By Daniel Kruger and Ye Xie
Oct. 4 (Bloomberg) -- The dollar posted its biggest advance ever against the euro on a surge in demand for U.S. currency funding amid a worldwide credit crunch.
Demand for the greenback surged this week as financial firms in Germany, the U.K., Belgium and Iceland faced funding pressure as banks hoarded capital, driving short-term lending rates in money markets to all-time highs. Strategists forecast more dollar gains after the U.S. Congress approved and President George W. Bush signed the $700 billion financial bailout.
``Negative sentiment tends to benefit the dollar as U.S. investors bring their money home and global investors try to buy liquid U.S. fixed-income assets,'' said Rebecca Patterson, global head of foreign exchange in New York at J.P. Morgan's Private Bank, a JPMorgan Chase & Co. unit that helps wealthy clients manage assets. ``I would buy dollars on dips.''
The dollar advanced 5.7 percent to $1.3772 per euro, from $1.4614 on Sept. 26, the biggest gain since the 15-nation currency debuted in 1999. It touched $1.3703 yesterday, the strongest in 13 months. The dollar fell 0.7 percent to 105.32 yen, from 106.01. The euro depreciated 6.4 percent to 145.11 yen from 154.94, its biggest all-time weekly slide.
Policy makers have joined counterparts around the world this week to step up efforts to restore normal lending.
The Bank of Canada said this week it will raise the amount of money it's putting in the banking system to deal with strained credit markets to at least C$20 billion ($18.5 billion), from C$8 billion. Brazil moved to free up to 23.5 billion reais ($11.7 billion) by easing requirements on reserves that banks must keep at the central bank.
U.S. Bailout
The U.S. Congress passed a financial-market bailout designed to unlock credit markets, after an initial rejection by the House of Representatives that caused global stocks to plunge. The bill authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures.
``The bill that just passed is a step in the right direction, though it's clear as the market anticipated this event over the last several days the strains have not completely gone away,'' said Todd Elmer, a currency strategist in New York at Citigroup Inc.
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars increased to 4.33 percent yesterday, the highest since January, the British Bankers' Association said. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record.
``Very strong demand for dollars is still evident,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York.
Payrolls Shrink
U.S. payrolls shrank by 159,000 last month, following a revised decline of 73,000 in August, the Labor Department said yesterday in Washington. It's the biggest loss in jobs since 2003. The median forecast of 76 economists surveyed by Bloomberg News was for a reduction of 105,000. The unemployment rate stayed at 6.1 percent.
``It's not doing any good for money markets and liquidity given the real economy is starting to freeze up,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``The market is short of dollar liquidity.''
European Central Bank President Jean-Claude Trichet said Oct. 2 that policy makers discussed cutting the main refinancing rate. European economies face ``increasing downside risks,'' he said at a press conference following the decision to keep the benchmark at a seven-year high of 4.25 percent.
Euribor Futures
The implied yield on the Euribor futures contract expiring in March fell to 4.10 percent, from 4.77 percent a month ago. The Euribor contract has averaged 44 basis points, or 0.44 percentage point, higher than the ECB's overnight target during the past two years, Bloomberg data show.
Five European banks including Belgium's Dexia SA, the world's biggest lender to local governments, and Fortis, Belgium's largest financial-services firm, accepted government- backed bailouts this week.
Futures on the Chicago Board of Trade showed a 78 percent chance that the Federal Reserve will cut the 2 percent target lending rate for overnight lending between banks by a half- percentage point at its Oct. 29 meeting, with the balance of bets on a reduction of a 0.75 percentage point. Futures showed no chance of lower borrowing costs a month ago.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
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Sunday, October 5, 2008
UniCredit Directors to Meet on Capital Increase
By Steve Scherer and Lorenzo Totaro
Oct. 4 (Bloomberg) -- UniCredit SpA, Italy's biggest lender, will hold an extraordinary board meeting tomorrow to discuss a plan to boost its regulatory capital and settle investors' concern with its finances.
The Milan-based bank is considering paying its dividend in shares to hold on to about 3 billion euros ($4.1 billion) in cash and bolster its Core Tier 1 capital ratio, Il Sole-24 Ore and Ansa newswire reported today without citing anyone. Francesca Palermo, an UniCredit spokeswoman, declined to comment on the plan. The meeting will be in the afternoon, Ansa said.
UniCredit shares plummeted 24 percent during the first three days of last week. The stock then recovered some of the losses after Italy's stock-market regulator on Oct. 1 banned short sales of banking and insurance stocks, and Prime Minister Silvio Berlusconi said he ``won't permit speculative attacks'' on banks.
``I heard that Unicredit is planning a capital increase and it is not a reason for concern,'' Berlusconi told reporters today in Paris after a meeting of European leaders. ``It is a further guarantee that there are no dangers for the bank.''
Consob, Italy's market watchdog, may have uncovered a case of short selling of UniCredit shares borrowed and sold on Sept. 30 and not delivered back to the lender as of yesterday's deadline, Ansa reported, without citing anyone. Italy's finance police are investigating the whereabouts of 60 million UniCredit shares valued at about 180 million euros, Ansa said.
Spinoff
On Oct. 1, UniCredit announced it would spin off real- estate assets to boost its core Tier I capital ratio, a measure of financial strength, to a target of 6.2 percent by the end of the year, from 5.7 percent at the end of the second quarter.
UniCredit Chairman Dieter Rampl and Chief Executive Officer Alessandro Profumo are considering sales of other assets, both inside and outside of Italy, Il Sole reported today. Turkish bank Yapi & Kredi Bankasi AS may be one of the units sold, Sole said.
The financial crisis that left New York-based Lehman Brothers Holdings Inc. and Washington Mutual Inc. of Seattle bankrupt is spreading through Europe. Five banks were bailed out this past week by European governments.
UniCredit shares closed at 3.08 euros yesterday, up 9.6 percent from the previous day, though still down 7 percent compared with the previous week's close. The stock has fallen 46 percent since the start of the year, compared with a 35 percent drop in the Bloomberg Banks and Financial Services Index.
