the project.
The odds are in Macau's favor. The effects of a bust on Wall Street make it a riskier bet.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column: William Pesek in Macau at wpesek@bloomberg.net
Read more...
Venezuela, China to Build Refineries, Boost Sales
By Steven Bodzin and Wang Ying
Sept. 24 (Bloomberg) -- Venezuela, the world's fifth-largest oil exporter, and China plan to build refineries and boost oil shipments, said President Hugo Chavez, who is seeking to lessen dependence on the U.S.
The countries will sign agreements that will include building a refinery in block Junin 8 in the Orinoco Belt, South America's biggest oil area, Chavez said today in Beijing in a phone interview with Venezuelan state television. The accords will deepen cooperation between the two countries, he said.
Chavez, who is in China this week on a tour that includes Russia and Cuba, has sought closer ties with U.S. rivals. Earlier this month, Chavez expelled the U.S. ambassador to Caracas and signed an agreement with Russia's OAO Gazprom on offshore projects. China, the world's second-biggest oil user, needs fuel as its economy grows at a double-digit pace.
``China is short of oil and it has to extend cooperation with foreign countries,'' Xia Yishan, a senior research fellow with the China Institute of International Studies, said by phone in Beijing. ``The country will need to increase imports and expand overseas exploration to meet local demand.''
PetroChina Co., the nation's biggest oil producer, and Petroleos de Venezuela SA signed a ``framework'' agreement on oil supplies today. China Petrochemical Corp., the nation's largest oil refiner, signed an initial accord with Venezuela's state oil company. No details were provided.
China's gross domestic product expanded 10.1 percent in the second quarter. Last year, its economy grew 11.9 percent, the quickest pace in 13 years. The nation will surpass the U.S. as the world's biggest energy consumer in five years, Jeremy Bentham, vice president of global business environment at Royal Dutch Shell Plc, said on Sept. 16.
Cabruta Refinery
China and Venezuela are continuing work on a previously announced refinery at Cabruta and both governments will sign several agreements, Chavez said, without providing details. Cabruta is located at the Latin American country's geographical center.
The two countries signed 12 accords today at a ceremony at China's Great Hall of the People in central Beijing. The agreements cover trade, energy, infrastructure, communications, education and culture.
The two countries had agreed in May to build a refinery in China and create a joint venture to drill for oil in the Junin 4 area, where China National Petroleum Corp. has been quantifying and certifying reserves. Venezuela plans to export 1 million barrels of oil a day to China by 2011 or 2012, Chavez said then.
Trade between the nations will exceed $8 billion this year and Venezuela is currently shipping 331,000 barrels a day of oil and oil products to PetroChina.
U.S. Sales
Bilateral trade in the first seven months reached $6.23 billion, compared with $5.9 billion for all of 2007, Foreign Ministry spokeswoman Jiang Yu said yesterday.
The Latin American nation supplies 4 percent of China's total oil imports, Jiang said.
Chavez, who took office in 1999, has repeatedly threatened to cut off oil sales to the U.S., alleging its government has attempted to assassinate or overthrow him. The U.S. buys about two-thirds of Venezuela's daily exports of 2 million barrels.
``China-Venezuela relations are normal state-to-state relations, not based on ideology, and are not targeted against any third party,'' said Jiang.
To contact the reporters on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net; Wang Ying in Hong Kong at wang30@bloomberg.net.
Read more...
Sept. 24 (Bloomberg) -- Venezuela, the world's fifth-largest oil exporter, and China plan to build refineries and boost oil shipments, said President Hugo Chavez, who is seeking to lessen dependence on the U.S.
The countries will sign agreements that will include building a refinery in block Junin 8 in the Orinoco Belt, South America's biggest oil area, Chavez said today in Beijing in a phone interview with Venezuelan state television. The accords will deepen cooperation between the two countries, he said.
Chavez, who is in China this week on a tour that includes Russia and Cuba, has sought closer ties with U.S. rivals. Earlier this month, Chavez expelled the U.S. ambassador to Caracas and signed an agreement with Russia's OAO Gazprom on offshore projects. China, the world's second-biggest oil user, needs fuel as its economy grows at a double-digit pace.
