By Patricia Hurtado
Oct. 18 (Bloomberg) -- One of two former Bear Stearns Cos. hedge-fund managers charged with misleading investors about the health of funds that failed last year tried to ``influence'' witnesses during the bank's probe, prosecutors said.
At a court hearing yesterday in Brooklyn, New York, for the former managers, Ralph Cioffi, 52, and Matthew Tannin, 46, Assistant U.S. Attorney Patrick Sinclair said prosecutors were ``aware of instances where the defendant here has attempted to influence the statements of potential witnesses in the course of the Bear Stearns internal investigation.''
``It's a significant concern'' that the practice will continue during a criminal investigation and a civil lawsuit brought by the U.S. Securities and Exchange Commission, Sinclair told U.S. District Court Judge Frederic Block. Prosecutors asked to join and delay the civil action filed in June.
Sinclair wouldn't identify which of the two former managers he was referring to, when asked after the hearing. James McMahon, head of the securities fraud section of the Brooklyn U.S. Attorney's Office, also declined to comment.
Marc Weinstein, a lawyer for Cioffi, said, ``Our client denies any allegations regarding any attempts to influence witness testimony in connect with this case.''
Cioffi wasn't in court yesterday and Tannin declined to comment after the hearing. Susan Brune, one of Tannin's lawyers, declined to comment after court yesterday about Sinclair's comments to the judge. Andy Merrill, a spokesman for Mr. Tannin, also declined to comment.
Implosion
The implosion of New York-based Bear Stearns helped trigger the credit crunch and the eventual collapse and sale of the investment bank to JPMorgan Chase & Co. The government has been investigating possible fraud by banks and mortgage firms whose investments in subprime loans and securities plunged in value, causing losses that now total almost $450 billion.
Block yesterday granted prosecutors permission to join the SEC's civil case. Block postponed ruling whether to put the civil case on hold until the criminal prosecution has concluded.
Sinclair argued for postponing the SEC case, saying it could hamper prosecutors and investigators in the criminal proceeding. He repeated the government's intention to file additional criminal charges by December.
``We know how much of a diversion of time that can be,'' Sinclair said, referring to disputes over evidence in civil cases. He said this case is especially complicated because it involves ``discovery from some of the largest financial institutions undergoing the most major crisis that they have ever faced before.''
Civil Case
Lawyers for both men yesterday urged Block to let the civil case go forward. They noted that no trial date has been set in the criminal case and that prosecutors said they intended to bring additional charges, which could cause delays.
``The SEC has chosen to bring its case, which should mean that it's prepared to go forward,'' Brune told Block. ``The government has been investigating this case for a year. They have had a massive ability to get unilateral access to all of the witnesses.''
Weinstein said the government hasn't turned over any evidence related to Barclays PLC, the London-based bank referenced anonymously in SEC charging documents as a victim of the defendants' scheme.
``There are allegations in here that our clients hoodwinked a major financial global institution, yet they don't have a single page to turn over directly from their file,'' he said.
The SEC case describes ``specific allegations that these defendants misled what they represent to Bank No. 1,'' Weinstein said. ``Everyone knows it's Barclays.''
Bank No. 1
Sinclair confirmed that Bank No. 1 is Barclays.
``I can represent to the court that by the end of this week, the defendants will receive discovery from Barclays,'' he told the judge,,
Barclays, the U.K.'s third-biggest bank, claimed in a lawsuit it filed last year in federal court in New York that it was misled by Cioffi and Tannin about the health of Bear Stearns's so-called enhanced fund managed.
Bear Stearns, Cioffi and Tannin are named as defendants in the case. The British bank accused Cioffi of withdrawing his own $2 million investment at the same time Bear persuaded Barclays to double its stake, according to the complaint.
$2 Million
Cioffi, now with Tenafly, New Jersey-based RCAM Capital LP, left Bear Stearns amid inquiries by prosecutors and the SEC into whether he withdrew $2 million from the funds four months before their collapse in July, according to the indictment.
The money, one third of the amount he invested in one of the funds, was switched to another fund he set up, prosecutors said.
The former hedge-fund manager was charged with one count of insider trading based on the $2 million redemption, prosecutors said. He was relieved of his duties as a fund manager in June, when his funds' subprime investments began to unravel.
Both he and Tannin, who have pleaded not guilty, face as long as 20 years in prison if convicted of conspiracy. Cioffi faces an additional 20-year term if found guilty of insider trading.
Cioffi managed the two funds that collapsed, and Tannin served as his chief operating officer. The funds, which put most of their assets in subprime mortgage-related securities, failed in June 2007 when prices for collateralized-debt obligations linked to home loans fell amid rising late payments by borrowers with poor credit or heavy debt.
In March, three months after Cioffi left Bear Stearns, the 85-year-old firm was purchased by New York-based JPMorgan for about $1.4 billion in stock. Bear Stearns, worth almost $25 billion in January 2007, was pushed to the brink of insolvency when speculation about a cash-shortage prompted customers and lenders to flee.
The criminal case is U.S. v. Cioffi, 08-00415, and the civil case is Securities and Exchange Commission v. Cioffi, 08- CV-2457, U.S. District Court, Eastern District of New York (Brooklyn).
To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net.
Read more...
Saturday, October 18, 2008
U.S. 10-Year Notes Fall on Concern About Supply, Bank Program
By Daniel Kruger
Oct. 18 (Bloomberg) -- Ten-year Treasury notes dropped for a second week as investors focused on the prospect of greater U.S. borrowing and the impact of the Bush administration's plan for the U.S. to invest in banks.
Yields on the notes rose as the government said it posted a record $455 billion budget deficit for the year ended Sept. 30. Morgan Stanley has predicted the shortfall may almost quadruple as the Treasury uses $700 billion to rescue the financial system from the credit crisis. Stocks gained for the week, with the Standard & Poor's 500 Index rising the most in eight months.
``People are still trying to get a handle on the supply, when it's going to come,'' said James Collins, an interest-rate strategist at Citigroup Global Markets Inc. in Chicago, one of the 17 primary dealers that trade with the Federal Reserve. ``It's obvious it's going to be enormous.''
The yield on the 10-year note rose 6 basis points for the week, or 0.06 percentage point, to 3.93 percent, according to BGCantor Market Data. It touched a 2 1/2-month high of 4.10 percent on Oct. 15. The 4 percent security maturing in August 2018 fell 15/32, or $4.69 per $1,000 face amount, to 100 17/32.
Two-year note yields declined 3 basis points to 1.62 percent.
Treasury 10-year notes underperformed two-year notes amid speculation the government will conduct a second set of special auctions to relieve shortages in the market for borrowing and lending Treasuries. The U.S. on Oct. 8 and 9 sold $40 billion in debt over two days in special sales it announced on Oct. 8.
Awaiting an Announcement
``On a daily basis, people have been looking for the Treasury to come in and make another announcement,'' said Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest lender. Treasuries with five-, seven- and 10-year maturities ``had been hit really hard'' as traders anticipated new auctions.
The government last week also said it would continue increasing sizes of regular debt sales and consider selling new maturities, and would make any changes to its auction calendar at its Nov. 5 refunding announcement.
``I don't think you buy Treasuries,'' said Bill Gross, who is co-chief investment officer of Pacific Investment Management Co. and runs the $129.6 billion Total Return Fund. He spoke in an interview on Bloomberg Radio from Newport Beach, California, where Pimco is based. ``They're obvious flight-to-quality vehicles.''
Confidence to Revive
The efforts of governments and central banks worldwide may restore investor confidence in ``weeks,'' Gross said. The U.S. and other nations have agreed to spend almost $3 trillion to rescue banks imperiled by the credit crisis. The Treasury on Oct. 14 said it plans to buy $250 billion of shares in U.S. banks and offer guarantees on new debt.
Rates on three-month Treasury bills, viewed as a haven because of their short maturities, rose 61 basis points for the week to 0.79 percent, the highest level since Oct. 7.
The S&P 500 Index climbed 4.6 percent, the most since February, capping a volatile week for equities. Investor Warren Buffett said he's buying stocks. Writing in the New York Times, he said ``a simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread.''
Traders added to bets the Fed will cut borrowing costs for a second time this month at its Oct. 29 meeting to bolster the economy. Futures on the Chicago Board of Trade yesterday showed traders saw a 38 percent chance the Fed will cut its target rate for overnight bank loans by a half-percentage point to 1 percent at its Oct. 29 meeting. The odds were 28 percent a week earlier. The rest of the bets were for a quarter-point reduction.
Signs of Thawing
Reports showed the economy slowing. Construction of single- family homes plunged to the lowest level in 26 years, the Commerce Department said yesterday. Industrial production fell last month by the most in almost 34 years, the Fed said Oct. 16, and retail sales declined in September for a third month, the longest in at least 16 years, Commerce said Oct. 15.
Even so, money markets exhibited signs of thawing. The London interbank offered rate, or Libor, for borrowing in dollars overnight fell for a sixth day yesterday, slipping 27 basis points, to 1.67 percent. That's the lowest level since September 2004.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, fell 1 percentage point last week to 3.63 percentage points. It was 4.64 percentage points on Oct. 10.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Ten-year Treasury notes dropped for a second week as investors focused on the prospect of greater U.S. borrowing and the impact of the Bush administration's plan for the U.S. to invest in banks.
Yields on the notes rose as the government said it posted a record $455 billion budget deficit for the year ended Sept. 30. Morgan Stanley has predicted the shortfall may almost quadruple as the Treasury uses $700 billion to rescue the financial system from the credit crisis. Stocks gained for the week, with the Standard & Poor's 500 Index rising the most in eight months.
``People are still trying to get a handle on the supply, when it's going to come,'' said James Collins, an interest-rate strategist at Citigroup Global Markets Inc. in Chicago, one of the 17 primary dealers that trade with the Federal Reserve. ``It's obvious it's going to be enormous.''
The yield on the 10-year note rose 6 basis points for the week, or 0.06 percentage point, to 3.93 percent, according to BGCantor Market Data. It touched a 2 1/2-month high of 4.10 percent on Oct. 15. The 4 percent security maturing in August 2018 fell 15/32, or $4.69 per $1,000 face amount, to 100 17/32.
Two-year note yields declined 3 basis points to 1.62 percent.
Treasury 10-year notes underperformed two-year notes amid speculation the government will conduct a second set of special auctions to relieve shortages in the market for borrowing and lending Treasuries. The U.S. on Oct. 8 and 9 sold $40 billion in debt over two days in special sales it announced on Oct. 8.
Awaiting an Announcement
``On a daily basis, people have been looking for the Treasury to come in and make another announcement,'' said Tom Tucci, head of U.S. government bond trading in New York at RBC Capital Markets, the investment-banking arm of Canada's biggest lender. Treasuries with five-, seven- and 10-year maturities ``had been hit really hard'' as traders anticipated new auctions.
The government last week also said it would continue increasing sizes of regular debt sales and consider selling new maturities, and would make any changes to its auction calendar at its Nov. 5 refunding announcement.
``I don't think you buy Treasuries,'' said Bill Gross, who is co-chief investment officer of Pacific Investment Management Co. and runs the $129.6 billion Total Return Fund. He spoke in an interview on Bloomberg Radio from Newport Beach, California, where Pimco is based. ``They're obvious flight-to-quality vehicles.''
Confidence to Revive
The efforts of governments and central banks worldwide may restore investor confidence in ``weeks,'' Gross said. The U.S. and other nations have agreed to spend almost $3 trillion to rescue banks imperiled by the credit crisis. The Treasury on Oct. 14 said it plans to buy $250 billion of shares in U.S. banks and offer guarantees on new debt.
Rates on three-month Treasury bills, viewed as a haven because of their short maturities, rose 61 basis points for the week to 0.79 percent, the highest level since Oct. 7.
The S&P 500 Index climbed 4.6 percent, the most since February, capping a volatile week for equities. Investor Warren Buffett said he's buying stocks. Writing in the New York Times, he said ``a simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread.''
Traders added to bets the Fed will cut borrowing costs for a second time this month at its Oct. 29 meeting to bolster the economy. Futures on the Chicago Board of Trade yesterday showed traders saw a 38 percent chance the Fed will cut its target rate for overnight bank loans by a half-percentage point to 1 percent at its Oct. 29 meeting. The odds were 28 percent a week earlier. The rest of the bets were for a quarter-point reduction.
Signs of Thawing
Reports showed the economy slowing. Construction of single- family homes plunged to the lowest level in 26 years, the Commerce Department said yesterday. Industrial production fell last month by the most in almost 34 years, the Fed said Oct. 16, and retail sales declined in September for a third month, the longest in at least 16 years, Commerce said Oct. 15.
Even so, money markets exhibited signs of thawing. The London interbank offered rate, or Libor, for borrowing in dollars overnight fell for a sixth day yesterday, slipping 27 basis points, to 1.67 percent. That's the lowest level since September 2004.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, fell 1 percentage point last week to 3.63 percentage points. It was 4.64 percentage points on Oct. 10.
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
Read more...
Ford Doesn't Have to Pay $27 Million Crash Verdict, Court Rules
By Margaret Cronin Fisk
Oct. 18 (Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, won't have to pay a $27 million jury verdict to the family of a 46-year-old man who was killed when his Ford Escort was rear-ended, Illinois's top court ruled.
The family of James Mikolajczyk said the 1996 Escort's seat back was defective because it collapsed backward in the crash. Mikolajczyk, a physician's assistant at the University of Chicago Hospital, died of head injuries after the February 2000 accident, said family attorney Bruce Pfaff.
A Chicago jury awarded the family $25 million in 2005, finding the seat design defective. The Illinois Supreme Court yesterday threw out the verdict, ruling the trial judge's jury instructions didn't include consideration that the Escort seat design may have prevented more injuries than it caused.
``The jury was specifically instructed to focus its deliberations solely on whether the seat was unsafe when put to a reasonably foreseeable use,'' the court said in ordering a new trial. ``A retrial is required because the jury was inadequately instructed.''
The Mikolajczyk family will ask the court for a rehearing, Pfaff said. The court was ``completely, utterly and totally wrong,'' he said in an interview. No new trial date has been set.
Ford is pleased with the decision, Mark Truby, a spokesman for the Dearborn, Michigan-based company, said in an e-mail. ``We continue to believe that the plaintiff's claims are without merit, and we look forward to presenting our case at the new trial.''
Mikolajczyk was parked at a red light when a drunk driver traveling about 60 miles an hour smashed his Cadillac into the back of the Escort. Ford contended the force of the collision, not the design of the seat, led to Mikolajczyk's death.
The case is Mikolajczyk v. Ford Motor Co., 104983, Supreme Court of the State of Illinois.
To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Ford Motor Co., the second-largest U.S. automaker, won't have to pay a $27 million jury verdict to the family of a 46-year-old man who was killed when his Ford Escort was rear-ended, Illinois's top court ruled.
The family of James Mikolajczyk said the 1996 Escort's seat back was defective because it collapsed backward in the crash. Mikolajczyk, a physician's assistant at the University of Chicago Hospital, died of head injuries after the February 2000 accident, said family attorney Bruce Pfaff.
A Chicago jury awarded the family $25 million in 2005, finding the seat design defective. The Illinois Supreme Court yesterday threw out the verdict, ruling the trial judge's jury instructions didn't include consideration that the Escort seat design may have prevented more injuries than it caused.
``The jury was specifically instructed to focus its deliberations solely on whether the seat was unsafe when put to a reasonably foreseeable use,'' the court said in ordering a new trial. ``A retrial is required because the jury was inadequately instructed.''
The Mikolajczyk family will ask the court for a rehearing, Pfaff said. The court was ``completely, utterly and totally wrong,'' he said in an interview. No new trial date has been set.
Ford is pleased with the decision, Mark Truby, a spokesman for the Dearborn, Michigan-based company, said in an e-mail. ``We continue to believe that the plaintiff's claims are without merit, and we look forward to presenting our case at the new trial.''
Mikolajczyk was parked at a red light when a drunk driver traveling about 60 miles an hour smashed his Cadillac into the back of the Escort. Ford contended the force of the collision, not the design of the seat, led to Mikolajczyk's death.