To contact the reporters on this story: Steve Scherer in Rome at scherer@bloomberg.net; Lorenzo Totaro in Paris at ltotaro@bloomberg.net
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Belgium Is Exploring `All Methods' for Fortis
By James G. Neuger and Martijn van der Starre
Oct. 4 (Bloomberg) -- Belgium is exploring ``all methods'' to keep Fortis in business after the financial-services company's operations in the Netherlands were taken over by the Dutch government, Finance Minister Didier Reynders said.
``We are continuing to work on all methods to see to it that this group is more and more capable of guaranteeing the depositors,'' Reynders told reporters before a meeting of key Belgian cabinet ministers in Brussels today. He declined to comment on a De Tijd report that Belgium may nationalize Fortis' Belgian activities or broker a sale to one of three or four private bidders.
The Netherlands bought Fortis's Dutch operations yesterday for 16.8 billion euros ($23 billion) after an earlier rescue plan failed. Fortis, Belgium's largest financial-services company, ran short of funds after spending 24.2 billion euros buying ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.
``It would be irresponsible for the regulator to allow trading in Fortis shares on Monday, since we don't know how much of the liabilities have been transferred to the Dutch government,'' said Patrick Millecam, a managing director at Ghent, Belgium-based Value Square, which manages more than 100 million euros.
Today's meeting of Belgian Prime Minister Yves Leterme and the heads of key cabinet departments was called to discuss the country's 2009 budget. Fortis may also be discussed, Peter Poulussen, a spokesman for Leterme said. Fortis spokesman Wilfried Remans declined to comment when contacted by Bloomberg.
BNP, Societe Generale
Leterme didn't exclude the possibility of the state increasing its 49.9 percent stake in Fortis in a television interview Oct. 3. ``You have to use all means'' to guarantee the savings of all the people in the country, he said.
BNP Paribas SA is one of ``three or four'' possible buyers of the Belgian arm of Fortis, De Tijd said. Societe Generale SA and BNP are the most likely candidates to buy Fortis Bank Belgium, Dutch newspaper De Telegraaf reported today, without citing anyone.
Jonathan Mullen, a spokesman for Paris-based BNP Paribas, and Paris-based Societe Generale spokeswoman Stephanie Carson- Parker both declined to comment.
``We are ready to discuss with others how to arrange things in a definite way and this will be done very soon,'' Luxembourg Prime Minister Jean-Claude Juncker said today after a meeting of European leaders in Paris. His government bought 49 percent of Fortis' Luxembourg unit in the initial bailout.
Luxembourg Options
A purchase of Fortis's Luxembourg units by BNP is ``is one among many options'' that the Luxembourg government is considering, Luxembourg Economy Minister Jeannot Krecke said in an RTL radio interview today.
``We have to find a solid partner'' for the Luxembourg unit, he said. ``We will try to find a solution this weekend.''
The Belgian government currently is the ``main shareholder'' in Fortis Luxembourg, Krecke said.
On Sept. 28, the Netherlands, Belgium and Luxembourg agreed to inject 11.2 billion euros into Fortis by purchasing minority stakes in the banking units in each country. The Dutch government's portion was to have amounted to 4 billion euros. Fortis also planned to sell ABN Amro's private-banking and Dutch retail banking units, neither of which had been integrated.
Dutch Rescue
In a change of plans yesterday, the Netherlands agreed to buy Fortis Bank Nederland Holding NV, Fortis Insurance Netherlands NV and Fortis Corporate Insurance NV, and become owner of the company's holding in ABN Amro. The integration of ABN Amro and Fortis Bank Nederland will continue again, with the potential financial benefit being as much as 1 billion euros a year, De Telegraaf cited Dutch Central Bank Governor Nout Wellink as saying.
``Further steps proved necessary,'' Dutch Prime Minister Jan Peter Balkenende said yesterday. The government took action after clients kept withdrawing money and banks remained reluctant to lend to Fortis, leading to ``increasing liquidity problems'' for the lender, Dutch Finance Minister Wouter Bos said.
Reynders welcomed the nationalization of the Dutch assets of Fortis, saying this ``reinforces the group today.''
``The decisive action by the Dutch government shows that it stands behind the Dutch savers,'' said Nanne Bos, a spokesman for Amsterdam-based ING Groep NV. ING, the biggest Dutch financial-services company, said Sept. 29 it wouldn't bid for ABN Amro's Dutch units because a purchase wouldn't meet the company's ``financial requirements.''
European Bailouts
European governments are stepping in to protect banks as the financial crisis that drove New York-based Lehman Brothers Holdings Inc. and Seattle-based Washington Mutual Inc. into bankruptcy spreads. Ireland's government is guaranteeing banks' deposits and debts for two years, seeking to restore confidence in the country's financial industry.
Also this past week, Belgium and France threw Dexia SA a 6.4 billion-euro lifeline, Britain seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords.
``I've always said that the Dutch state wouldn't just let go of a `systemic bank' like Fortis,'' Dutch newspaper NRC Handelsblad cited Rabobank Groep NV Chairman Bert Heemskerk as saying today. Heemskerk supports rescue operations such as the ones at Dexia and Fortis, NRC said. ``Only retail banks need to be saved,'' Heemskerk was cited as saying.
Rabobank, the biggest Dutch mortgage lender, is based in the Dutch city of Utrecht.
To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net
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KBC's Bergen Says Russian Bank Unit Didn't Run Out of Funding
By John Martens
Oct. 4 (Bloomberg) -- KBC Group NV, Belgium's biggest financial-services company by market value, said its Russian unit didn't run out of funding, even as interbank lending surged to a record last month.
Absolut Bank's short-term needs were met through access to KBC funding and loans provided by Russia's central bank, KBC Chief Executive Officer Andre Bergen told investors at a conference in Antwerp today. Retail banking in Russia has become ``more difficult lately, but is still solid,'' he said.