``China is short of oil and it has to extend cooperation with foreign countries,'' Xia Yishan, a senior research fellow with the China Institute of International Studies, said by phone in Beijing. ``The country will need to increase imports and expand overseas exploration to meet local demand.''
PetroChina Co., the nation's biggest oil producer, and Petroleos de Venezuela SA signed a ``framework'' agreement on oil supplies today. China Petrochemical Corp., the nation's largest oil refiner, signed an initial accord with Venezuela's state oil company. No details were provided.
China's gross domestic product expanded 10.1 percent in the second quarter. Last year, its economy grew 11.9 percent, the quickest pace in 13 years. The nation will surpass the U.S. as the world's biggest energy consumer in five years, Jeremy Bentham, vice president of global business environment at Royal Dutch Shell Plc, said on Sept. 16.
Cabruta Refinery
China and Venezuela are continuing work on a previously announced refinery at Cabruta and both governments will sign several agreements, Chavez said, without providing details. Cabruta is located at the Latin American country's geographical center.
The two countries signed 12 accords today at a ceremony at China's Great Hall of the People in central Beijing. The agreements cover trade, energy, infrastructure, communications, education and culture.
The two countries had agreed in May to build a refinery in China and create a joint venture to drill for oil in the Junin 4 area, where China National Petroleum Corp. has been quantifying and certifying reserves. Venezuela plans to export 1 million barrels of oil a day to China by 2011 or 2012, Chavez said then.
Trade between the nations will exceed $8 billion this year and Venezuela is currently shipping 331,000 barrels a day of oil and oil products to PetroChina.
U.S. Sales
Bilateral trade in the first seven months reached $6.23 billion, compared with $5.9 billion for all of 2007, Foreign Ministry spokeswoman Jiang Yu said yesterday.
The Latin American nation supplies 4 percent of China's total oil imports, Jiang said.
Chavez, who took office in 1999, has repeatedly threatened to cut off oil sales to the U.S., alleging its government has attempted to assassinate or overthrow him. The U.S. buys about two-thirds of Venezuela's daily exports of 2 million barrels.
``China-Venezuela relations are normal state-to-state relations, not based on ideology, and are not targeted against any third party,'' said Jiang.
To contact the reporters on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net; Wang Ying in Hong Kong at wang30@bloomberg.net.
Read more...
Bodman Says Kinder Morgan Fire Shouldn't Harm Oil Supplies
By Tina Seeley
Sept. 24 (Bloomberg) -- A fire at a Kinder Morgan Energy Partners LP facility in Texas shouldn't have larger ramifications for the oil market, the Energy Secretary said.
Samuel Bodman doesn't believe the problem ``as of now'' should have larger ramifications for the market, he told reporters today in Washington. The Energy Department hasn't received any requests for reserve oil because of the fire.
Houston-based Kinder Morgan said a fire late yesterday shut its Pasadena oil terminal in Texas, which connects refineries from along the Gulf Coast to pipelines serving the eastern and Midwest U.S. The company is planning to resume ``limited operations,'' later today, a company spokesman said.
Bodman also said he believed a price spike that affected crude oil futures markets two days ago was a ``short squeeze,'' and didn't reflect fundamentals of supply and demand.
``I think it was an anomaly,'' he said.
To contact the reporter on this story: Tina Seeley in Washington at tseeley@bloomberg.net.
Read more...
Sept. 24 (Bloomberg) -- A fire at a Kinder Morgan Energy Partners LP facility in Texas shouldn't have larger ramifications for the oil market, the Energy Secretary said.
Samuel Bodman doesn't believe the problem ``as of now'' should have larger ramifications for the market, he told reporters today in Washington. The Energy Department hasn't received any requests for reserve oil because of the fire.
Houston-based Kinder Morgan said a fire late yesterday shut its Pasadena oil terminal in Texas, which connects refineries from along the Gulf Coast to pipelines serving the eastern and Midwest U.S. The company is planning to resume ``limited operations,'' later today, a company spokesman said.
Bodman also said he believed a price spike that affected crude oil futures markets two days ago was a ``short squeeze,'' and didn't reflect fundamentals of supply and demand.
``I think it was an anomaly,'' he said.
To contact the reporter on this story: Tina Seeley in Washington at tseeley@bloomberg.net.
Read more...
Subscribe to:
Posts (Atom)
Posts