The case is Mikolajczyk v. Ford Motor Co., 104983, Supreme Court of the State of Illinois.
To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.
Read more...
U.S. Stocks' Roller-Coaster Week Gives Dow Best Gain Since 2003
By Lynn Thomasson
Oct. 18 (Bloomberg) -- U.S. stocks ended a roller-coaster week with the Dow Jones Industrial Average climbing 4.8 percent after the government's plans to buy stakes in banks spurred the biggest one-day rally since the Great Depression.
The weekly gains, the best for the Dow since 2003, came despite the steepest one-day drop since the October 1987 crash. The 30-stock average surged more than 900 points on Oct. 13 and tumbled more than 700 points two days later on worsening retail sales data. The VIX, the benchmark index for U.S. stock options, closed yesterday at a record 70.33.
``This week has been incredibly volatile,'' said John Davidson, president of PartnerRe Asset Management Corp., which oversees $12 billion in Greenwich, Connecticut. ``There's relief that the government is doing something, but also a realization that it may take some time.''
The Standard & Poor's 500 Index lost 0.6 percent yesterday, dragged down by a record drop in consumer confidence and a 26- year low in housing starts, after swinging between gains and losses at least 28 times. The drop pared the measure's weekly climb to 4.6 percent, with a close at 940.55. The Dow average fell 1.4 percent to 8,852.22 yesterday.
The Dow jumped 11 percent on Oct. 13, rebounding from the worst weekly decline since 1914, on the government's plan to inject $250 billion into financial companies. Goldman Sachs Group Inc. surged 29 percent, the most in its 9-year history as a publicly-traded firm, to $114.30 after the Treasury Department said it would buy equity in nine of the biggest U.S. lenders.
Libor, Buffett
Nine out of 10 S&P 500 industries rose for the week. The London interbank offered rate showed credit markets are easing after the measure, which banks use to charge each other for three-month loans in dollars, fell for the first week since July. Warren Buffett's advice to buy American equities and better-than-estimated profit reports helped lift Coca-Cola Co. and Google Inc. for the week.
Sears Holdings Corp., the biggest U.S. department-store company, slumped 14 percent to $60.90 for a third week of losses. J.C. Penney Co. slid 6.8 percent to $21.09. Retail sales last month fell 1.2 percent, the most in three years, the Commerce Department reported, as mounting job losses and declining home prices drove Americans to cut back spending.
Bank Stakes
The government will buy preferred shares in Goldman, Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., JPMorgan Chase & Co., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Wells Fargo & Co., people briefed on the Treasury Department's plan said. All of the banks except JPMorgan and State Street rose for the week.
Equity injections will be voluntary, aimed at ``healthy'' firms and have attractive terms to encourage participation, said Neel Kashkari, the Treasury official overseeing the $700 billion financial system rescue.
The European Central Bank, the Bank of England and the Swiss central bank also agreed to auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Asian and European stocks climbed. The MSCI Asia Pacific Index added 1.6 percent, snapping a six-week streak of losses. The Dow Jones Stoxx 600 Index rose 4.5 percent for the biggest jump since March 2007.
Morgan Stanley increased 99 percent to $19.24 for the steepest advance in the S&P 500. The New York bank sealed its $9 billion investment from Mitsubishi UFJ Financial Group Inc. and gave the Japanese lender preferred stock paying a 10 percent dividend.
Volatility Surges
The S&P 500, which moved more than 1 percent in 10 of the 13 trading sessions in October, is on track for its most volatile month since 1929, according to S&P analyst Howard Silverblatt. The VIX, as the Chicago Board Options Exchange Volatility Index is known, has tripled since the beginning of September.
Government reports released this week showed a struggling U.S. economy as industrial production fell the most in 34 years, losing 2.8 percent last month, and the Fed's Beige Book said tourism, retail and auto spending decreased.
The Reuters/University of Michigan preliminary index of consumer sentiment sank to 57.5 this month from 70.3 in September. The measure averaged 85.6 last year.
The prospect of a slowing economy after $660 billion in losses and writedowns from mortgage-related investments at banks has sent the S&P 500 down 36 percent this year. Buffett, the world's second-richest person, said he's buying U.S. stocks after the decline and urged investors to ``be greedy when others are fearful'' in an Oct. 17 New York Times column.
`Excellent Opportunities'
``This is the greatest investor of our time and he's in there seeing excellent opportunities in American companies,'' said Pat Becker Jr., chief investment officer at Becker Capital Management Inc. in Portland, Oregon, which oversees $1.7 billion. ``I've been doing this 18-plus years and I have never seen the opportunities that we have right now.''
MBIA Inc. rose the most since January, surging 60 percent to $9.40. Ambac Financial Group Inc. more than doubled to $3.49. Bond insurers may sell assets to the Treasury or guarantee securities on bank balance sheets with a government backstop, Ambac Chief Executive Officer Michael Callen said.
S&P 500 energy stocks gained 7.3 percent, a rebound from last week, when the industry lost a quarter of its value.
Exxon Mobil Corp., the world's largest oil company, jumped 9.1 percent to $68.04. Chevron Corp., the second-biggest U.S producer, increased 7.8 percent to $62.35. Both companies had losses exceeding 19 percent the previous week.
Oil Retreat
Oil futures fell 7.5 percent to $71.85 a barrel on the New York Mercantile Exchange, the third week of declines.
Peabody Energy Corp. posted the industry's top gain with a 12 percent advance to $32.03. The largest U.S. coal producer said third-quarter profit soared more than 11-fold on increased output and higher prices.
Coca-Cola, the world's largest soft-drink maker, had the biggest gain since 2003 with a 6.5 percent advance to $44.20. The world's largest soft-drink maker said third-quarter profit rose 14 percent, more than analysts estimated, as sales increased in China and India.
Google climbed 12 percent to $372.54, the most for the Internet search-engine operator since April. The company reported a 26 percent rise in third-quarter earnings and said customers are still buying Web ads even as the economy slows.
More than 140 S&P 500 companies will report third-quarter earnings next week, including Apple Inc., Caterpillar Inc. and McDonald's Corp. Wall Street analysts forecast an 11 percent drop in third-quarter earnings in a Bloomberg survey.
The index of U.S. leading economic indicators probably fell in September for a third month, led by declines in manufacturing, housing and stocks that may weaken growth into 2009, economists said before next week's report.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- U.S. stocks ended a roller-coaster week with the Dow Jones Industrial Average climbing 4.8 percent after the government's plans to buy stakes in banks spurred the biggest one-day rally since the Great Depression.
The weekly gains, the best for the Dow since 2003, came despite the steepest one-day drop since the October 1987 crash. The 30-stock average surged more than 900 points on Oct. 13 and tumbled more than 700 points two days later on worsening retail sales data. The VIX, the benchmark index for U.S. stock options, closed yesterday at a record 70.33.
``This week has been incredibly volatile,'' said John Davidson, president of PartnerRe Asset Management Corp., which oversees $12 billion in Greenwich, Connecticut. ``There's relief that the government is doing something, but also a realization that it may take some time.''
The Standard & Poor's 500 Index lost 0.6 percent yesterday, dragged down by a record drop in consumer confidence and a 26- year low in housing starts, after swinging between gains and losses at least 28 times. The drop pared the measure's weekly climb to 4.6 percent, with a close at 940.55. The Dow average fell 1.4 percent to 8,852.22 yesterday.
The Dow jumped 11 percent on Oct. 13, rebounding from the worst weekly decline since 1914, on the government's plan to inject $250 billion into financial companies. Goldman Sachs Group Inc. surged 29 percent, the most in its 9-year history as a publicly-traded firm, to $114.30 after the Treasury Department said it would buy equity in nine of the biggest U.S. lenders.
Libor, Buffett
Nine out of 10 S&P 500 industries rose for the week. The London interbank offered rate showed credit markets are easing after the measure, which banks use to charge each other for three-month loans in dollars, fell for the first week since July. Warren Buffett's advice to buy American equities and better-than-estimated profit reports helped lift Coca-Cola Co. and Google Inc. for the week.
Sears Holdings Corp., the biggest U.S. department-store company, slumped 14 percent to $60.90 for a third week of losses. J.C. Penney Co. slid 6.8 percent to $21.09. Retail sales last month fell 1.2 percent, the most in three years, the Commerce Department reported, as mounting job losses and declining home prices drove Americans to cut back spending.
Bank Stakes
The government will buy preferred shares in Goldman, Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., JPMorgan Chase & Co., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Wells Fargo & Co., people briefed on the Treasury Department's plan said. All of the banks except JPMorgan and State Street rose for the week.
Equity injections will be voluntary, aimed at ``healthy'' firms and have attractive terms to encourage participation, said Neel Kashkari, the Treasury official overseeing the $700 billion financial system rescue.
The European Central Bank, the Bank of England and the Swiss central bank also agreed to auction unlimited dollar funds. Previous swap arrangements between the Fed and other central banks were capped.
Asian and European stocks climbed. The MSCI Asia Pacific Index added 1.6 percent, snapping a six-week streak of losses. The Dow Jones Stoxx 600 Index rose 4.5 percent for the biggest jump since March 2007.
Morgan Stanley increased 99 percent to $19.24 for the steepest advance in the S&P 500. The New York bank sealed its $9 billion investment from Mitsubishi UFJ Financial Group Inc. and gave the Japanese lender preferred stock paying a 10 percent dividend.
Volatility Surges
The S&P 500, which moved more than 1 percent in 10 of the 13 trading sessions in October, is on track for its most volatile month since 1929, according to S&P analyst Howard Silverblatt. The VIX, as the Chicago Board Options Exchange Volatility Index is known, has tripled since the beginning of September.
Government reports released this week showed a struggling U.S. economy as industrial production fell the most in 34 years, losing 2.8 percent last month, and the Fed's Beige Book said tourism, retail and auto spending decreased.
The Reuters/University of Michigan preliminary index of consumer sentiment sank to 57.5 this month from 70.3 in September. The measure averaged 85.6 last year.
The prospect of a slowing economy after $660 billion in losses and writedowns from mortgage-related investments at banks has sent the S&P 500 down 36 percent this year. Buffett, the world's second-richest person, said he's buying U.S. stocks after the decline and urged investors to ``be greedy when others are fearful'' in an Oct. 17 New York Times column.
`Excellent Opportunities'
``This is the greatest investor of our time and he's in there seeing excellent opportunities in American companies,'' said Pat Becker Jr., chief investment officer at Becker Capital Management Inc. in Portland, Oregon, which oversees $1.7 billion. ``I've been doing this 18-plus years and I have never seen the opportunities that we have right now.''
MBIA Inc. rose the most since January, surging 60 percent to $9.40. Ambac Financial Group Inc. more than doubled to $3.49. Bond insurers may sell assets to the Treasury or guarantee securities on bank balance sheets with a government backstop, Ambac Chief Executive Officer Michael Callen said.
S&P 500 energy stocks gained 7.3 percent, a rebound from last week, when the industry lost a quarter of its value.
Exxon Mobil Corp., the world's largest oil company, jumped 9.1 percent to $68.04. Chevron Corp., the second-biggest U.S producer, increased 7.8 percent to $62.35. Both companies had losses exceeding 19 percent the previous week.
Oil Retreat
Oil futures fell 7.5 percent to $71.85 a barrel on the New York Mercantile Exchange, the third week of declines.
Peabody Energy Corp. posted the industry's top gain with a 12 percent advance to $32.03. The largest U.S. coal producer said third-quarter profit soared more than 11-fold on increased output and higher prices.
Coca-Cola, the world's largest soft-drink maker, had the biggest gain since 2003 with a 6.5 percent advance to $44.20. The world's largest soft-drink maker said third-quarter profit rose 14 percent, more than analysts estimated, as sales increased in China and India.
Google climbed 12 percent to $372.54, the most for the Internet search-engine operator since April. The company reported a 26 percent rise in third-quarter earnings and said customers are still buying Web ads even as the economy slows.
More than 140 S&P 500 companies will report third-quarter earnings next week, including Apple Inc., Caterpillar Inc. and McDonald's Corp. Wall Street analysts forecast an 11 percent drop in third-quarter earnings in a Bloomberg survey.
The index of U.S. leading economic indicators probably fell in September for a third month, led by declines in manufacturing, housing and stocks that may weaken growth into 2009, economists said before next week's report.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Read more...
Premier May Sell Branston Pickles Brand to Cut Debt, FT Says
By Kari Lundgren
Oct. 18 (Bloomberg) -- Premier Foods Plc may sell some of its best known brands in an effort to reduce its 1.8 billion pounds ($3.11 billion) debt burden, the Financial Times said.
The company is seeking to reduce net debt by at least 200 million pounds, the FT reported, citing unidentified people close to Premier. Brands that may be sold include Mr. Kipling cakes, Sharwoods sauces and Branston pickles, the daily said.
Chief Executive Officer Robert Schofield said he is confident 2008 profit will be between 315 million and 330 million pounds, according to the FT.
To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Premier Foods Plc may sell some of its best known brands in an effort to reduce its 1.8 billion pounds ($3.11 billion) debt burden, the Financial Times said.
The company is seeking to reduce net debt by at least 200 million pounds, the FT reported, citing unidentified people close to Premier. Brands that may be sold include Mr. Kipling cakes, Sharwoods sauces and Branston pickles, the daily said.
Chief Executive Officer Robert Schofield said he is confident 2008 profit will be between 315 million and 330 million pounds, according to the FT.
To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net
Read more...
U.K. Government Bond Yield Spreads Widens to Most Since 1996
By Andrew MacAskill
Oct. 18 (Bloomberg) - The difference in yield between two- and 10-year U.K. government bonds widened this week to the most in 12 years on speculation the Bank of England will cut interest rates to limit the severity of the economic slump.
The yield on the two-year note fell by the most in almost two weeks yesterday as traders added to bets policy makers will lower the key rate this year, the short-sterling futures contract showed. The pound headed for a second weekly gain in three against the euro on speculation U.K. policy makers will cut borrowing costs faster than the European Central Bank.
``The steepening trend is being seen everywhere, but is particularly noticeable in gilts,'' said Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale SA. ``There are strong reasons for this, given the expectations of rate cuts as the U.K. economy heads down.''
The yield on the two-year gilt rose 8 basis points in the week to 3.59 percent yesterday. The 4.75 percent security due June 2010 dropped 0.21, or 2.1 pounds per 1,000-pound ($1,727) face amount, to 101.76. The yield on the 10-year security climbed 21 basis points to 4.69 percent. Bond yields move inversely to prices.
Traders increased wagers the Bank of England will lower its benchmark rate from 4.5 percent by year-end. The implied yield on the December contract was at 4.71 percent yesterday, down 116 basis points from the end of September.
The spread between two- and 10-year gilts widened to 104 basis points, the most since October 1996. The so-called steeper yield curve suggests investors have become more pessimistic about the outlook for economic growth.
Pound Gains
The pound advanced 1 percent to 77.87 pence, from 78.61 on Oct. 10. Against the dollar, the pound traded at $1.7262, from $1.7043 a week ago, for a gain of 1.3 percent.
``Before, we said that sterling was the weakest currency in town,'' Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, said in an interview with Bloomberg Television. ``Now the euro is going to be weakest currency.''
Investors should buy the pound against the euro on U.K. rate-reduction expectations, RBC Capital Markets analysts said. Buyers should have a target of 76.10 pence per euro, David Watt, a senior currency strategist in Toronto at RBC, wrote in a research report yesterday. They should exit the trade if the currency falls to 78.90 pence, according to the note.
The pound may strengthen to 70 pence per euro as foreign- exchange markets price in a European slowdown or a recession, a team led by David Simmonds at Royal Bank of Scotland Group Plc in London, wrote in a research note on Oct. 15.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Oct. 18 (Bloomberg) - The difference in yield between two- and 10-year U.K. government bonds widened this week to the most in 12 years on speculation the Bank of England will cut interest rates to limit the severity of the economic slump.