A measure of financial stocks on Russia's benchmark Micex Index fell 25 percent last month as credit markets seized up, pushing the MosPrime rate on overnight loans between Russian banks to a record 11.08 percent on Sept. 17. The collapse in shares led the government to pledge more than $100 billion in emergency funding after closing the stock market for two days.
European banks face ``challenging times'' as the ``blue-sky scenario of the past five years has vanished,'' Bergen said. He added that further actions to drive down costs are ``possible'' after approving only 95 percent of budgeted spending at the start of the year.
Third-quarter earnings will show the negative impact of writedowns on the securities portfolio and margin pressure in Belgium, Bergen said. Commercial activities remained ``sustained'' on growth in central Europe, he added.
Bergen declined to say if the Brussels-based financial- services company was asked by the Belgian government to make a bid for parts of Fortis.
To contact the reporter on this story: John Martens in Antwerp, Belgium via jmartens1@bloomberg.net
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Oct. 4 (Bloomberg) -- KBC Group NV, Belgium's biggest financial-services company by market value, said its Russian unit didn't run out of funding, even as interbank lending surged to a record last month.
Absolut Bank's short-term needs were met through access to KBC funding and loans provided by Russia's central bank, KBC Chief Executive Officer Andre Bergen told investors at a conference in Antwerp today. Retail banking in Russia has become ``more difficult lately, but is still solid,'' he said.
A measure of financial stocks on Russia's benchmark Micex Index fell 25 percent last month as credit markets seized up, pushing the MosPrime rate on overnight loans between Russian banks to a record 11.08 percent on Sept. 17. The collapse in shares led the government to pledge more than $100 billion in emergency funding after closing the stock market for two days.
European banks face ``challenging times'' as the ``blue-sky scenario of the past five years has vanished,'' Bergen said. He added that further actions to drive down costs are ``possible'' after approving only 95 percent of budgeted spending at the start of the year.
Third-quarter earnings will show the negative impact of writedowns on the securities portfolio and margin pressure in Belgium, Bergen said. Commercial activities remained ``sustained'' on growth in central Europe, he added.
Bergen declined to say if the Brussels-based financial- services company was asked by the Belgian government to make a bid for parts of Fortis.
To contact the reporter on this story: John Martens in Antwerp, Belgium via jmartens1@bloomberg.net
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European Leaders Meet on Crisis, Focus on Oversight, Accounting
By Sandrine Rastello
Oct. 4 (Bloomberg) -- European leaders, convening today on the global financial crisis, have so far agreed on only one thing: Europe likely won't emulate the response of the U.S., where Congress gave final approval to a $700 billion rescue yesterday.
At the summit called by French President Nicolas Sarkozy that started around 4:30 p.m. in Paris, they're seeking to bridge divisions in the 27-nation bloc that have undermined a coordinated response to the deepening credit crunch. Governments rescued five European banks this week as their economies sink toward recession.
``Collective action is even more necessary in Europe than in the U.S. because Europe is more complex than the U.S.,'' Dominique Strauss-Kahn, managing director of the International Monetary Fund, said today in Paris after meeting Sarkozy. ``Action must be taken quickly and in a concerted manner.''
After Sarkozy and others dismissed the notion of creating a fund to shore up ailing financial institutions, the leaders of Germany, Britain, Italy, Luxembourg, the European Central Bank and the European Commission arrived at the Elysee Palace to discuss tighter financial rules and oversight, looser accounting standards, steps to limit economic damage, and cooperation on bank-deposit guarantees.
The days leading up to the meeting were marked by discord, with Germany criticizing a plan floated by French Finance Minister Christine Lagarde to set up a rescue fund and a chorus of opposition to Ireland's decision to guarantee the deposits and debts of its banks.
`Common Sense'
The fissures appeared as leaders arrived for the meeting. Sarkozy told reporters ``we must have a global answer to a global problem.'' Merkel, standing beside him, appealed to each country's ``common sense'' to prevent crises in the future.
Sarkozy distanced himself from Lagarde's proposal, outlined in an Oct. 1 interview with Germany's Handelsblatt newspaper, after Germany torpedoed the idea. ECB President Jean-Claude Trichet said Europe shouldn't try to copy the U.S. bailout.
``We don't have a federal budget, and so the idea that we could do the same doesn't fit the political structure of Europe,'' Trichet said Oct. 2.
Germany, Europe's biggest economy, expressed skepticism this week of any joint action, even after guaranteeing a 35 billion-euro ($48 billion) credit line for Hypo Real Estate Holding AG to save it from collapse.
``The idea of applying one solution, one big bang'' to the crisis ``is not practicable and would create new, enormous problems,'' German Finance Ministry spokesman Torsten Albig said Oct. 1. ``The tailor-made solution is the right way.''
Sarkozy's Call
Sarkozy has called for better control of credit-rating firms, stricter bank regulation and executive-pay limits.
The French president questioned, in a Sept. 25 speech, accounting rules that require banks to review their holdings each quarter and report losses when the value declines, the so- called mark-to-market standard. Banks worldwide have written down $587.7 billion since last year, according to data compiled by Bloomberg.
Italian Finance Minister Giulio Tremonti yesterday said the accounting rules would be on today's agenda.
``A chunk of the discussion will also be dedicated to bookkeeping methods that are less suicidal than those applied today,'' Tremonti said at a conference in Capri, southern Italy. ``We have rules that we don't need, not those we do need.''
Bank Guarantees
Fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, the Netherlands, Iceland and the U.K. rescuing lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors. Sarkozy made the same pledge last week.
U.K. Prime Minister Gordon Brown, whose government seized lender Bradford & Bingley Plc this week, said leaders would continue propping up banks.
``No sound, solvent banks should be allowed to fail due to lack of liquidity,'' he said in Paris. ``We'll do whatever is necessary to ensure the stability of the system.''
Leaders may seek to harmonize the guarantee of deposit levels in the wake of the Irish move, said Laurence Boone, an economist at Barclays Capital in Paris. The U.K. bank regulator yesterday increased its insurance ceiling to 50,000 pounds ($88,500) per account from 35,000 pounds to stem a flow of funds to Ireland.
Harmonization ``would avoid unfair competition,'' Boone said. That ``could be used to say they have a common position and correct the impression that every country is doing its own rescue thing in its corner.''
Rate Cut Considered
With the economic outlook darkening, Trichet said on Oct. 2 that ECB policy makers had debated an interest-rate cut for the first time since the credit squeeze began last year when they decided to leave their benchmark at 4.25 percent.
Money-market rates jumped to records yesterday and the Bank of England relaxed borrowing rules for financial institutions to counter what it called ``extraordinary'' strains.
Speaking to reporters in London today before leaving for Paris, Brown said he'll propose a 12-billion-pound ($21.3 billion) fund ``so that small businesses in our country and the rest of Europe can get money immediately so that they can continue to employ staff and continue to provide services.''
To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net;
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China Welcomes U.S. Rescue Plan, Offers Cooperation
By Irene Shen
Oct. 4 (Bloomberg) -- China's central bank said it hopes to see enhanced cooperation and coordination with U.S. and among other countries to stabilize global financial markets after the U.S. Congress approved a $700 billion rescue package.
``We're happy to see the bailout passage,'' the People's Bank of China said in a statement on its Web site today. ``All countries should take the responsibility to cooperate, as we share the same interest and goal in facing this crisis.''
The central bank said it had already taken measures to reduce the impact of the U.S. financial crisis on China and would continue to do so, without specifying. It last month reduced its one-year lending rate to 7.20 percent from 7.47 percent, and lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.
``If China doesn't move actively, the global recession would be deeper,'' said Frank Gong, JPMorgan Chase & Co.'s Hong Kong-based chief China economist.
``To keep China's economy strong and stable is the biggest contribution we can make to the global economy,'' the central bank said in today's statement, citing Premier Wen Jiabao.
The House of Representatives voted in favor of the bailout yesterday after rejecting the original bill on Sept. 29. The bailout comes after global banks racked up almost $590 billion in credit losses and asset writedowns stemming from the worst housing slump since the Great Depression.
To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net
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Oct. 4 (Bloomberg) -- China's central bank said it hopes to see enhanced cooperation and coordination with U.S. and among other countries to stabilize global financial markets after the U.S. Congress approved a $700 billion rescue package.
``We're happy to see the bailout passage,'' the People's Bank of China said in a statement on its Web site today. ``All countries should take the responsibility to cooperate, as we share the same interest and goal in facing this crisis.''
The central bank said it had already taken measures to reduce the impact of the U.S. financial crisis on China and would continue to do so, without specifying. It last month reduced its one-year lending rate to 7.20 percent from 7.47 percent, and lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.
``If China doesn't move actively, the global recession would be deeper,'' said Frank Gong, JPMorgan Chase & Co.'s Hong Kong-based chief China economist.
``To keep China's economy strong and stable is the biggest contribution we can make to the global economy,'' the central bank said in today's statement, citing Premier Wen Jiabao.
The House of Representatives voted in favor of the bailout yesterday after rejecting the original bill on Sept. 29. The bailout comes after global banks racked up almost $590 billion in credit losses and asset writedowns stemming from the worst housing slump since the Great Depression.
To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net
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South Korea Orders Mars, Nestle to Recall Products
By Heejin Koo
Oct. 4 (Bloomberg) -- Nestle SA, the world's largest food company, and Mars Inc. have been ordered by South Korea to remove from store shelves three products that tested positive for an industrial chemical that has killed and sickened babies.
Melamine was found in Mars' M&M chocolate milk and Snickers peanut Funsize, and in KitKat chocolate bars produced by Nestle Tianjin in China, the Korea Food and Drug Administration said today in an e-mailed statement.
Dairy products tainted with melamine, which can boost protein readings when added to diluted milk, have killed four babies and sickened 53,000 children in China, leading countries from France to India to ban Chinese imports. Melamine is used to tan leather and make plastic.
South Korean authorities on Sept. 25 banned the import of all dairy and related products made in China after melamine was found in a biscuit product imported from Hong Kong and in a snack product imported from China by Haitai Confectionery & Foods Co..
``The melamine levels announced by the KFDA do not pose a health risk,'' Mars Korea said in an e-mailed statement. ``Mars is recalling these products because it is legally obligated to do so following the announcement'' by South Korean authorities.
The South Korean agency found a melamine level of 2.38 parts per million (ppm) in the M&Ms and 1.78 ppm in Snickers peanut Funsize.
`Reporting Limit'
``Minute traces of melamine are commonly found throughout the global food chain and melamine levels below 2.5 ppm are not deemed to indicate adulteration with melamine,'' the Mars statement said. It asked authorities to adopt ``a harmonized reporting limit for melamine in line with the internationally accepted standards.''
The agency has said that the South Korean government does not allow any minimum level of melamine in its food products.
Nestle confirmed it had been asked by the Korean agency to withdraw one batch of mini KitKat made in China after tests ``detected minute traces of melamine in a single batch out of eight Nestle confectionery items tested,'' the Swiss company said in an e-mailed statement. No melamine was detected in the seven other products.
``The company immediately complied with the authorities' request, even though this product is absolutely safe by recognized international standards,'' Nestle said. ``South Korea has no regulations on maximum levels of melamine in food, and the conditions under which the South Korean authorities conducted their tests are unclear.''
To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net
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Oct. 4 (Bloomberg) -- Nestle SA, the world's largest food company, and Mars Inc. have been ordered by South Korea to remove from store shelves three products that tested positive for an industrial chemical that has killed and sickened babies.
Melamine was found in Mars' M&M chocolate milk and Snickers peanut Funsize, and in KitKat chocolate bars produced by Nestle Tianjin in China, the Korea Food and Drug Administration said today in an e-mailed statement.
Dairy products tainted with melamine, which can boost protein readings when added to diluted milk, have killed four babies and sickened 53,000 children in China, leading countries from France to India to ban Chinese imports. Melamine is used to tan leather and make plastic.
South Korean authorities on Sept. 25 banned the import of all dairy and related products made in China after melamine was found in a biscuit product imported from Hong Kong and in a snack product imported from China by Haitai Confectionery & Foods Co..