The yield on the two-year note fell by the most in almost two weeks yesterday as traders added to bets policy makers will lower the key rate this year, the short-sterling futures contract showed. The pound headed for a second weekly gain in three against the euro on speculation U.K. policy makers will cut borrowing costs faster than the European Central Bank.
``The steepening trend is being seen everywhere, but is particularly noticeable in gilts,'' said Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale SA. ``There are strong reasons for this, given the expectations of rate cuts as the U.K. economy heads down.''
The yield on the two-year gilt rose 8 basis points in the week to 3.59 percent yesterday. The 4.75 percent security due June 2010 dropped 0.21, or 2.1 pounds per 1,000-pound ($1,727) face amount, to 101.76. The yield on the 10-year security climbed 21 basis points to 4.69 percent. Bond yields move inversely to prices.
Traders increased wagers the Bank of England will lower its benchmark rate from 4.5 percent by year-end. The implied yield on the December contract was at 4.71 percent yesterday, down 116 basis points from the end of September.
The spread between two- and 10-year gilts widened to 104 basis points, the most since October 1996. The so-called steeper yield curve suggests investors have become more pessimistic about the outlook for economic growth.
Pound Gains
The pound advanced 1 percent to 77.87 pence, from 78.61 on Oct. 10. Against the dollar, the pound traded at $1.7262, from $1.7043 a week ago, for a gain of 1.3 percent.
``Before, we said that sterling was the weakest currency in town,'' Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, said in an interview with Bloomberg Television. ``Now the euro is going to be weakest currency.''
Investors should buy the pound against the euro on U.K. rate-reduction expectations, RBC Capital Markets analysts said. Buyers should have a target of 76.10 pence per euro, David Watt, a senior currency strategist in Toronto at RBC, wrote in a research report yesterday. They should exit the trade if the currency falls to 78.90 pence, according to the note.
The pound may strengthen to 70 pence per euro as foreign- exchange markets price in a European slowdown or a recession, a team led by David Simmonds at Royal Bank of Scotland Group Plc in London, wrote in a research note on Oct. 15.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Petrobras September Oil Production Rises to Record, Gas Climbs
By Laura Price
Oct. 18 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, said its monthly oil production rose to a record 1.89 million barrels a day in September.
Petrobras, as the company is known, said late yesterday in an e-mailed statement that total daily domestic output in September increased 7.26 percent from a year earlier and 1 percent from August. Natural gas output rose 24 percent compared with a year-ago and was unchanged from August.
Total international and domestic oil and gas output reached 2.45 million barrels of oil equivalent per day, a 7.6 percent increase from a year earlier and was unchanged from last month.
Output at the Rio de Janeiro-based company's Agbami field in Nigeria began in July and reached 8,667 barrels a day in September, Petrobras said. Petrobras operates the Agbami field in partnership with other oil companies.
The increase in Nigeria offset a decline in the U.S., which was affected by hurricanes in the Gulf of Mexico, according to the statement.
To contact the reporter on this story: Laura Price in Sao Paulo at lprice3@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, said its monthly oil production rose to a record 1.89 million barrels a day in September.
Petrobras, as the company is known, said late yesterday in an e-mailed statement that total daily domestic output in September increased 7.26 percent from a year earlier and 1 percent from August. Natural gas output rose 24 percent compared with a year-ago and was unchanged from August.
Total international and domestic oil and gas output reached 2.45 million barrels of oil equivalent per day, a 7.6 percent increase from a year earlier and was unchanged from last month.
Output at the Rio de Janeiro-based company's Agbami field in Nigeria began in July and reached 8,667 barrels a day in September, Petrobras said. Petrobras operates the Agbami field in partnership with other oil companies.
The increase in Nigeria offset a decline in the U.S., which was affected by hurricanes in the Gulf of Mexico, according to the statement.
To contact the reporter on this story: Laura Price in Sao Paulo at lprice3@bloomberg.net
Read more...
European Stocks Gain Most Since 2007 on Government Bank Rescues
By Daniela Silberstein
Oct. 18 (Bloomberg) -- European stocks climbed this week, sending the Dow Jones Stoxx 600 Index to its biggest gain since March 2007, after governments announced bank rescue packages to shore up the financial system and restore investor confidence.
Credit Suisse Group AG posted a record weekly advance and Barclays Plc climbed 6.5 percent as European leaders agreed to guarantee new bank debt and money-market rates declined. Ericsson AB rallied 12 percent as its mobile-phone venture with Sony Corp. reported a smaller-than-estimated loss.
The Stoxx 600 added 4.5 percent to 214.27. The gauge jumped 13 percent in the first two days this week, the biggest two-day surge on record, before posting the steepest two-day tumble since 1987 after reports showed a drop in U.S. retail sales and the highest U.K. unemployment since November 2006.
The benchmark index for European equities is down 41 percent this year as credit losses and asset writedowns at financial firms worldwide reached $660 billion, pushing the global economy toward a recession.
``The government measures were a huge progress to win back trust,'' said Erwin Brunner, who oversees the equivalent of $442 million as executive officer at BrunnerInvest AG in Zurich. ``The slump in the U.S. remains the dominant factor and Europe follows. I can't see how the economy can grow given the financial problems, we will go into a recession.''
The U.S. said it would invest $250 billion in the nation's banks and urged lenders to use the funds to spur economic growth. The injection came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.
Mining Companies
Rio Tinto Group Plc and Xstrata Plc led a slump among commodity producers, limiting gains in the Stoxx 600, on concern that slowing economic growth will curb demand for raw materials.
National benchmark indexes rose in 11 of the 18 western European markets. Germany's DAX Index increased 5.2 percent. France's CAC 40 advanced 4.8 percent, while the U.K.'s FTSE 100 added 3.3 percent.
The cost of borrowing dollars in London fell for the first week since July as central banks around the world pumped unprecedented amounts of cash into money markets. The London interbank offered rate, or Libor, for three-month loans in dollars retreated for five straight days.
The VStoxx index, which measures the cost of using options as insurance against declines in the Dow Jones Euro Stoxx 50 Index, retreated 4.8 percent, the first weekly drop since August.
Swiss Banks
Credit Suisse rallied 42 percent. The second-biggest Swiss bank raised 10 billion francs ($8.8 billion) from investors including Qatar and Tel Aviv-based Koor Industries Ltd.
UBS AG advanced 6.8 percent after the Swiss National Bank said it will set up a new fund with as much as $54 billion in loans and the government will inject 6 billion francs of capital into the country's largest bank.
Barclays increased 6.5 percent. The U.K.'s second-biggest bank said it plans to sell more than 6.5 billion pounds ($11.2 billion) of shares to private investors without asking the government for help.
The U.K. government said it will spend 37 billion pounds to bail out Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc.
Deutsche Bank AG, Germany's largest, rose 4.4 percent. The German government's 500 billion-euro bank rescue plan cleared both houses of parliament after Chancellor Angela Merkel headed off a revolt by state premiers over their financial contribution to the package. President Horst Koehler, who signed the bill into law, said the steps are ``appropriate.''
Steepest Gain
Hypo Real Estate Holding AG, the German commercial-property lender that had to be bailed out, jumped 49 percent, the steepest advance in the Stoxx 600 this week.
Bank shares in the Stoxx 600 still lost 1.2 percent as a group. Fortis sank 84 percent, the worst performance in the measure, as it resumed trading following a six-day suspension. The financial-services firm bailed out by three governments will receive 14.4 billion euros from the sale of its Dutch and Belgian insurance and banking businesses.
Ericsson rallied 12 percent. The net loss at Sony Ericsson Mobile Communications Ltd. was 25 million euros, compared with a 267 million-euro profit a year earlier. Analysts in an SME Direkt survey predicted a loss of 141 million euros, according to the median of 22 estimates.
Nokia Oyj rose 7.3 percent. The world's biggest maker of mobile phones said it aims to win back market share after third- quarter profit fell 30 percent on competition from BlackBerry and Samsung models.
China Car Sales
Daimler AG rallied 14 percent after the second-largest maker of luxury cars boosted nine-month revenue in China 54 percent on demand for Mercedes-Benz S-Class sedans.
Basic-resources shares were the worst performers in the Stoxx 600, falling 5.4 percent as a group. Rio Tinto, the third- biggest mining company, declined 7.2 percent. BHP Billiton Ltd., the largest, dropped 6.2 percent. Xstrata, the fourth-biggest copper producer, plunged 22 percent.
Copper, lead, tin and nickel prices declined for a third straight week on the London Metals Exchange as concern mounted that demand for commodities will be hurt by an economic slowdown. Crude oil also dropped, bringing the slump from its July record to almost 51 percent.
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- European stocks climbed this week, sending the Dow Jones Stoxx 600 Index to its biggest gain since March 2007, after governments announced bank rescue packages to shore up the financial system and restore investor confidence.
Credit Suisse Group AG posted a record weekly advance and Barclays Plc climbed 6.5 percent as European leaders agreed to guarantee new bank debt and money-market rates declined. Ericsson AB rallied 12 percent as its mobile-phone venture with Sony Corp. reported a smaller-than-estimated loss.
The Stoxx 600 added 4.5 percent to 214.27. The gauge jumped 13 percent in the first two days this week, the biggest two-day surge on record, before posting the steepest two-day tumble since 1987 after reports showed a drop in U.S. retail sales and the highest U.K. unemployment since November 2006.
The benchmark index for European equities is down 41 percent this year as credit losses and asset writedowns at financial firms worldwide reached $660 billion, pushing the global economy toward a recession.
``The government measures were a huge progress to win back trust,'' said Erwin Brunner, who oversees the equivalent of $442 million as executive officer at BrunnerInvest AG in Zurich. ``The slump in the U.S. remains the dominant factor and Europe follows. I can't see how the economy can grow given the financial problems, we will go into a recession.''
The U.S. said it would invest $250 billion in the nation's banks and urged lenders to use the funds to spur economic growth. The injection came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders.
Mining Companies
Rio Tinto Group Plc and Xstrata Plc led a slump among commodity producers, limiting gains in the Stoxx 600, on concern that slowing economic growth will curb demand for raw materials.
National benchmark indexes rose in 11 of the 18 western European markets. Germany's DAX Index increased 5.2 percent. France's CAC 40 advanced 4.8 percent, while the U.K.'s FTSE 100 added 3.3 percent.
The cost of borrowing dollars in London fell for the first week since July as central banks around the world pumped unprecedented amounts of cash into money markets. The London interbank offered rate, or Libor, for three-month loans in dollars retreated for five straight days.
The VStoxx index, which measures the cost of using options as insurance against declines in the Dow Jones Euro Stoxx 50 Index, retreated 4.8 percent, the first weekly drop since August.
Swiss Banks
Credit Suisse rallied 42 percent. The second-biggest Swiss bank raised 10 billion francs ($8.8 billion) from investors including Qatar and Tel Aviv-based Koor Industries Ltd.
UBS AG advanced 6.8 percent after the Swiss National Bank said it will set up a new fund with as much as $54 billion in loans and the government will inject 6 billion francs of capital into the country's largest bank.
Barclays increased 6.5 percent. The U.K.'s second-biggest bank said it plans to sell more than 6.5 billion pounds ($11.2 billion) of shares to private investors without asking the government for help.
The U.K. government said it will spend 37 billion pounds to bail out Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc.
Deutsche Bank AG, Germany's largest, rose 4.4 percent. The German government's 500 billion-euro bank rescue plan cleared both houses of parliament after Chancellor Angela Merkel headed off a revolt by state premiers over their financial contribution to the package. President Horst Koehler, who signed the bill into law, said the steps are ``appropriate.''
Steepest Gain
Hypo Real Estate Holding AG, the German commercial-property lender that had to be bailed out, jumped 49 percent, the steepest advance in the Stoxx 600 this week.
Bank shares in the Stoxx 600 still lost 1.2 percent as a group. Fortis sank 84 percent, the worst performance in the measure, as it resumed trading following a six-day suspension. The financial-services firm bailed out by three governments will receive 14.4 billion euros from the sale of its Dutch and Belgian insurance and banking businesses.
Ericsson rallied 12 percent. The net loss at Sony Ericsson Mobile Communications Ltd. was 25 million euros, compared with a 267 million-euro profit a year earlier. Analysts in an SME Direkt survey predicted a loss of 141 million euros, according to the median of 22 estimates.
Nokia Oyj rose 7.3 percent. The world's biggest maker of mobile phones said it aims to win back market share after third- quarter profit fell 30 percent on competition from BlackBerry and Samsung models.
China Car Sales
Daimler AG rallied 14 percent after the second-largest maker of luxury cars boosted nine-month revenue in China 54 percent on demand for Mercedes-Benz S-Class sedans.
Basic-resources shares were the worst performers in the Stoxx 600, falling 5.4 percent as a group. Rio Tinto, the third- biggest mining company, declined 7.2 percent. BHP Billiton Ltd., the largest, dropped 6.2 percent. Xstrata, the fourth-biggest copper producer, plunged 22 percent.
Copper, lead, tin and nickel prices declined for a third straight week on the London Metals Exchange as concern mounted that demand for commodities will be hurt by an economic slowdown. Crude oil also dropped, bringing the slump from its July record to almost 51 percent.
To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.
Read more...
Hungarian Government, Opposition Clash Over Crisis Measures
By Zoltan Simon
Oct. 18 (Bloomberg) -- Hungary's government and opposition failed to reach an agreement on measures to stem a crisis that battered local markets and forced the country to seek help from the International Monetary Fund and European Central Bank.
In a ``national summit'' called by Prime Minister Ferenc Gyurcsany, the government and central bank urged cutting the budget deficit faster than previously planned to stabilize financial markets, while the opposition, which is more popular than the ruling Socialist Party, called for reducing taxes to accelerate growth.
The global financial crisis is hitting more vulnerable emerging markets as investors shunned riskier assets in a flight to safety. Hungary's stocks, bonds and currency plunged this week, Fitch Ratings and Standard & Poor's cut the outlook on the country's debt, while the government was forced to lower its economic growth forecast for next year.
``The risk appetite of investors has fallen dramatically,'' Magyar Nemzeti Bank President Andras Simor said at the meeting. ``Any tax cuts must be preceded by a sustained reduction of spending.''
Narrowing the deficit is the government's ``most important task,'' Finance Minister Janos Veres said today. This year's shortfall will be 3.4 percent of gross domestic product ``at most'' and the government can ``hopefully'' undershoot that, Gyurcsany said.
Deficit Target
The government cut this year's deficit target to 3.4 percent from an earlier plan of 3.8 percent, reducing the 2009 goal to 2.9 percent from 3.2 percent.
The level of foreign currency borrowing by Hungarian businesses and consumers, the outlook for growth and a wider budget deficit than elsewhere in the region make Hungary's economy vulnerable, economists have said.
The benchmark BUX stock index fell 11 percent this week to a four-year low, while the forint dropped to a two-year low before recovering to 267.54 per euro. The currency has lost 10.5 percent this month. OTP Bank Nyrt., the nation's largest lender, fell 12.5 this week to a four-year low.
The ECB this week agreed to lend as much as 5 billion euros ($6.7 billion) to help unfreeze the local government bond market. Hungary also lined up potential financing from the IMF. The central bank started buying back government bonds and the country scaled by debt sales.
Ratings Outlook
Fitch yesterday cut the outlook on Hungary's credit ratings after Standard & Poor's on Oct. 15 put them on revision for a possible downgrade, citing ``sharply higher financial costs and reduced access to international markets'' for local banks. The country's debt is rated BBB+, the third-lowest investment grade, by both companies.
At today's meeting, Gyurcsany pledged to postpone tax cuts until economic growth rebounds from a planned 1.2 percent of gross domestic product next year. The government lowered its growth forecast from 3 percent.
Viktor Orban, chairman of the largest opposition party Fidesz, rejected the proposals by the government and the central bank to raise revenue to cut the deficit instead of funding tax cuts. The proposals amount to a ``new austerity package'' and would further stifle growth after the economy expanded 1.1 percent last year, he said.
Fidesz had 44 percent support last month, compared with 19 percent for Gyurcsany's Socialists, according to a poll by Median. The results have a margin of error of between 1 percent and 5 percent.