``The melamine levels announced by the KFDA do not pose a health risk,'' Mars Korea said in an e-mailed statement. ``Mars is recalling these products because it is legally obligated to do so following the announcement'' by South Korean authorities.
The South Korean agency found a melamine level of 2.38 parts per million (ppm) in the M&Ms and 1.78 ppm in Snickers peanut Funsize.
`Reporting Limit'
``Minute traces of melamine are commonly found throughout the global food chain and melamine levels below 2.5 ppm are not deemed to indicate adulteration with melamine,'' the Mars statement said. It asked authorities to adopt ``a harmonized reporting limit for melamine in line with the internationally accepted standards.''
The agency has said that the South Korean government does not allow any minimum level of melamine in its food products.
Nestle confirmed it had been asked by the Korean agency to withdraw one batch of mini KitKat made in China after tests ``detected minute traces of melamine in a single batch out of eight Nestle confectionery items tested,'' the Swiss company said in an e-mailed statement. No melamine was detected in the seven other products.
``The company immediately complied with the authorities' request, even though this product is absolutely safe by recognized international standards,'' Nestle said. ``South Korea has no regulations on maximum levels of melamine in food, and the conditions under which the South Korean authorities conducted their tests are unclear.''
To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net
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U.S., India to Sign Nuclear Accord After Bush Approves Bill
By Bibhudatta Pradhan and M.C. Govardhana Rangan
Oct. 4 (Bloomberg) -- The U.S. and India will sign the civil nuclear energy agreement, conceived in 2005, once President George W. Bush gives his approval to the bill that's just been approved by Congress.
``The president will sign the legislation very soon,'' U.S. Secretary of State Condoleezza Rice said in New Delhi today at a joint press conference with Indian counterpart Pranab Mukherjee.
The nuclear agreement, passed by the Senate Oct. 1 by a vote of 86-13, allows U.S. nuclear suppliers to trade with India for the first time since it tested an atomic bomb in 1974. The Bush administration made the accord a top foreign-policy priority as a way to lock in potential political and economic links far beyond the nuclear-energy industry.
India expects the agreement to be signed shortly, said Foreign Minister Mukherjee.
After President Bush approves the bill, the process will be complete and ``we will be in a position to sign the agreement at a mutually convenient date,'' Mukherjee said.
The remaining steps were procedural, according to Rice.
``I don't want anyone to think that we have open issues,'' she told reporters in New Delhi today. ``We don't have open issues. These are administrative issues of signing.''
Rice also said that the various pieces of legislation tied to the agreement weren't contradictory.
``We make clear again that the Hyde Act is completely consistent with the 123 agreement we signed with India and the 123 agreement is consistent with the Hyde Act,'' Rice said. ``The U.S will keep its commitments to both.''
Talks With Companies
India aims to start final negotiations next week with General Electric Co., Areva SA, Westinghouse Electric Co. and Rosatom Corp. on building reactors as early as next year.
``The dream is to start work next year,'' S.K. Jain, chairman of state-owned Nuclear Power Corp. of India, the nation's monopoly atomic energy utility, said in a telephone interview yesterday. ``But there's a full set of procedures to be followed after the companies agree.''
India had been waiting for U.S. approval before starting talks with companies.
``We will begin focused negotiations with the four short- listed companies, GE, Areva, Westinghouse and Rosatom, starting next week,'' Jain said. Getting the projects started ``can take anywhere between three to eight months. The hesitation is over.''
Nuclear Power will also seek to buy fuel for the reactors that it's planning to set up.
``We are also looking to buy more nuclear fuel or yellow cake by year-end and plan to start work at two sites, in Jaitapur in Maharashtra and Kudankulam in Tamil Nadu,'' Jain said.
India Visit
Rice is meeting officials including Prime Minister Manmohan Singh and opposition leader L.K. Advani in New Delhi. She will also visit Kazakhstan during her Oct. 3-5 trip, the State Department has said.
The discussions in India included a range of issues other than the nuclear agreement, including trade, counterterrorism, human rights, religious freedom, education and the region.
India has been assured by Pakistan's President Asif Ali Zardari that his country's territory won't be used to carry out terrorist activities against India, Mukherjee said.
``We all have a stake in a successful civilian government in Pakistan that can deal with Pakistan's considerable challenges, be they economic, political, or particularly, internal security,'' Rice said. ``Pakistan, more than anyone else, has an interest in fighting terrorism.''
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; M.C. Govardhana Rangan in Mumbai at grangan@bloomberg.net.
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Tata Motors Scraps Factory for World's Cheapest Car on Protests
By Vipin V. Nair
Oct. 4 (Bloomberg) -- Tata Motors Ltd., India's biggest truckmaker, abandoned its newly built factory for the world's cheapest car because of violent protests by farmers, hampering plans to start selling the $2,500 vehicle this year.
Tata Motors will move equipment and machinery from Singur in West Bengal state to a new location to be decided later, Chairman Ratan Tata told reporters in Kolkata yesterday. The company has yet to evaluate how much of the 15 billion rupees ($319 million) invested in the project will be lost, he said.
``We have taken this decision because we do not see any change on the horizon,'' Ratan Tata said. The company will strive to meet this quarter's deadline for Nano sales, he said.
Shifting to a new site may hinder Tata's challenge to Suzuki Motor Corp., maker of more than half the cars sold in India, before new entrants including Renault SA start selling low-cost cars. Ratan Tata, 70, conceived the Nano project to lure the nation's 45 million motorcycle and scooter owners to upgrade.
``It's a big setback for Tata Motors,'' said Gaurav Lohia, an analyst at KR Choksey Shares & Sec Pvt., who has a ``buy'' rating on the company's stock. ``I expect the production and rollout of the Nano to be slowing down.''
Tata Motors fell 9.15 rupees, or 2.7 percent, to 330.5 rupees in Mumbai trading yesterday before the announcement. The shares have declined 54 percent so far this year, compared with the benchmark index's 38 percent drop.