The government is expected to pass next year's budget in December with support from the smaller opposition Free Democrats' Alliance, which quit a government coalition in May, leaving Gyurcsany's Socialists in a parliamentary minority. The Free Democrats agreed to give up their demand for next year's tax cuts to cut the deficit.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Hungary's government and opposition failed to reach an agreement on measures to stem a crisis that battered local markets and forced the country to seek help from the International Monetary Fund and European Central Bank.
In a ``national summit'' called by Prime Minister Ferenc Gyurcsany, the government and central bank urged cutting the budget deficit faster than previously planned to stabilize financial markets, while the opposition, which is more popular than the ruling Socialist Party, called for reducing taxes to accelerate growth.
The global financial crisis is hitting more vulnerable emerging markets as investors shunned riskier assets in a flight to safety. Hungary's stocks, bonds and currency plunged this week, Fitch Ratings and Standard & Poor's cut the outlook on the country's debt, while the government was forced to lower its economic growth forecast for next year.
``The risk appetite of investors has fallen dramatically,'' Magyar Nemzeti Bank President Andras Simor said at the meeting. ``Any tax cuts must be preceded by a sustained reduction of spending.''
Narrowing the deficit is the government's ``most important task,'' Finance Minister Janos Veres said today. This year's shortfall will be 3.4 percent of gross domestic product ``at most'' and the government can ``hopefully'' undershoot that, Gyurcsany said.
Deficit Target
The government cut this year's deficit target to 3.4 percent from an earlier plan of 3.8 percent, reducing the 2009 goal to 2.9 percent from 3.2 percent.
The level of foreign currency borrowing by Hungarian businesses and consumers, the outlook for growth and a wider budget deficit than elsewhere in the region make Hungary's economy vulnerable, economists have said.
The benchmark BUX stock index fell 11 percent this week to a four-year low, while the forint dropped to a two-year low before recovering to 267.54 per euro. The currency has lost 10.5 percent this month. OTP Bank Nyrt., the nation's largest lender, fell 12.5 this week to a four-year low.
The ECB this week agreed to lend as much as 5 billion euros ($6.7 billion) to help unfreeze the local government bond market. Hungary also lined up potential financing from the IMF. The central bank started buying back government bonds and the country scaled by debt sales.
Ratings Outlook
Fitch yesterday cut the outlook on Hungary's credit ratings after Standard & Poor's on Oct. 15 put them on revision for a possible downgrade, citing ``sharply higher financial costs and reduced access to international markets'' for local banks. The country's debt is rated BBB+, the third-lowest investment grade, by both companies.
At today's meeting, Gyurcsany pledged to postpone tax cuts until economic growth rebounds from a planned 1.2 percent of gross domestic product next year. The government lowered its growth forecast from 3 percent.
Viktor Orban, chairman of the largest opposition party Fidesz, rejected the proposals by the government and the central bank to raise revenue to cut the deficit instead of funding tax cuts. The proposals amount to a ``new austerity package'' and would further stifle growth after the economy expanded 1.1 percent last year, he said.
Fidesz had 44 percent support last month, compared with 19 percent for Gyurcsany's Socialists, according to a poll by Median. The results have a margin of error of between 1 percent and 5 percent.
The government is expected to pass next year's budget in December with support from the smaller opposition Free Democrats' Alliance, which quit a government coalition in May, leaving Gyurcsany's Socialists in a parliamentary minority. The Free Democrats agreed to give up their demand for next year's tax cuts to cut the deficit.
To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net
Read more...
Yen Declines From Three-Year High Against Euro as Stocks Rally
By Ye Xie
Oct. 18 (Bloomberg) -- The yen fell from a three-year high against the euro and dropped versus the dollar as a rally in U.S. stocks renewed speculation investors will buy higher- yielding assets funded by low-cost loans in Japan.
Japan's currency also fell this week versus the Brazilian real and the Australian dollar as a drop in short-term borrowing costs among banks indicated the credit market may be thawing, spurring demand for carry trades. The real and the Mexican peso rose against the dollar on bets the U.S. bailout of financial firms will reduce aversion to emerging-market assets.
``The yen is reflective of the slight improvement of sentiment in financial markets,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``It's too early to sound all clear. Volatility will be with us for quite some time.''
The yen weakened 0.95 percent to 136.24 per euro yesterday, from 134.96, on Oct. 10, when it touched 132.24, the strongest level since June 2005. Japan's currency dropped 1 percent to 101.69 per dollar from 100.67. The euro was little changed at $1.341 from $1.3408.
The Standard & Poor's 500 Index rose 4.6 percent this week after losing 18 percent the prior week in its worst loss in 75 years. Billionaire investor Warren Buffett, writing yesterday in the New York Times, said he's buying U.S. stocks.
Brazil's real climbed 9.2 percent this week to 2.1190 per dollar after sinking 11.7 percent last week and 9.8 percent the previous week. The Mexican peso increased 1.7 percent to 12.88 against the dollar after seven weeks of declines.
Gross on Confidence
Government efforts worldwide may soon begin to restore investor confidence, said billionaire Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co., in an interview on Bloomberg Radio yesterday.
In a sign credit market stress may be easing, the cost of borrowing dollars fell this week. The London interbank offered rate, or Libor, for three-month loans in dollars dropped 40 basis points, or 0.40 percentage point, to 4.42 percent, the British Bankers' Association said. The overnight rate for dollars slid 80 basis points this week to 1.67 percent, the lowest level since September 2004.
The U.S. Treasury announced on Oct. 14 a plan to inject $250 billion into financial institutions a day after European governments committed $1.8 trillion to guarantee loans and invest in lenders.
Japan's currency declined 8.1 percent this week to 70.06 against the Aussie and 10.3 percent to 47.99 versus the real on bets investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target rate compares with 6 percent in Australia and 13.75 percent in Brazil.
Reduced Volatility
Implied volatility in one-month dollar-yen options fell to 20.4 percent, from 29.6 percent a week earlier, indicating traders see less price fluctuation in the coming month. Reduced volatility tends to work in favor of carry trades by making profit from bets on interest-rate differences more predictable.
``Those people who kept their powder dry may find it's not a bad opportunity to get into the carry trade again,'' said Dave Floyd, global head of foreign-exchange research and trading in Bend, Oregon, at Aspen Trading Group, a research and trading firm. ``The lack of downward momentum in yen crosses suggests we are in a transitional phase from higher volatility to relatively low volatility.''
In the past month, the yen has gained 15.4 percent versus the real and 18.1 percent against the Aussie as the logjam in credit encouraged the unwinding of carry trades.
Yen Crosses
``I am not quite sure if we're getting a reversal in sentiment, but in the short term, the yen crosses move more quickly when they shoot up than when they come down,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.
The Conference Board's index of leading indicators, which points to the direction of the economy over the next three to six months, probably fell 0.1 percent in September, after dropping 0.5 percent in the previous month, according to the median forecast of 36 economists surveyed by Bloomberg News. The report is scheduled to be released Oct. 20.
The yen may appreciate to 100 per dollar ``easily,'' as the U.S. economy falls into a recession, according to Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank Ltd. in New York.
``If you look at the state of the economy and corporate America, we are going to be in a fairly tough situation for quite some time,'' he said. ``The dollar will be under pressure mainly against the yen. The yen will be the strongest currency going forward.''
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- The yen fell from a three-year high against the euro and dropped versus the dollar as a rally in U.S. stocks renewed speculation investors will buy higher- yielding assets funded by low-cost loans in Japan.
Japan's currency also fell this week versus the Brazilian real and the Australian dollar as a drop in short-term borrowing costs among banks indicated the credit market may be thawing, spurring demand for carry trades. The real and the Mexican peso rose against the dollar on bets the U.S. bailout of financial firms will reduce aversion to emerging-market assets.
``The yen is reflective of the slight improvement of sentiment in financial markets,'' said Carl Forcheski, vice president on the corporate currency sales desk at Societe Generale SA in New York. ``It's too early to sound all clear. Volatility will be with us for quite some time.''
The yen weakened 0.95 percent to 136.24 per euro yesterday, from 134.96, on Oct. 10, when it touched 132.24, the strongest level since June 2005. Japan's currency dropped 1 percent to 101.69 per dollar from 100.67. The euro was little changed at $1.341 from $1.3408.
The Standard & Poor's 500 Index rose 4.6 percent this week after losing 18 percent the prior week in its worst loss in 75 years. Billionaire investor Warren Buffett, writing yesterday in the New York Times, said he's buying U.S. stocks.
Brazil's real climbed 9.2 percent this week to 2.1190 per dollar after sinking 11.7 percent last week and 9.8 percent the previous week. The Mexican peso increased 1.7 percent to 12.88 against the dollar after seven weeks of declines.
Gross on Confidence
Government efforts worldwide may soon begin to restore investor confidence, said billionaire Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co., in an interview on Bloomberg Radio yesterday.
In a sign credit market stress may be easing, the cost of borrowing dollars fell this week. The London interbank offered rate, or Libor, for three-month loans in dollars dropped 40 basis points, or 0.40 percentage point, to 4.42 percent, the British Bankers' Association said. The overnight rate for dollars slid 80 basis points this week to 1.67 percent, the lowest level since September 2004.
The U.S. Treasury announced on Oct. 14 a plan to inject $250 billion into financial institutions a day after European governments committed $1.8 trillion to guarantee loans and invest in lenders.
Japan's currency declined 8.1 percent this week to 70.06 against the Aussie and 10.3 percent to 47.99 versus the real on bets investors will resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target rate compares with 6 percent in Australia and 13.75 percent in Brazil.
Reduced Volatility
Implied volatility in one-month dollar-yen options fell to 20.4 percent, from 29.6 percent a week earlier, indicating traders see less price fluctuation in the coming month. Reduced volatility tends to work in favor of carry trades by making profit from bets on interest-rate differences more predictable.
``Those people who kept their powder dry may find it's not a bad opportunity to get into the carry trade again,'' said Dave Floyd, global head of foreign-exchange research and trading in Bend, Oregon, at Aspen Trading Group, a research and trading firm. ``The lack of downward momentum in yen crosses suggests we are in a transitional phase from higher volatility to relatively low volatility.''
In the past month, the yen has gained 15.4 percent versus the real and 18.1 percent against the Aussie as the logjam in credit encouraged the unwinding of carry trades.
Yen Crosses
``I am not quite sure if we're getting a reversal in sentiment, but in the short term, the yen crosses move more quickly when they shoot up than when they come down,'' said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.
The Conference Board's index of leading indicators, which points to the direction of the economy over the next three to six months, probably fell 0.1 percent in September, after dropping 0.5 percent in the previous month, according to the median forecast of 36 economists surveyed by Bloomberg News. The report is scheduled to be released Oct. 20.
The yen may appreciate to 100 per dollar ``easily,'' as the U.S. economy falls into a recession, according to Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank Ltd. in New York.
``If you look at the state of the economy and corporate America, we are going to be in a fairly tough situation for quite some time,'' he said. ``The dollar will be under pressure mainly against the yen. The yen will be the strongest currency going forward.''
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Read more...
Philippines May Cut Cash Reserve Ratio to Spur Growth
By Clarissa Batino
Oct. 18 (Bloomberg) -- The Philippine central bank may cut the amount it requires lenders to set aside as reserves to boost liquidity in the financial system, effectively lowering borrowing costs, to help spur growth.
``Instead of communicating an easy monetary policy to the market by reducing policy rates, an alternative is to reduce the reserve requirement to infuse liquidity,'' said Deputy Governor Diwa Guinigundo in an interview in Singapore today. Every one percentage point reduction in the reserve requirement for banks will free up about 30 billion pesos ($624 million) of cash into the system, Guinigundo said.
While inflation in Asia has started to cool, policy makers must be watchful of price pressures as they seek to boost growth amid a global economic slump and in the face of tighter credit conditions, the deputy governor said. Measures to ensure that credit flows smoothly like suspending mark-to-market accounting requirements can be explored, Guinigundo said.
``This shows the central bank is willing to support growth while showing it will remain vigilant against inflation,'' said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp. in Manila. Lowering the cash reserve means the central bank wants ``to spur economic activity.''
Bangko Sentral ng Pilipinas has made it easier for banks to get funding by starting to lend in U.S. dollars and accepting the government's dollar-denominated bonds as collateral also for peso debt. The central bank previously lent only in pesos and accepted only peso-denominated assets as collateral.
`More Accommodative'
India's central bank on Oct. 15 lowered its cash reserve ratio for the second time in a week to ease the worst cash crisis in Asia's third-largest economy since 2000. The Australian government last week announced an A$10.4 billion ($7.2 billion) economic stimulus package and South Korea is supplying $15 billion to small firms and the swap market.
``The issue here is one of liquidity and to address that, it would be useful to consider more accommodative fiscal and monetary policy, but with a view of not fueling inflation,'' Guinigundo said.
The central bank had required lenders since 2005 to keep 21 percent of their deposits in reserve as part of efforts to manage money supply and control inflation.
Inflation, which accelerated to a 16-year high in August, has already peaked, Governor Amando Tetangco said this week.
Borrowing Costs
Philippine policy-makers have room to reduce borrowing costs after U.S. and European policy makers cut rates and the nation's inflation slowed, Tetangco said Oct. 8. The central bank's next rate-setting meeting will be on Nov. 20.
Even with the possibility of recession in major economies like the U.S., Guinigundo said he's sticking to an earlier growth forecast of 10 percent for overseas remittances and 6 percent for exports in 2009. Money sent home by Filipinos working as nurses, helpers and seafarers abroad will expand at least 12 percent this year, he said.
The nation's balance of payments would probably remain in surplus by about $2 billion this year and next, Guinigundo said. That should keep the peso average between 42 and 45 against the U.S. dollar, he said. The local currency closed near an 18-month low of 48.08 yesterday.
To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- The Philippine central bank may cut the amount it requires lenders to set aside as reserves to boost liquidity in the financial system, effectively lowering borrowing costs, to help spur growth.
``Instead of communicating an easy monetary policy to the market by reducing policy rates, an alternative is to reduce the reserve requirement to infuse liquidity,'' said Deputy Governor Diwa Guinigundo in an interview in Singapore today. Every one percentage point reduction in the reserve requirement for banks will free up about 30 billion pesos ($624 million) of cash into the system, Guinigundo said.
While inflation in Asia has started to cool, policy makers must be watchful of price pressures as they seek to boost growth amid a global economic slump and in the face of tighter credit conditions, the deputy governor said. Measures to ensure that credit flows smoothly like suspending mark-to-market accounting requirements can be explored, Guinigundo said.
``This shows the central bank is willing to support growth while showing it will remain vigilant against inflation,'' said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp. in Manila. Lowering the cash reserve means the central bank wants ``to spur economic activity.''
Bangko Sentral ng Pilipinas has made it easier for banks to get funding by starting to lend in U.S. dollars and accepting the government's dollar-denominated bonds as collateral also for peso debt. The central bank previously lent only in pesos and accepted only peso-denominated assets as collateral.
`More Accommodative'
India's central bank on Oct. 15 lowered its cash reserve ratio for the second time in a week to ease the worst cash crisis in Asia's third-largest economy since 2000. The Australian government last week announced an A$10.4 billion ($7.2 billion) economic stimulus package and South Korea is supplying $15 billion to small firms and the swap market.
``The issue here is one of liquidity and to address that, it would be useful to consider more accommodative fiscal and monetary policy, but with a view of not fueling inflation,'' Guinigundo said.
The central bank had required lenders since 2005 to keep 21 percent of their deposits in reserve as part of efforts to manage money supply and control inflation.
Inflation, which accelerated to a 16-year high in August, has already peaked, Governor Amando Tetangco said this week.
Borrowing Costs
Philippine policy-makers have room to reduce borrowing costs after U.S. and European policy makers cut rates and the nation's inflation slowed, Tetangco said Oct. 8. The central bank's next rate-setting meeting will be on Nov. 20.
Even with the possibility of recession in major economies like the U.S., Guinigundo said he's sticking to an earlier growth forecast of 10 percent for overseas remittances and 6 percent for exports in 2009. Money sent home by Filipinos working as nurses, helpers and seafarers abroad will expand at least 12 percent this year, he said.
The nation's balance of payments would probably remain in surplus by about $2 billion this year and next, Guinigundo said. That should keep the peso average between 42 and 45 against the U.S. dollar, he said. The local currency closed near an 18-month low of 48.08 yesterday.
To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.
Read more...
Lehman's Collapse, Stock Sale Probed by Three U.S. Prosecutors
By Linda Sandler and Christopher Scinta
Oct. 18 (Bloomberg) -- Lehman Brothers Holdings Inc. is the subject of three federal criminal probes and at least 12 subpoenas of individuals to testify before grand juries, according to a lawyer for the bank that last month filed the largest bankruptcy in history.
Lead Lehman bankruptcy lawyer Harvey Miller said Oct. 16 in federal court in Manhattan that the investigations were launched by New York U.S. attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey. They are focusing in part on Lehman's role in the $330 billion auction-rate securities market and possible crimes associated with its $6 billion June stock issue, according to a person familiar with the case who requested anonymity.
``It's clear they have given it some urgency and priority,'' former Justice Department attorney Robert Plotkin said. ``Given the notoriety and the headlines, this would be one of the ones that would be on a faster track,'' said the lawyer, who now handles white-collar defense cases at Richmond, Virginia-based McGuireWooods.
The demise of Lehman, which sought court protection Sept. 15, accelerated a global credit crisis that has wiped out $30 trillion of equity value in the past year. The U.S. has begun investigations of mortgage lending, securitization and failed banks including New York-based Lehman. The Federal Bureau of Investigation is looking into 26 firms, including American International Group Inc., a senior law-enforcement official said.
`An Outcry'
``There's been an outcry from people in the streets, and that puts pressure on prosecutors to do something,'' said Todd Harrison, a former New York federal prosecutor now with Washington-based Patton Boggs. ``They're going to be looking at all aspects of the credit crisis, including the rating agencies and the mortgage lenders who packaged and sold securities.''
The New York Post reported yesterday, without saying where it got the information, that Lehman Chief Executive Officer Richard Fuld, 62, is among the 12 subpoenaed. CNBC, also without attribution, reported former Lehman Chief Financial Officer Erin Callan, 42, now Credit Suisse's global hedge fund chief, was subpoenaed as well.
Fuld's lawyer, Patricia Hynes of London-based Allen & Overy, declined to comment. Callan didn't return calls seeking comment.
``It could be an early notice to him not to destroy any documents, obstruct the investigation or talk to witnesses out of school,'' Plotkin said of the reported subpoena of Fuld. ``They also might want to get him in there and nail down his story before he has a chance to talk to advisers.''
June Stock Sale
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.
Miller, 75, of New York-based Weil, Gotshal & Manges, also said in court that a state attorney general is probing Lehman, without elaborating.
Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, and Robert Nardoza, a spokesman for Brooklyn U.S. Attorney Benton Campbell, declined to comment.
Garcia, Campbell and Newark, New Jersey U.S. Attorney Christopher Christie have increased their resources to prepare for possible prosecutions associated with the credit crisis and bank failures.
Christie, 46, has subpoenaed documents to determine whether Lehman failed to fully disclose its eroding financial condition at the time of the $6 billion stock offering, according to people familiar with the matter.
Opened Inquiries
Campbell has opened inquiries into whether Lehman executives misled investors about the firm's financial health and whether Zurich-based UBS AG lied to investors about securities backed by subprime mortgages, according to a person familiar with the case.
Federal prosecutors, according to the people, also subpoenaed Putnam Investments LLC, the Boston-based mutual fund firm that oversees about $163 billion and bought Lehman bonds and shares; New York-based fund manager BlackRock Inc., a Lehman creditor; AIG, once the world's largest insurer; and New York- based C.V. Starr & Co., run by ex-AIG CEO Maurice Greenberg.
The grand jury probes follow not only the implosion of Lehman, but the collapse of New York-based Bear Stearns Cos. this year, the U.S. government takeover of Fannie Mae and Freddie Mac and the rescue of New York-based AIG.
Auction Rate Securities
On the issue of auction rate securities, the grand juries may be exploring whether Lehman misled investors about the viability of the securities. The market collapsed in February after demand for the debt dried up. Banks paid to manage bidding on the debt abandoned the market and stopped acting as buyers of last resort. That caused rates to rise to as high as 20 percent.
Last month, Brooklyn prosecutors charged two former Credit Suisse Group Inc. traders with fraudulently selling corporate clients more than $1 billion of auction-rate securities linked to subprime mortgages, which they claimed were backed by U.S.- guaranteed student loans.
A challenge for U.S. attorneys considering prosecutions based on the collapse of the subprime or auction rate markets will be to distinguish normal business activities from fraud.
Prosecutors may rely on e-mails obtained through subpoenas, interviews of employees and forensic accounting to build a case. The U.S. House of Representatives Committee on Oversight and Government Reform released several e-mails it obtained from the bank as part of a hearing Oct. 6 in Washington.
Bear Stearns
Campbell, who obtained indictments of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in June, cited e-mails showing their disparagement of the securities they were touting to clients. The defendants, who pleaded not guilty, face fraud charges for cheating investors out of $1.6 billion.
``E-mails are a great tool,'' said Christie. ``People seem freer to say things in e-mails that they might not say otherwise.''
Prosecutors may seek to bring a securities fraud prosecution if they can show that Lehman officials sought to mislead investors as to the financial health of the firm.
``They'll be looking for any misrepresentation by the heads of the divisions or anyone working for them,'' said Patton Boggs lawyer Todd Harrison. ``For an indictment, the misrepresentation has to be material and you need to show that investors relied on it to invest more money or keep money in.''
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net; Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Lehman Brothers Holdings Inc. is the subject of three federal criminal probes and at least 12 subpoenas of individuals to testify before grand juries, according to a lawyer for the bank that last month filed the largest bankruptcy in history.
Lead Lehman bankruptcy lawyer Harvey Miller said Oct. 16 in federal court in Manhattan that the investigations were launched by New York U.S. attorneys in Brooklyn and Manhattan as well as in Newark, New Jersey. They are focusing in part on Lehman's role in the $330 billion auction-rate securities market and possible crimes associated with its $6 billion June stock issue, according to a person familiar with the case who requested anonymity.
``It's clear they have given it some urgency and priority,'' former Justice Department attorney Robert Plotkin said. ``Given the notoriety and the headlines, this would be one of the ones that would be on a faster track,'' said the lawyer, who now handles white-collar defense cases at Richmond, Virginia-based McGuireWooods.
The demise of Lehman, which sought court protection Sept. 15, accelerated a global credit crisis that has wiped out $30 trillion of equity value in the past year. The U.S. has begun investigations of mortgage lending, securitization and failed banks including New York-based Lehman. The Federal Bureau of Investigation is looking into 26 firms, including American International Group Inc., a senior law-enforcement official said.
`An Outcry'
``There's been an outcry from people in the streets, and that puts pressure on prosecutors to do something,'' said Todd Harrison, a former New York federal prosecutor now with Washington-based Patton Boggs. ``They're going to be looking at all aspects of the credit crisis, including the rating agencies and the mortgage lenders who packaged and sold securities.''
The New York Post reported yesterday, without saying where it got the information, that Lehman Chief Executive Officer Richard Fuld, 62, is among the 12 subpoenaed. CNBC, also without attribution, reported former Lehman Chief Financial Officer Erin Callan, 42, now Credit Suisse's global hedge fund chief, was subpoenaed as well.
Fuld's lawyer, Patricia Hynes of London-based Allen & Overy, declined to comment. Callan didn't return calls seeking comment.
``It could be an early notice to him not to destroy any documents, obstruct the investigation or talk to witnesses out of school,'' Plotkin said of the reported subpoena of Fuld. ``They also might want to get him in there and nail down his story before he has a chance to talk to advisers.''
June Stock Sale
Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor; U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investments, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.
Miller, 75, of New York-based Weil, Gotshal & Manges, also said in court that a state attorney general is probing Lehman, without elaborating.
Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, and Robert Nardoza, a spokesman for Brooklyn U.S. Attorney Benton Campbell, declined to comment.
Garcia, Campbell and Newark, New Jersey U.S. Attorney Christopher Christie have increased their resources to prepare for possible prosecutions associated with the credit crisis and bank failures.
Christie, 46, has subpoenaed documents to determine whether Lehman failed to fully disclose its eroding financial condition at the time of the $6 billion stock offering, according to people familiar with the matter.
Opened Inquiries
Campbell has opened inquiries into whether Lehman executives misled investors about the firm's financial health and whether Zurich-based UBS AG lied to investors about securities backed by subprime mortgages, according to a person familiar with the case.
Federal prosecutors, according to the people, also subpoenaed Putnam Investments LLC, the Boston-based mutual fund firm that oversees about $163 billion and bought Lehman bonds and shares; New York-based fund manager BlackRock Inc., a Lehman creditor; AIG, once the world's largest insurer; and New York- based C.V. Starr & Co., run by ex-AIG CEO Maurice Greenberg.
The grand jury probes follow not only the implosion of Lehman, but the collapse of New York-based Bear Stearns Cos. this year, the U.S. government takeover of Fannie Mae and Freddie Mac and the rescue of New York-based AIG.
Auction Rate Securities
On the issue of auction rate securities, the grand juries may be exploring whether Lehman misled investors about the viability of the securities. The market collapsed in February after demand for the debt dried up. Banks paid to manage bidding on the debt abandoned the market and stopped acting as buyers of last resort. That caused rates to rise to as high as 20 percent.
Last month, Brooklyn prosecutors charged two former Credit Suisse Group Inc. traders with fraudulently selling corporate clients more than $1 billion of auction-rate securities linked to subprime mortgages, which they claimed were backed by U.S.- guaranteed student loans.
A challenge for U.S. attorneys considering prosecutions based on the collapse of the subprime or auction rate markets will be to distinguish normal business activities from fraud.
Prosecutors may rely on e-mails obtained through subpoenas, interviews of employees and forensic accounting to build a case. The U.S. House of Representatives Committee on Oversight and Government Reform released several e-mails it obtained from the bank as part of a hearing Oct. 6 in Washington.
Bear Stearns
Campbell, who obtained indictments of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin in June, cited e-mails showing their disparagement of the securities they were touting to clients. The defendants, who pleaded not guilty, face fraud charges for cheating investors out of $1.6 billion.
``E-mails are a great tool,'' said Christie. ``People seem freer to say things in e-mails that they might not say otherwise.''
Prosecutors may seek to bring a securities fraud prosecution if they can show that Lehman officials sought to mislead investors as to the financial health of the firm.
``They'll be looking for any misrepresentation by the heads of the divisions or anyone working for them,'' said Patton Boggs lawyer Todd Harrison. ``For an indictment, the misrepresentation has to be material and you need to show that investors relied on it to invest more money or keep money in.''
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net; Christopher Scinta in New York bankruptcy court at cscinta@bloomberg.net.
Read more...
Japan to Offer $4.4 Billion Loan for India Railway, Nikkei Says
By Hiroshi Suzuki
Oct. 18 (Bloomberg) -- Japan will provide a 450 billion yen ($4.4 billion) loan to fund construction of a freight rail link between New Delhi and Mumbai in India, the Nikkei newspaper reported.
Prime Minister Taro Aso and Indian Prime Minister Manmohan Singh will agree on the loan in a meeting on Oct. 22, Nikkei reported, without saying where it obtained the information.
Japan will disburse the financing, its largest yen loan for a single project, in increments to fund construction through 2015 when the railway is to open, the report said. The project's total cost is estimated at 518 billion yen, it said.
To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Japan will provide a 450 billion yen ($4.4 billion) loan to fund construction of a freight rail link between New Delhi and Mumbai in India, the Nikkei newspaper reported.
Prime Minister Taro Aso and Indian Prime Minister Manmohan Singh will agree on the loan in a meeting on Oct. 22, Nikkei reported, without saying where it obtained the information.
Japan will disburse the financing, its largest yen loan for a single project, in increments to fund construction through 2015 when the railway is to open, the report said. The project's total cost is estimated at 518 billion yen, it said.
To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.
Read more...
United Phosphorus May Buy Stake in Makhteshim, Standard Reports
By Thomas Kutty Abraham
Oct. 18 (Bloomberg) -- India's United Phosphorus Ltd. may buy about 39 percent of Israel's Makhteshim Agan Industries Ltd. for $1 billion, the Business Standard reported, without saying where it got the information.
The purchase could make United Phosphorus the world's largest generic agrochemicals maker, the newspaper said. The Indian company is seeking to buy the stake from Koor Industries Ltd., the founders of Makhteshim, Standard said.
United has approached six banks including State Bank of India, ICICI Bank Ltd. UBS AG and Deutsche Bank to finance the purchase, the Business Standard reported.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- India's United Phosphorus Ltd. may buy about 39 percent of Israel's Makhteshim Agan Industries Ltd. for $1 billion, the Business Standard reported, without saying where it got the information.
The purchase could make United Phosphorus the world's largest generic agrochemicals maker, the newspaper said. The Indian company is seeking to buy the stake from Koor Industries Ltd., the founders of Makhteshim, Standard said.
United has approached six banks including State Bank of India, ICICI Bank Ltd. UBS AG and Deutsche Bank to finance the purchase, the Business Standard reported.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Nissan Signs Deal With Indian Port for Car Exports to Europe
By Thomas Kutty Abraham
Oct. 18 (Bloomberg) -- Nissan Motor Co., Japan's third- largest automaker, signed an agreement with India's Ennore Port Ltd. to export cars to Europe from its first factory in the South Asian nation.
Nissan Motor India Pvt., the local unit that's building a $1.1 billion factory in the southern Indian city of Chennai, plans to export 110,000 cars in the year to March 2011 through Ennore port, and later increase shipments to 180,000 vehicles, the company said in an e-mailed statement.
Nissan's factory will begin production in 2010 and will have a capacity to make 400,000 cars annually for local and overseas markets, the automaker said in June. Nissan will make the Micra model and other cars at the Chennai factory.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Nissan Motor Co., Japan's third- largest automaker, signed an agreement with India's Ennore Port Ltd. to export cars to Europe from its first factory in the South Asian nation.
Nissan Motor India Pvt., the local unit that's building a $1.1 billion factory in the southern Indian city of Chennai, plans to export 110,000 cars in the year to March 2011 through Ennore port, and later increase shipments to 180,000 vehicles, the company said in an e-mailed statement.
Nissan's factory will begin production in 2010 and will have a capacity to make 400,000 cars annually for local and overseas markets, the automaker said in June. Nissan will make the Micra model and other cars at the Chennai factory.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
UltraTech Cement's Second-Quarter Profit Declines 12 Percent
By Thomas Kutty Abraham
Oct. 18 (Bloomberg) -- UltraTech Cement Ltd., India's second-biggest producer of the material, said second-quarter profit declined 12 percent.
Net income fell to 1.64 billion rupees ($33.5 million) in the three months ended Sept. 30 from 1.86 billion rupees a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange today.
Revenue rose 19 percent to 14.2 billion rupees.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- UltraTech Cement Ltd., India's second-biggest producer of the material, said second-quarter profit declined 12 percent.
Net income fell to 1.64 billion rupees ($33.5 million) in the three months ended Sept. 30 from 1.86 billion rupees a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange today.
Revenue rose 19 percent to 14.2 billion rupees.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
India May Lift Curbs on Rice, Cotton, Edible Oils, Express Says
By Thomas Kutty Abraham
Oct. 18 (Bloomberg) -- India may ease restrictions on overseas sales of rice, edible oils and cotton next month as local stockpiles swell and global prices slump, the Financial Express reported, citing unidentified government officials.
India ended a ban on exports of corn this week and may remove curbs on overseas sales of rice next, the newspaper said.
The Congress party-led ruling coalition halted corn exports in July to bolster domestic supplies, adding to restrictions on overseas sales of wheat, rice, pulses and cooking oils.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- India may ease restrictions on overseas sales of rice, edible oils and cotton next month as local stockpiles swell and global prices slump, the Financial Express reported, citing unidentified government officials.