Land disputes, protests by environmental groups and delays in getting government approval have stalled projects across India including a $12 billion steel plant planned by Korea's Posco.
Trinamool Congress
Tata Motors on Aug. 29 halted construction of the factory and threatened to pull out of the site after local political party Trinamool Congress party rejected compensation proposals by the West Bengal state government for farmers.
In August, at least 2,000 men and women, mostly illiterate, protested in front of the Tata Motors factory at Singur, about 1 1/2 hours north of Kolkata. The Trinamool party blocked roads to protest the land compensation package for the farmers.
The party didn't oppose the 600 acres of land where the Tata Motors plant was under construction, according to its leader Mamata Banerjee. The balance of about 400 acres of land acquired for vendors must be returned to farmers, whose livelihood was taken away by the plant, she said.
The Communist-led government in West Bengal state had said it was ready to compensate farmers by returning about 70 acres (28 hectares) of land already given to Tata Motors and its component-makers. The state also offered to increase the cash payments by 50 percent for the people who gave their land.
`Integral' Project
Tata Motors had said the project was ``integral'' and the plant couldn't be constructed without vendors getting facilities.
``The Nano is a unique project,'' said Tarun Das, chief mentor of the Confederation of Indian Industry, the country's largest business grouping. ``Any forced change to its plan of implementation will delay the launch of the Nano and also impact the cost,'' Das said in a statement Oct. 2.
Tata Motors last month said it's ``actively'' looking for alternatives to the factory in Singur. The automaker got an offer for 1,000 acres of land and other incentives from the southern state of Karnataka, Managing Director Ravi Kant said Sept. 18.
Sri Lanka, India's neighbor, also offered land to Tata Motors to set up the Nano factory, the nation's Investment Promotion Minister Sarath Amunugama said.
One of two cars sold in the country is made by Suzuki's local unit Maruti Suzuki India Ltd. In comparison, Tata Motors controlled 13.9 percent of the market in the year ended March 31, making it the nation's third-largest automaker.
To contact the reporter on this story: Vipin V. Nair in Mumbai at Vnair12@bloomberg.net.
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Saturday, October 4, 2008
Asian Currencies: Ringgit, Baht Fall on Concern Exports to Slow
By Lilian Karunungan and David Yong
Oct. 4 (Bloomberg) -- Malaysia's ringgit and the Thai baht fell this week on concern the deepening credit crisis will push the U.S. economy into a recession and reduce demand for Asian exports and emerging-market assets.
The Philippine peso and the Singapore dollar also declined as a regional stock index slumped 7.6 percent, the worst week in 13 months. Overseas investors pulled almost 26 billion ringgit ($7.5 billion) from Malaysia's debt market since April, according to data from the central bank.
``Some markets are going to be affected more than others and Malaysia relies a lot on the U.S. for electronic exports,'' said Joanna Tan, a regional economist at Forecast Pte in Singapore. The ringgit is falling because ``investors are shunning markets that are deemed riskier.''
The ringgit fell 0.9 percent this week to 3.4670 per dollar as of 4:15 p.m. yesterday in Kuala Lumpur, its biggest decline since the five days ended Sept. 5, according to data compiled by Bloomberg. The baht declined 0.8 percent this week to 34.21.
Global funds cut their investments in Malaysian debt for a third month in July, according to data published by Bank Negara Malaysia on its Web site. They reduced their holdings to 100.6 billion ringgit from 104.9 billion ringgit in June and a peak of 126.5 billion ringgit in April, the data show.
Growth Target
Malaysia may revise its economic growth forecast this year due to deepening global financial turmoil, Finance Minister Najib Razak said this week. The government ``will reevaluate its targets'' if the global financial crisis leads to a significant downturn, he said in Kuala Lumpur on Sept. 30.
The Thai baht had its first weekly loss in three on speculation Prime Minister Somchai Wongsawat will call elections soon, possibly leading to more political demonstrations. Anti- government protesters have occupied Government House in Bangkok since Aug. 26 and are calling for a new parliament.
``The global macroeconomic backdrop is hardly conducive for Asian currencies, including the baht,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore. ``On top of that you have the domestic political uncertainties with the big question now on whether Somchai will call for elections and when.''
The baht is the third-worst performer of Asia's 10 most- active traded currencies this year after the South Korean won and Indian rupee.
Exports Slow
Thai exports rose at the slowest pace in five months in August and Commerce Minister Chaiya Sasomsup said on Oct. 2 overseas sales will probably increase no more than 20 percent this year, down from a previous estimate of 25 percent.
The government last month cut its 2008 economic growth forecast to 5.1 percent, from 5.6 percent, and said the economy will slow to between 4 percent and 5 percent next year as political uncertainty and turbulent global markets curb spending, investment and exports.
The Singapore dollar had its worst week in a month. Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling the currency on speculation the central bank will limit its advance as the economy teeters on the brink of recession.
Policy Meeting
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
The Singapore dollar dropped 1.4 percent in the five days to S$1.4488.
The Philippine peso fell a second week as the rising cost of borrowing dollars spurred local companies to sell pesos to get the U.S. currency. The peso declined for the fifth time in six days as the benchmark stock index dropped 1.8 percent, the most in more than two weeks.
``There is a lack of liquidity for dollars so companies and banks who need dollars have to sell pesos,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.
The peso declined 0.6 percent this week to 47.025, extending its losses this year to 12.2 percent, according to Tullett Prebon Plc.
Elsewhere, the Taiwan dollar lost 0.4 percent this week to NT$32.18 and Vietnam's dong was unchanged at 16,600. Markets were closed yesterday in South Korea, China and Indonesia for public holidays.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; David Yong in Singapore at dyong@bloomberg.net.
Read more...
Oct. 4 (Bloomberg) -- Malaysia's ringgit and the Thai baht fell this week on concern the deepening credit crisis will push the U.S. economy into a recession and reduce demand for Asian exports and emerging-market assets.