India ended a ban on exports of corn this week and may remove curbs on overseas sales of rice next, the newspaper said.
The Congress party-led ruling coalition halted corn exports in July to bolster domestic supplies, adding to restrictions on overseas sales of wheat, rice, pulses and cooking oils.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
Read more...
Sichuan Hongda Says 9-Month Profit May Fall 90% on Zinc, Lead
By Helen Yuan
Oct. 18 (Bloomberg) -- Sichuan Hongda Chemical Industry Co., China's third-largest zinc producer, said profit probably fell by more than 90 percent in the first nine months of this year from a year earlier because of a slump in metal prices.
The Chengdu, Sichuan province-based company didn't give profit details today in a statement to the Shanghai stock exchange. It posted a profit of 650 million yuan ($95 million) in the same period of 2007.
To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net
Read more...
Oct. 18 (Bloomberg) -- Sichuan Hongda Chemical Industry Co., China's third-largest zinc producer, said profit probably fell by more than 90 percent in the first nine months of this year from a year earlier because of a slump in metal prices.
The Chengdu, Sichuan province-based company didn't give profit details today in a statement to the Shanghai stock exchange. It posted a profit of 650 million yuan ($95 million) in the same period of 2007.
To contact the reporter for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net
Read more...
Japanese 10-Year Bonds Complete 2nd Weekly Slide on Stock Gain
By Theresa Barraclough
Oct. 18 (Bloomberg) -- Japanese 10-year government bonds completed a second week of losses after U.S. and European rescue plans for finance companies bolstered global stock markets.
Ten-year yields yesterday held near a 2 1/2-month high after Ambac Financial Group Inc., the second-largest U.S. bond guarantor, on Oct. 16 said it will present a rescue plan to the Treasury Department. Demand for longer-dated bonds also fell on concern the Japanese government will issue additional debt to help pay for economic stimulus packages.
``Nobody wants to buy,'' said Yuuki Sakurai, a general financial-planning manager at Fukoku Mutual Life Insurance Co. in Tokyo, which manages the equivalent of $54 billion in assets. ``The bond market will remain in a nervous situation.''
The yield on the 1.5 percent bond due September 2018 gained 5.5 basis points this week to 1.575 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield reached 1.63 percent on Oct. 14, the highest since July 24. Twenty-year yields added 16 basis points this week to 2.145 percent. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 1.60 to 135.75 this week at the Tokyo Stock Exchange. The Nikkei 225 Stock Average advanced 2.8 percent yesterday.
Benchmark bonds have handed investors a loss of about 0.4 percent this week through Oct. 16, according to indexes compiled by Merrill Lynch & Co. The Nikkei has gained 2 percent in the same period.
Cheaper Funding Costs
Demand for shorter-dated notes increased as 32 trillion yen ($315 billion) in BOJ injections over the past month helped keep benchmark rates near the central bank's target of 0.5 percent.
Japan's overnight call loan rate traded at 0.51 percent yesterday, from 0.49 percent on Oct. 16, according to Tokyo Tanshi Co. The London interbank offered rate, or Libor, that banks charge each other for three-month yen loans dropped 2 basis points to 1.064 percent on Oct. 16, the biggest drop since March 28, according to the British Bankers' Association.
The difference between the Tokyo repo rate and the two-year yield increased to about 25 basis points on Oct. 14, from zero a week earlier, according to data compiled by Bloomberg News.
``Now that the money market rate is under two-year yields, investors want to buy,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo. ``The bond market is reflecting the improved stability of the money market. Investors feel more secure about making investment decisions.''
`Negative Effects'
The drop in bonds was limited after Bank of Japan Governor Masaaki Shirakawa yesterday said policy makers need to be on guard about rising ``downside risks'' for Japan, adding that a significant global slowdown may hurt the already slowing economy.
``We're concerned that Japan will face negative effects should the overall global economy deteriorate significantly,'' Shirakawa said in a speech at an annual meeting of Japanese credit cooperatives in Tokyo. Japan's economic growth will remain ``sluggish for the time being,'' he said.
There was a 20 percent chance yesterday the central bank will reduce borrowing costs to 0.25 percent from 0.5 percent by Dec. 31, according to Bloomberg calculations using JPMorgan Chase & Co. overnight interest-rate swaps.
Bond Issuance
Japan's Economic and Fiscal Policy Minister Kaoru Yosano yesterday said ``theoretically'' it would be acceptable for the government to issue new debt to make up for a decline in tax revenue. Yosano on Oct. 16 said the government aims to compile an economic stimulus package by the end of the month to support households facing plunging stock values.
The package will be the second since the government drafted measures in August to help consumers and small companies cope with rising energy costs. The opposition-controlled upper house on Oct. 16 passed a 1.8 trillion yen supplementary budget to fund the first plan.
``Given the government will increase spending, there's steepening curve pressures,'' said Tomohiko Katsu, deputy general manager of the capital market division at Shinsei Bank Ltd. in Tokyo. ``So it's a risk investment,'' buying longer- maturity bonds, he said.
The difference in yields between 2- and 20-year debt expanded to 1.36 percentage points yesterday, the widest in over a week, according to data compiled by Bloomberg.
Japan this week released measures to stabilize financial markets including easing restrictions on company buybacks and halting sales of state-owned shares.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Japanese 10-year government bonds completed a second week of losses after U.S. and European rescue plans for finance companies bolstered global stock markets.
Ten-year yields yesterday held near a 2 1/2-month high after Ambac Financial Group Inc., the second-largest U.S. bond guarantor, on Oct. 16 said it will present a rescue plan to the Treasury Department. Demand for longer-dated bonds also fell on concern the Japanese government will issue additional debt to help pay for economic stimulus packages.
``Nobody wants to buy,'' said Yuuki Sakurai, a general financial-planning manager at Fukoku Mutual Life Insurance Co. in Tokyo, which manages the equivalent of $54 billion in assets. ``The bond market will remain in a nervous situation.''
The yield on the 1.5 percent bond due September 2018 gained 5.5 basis points this week to 1.575 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The yield reached 1.63 percent on Oct. 14, the highest since July 24. Twenty-year yields added 16 basis points this week to 2.145 percent. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery lost 1.60 to 135.75 this week at the Tokyo Stock Exchange. The Nikkei 225 Stock Average advanced 2.8 percent yesterday.
Benchmark bonds have handed investors a loss of about 0.4 percent this week through Oct. 16, according to indexes compiled by Merrill Lynch & Co. The Nikkei has gained 2 percent in the same period.
Cheaper Funding Costs
Demand for shorter-dated notes increased as 32 trillion yen ($315 billion) in BOJ injections over the past month helped keep benchmark rates near the central bank's target of 0.5 percent.
Japan's overnight call loan rate traded at 0.51 percent yesterday, from 0.49 percent on Oct. 16, according to Tokyo Tanshi Co. The London interbank offered rate, or Libor, that banks charge each other for three-month yen loans dropped 2 basis points to 1.064 percent on Oct. 16, the biggest drop since March 28, according to the British Bankers' Association.
The difference between the Tokyo repo rate and the two-year yield increased to about 25 basis points on Oct. 14, from zero a week earlier, according to data compiled by Bloomberg News.
``Now that the money market rate is under two-year yields, investors want to buy,'' said Takashi Nishimura, an analyst at Mitsubishi UFJ Securities Co., a unit of Japan's largest bank by assets, in Tokyo. ``The bond market is reflecting the improved stability of the money market. Investors feel more secure about making investment decisions.''
`Negative Effects'
The drop in bonds was limited after Bank of Japan Governor Masaaki Shirakawa yesterday said policy makers need to be on guard about rising ``downside risks'' for Japan, adding that a significant global slowdown may hurt the already slowing economy.
``We're concerned that Japan will face negative effects should the overall global economy deteriorate significantly,'' Shirakawa said in a speech at an annual meeting of Japanese credit cooperatives in Tokyo. Japan's economic growth will remain ``sluggish for the time being,'' he said.
There was a 20 percent chance yesterday the central bank will reduce borrowing costs to 0.25 percent from 0.5 percent by Dec. 31, according to Bloomberg calculations using JPMorgan Chase & Co. overnight interest-rate swaps.
Bond Issuance
Japan's Economic and Fiscal Policy Minister Kaoru Yosano yesterday said ``theoretically'' it would be acceptable for the government to issue new debt to make up for a decline in tax revenue. Yosano on Oct. 16 said the government aims to compile an economic stimulus package by the end of the month to support households facing plunging stock values.
The package will be the second since the government drafted measures in August to help consumers and small companies cope with rising energy costs. The opposition-controlled upper house on Oct. 16 passed a 1.8 trillion yen supplementary budget to fund the first plan.
``Given the government will increase spending, there's steepening curve pressures,'' said Tomohiko Katsu, deputy general manager of the capital market division at Shinsei Bank Ltd. in Tokyo. ``So it's a risk investment,'' buying longer- maturity bonds, he said.
The difference in yields between 2- and 20-year debt expanded to 1.36 percentage points yesterday, the widest in over a week, according to data compiled by Bloomberg.
Japan this week released measures to stabilize financial markets including easing restrictions on company buybacks and halting sales of state-owned shares.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
Read more...
Hong Kong Finance Chief Warns of More Challenges
By Cathy Chan
Oct. 18 (Bloomberg) -- Hong Kong Financial Secretary John Tsang warned of further economic challenges ahead for the city amid global financial turmoil, company closures and investment losses.
``The financial crisis will have a considerable economic impact on the economy, and people in Hong Kong should be ready for the challenges,'' he told reporters today after officiating at a ceremony. ``Still, Hong Kong's fundamentals and its system are healthy and our economy remains very strong.''
Tsang's comments came after three Hong Kong retailers and a toymaker collapsed within two weeks and as tightened credit conditions make it more difficult for smaller companies to refinance debt. Hundreds of Hong Kong investors protested in the streets last week over losses on so-called minibonds guaranteed by bankrupt Lehman Brothers Holdings Inc.
``We expect Hong Kong's economic activity will be very slow but still outperform other counties in Asia in the next six months,'' said Kenny Tang, director of Tung Tai Securities Co. in Hong Kong. ``China will contribute to Hong Kong's meager growth looking forward, and the city still has a solid financial basis, backed by its strong reserves and lack of foreign debt.''
Tai Lin Radio Service Ltd., a 60-year-old Hong Kong electrical appliance retail chain, was forced to close yesterday after accumulating HK$100 million ($13 million) debt.
Funds Frozen
U-Right International Holdings Ltd., operator of about 600 clothing outlets in the city and in China, had funds frozen after it was unable to meet a demand to pay HK$850 million of debt. Hong Kong's High Court on Oct. 6 appointed Deloitte Touche Tohmatsu as liquidator of the Hong Kong-listed company.
Smart Union Group Holdings Ltd., a Hong Kong-listed contract toymaker, said yesterday the city's High Court appointed two liquidators to take control of its assets. The company closed two factories in China's Guangdong province, Shanghai-based National Business Daily reported.
``The retail industry is definitely one that will be severely affected by the ongoing crisis,'' Tsang said. ``The health of small-to-medium-sized enterprises in Hong Kong is very important to us.''
Government Plan
The Hong Kong Association of Banks, which includes HSBC Holdings Inc. and BOC Hong Kong (Holdings) Ltd., agreed yesterday to a government plan to buy back Lehman's minibonds at market prices, after consumer allegations that sellers misrepresented the risks involved in the securities.
The Hong Kong Monetary Authority, the city's de facto central bank, said yesterday it referred to the Securities and Futures Commission 24 cases related to sales of the Lehman- guaranteed products.
``We're very happy about the banks accepting our buyback suggestion,'' Tsang said today. ``We will continue investigating some of the false-selling cases and establish a mechanism to facilitate dispute settlements between the banks and the investors.''
To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Hong Kong Financial Secretary John Tsang warned of further economic challenges ahead for the city amid global financial turmoil, company closures and investment losses.
``The financial crisis will have a considerable economic impact on the economy, and people in Hong Kong should be ready for the challenges,'' he told reporters today after officiating at a ceremony. ``Still, Hong Kong's fundamentals and its system are healthy and our economy remains very strong.''
Tsang's comments came after three Hong Kong retailers and a toymaker collapsed within two weeks and as tightened credit conditions make it more difficult for smaller companies to refinance debt. Hundreds of Hong Kong investors protested in the streets last week over losses on so-called minibonds guaranteed by bankrupt Lehman Brothers Holdings Inc.
``We expect Hong Kong's economic activity will be very slow but still outperform other counties in Asia in the next six months,'' said Kenny Tang, director of Tung Tai Securities Co. in Hong Kong. ``China will contribute to Hong Kong's meager growth looking forward, and the city still has a solid financial basis, backed by its strong reserves and lack of foreign debt.''
Tai Lin Radio Service Ltd., a 60-year-old Hong Kong electrical appliance retail chain, was forced to close yesterday after accumulating HK$100 million ($13 million) debt.
Funds Frozen
U-Right International Holdings Ltd., operator of about 600 clothing outlets in the city and in China, had funds frozen after it was unable to meet a demand to pay HK$850 million of debt. Hong Kong's High Court on Oct. 6 appointed Deloitte Touche Tohmatsu as liquidator of the Hong Kong-listed company.
Smart Union Group Holdings Ltd., a Hong Kong-listed contract toymaker, said yesterday the city's High Court appointed two liquidators to take control of its assets. The company closed two factories in China's Guangdong province, Shanghai-based National Business Daily reported.
``The retail industry is definitely one that will be severely affected by the ongoing crisis,'' Tsang said. ``The health of small-to-medium-sized enterprises in Hong Kong is very important to us.''
Government Plan
The Hong Kong Association of Banks, which includes HSBC Holdings Inc. and BOC Hong Kong (Holdings) Ltd., agreed yesterday to a government plan to buy back Lehman's minibonds at market prices, after consumer allegations that sellers misrepresented the risks involved in the securities.
The Hong Kong Monetary Authority, the city's de facto central bank, said yesterday it referred to the Securities and Futures Commission 24 cases related to sales of the Lehman- guaranteed products.
``We're very happy about the banks accepting our buyback suggestion,'' Tsang said today. ``We will continue investigating some of the false-selling cases and establish a mechanism to facilitate dispute settlements between the banks and the investors.''
To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net.
Read more...
S. Korea May Supply Extra $30 Billion, Yonhap Reports
By Shinhye Kang
Oct. 18 (Bloomberg) -- South Korea may supply a further $30 billion to banks, companies and currency-swap markets to help bolster liquidity, Yonhap News reported, citing government officials it didn't identify.
The government is seeking to add the measure in a relief package that will be announced tomorrow, the Korean-language news agency reported.
The U.S. financial crisis is making it more difficult for companies worldwide to secure dollars as banks hoard cash to meet their future funding needs. South Korea's currency and swap markets are experiencing a dollar shortage as local businesses, which expect the U.S. currency to strengthen against the won, don't want to sell their dollars yet.
``Injecting more dollars will be good news for the whole South Korean financial market as its recent volatility came from a shortage of dollars,'' said Lee Sang Jae, senior economist at Hyundai Securities Co. ``But the measure will not fully solve problems until the U.S. financial market is stabilized.''
Under the proposal, the Bank of Korea may supply more than $10 billion in U.S. currency to the local won-dollar swap market and the state-run Export-Import Bank of Korea may provide $20 billion to banks and small businesses, Yonhap reported. The government had already promised to supply a total of $15 billion to small firms and the swap market.
1997 Bailout
The Bank of Korea said yesterday it will change rules in the foreign-exchange swap market to increase banks' access to funds. The measure helped the won, which fell 9.7 percent on Oct. 16, the most since the International Monetary Fund bailed out the country in December 1997, to rebound. South Korea's won has fallen 30 percent this year, the worst performance among Asia's 10 most-traded currencies.
South Korea may announce other measures, including guaranteeing bank debts and tax breaks for investors, to bolster confidence when the country releases a financial market stabilization package tomorrow. Finance Minister Kang Man Soo will announce it tomorrow at noon in Seoul, the ministry said today, changing the timing from an initial 2 p.m. release.
``We will take preemptive, decisive and sufficient measures,'' Kang told reporters in Gwacheon yesterday after an emergency summit among policy makers. Kang referred to the U.S. steps to inject capital into financial firms, guarantee interbank lending and expand deposit guarantees as measures Korea could consider ``if necessary.''
Bank Guarantees
The government should consider guaranteeing banks' debts, following similar moves in Australia, Europe and Hong Kong, to help lenders overcome difficulties obtaining offshore funding, Kwon Jae Min, a credit analyst at Standard & Poor's in Hong Kong said in an interview yesterday.
The government may also provide tax benefits to long-term share investors to help stem the Kospi index's decline, Vice Finance Minister Kim Dong Soo said on Oct. 16. The Kospi index dropped 2.7 percent yesterday to 1,180.67, the lowest level since October 2005.
Additionally, the country may provide won liquidity by purchasing corporate bonds, the Seoul Economic Daily reported today, citing government officials it didn't identify.
Other Asian countries may join South Korea in seeking measures to restore confidence in plunging financial markets.
Taiwan will announce tomorrow whether it will retain a narrowed limit on stock price movements, the financial regulator said in a press conference.
Price-Decline Limit
A decision to continue enforcing a limit of 3.5 percent on one-day share price declines, or restore the previous 7 percent cap, will be announced at 6 p.m. tomorrow in Taipei, Gordon Chen, chairman of the Financial Supervisory Commission, said at a press conference late last night, rebroadcast today on TV station CTi.
Taiwan doesn't let stock prices move more than 7 percent from the previous day's close. Regulators cut the downward limit in half between Oct. 13 and Oct. 17 to stabilize the market as share prices plunged because of the global financial crisis.
China's securities regulator said yesterday the government will unveil measures to stabilize the country's markets, while exhorting banks to avoid ``excessive'' financial innovation. China's benchmark stock index has plummeted 66 percent this year.
To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net;
Read more...
Oct. 18 (Bloomberg) -- South Korea may supply a further $30 billion to banks, companies and currency-swap markets to help bolster liquidity, Yonhap News reported, citing government officials it didn't identify.
The government is seeking to add the measure in a relief package that will be announced tomorrow, the Korean-language news agency reported.
The U.S. financial crisis is making it more difficult for companies worldwide to secure dollars as banks hoard cash to meet their future funding needs. South Korea's currency and swap markets are experiencing a dollar shortage as local businesses, which expect the U.S. currency to strengthen against the won, don't want to sell their dollars yet.
``Injecting more dollars will be good news for the whole South Korean financial market as its recent volatility came from a shortage of dollars,'' said Lee Sang Jae, senior economist at Hyundai Securities Co. ``But the measure will not fully solve problems until the U.S. financial market is stabilized.''
Under the proposal, the Bank of Korea may supply more than $10 billion in U.S. currency to the local won-dollar swap market and the state-run Export-Import Bank of Korea may provide $20 billion to banks and small businesses, Yonhap reported. The government had already promised to supply a total of $15 billion to small firms and the swap market.
1997 Bailout
The Bank of Korea said yesterday it will change rules in the foreign-exchange swap market to increase banks' access to funds. The measure helped the won, which fell 9.7 percent on Oct. 16, the most since the International Monetary Fund bailed out the country in December 1997, to rebound. South Korea's won has fallen 30 percent this year, the worst performance among Asia's 10 most-traded currencies.
South Korea may announce other measures, including guaranteeing bank debts and tax breaks for investors, to bolster confidence when the country releases a financial market stabilization package tomorrow. Finance Minister Kang Man Soo will announce it tomorrow at noon in Seoul, the ministry said today, changing the timing from an initial 2 p.m. release.
``We will take preemptive, decisive and sufficient measures,'' Kang told reporters in Gwacheon yesterday after an emergency summit among policy makers. Kang referred to the U.S. steps to inject capital into financial firms, guarantee interbank lending and expand deposit guarantees as measures Korea could consider ``if necessary.''
Bank Guarantees
The government should consider guaranteeing banks' debts, following similar moves in Australia, Europe and Hong Kong, to help lenders overcome difficulties obtaining offshore funding, Kwon Jae Min, a credit analyst at Standard & Poor's in Hong Kong said in an interview yesterday.
The government may also provide tax benefits to long-term share investors to help stem the Kospi index's decline, Vice Finance Minister Kim Dong Soo said on Oct. 16. The Kospi index dropped 2.7 percent yesterday to 1,180.67, the lowest level since October 2005.
Additionally, the country may provide won liquidity by purchasing corporate bonds, the Seoul Economic Daily reported today, citing government officials it didn't identify.
Other Asian countries may join South Korea in seeking measures to restore confidence in plunging financial markets.
Taiwan will announce tomorrow whether it will retain a narrowed limit on stock price movements, the financial regulator said in a press conference.
Price-Decline Limit
A decision to continue enforcing a limit of 3.5 percent on one-day share price declines, or restore the previous 7 percent cap, will be announced at 6 p.m. tomorrow in Taipei, Gordon Chen, chairman of the Financial Supervisory Commission, said at a press conference late last night, rebroadcast today on TV station CTi.
Taiwan doesn't let stock prices move more than 7 percent from the previous day's close. Regulators cut the downward limit in half between Oct. 13 and Oct. 17 to stabilize the market as share prices plunged because of the global financial crisis.
China's securities regulator said yesterday the government will unveil measures to stabilize the country's markets, while exhorting banks to avoid ``excessive'' financial innovation. China's benchmark stock index has plummeted 66 percent this year.
To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net;
Read more...
Taiwan to Reveal Stock Movement-Limit Rules Tomorrow
By Tim Culpan
Oct. 18 (Bloomberg) -- Taiwan will announce tomorrow whether it will retain a narrowed limit on stock price movements as governments seek measures to stabilize markets amid a global financial crisis.
A decision to continue enforcing a limit of 3.5 percent on one-day share price declines, or restore the previous 7 percent cap, will be announced at 6 p.m. tomorrow in Taipei, Gordon Chen, chairman of Taiwan's Financial Supervisory Commission, said at a press conference late last night, rebroadcast today on TV station CTi.
Taiwan on Oct. 15 said it would extend the use of its National Stabilization Fund to support the market by at least one month. Governments from Washington to London are buying stakes in banks, guaranteeing inter-bank loans and pumping liquidity into markets to stave off a global financial collapse.
A ban on short-selling and guarantees for all bank deposits are among other measures Taiwan's Cabinet has implemented to stem a slide in stock prices amid the global crisis.
``It's not good and it's quite useless to limit the stock price movement,'' said Michael On, president of Beyond Asset Management Co. in Taipei. ``The market will find its fair value on its own, and these limits get discounted anyway.''
Relief Package
South Korea will announce a relief package tomorrow as part of measures Finance Minister Kang Man Soo described yesterday as ``preemptive, decisive and sufficient'' to stabilize that nation's financial system. The won fell 9.7 percent against the U.S. dollar on Oct. 16 amid a shortage of U.S. currency as businesses hoarded the dollar.
Measures the South Korean government may outline tomorrow include supplying a further $30 billion to boost liquidity, Yonhap News agency reported today, citing government officials it didn't identify.
Taiwan's Taiex index dropped 3.3 percent last week, its fifth weekly decline, widening the benchmark's losses this year to 42 percent, compared with a 45 percent decline in the MSCI Asia-Pacific Index. Taiwan's dollar fell to NT$32.55 against the U.S. dollar yesterday as investors repatriated funds from the stock market to cover fund redemptions.
Foreign investors have withdrawn $2.3 billion from Taiwan's securities markets this month, $2.7 billion from South Korea, and $4.7 billion from Japan, according to Bloomberg data.
Taiwan doesn't let stock prices move more than 7 percent from the previous day's close. Regulators cut the downward limit in half between Oct. 13 and Oct. 17 to stabilize the market.
The U.K. government has set aside as much as 50 billion pounds ($86 billion) for equity stakes in banks, provided 250 billion pounds in inter-bank loan guarantees and 200 billion pounds in a special liquidity program. U.S. lawmakers have approved a $700 billion bailout package to stop the collapse of the country's banking system.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Taiwan will announce tomorrow whether it will retain a narrowed limit on stock price movements as governments seek measures to stabilize markets amid a global financial crisis.
A decision to continue enforcing a limit of 3.5 percent on one-day share price declines, or restore the previous 7 percent cap, will be announced at 6 p.m. tomorrow in Taipei, Gordon Chen, chairman of Taiwan's Financial Supervisory Commission, said at a press conference late last night, rebroadcast today on TV station CTi.
Taiwan on Oct. 15 said it would extend the use of its National Stabilization Fund to support the market by at least one month. Governments from Washington to London are buying stakes in banks, guaranteeing inter-bank loans and pumping liquidity into markets to stave off a global financial collapse.
A ban on short-selling and guarantees for all bank deposits are among other measures Taiwan's Cabinet has implemented to stem a slide in stock prices amid the global crisis.
``It's not good and it's quite useless to limit the stock price movement,'' said Michael On, president of Beyond Asset Management Co. in Taipei. ``The market will find its fair value on its own, and these limits get discounted anyway.''
Relief Package
South Korea will announce a relief package tomorrow as part of measures Finance Minister Kang Man Soo described yesterday as ``preemptive, decisive and sufficient'' to stabilize that nation's financial system. The won fell 9.7 percent against the U.S. dollar on Oct. 16 amid a shortage of U.S. currency as businesses hoarded the dollar.
Measures the South Korean government may outline tomorrow include supplying a further $30 billion to boost liquidity, Yonhap News agency reported today, citing government officials it didn't identify.
Taiwan's Taiex index dropped 3.3 percent last week, its fifth weekly decline, widening the benchmark's losses this year to 42 percent, compared with a 45 percent decline in the MSCI Asia-Pacific Index. Taiwan's dollar fell to NT$32.55 against the U.S. dollar yesterday as investors repatriated funds from the stock market to cover fund redemptions.
Foreign investors have withdrawn $2.3 billion from Taiwan's securities markets this month, $2.7 billion from South Korea, and $4.7 billion from Japan, according to Bloomberg data.
Taiwan doesn't let stock prices move more than 7 percent from the previous day's close. Regulators cut the downward limit in half between Oct. 13 and Oct. 17 to stabilize the market.
The U.K. government has set aside as much as 50 billion pounds ($86 billion) for equity stakes in banks, provided 250 billion pounds in inter-bank loan guarantees and 200 billion pounds in a special liquidity program. U.S. lawmakers have approved a $700 billion bailout package to stop the collapse of the country's banking system.
To contact the reporter on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net.
Read more...
Fonterra May Sell Stake in Scandal-Hit China Venture
By Tracy Withers
Oct. 18 (Bloomberg) -- Fonterra Cooperative Group Ltd. may sell its stake in a Chinese dairy venture at the center of the milk scandal that killed four babies and sickened 53,000 children.
Fonterra, the world's biggest dairy exporter, said talks are under way on a third-party acquisition of Sanlu Group Co. The Auckland, New Zealand-based group owns 43 percent of Sanlu, which was the first of 22 companies in China identified as producers of contaminated baby-milk powder.
``Discussions are continuing around a number of facets of Sanlu's future,'' Fonterra Chief Executive Officer Andrew Ferrier said in a statement. ``These include the possibility of Sanlu being acquired by a third party.''
Last month, Fonterra wrote down the value of its Sanlu stake by 69 percent, or NZ$139 million ($85 million), because of the affect of the scandal on the company's brand. Selling the stake may enable Fonterra to re-invest in China, provided it can prove to the New Zealand farmers who are its shareholders that it can guarantee a secure supply of quality milk.
``There are some farmers saying `we've been burnt, lets get out of there,''' said Lachlan McKenzie, chairman of the dairy section of Federated Farmers Inc. ``It will be up to the company to show it can manage these risks.''
Chinese officials are investigating how melamine, a chemical used in making plastics and tanning leather, was added to raw milk before delivery to Sanlu's plant. Melamine artificially raises the protein content in diluted milk, allowing sellers to cut costs. In China, agents for processing plants collect milk from thousands of small farmers.
Supply Chain
``There has to be a change in the supply chain and the company has to demonstrate that'' before farmers will support new investment in China, McKenzie said in an interview.
The tainted-milk scandal has revived concerns about Chinese food-safety controls after previous scares over seafood, dumplings and pet food. More than 20 countries and markets in Asia, Africa and Europe have recalled or restricted Chinese dairy products after 20 companies including Sanlu and China Mengniu Dairy Co. sold contaminated products.
Concern that Chinese partners don't adhere to the quality standards of export markets might endanger the nation's ability to attract investment and technology.
Confidence Damaged
``Foreign investment will keep away from China's dairy industry in the short term,'' said Guo Changsheng, an analyst with Shanghai Securities Co. ``Consumer confidence over food safety hasn't recovered'' from the series of contamination scandals.
Last month, Ferrier reiterated that China is a ``core'' part of Fonterra's strategy. It owns a farm in China and also supplies the nation with products made in Australia and New Zealand.
Fonterra is involved in a number of discussions and the long-term future of Sanlu and Fonterra's stake ``remains uncertain at this stage,'' Ferrier said today.
``Any solution involving Fonterra's long-term involvement in Sanlu or other aspects of the Chinese dairy industry will hinge on us having sufficient influence over key aspects of the dairy supply chain,'' he said.
Feihe Dairy, a subsidiary of American Dairy Inc., was invited by the Chinese government yesterday to a meeting to discuss the future of Sanlu, Xinhua News Agency said, citing an unidentified company spokesman.
Newspaper reports yesterday said Beijing Sanyuan Foods Co. and Hangzhou Wahaha Group Co. are also interested in buying Sanlu. Pan Chang, chairman of Inner Mongolia Yili Industrial Group Co., said yesterday his company was also invited to the meeting, adding he ``hasn't thought about'' buying Sanlu.
Over the long term investment in China will rebound, Shanghai Securities' Guo said. ``No one can ignore the huge Chinese market.''
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Read more...
Oct. 18 (Bloomberg) -- Fonterra Cooperative Group Ltd. may sell its stake in a Chinese dairy venture at the center of the milk scandal that killed four babies and sickened 53,000 children.
Fonterra, the world's biggest dairy exporter, said talks are under way on a third-party acquisition of Sanlu Group Co. The Auckland, New Zealand-based group owns 43 percent of Sanlu, which was the first of 22 companies in China identified as producers of contaminated baby-milk powder.
``Discussions are continuing around a number of facets of Sanlu's future,'' Fonterra Chief Executive Officer Andrew Ferrier said in a statement. ``These include the possibility of Sanlu being acquired by a third party.''
Last month, Fonterra wrote down the value of its Sanlu stake by 69 percent, or NZ$139 million ($85 million), because of the affect of the scandal on the company's brand. Selling the stake may enable Fonterra to re-invest in China, provided it can prove to the New Zealand farmers who are its shareholders that it can guarantee a secure supply of quality milk.
``There are some farmers saying `we've been burnt, lets get out of there,''' said Lachlan McKenzie, chairman of the dairy section of Federated Farmers Inc. ``It will be up to the company to show it can manage these risks.''
Chinese officials are investigating how melamine, a chemical used in making plastics and tanning leather, was added to raw milk before delivery to Sanlu's plant. Melamine artificially raises the protein content in diluted milk, allowing sellers to cut costs. In China, agents for processing plants collect milk from thousands of small farmers.
Supply Chain
``There has to be a change in the supply chain and the company has to demonstrate that'' before farmers will support new investment in China, McKenzie said in an interview.
The tainted-milk scandal has revived concerns about Chinese food-safety controls after previous scares over seafood, dumplings and pet food. More than 20 countries and markets in Asia, Africa and Europe have recalled or restricted Chinese dairy products after 20 companies including Sanlu and China Mengniu Dairy Co. sold contaminated products.