The Philippine peso and the Singapore dollar also declined as a regional stock index slumped 7.6 percent, the worst week in 13 months. Overseas investors pulled almost 26 billion ringgit ($7.5 billion) from Malaysia's debt market since April, according to data from the central bank.
``Some markets are going to be affected more than others and Malaysia relies a lot on the U.S. for electronic exports,'' said Joanna Tan, a regional economist at Forecast Pte in Singapore. The ringgit is falling because ``investors are shunning markets that are deemed riskier.''
The ringgit fell 0.9 percent this week to 3.4670 per dollar as of 4:15 p.m. yesterday in Kuala Lumpur, its biggest decline since the five days ended Sept. 5, according to data compiled by Bloomberg. The baht declined 0.8 percent this week to 34.21.
Global funds cut their investments in Malaysian debt for a third month in July, according to data published by Bank Negara Malaysia on its Web site. They reduced their holdings to 100.6 billion ringgit from 104.9 billion ringgit in June and a peak of 126.5 billion ringgit in April, the data show.
Growth Target
Malaysia may revise its economic growth forecast this year due to deepening global financial turmoil, Finance Minister Najib Razak said this week. The government ``will reevaluate its targets'' if the global financial crisis leads to a significant downturn, he said in Kuala Lumpur on Sept. 30.
The Thai baht had its first weekly loss in three on speculation Prime Minister Somchai Wongsawat will call elections soon, possibly leading to more political demonstrations. Anti- government protesters have occupied Government House in Bangkok since Aug. 26 and are calling for a new parliament.
``The global macroeconomic backdrop is hardly conducive for Asian currencies, including the baht,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore. ``On top of that you have the domestic political uncertainties with the big question now on whether Somchai will call for elections and when.''
The baht is the third-worst performer of Asia's 10 most- active traded currencies this year after the South Korean won and Indian rupee.
Exports Slow
Thai exports rose at the slowest pace in five months in August and Commerce Minister Chaiya Sasomsup said on Oct. 2 overseas sales will probably increase no more than 20 percent this year, down from a previous estimate of 25 percent.
The government last month cut its 2008 economic growth forecast to 5.1 percent, from 5.6 percent, and said the economy will slow to between 4 percent and 5 percent next year as political uncertainty and turbulent global markets curb spending, investment and exports.
The Singapore dollar had its worst week in a month. Daiwa SB Investments Ltd. and Aberdeen Asset Management Asia Ltd. are selling the currency on speculation the central bank will limit its advance as the economy teeters on the brink of recession.
Policy Meeting
The Monetary Authority of Singapore will slow the pace of appreciation at its biannual foreign-exchange policy meeting on Oct. 10, according to seven of 14 strategists surveyed by Bloomberg News. Four expect gains to be halted, two expect a shift down in the range for the currency's moves and only one predicts no change.
The Singapore dollar dropped 1.4 percent in the five days to S$1.4488.
The Philippine peso fell a second week as the rising cost of borrowing dollars spurred local companies to sell pesos to get the U.S. currency. The peso declined for the fifth time in six days as the benchmark stock index dropped 1.8 percent, the most in more than two weeks.
``There is a lack of liquidity for dollars so companies and banks who need dollars have to sell pesos,'' said Marcelo Ayes, senior vice president for Treasury at Rizal Commercial Banking Corp. in Manila.
The peso declined 0.6 percent this week to 47.025, extending its losses this year to 12.2 percent, according to Tullett Prebon Plc.
Elsewhere, the Taiwan dollar lost 0.4 percent this week to NT$32.18 and Vietnam's dong was unchanged at 16,600. Markets were closed yesterday in South Korea, China and Indonesia for public holidays.
To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@blooomberg.net; David Yong in Singapore at dyong@bloomberg.net.
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Asia Stocks Post Biggest Weekly Drop in 13 Months; Toyota Falls
By Ian C. Sayson
Oct. 4 (Bloomberg) -- Asian stocks posted the biggest weekly drop in 13 months on concern a $700 billion U.S. bank bailout will fail to stimulate demand for the region's exports.
Toyota Motor Corp. fell 14 percent this week, the most in 21 years, after its U.S. car sales plunged 32 percent last month. BHP Billiton, the world's biggest miner, dropped 15 percent as commodity prices headed for their biggest weekly decline in 50 years. Babcock & Brown Ltd. paced a drop in financial stocks, sliding 20 percent, as borrowing costs increased.
``Investors are worried that economic conditions and earnings will still deteriorate even with this rescue plan,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co. in Tokyo, which manages $3.3 billion. ``The weakening global demand is becoming more of a concern to many investors.''
The MSCI Asia Pacific Index dropped 8.0 percent this week, the most since the five days ended Aug. 17, 2007, when credit markets first seized up as the U.S. subprime mortgage crisis prompted banks to rein in lending. The index has slumped 33 percent this year as the credit crunch brought down banks including Lehman Brothers Holdings Inc.
The index tumbled 3.9 percent on Sept. 30 after the U.S. House of Representatives blocked the first passage of the rescue plan.
A measure of commodity producers tumbled 14.9 percent, the most since at least 1995, when Bloomberg data on the index was first compiled. All 10 industry groups declined.
Toyota, the world's No. 2 carmaker, fell 14 percent this week to 4,080 yen, its biggest loss since October 1987. The company said it offered no-interest loans on 11 models in the U.S., where its sales tanked the most in 21 years.
The financial crisis may push the U.S. into a recession, the International Monetary Fund said this week, after predicting a moderate contraction in July. First-time jobless claims in the U.S. surged to a seven-year high in the week ended Sept. 27 while factory bookings fell the most in two years in August, according to government data.
``We know that there's a financial crisis, and now the question is are we going to have an economic correction or crisis,'' said Masayuki Kubota, a senior fund manager at Daiwa SB Investments Ltd. in Tokyo, who helps oversee $1.7 billion. ``If it does turn into a crisis, there is a lot of downside for equity markets.''