Concern that Chinese partners don't adhere to the quality standards of export markets might endanger the nation's ability to attract investment and technology.
Confidence Damaged
``Foreign investment will keep away from China's dairy industry in the short term,'' said Guo Changsheng, an analyst with Shanghai Securities Co. ``Consumer confidence over food safety hasn't recovered'' from the series of contamination scandals.
Last month, Ferrier reiterated that China is a ``core'' part of Fonterra's strategy. It owns a farm in China and also supplies the nation with products made in Australia and New Zealand.
Fonterra is involved in a number of discussions and the long-term future of Sanlu and Fonterra's stake ``remains uncertain at this stage,'' Ferrier said today.
``Any solution involving Fonterra's long-term involvement in Sanlu or other aspects of the Chinese dairy industry will hinge on us having sufficient influence over key aspects of the dairy supply chain,'' he said.
Feihe Dairy, a subsidiary of American Dairy Inc., was invited by the Chinese government yesterday to a meeting to discuss the future of Sanlu, Xinhua News Agency said, citing an unidentified company spokesman.
Newspaper reports yesterday said Beijing Sanyuan Foods Co. and Hangzhou Wahaha Group Co. are also interested in buying Sanlu. Pan Chang, chairman of Inner Mongolia Yili Industrial Group Co., said yesterday his company was also invited to the meeting, adding he ``hasn't thought about'' buying Sanlu.
Over the long term investment in China will rebound, Shanghai Securities' Guo said. ``No one can ignore the huge Chinese market.''
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Read more...
RBNZ October 23 OCR Preview: RBNZ to Cut 100bps
| Daily Forex Fundamentals | Written by Westpac Institutional Bank | Oct 18 08 08:12 GMT | | |
| To boldly go where no Governor has before
Conditions have changed at a breathtaking pace since the September Monetary Policy Statement. Policymakers around the world are scrambling to restore stability and confidence in the financial system, but regardless of how successful they are, it's clear that the credit crunch will leave a sizeable dent in the real economy. Consensus forecasts for world growth in 2009 have been slashed from 2.8% to 2.1% in the last two months. While the RBNZ was already bracing for some downgrades to growth forecasts, the events of the past month will still come as a big shock to them. The timing is particularly unfortunate for New Zealand, as there were signs that the economy was picking up again after a recession in the first half of the year. With the drought well and truly over, fuel prices down, interest rates falling, and personal tax cuts kicking in from October, the outlook for growth in 2009 and beyond looked encouraging. But in market time, that's all ancient history. The economic case for delivering another large cut next week is clear. The only question is one of tactics - how much should they cut now to support domestic activity and maintain confidence, without stoking inflation, using up their ammo too quickly, or creating unrealistic expectations of more to come? There are at least three plausible options - 50bp, 75bp or 100bp - and on balance we see a 100bp move as the most likely, though we'd put the odds at no more than 50%. A 100bp cut would easily be the largest single change in the history of the OCR. Admittedly that overstates the significance of such a move, as it's only since 1999 that the policy rate has been set in discrete steps. You don't have to go back much further than that to find interest rate cycles that were more dramatic overall. The factors that we think will tip the RBNZ toward a 100bp cut are: The credit crunch has become much, much worse - but steps are being taken. Every new problem brings a fresh response from policymakers, so any forecast of when or how the crisis will end has to be highly conditional. Assuming that the Armageddon scenario is avoided, we can expect three lasting consequences that will affect every part of the world to varying degrees: tighter credit, weaker demand for exports, and lower commodity prices. New Zealand is in the unenviable position of being both a net borrower for consumption and highly dependent on commodity exports, so we are likely to suffer on all three fronts. These effects can be partly offset by a lower exchange rate - which is already the case - but more will be needed to soften the blow. Rate cuts as insurance. We were critical of the July and September rate cuts at the time, given that inflation is so high. But since then, the credit crunch has worsened and falling commodity prices have taken the sting out of inflation concerns, so the RBNZ won't have any cause for regret. The benefits of hindsight will also motivate next week's decision - a large rate cut would be a relatively cheap form of insurance against the likelihood of more financial nasties to come. If that insurance proves to be unnecessary, it can easily be reversed - as was the case with the rate cuts after 9/11. Interest rate passthrough. In both July and September the RBNZ expressed concern that OCR cuts may not be passed on fully - or at all - to retail interest rates, due to the rising cost of raising funds offshore. By and large, those fears haven't been realised, and mortgage rates for the most popular terms have been reduced by 75-90 basis points since July. Nonetheless, we suspect the RBNZ will proceed on the basis that any further passthrough is not guaranteed. The RBA cut by 100bp. While the RBNZ are in no way obligated to follow their neighbour, they will share many of the RBA's concerns. As well as the ‘passthrough' issue, which the RBA felt warranted “an unusually large movement in the cash rate”, they noted “a significant moderation in growth in Australia's trading partners in Asia”, and that “some decline in the [Australian] terms of trade now looks likely over the coming year”. The RBNZ have highlighted the growth outlook for Australia and Asia as particularly important for monetary policy, and they will respect the RBA's judgement on this matter. Inflation is off the radar for the moment. That's not the same thing as saying that inflation has been tamed, though. A halving in world oil prices, and sharp falls in other commodities, ensure that next year the annual rate of inflation will spend some time at the bottom of its 2-5% range, giving the RBNZ more room to front-load their easing. But on average, inflation is still expected to hold near the top of the target band - not least because the RBNZ has signalled that they intend to keep it there! The arguments for a move of less than 100bp are: Market expectations have run riot. It's not clear whether RBNZ Governor Bollard values the ‘announcement effect' of rate cuts - that is, by bringing wholesale rates down on the day of the OCR review, he can pressure lenders into passing this on to retail rates. But he would find it hard to achieve this time - expectations of rate cuts have been ratcheted up to the point that the market is now pricing in 120bp of easing for next week. A smaller cut may actually prove to be more helpful, by reining in market pricing and restoring the scope for surprises at future reviews. Dr Bollard could probably live with it if swap rates ended the day higher - they are already a further 50-90bp lower since the September MPS. The NZD has fallen sharply. The exchange rate has once again proven to be the New Zealand economy's first line of defence against global shocks, delivering a rapid easing in financial conditions. A weaker currency won't solve every problem, but equally it will reassure the RBNZ that they don't have to do all of the work themselves. Using the right tool for the job. New Zealand's banking system is in a very different position to the US or Europe: banks are still profitable and well capitalised, with high-quality assets. Their problem is the difficulty of accessing offshore funding - an issue that no policy rate cut, of any size, can fix (and at the margin could make worse by further discouraging investors). Liquidity problems are best dealt with using liquidity measures, a point that the RBNZ have themselves made in recent weeks. ImplicationsGiven the amount of easing that is already priced into interest rate markets, the RBNZ seems almost doomed to disappoint. Even so, the total change in wholesale rates since September should give lenders scope to reduce retail rates - in fact, Westpac has already lowered its fixed mortgage rates by 30-40bp. The implications for the currency are ambiguous, and in any case are likely to be swamped by other factors. As an indication, the RBA's 100bp cut earlier this month saw the Australian dollar first punished, then rewarded for such a proactive move - all in the space of a few minutes. Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. | |
Read more...
Fed to Lower Policy Rate to 1% and Retain Easing Bias
| Daily Forex Fundamentals | Written by RBC Financial Group | Oct 18 08 08:15 GMT | | |
| We still expect the Fed to lower the Funds rate by another 50 basis points before the year's out with the odds favouring the move at the October 29 meeting. Economic data have been weaker-than-expected and risk a sharper downturn in Q3 and Q4 than in our baseline forecast. More worrying is the lack of traction in financial markets from the spate of policy actions with equity markets still preparing for the worst while the 3-month Libor rate is lower but remains relatively elevated. Yesterday's Beige Book provided no sign that any region of the US economy is seeing an improvement in conditions. While we believe the aggressive policy actions will eventually boost investor and consumer confidence and allay uncertainty in financial markets thereby reducing the cost of funds for financial institutions and ultimately credit spreads, the Fed will continue to keep the financial system flush with cash and interest rates extremely accommodative until a decisive turn is evident. This is unlikely to occur quickly and we maintain the view that the economy will only start to revive in late 2009. As long as the downside risks to economic growth remain paramount, the Fed will maintain a bias toward additional monetary policy stimulus which means that they may feel the need to continue easing in 2009 as a supplement to liquidity injections and targeted market operations. Our consensus view is that the 1% funds rate plus narrowing credit spreads will be sufficient to avoid a protracted economic recession although given the depth of the negative sentiment, we cannot rule out additional interest rate cuts. We expect the Fed to hold the policy rate at 1% throughout 2009 and forecast only a modest increase in term rates over the year ahead. This is a change from our previous forecast that the Fed would be in a position to increase the policy rate before the end of next year. RBC Financial Group The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. | |
Read more...
New Zealand Dollar: Will Higher Inflation Boost the Kiwi?
| Daily Forex Fundamentals | Written by DailyFX | Oct 18 08 08:01 GMT | | |
Trading the News: New Zealand Consumer PricesWhat's Expected Impact of the New Zealand Consumer Prices on NZDUSD over the last 3 months
2Q 2008New Zealand Consumer Prices The consumer price index for New Zealand surged 1.6% in the second quarter on the back of rising food and energy costs, highlighting the fastest rate of inflation in 18 years. In addition, prices pressures increased 4.0% from a year earlier, which could lead the RBNZ to hold a hawkish outlook despite the downturn in the $104B economy. Meanwhile, market participants have already raised concerns that the economy may face a period of stagflation as economic growth contracted in the first quarter despite mounting price pressures, and has certainly left RNBZ Governor Alan Bollard in a complex situation. However, Dr. Bollard expects the slowdown in the economy to bring inflation back within the bank's 3% limit in 2010, and stated that he is likely to lower the benchmark rate this year as New Zealand teeters on the brink of a recession.
1Q 2008New Zealand Consumer Prices Consumer prices in New Zealand rose 0.7% in the first quarter of 2008 on higher food and fuel prices. Although, the quarterly rate of price appreciation was lower than the prior quarter the annualized rate printed at 3.4% exceeding the prior quarter's 3.2%. The increase in inflation from the reduced the chances of a RBNZ rate cut at the central bank's next policy meeting. The country's benchmark rate at an all-time high of 8.25% has begun to weigh on growth. The expected global slowdown has heightened fears that the economy may cool faster than expected and into a recession. The mixed inflation data would leave traders confused and the resulting price volatility would have left us on the sideline.
4Q 2007New Zealand Consumer Prices New Zealand inflation rose 1.2% for the last three month's of 2007. The increase exceeded expectations of 1.0% and pushed the yearly level to 3.2%, above the RBNZ's target band of 1-3%. Rising costs in food and fuel made the biggest contributions to the headline number. However, there was an unexpected easing of the stripped down non-tradable measure to 0.7%. The lower core reading was welcomed news to Governor Bollard, as his recent rate hikes may be starting to cool the economy. Although we didn't trade this release, the bullish reading and the subsequent price volatility may have triggered a long trade. However, the lack of follow through would have resulted in a 50 point loss.
How To Trade This Event RiskConsumer prices in New Zealand are anticipated to rise another 1.6% in the third quarter amid the recent pullback in commodity prices. In addition, the annual rate of inflation is widely expected to reach 5.1% from 4.0% in the previous quarter, which is greater than the 4.9% forecast projected by the RBNZ. Despite mounting price pressures, the downturn in the housing sector paired with slowing demands from the global economy has pushed the economy into a recession for the first time since 1998, which led Governor Alan Bollard to lower the benchmark interest rate for the first time in five years as he expects slowing growth to drag inflation back within the bank's 3% limit over the next two years. As the RBNZ is scheduled to meet next Wednesday, price action for the given event risk could be muted as market participants forecast the central bank to cut another 100bp to lower the key interest rate to 6.50% from 7.50%. However, as rising price pressures continues to pose a threat to the economy in the near-term, Governor Alan Bollard may hold back from delivering a 1% reduction as risks of a stagflation remains. Moreover, lowered interest rate expectations paired with mounting concerns for the $104B economy could weaken the New Zealand dollar further as investors continue to limit their risk appetite. Despite expectations for a rate cut by the RBNZ, the minor recovery in stock prices has spurred price action for the Kiwi, and pushed the currency higher against the U.S. dollar this week. Therefore, a uptick in inflation paired with a rise in the stock market could favor a bullish outlook for the New Zealand dollar in the near-term. As a result, an annual reading of 5.1% or higher would support a long NZDUSD trade, and we will look for a green, five-minute to confirm entry on two lots of the kiwi-dollar. Our initial stop will be placed at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be based purely on discretion, and in order to preserve our profits, we will move the stop on the second lot to breakeven once the first trade reaches it target. Conversely, if the CPI release fails to meet expectations, there will be a greater chance that the central bank will in fact deliver a 100bp cut, which would only fuel bearish sentiment for the NZDUSD. Accordingly, we will follow the same strategy for a short trade as the long position mention above, just in reverse.
Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources. | |
Read more...
NZ Q3 CPI Preview: A Generational High
| Daily Forex Fundamentals | Written by Westpac Institutional Bank | Oct 18 08 08:07 GMT | | |
An eighteen year old will see something for the first time in their life next week - more than 5% annual inflation in New Zealand. The last time annual inflation was above 5% was in 1990 following an increase in GST. We expect annual inflation for Q3 to print at 5.2%, following a 1.7% surge in prices in Q3 itself. At least the quarterly number is within the RBNZ's target band! The market median forecast for the quarter is 1.6%, with a range of 1.2% to 1.7%. The RBNZ had 1.3% for the quarter and 4.9% for the year in their September Monetary Policy Statement.
Food, transport, and housing to lift CPIKey drivers behind the increase in the CPI over the quarter are expected to be:
In addition to the expected decline in motor vehicle prices noted above, we also expect falls in the household contents and services group as well as the clothing and footwear group. We suspect some additional discounting occurred as retailers attempted to clear seasonal stock in a generally weak retailing environment. The large increase in food and petrol prices will drive a 2.0% increase in tradable prices, while non-tradable prices are expected to rise 1.3% on housing-related, alcohol (beer) and passenger transport prices. Note too that annual non-tradable inflation is expected to leap from 3.4% to 4.2% as the health and education subsidies from Q3 2007 drop out of the annual calculations. A result on our expectation would be higher than the RBNZ's 3.9% forecast for annual non-tradable inflation published in the September Monetary Policy Statement. Note that estimates of tradable and non-tradable inflation have wider confidence bands this quarter as expenditure weights for these components have not been pre-released with the re-weighting material discussed below. Reweighting: out with the old, in with the newThe Q3 CPI will be the first release following the latest regular overhaul of the index. The revamp of the CPI brings in new items (such as heat pumps) and drops others (such as hiring video cassette tapes), and adjusts the weights on items to better reflect recent spending patterns. The old and new weights for the broad groups of the CPI are shown in Table 1.
We estimate the upshot from the re-weighting for the immediate quarter is small; at most inflation will be 0.1% higher in Q3 that it would have been if the old weights had been used. This result comes from goods and services increasing in price this quarter (like food, rates and electricity) now having a larger weight, while some goods expected to fall in price this quarter (like clothing and footwear) now having a smaller weight. Beyond the immediate quarter we suspect the re-weighting will see inflation lower than it would have been under the old weights. Take the weight on housing for example. With the housing boom now over, the disinflation effects of the housing slump will now have a larger influence on the overall CPI than under the old weights. The same applies to the increased weight on petrol. That said the influence of the CPI revamp on the inflation outlook appears trivial compared to the radically changing economic outlook and its likely influence on actual prices. ImplicationsInflation concerns are receding rapidly, despite our expectation that NZ will print its first above 5% annual inflation rate in 18 years. Retreating petrol prices will see headline inflation peel back over the coming 12 months. More fundamentally, a worsening economic outlook as the international credit crunch bites will see previous capacity constraints relax. The RBNZ will remain focused on financial and economic stability over coming months, with current inflation taking a backseat. Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. | |
Read more...
Subscribe to:
Posts (Atom)
Posts