BHP Billiton dropped 15 percent to A$30.42, the most since October 1987 on concern demand for raw materials will weaken. Mitsubishi Corp., which generates more than half of its profit from commodities trading, fell 21 percent to 1,938 yen, its biggest loss based on data that goes back until September 1974.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have fallen 10.9 percent this week, the largest drop since at least 1956 on concern that demand will weaken as global economic growth slows. Crude oil has lost 12.2 percent to $93.88 a barrel, its worst performance since the week ending Dec. 3, 2004.
Babcock, Orix
Babcock & Brown, a manager of infrastructure assets, fell 20 percent to A$1.84 on concern that the global credit crisis will choke financing. Orix Corp., which has debt equal to three times its equity, plunged 24 percent to 10,690 yen, its sharpest retreat since January 2000.
Banks in Singapore are charging each other three-month U.S. dollar loans at 4.27 percent, the highest since Jan. 11. Hong Kong's interbank offered rate for similar-term loans in the city's currency climbed to 3.81 percent, the highest since Dec. 10.
Hang Seng Bank Ltd., Hong Kong's second-biggest bank by assets, fell 17 percent to HK$123.70, its biggest loss since April 1988, after saying it holds debt issued by Washington Mutual Inc., which collapsed last week.
Sun Hung Kai Properties Ltd., Hong Kong's No. 1 developer by market value, lost 13.4 percent to HK$74, the most since September 2001, on concern real estate purchases will weaken after banks including HSBC Holdings Plc raised the cost of mortgages in the city.
BYD Co., the biggest gainer on MSCI's Asian index, jumped 64 percent to HK$13.78. China's largest rechargeable-battery maker surged after billionaire Warren Buffett's MidAmerican Energy Holdings Co. said it will buy a 9.9 percent stake for HK$1.8 billion ($232 million).
``It's a good time to pick up value stocks, those with steady cashflows, high dividend yields and good earnings visibility,'' said Masahiko Ejiri, who helps manage about $30 billion at Mizuho Asset Management Co. in Tokyo. ``I am sure the U.S. knows the gravity of the situation and a plan will be reached to save their financial institutions.''
To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net
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Oct. 4 (Bloomberg) -- Asian stocks posted the biggest weekly drop in 13 months on concern a $700 billion U.S. bank bailout will fail to stimulate demand for the region's exports.
Toyota Motor Corp. fell 14 percent this week, the most in 21 years, after its U.S. car sales plunged 32 percent last month. BHP Billiton, the world's biggest miner, dropped 15 percent as commodity prices headed for their biggest weekly decline in 50 years. Babcock & Brown Ltd. paced a drop in financial stocks, sliding 20 percent, as borrowing costs increased.
``Investors are worried that economic conditions and earnings will still deteriorate even with this rescue plan,'' said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co. in Tokyo, which manages $3.3 billion. ``The weakening global demand is becoming more of a concern to many investors.''
The MSCI Asia Pacific Index dropped 8.0 percent this week, the most since the five days ended Aug. 17, 2007, when credit markets first seized up as the U.S. subprime mortgage crisis prompted banks to rein in lending. The index has slumped 33 percent this year as the credit crunch brought down banks including Lehman Brothers Holdings Inc.
The index tumbled 3.9 percent on Sept. 30 after the U.S. House of Representatives blocked the first passage of the rescue plan.
A measure of commodity producers tumbled 14.9 percent, the most since at least 1995, when Bloomberg data on the index was first compiled. All 10 industry groups declined.
Toyota, the world's No. 2 carmaker, fell 14 percent this week to 4,080 yen, its biggest loss since October 1987. The company said it offered no-interest loans on 11 models in the U.S., where its sales tanked the most in 21 years.
The financial crisis may push the U.S. into a recession, the International Monetary Fund said this week, after predicting a moderate contraction in July. First-time jobless claims in the U.S. surged to a seven-year high in the week ended Sept. 27 while factory bookings fell the most in two years in August, according to government data.
``We know that there's a financial crisis, and now the question is are we going to have an economic correction or crisis,'' said Masayuki Kubota, a senior fund manager at Daiwa SB Investments Ltd. in Tokyo, who helps oversee $1.7 billion. ``If it does turn into a crisis, there is a lot of downside for equity markets.''
BHP Billiton dropped 15 percent to A$30.42, the most since October 1987 on concern demand for raw materials will weaken. Mitsubishi Corp., which generates more than half of its profit from commodities trading, fell 21 percent to 1,938 yen, its biggest loss based on data that goes back until September 1974.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have fallen 10.9 percent this week, the largest drop since at least 1956 on concern that demand will weaken as global economic growth slows. Crude oil has lost 12.2 percent to $93.88 a barrel, its worst performance since the week ending Dec. 3, 2004.
Babcock, Orix
Babcock & Brown, a manager of infrastructure assets, fell 20 percent to A$1.84 on concern that the global credit crisis will choke financing. Orix Corp., which has debt equal to three times its equity, plunged 24 percent to 10,690 yen, its sharpest retreat since January 2000.
Banks in Singapore are charging each other three-month U.S. dollar loans at 4.27 percent, the highest since Jan. 11. Hong Kong's interbank offered rate for similar-term loans in the city's currency climbed to 3.81 percent, the highest since Dec. 10.
Hang Seng Bank Ltd., Hong Kong's second-biggest bank by assets, fell 17 percent to HK$123.70, its biggest loss since April 1988, after saying it holds debt issued by Washington Mutual Inc., which collapsed last week.
Sun Hung Kai Properties Ltd., Hong Kong's No. 1 developer by market value, lost 13.4 percent to HK$74, the most since September 2001, on concern real estate purchases will weaken after banks including HSBC Holdings Plc raised the cost of mortgages in the city.
BYD Co., the biggest gainer on MSCI's Asian index, jumped 64 percent to HK$13.78. China's largest rechargeable-battery maker surged after billionaire Warren Buffett's MidAmerican Energy Holdings Co. said it will buy a 9.9 percent stake for HK$1.8 billion ($232 million).
``It's a good time to pick up value stocks, those with steady cashflows, high dividend yields and good earnings visibility,'' said Masahiko Ejiri, who helps manage about $30 billion at Mizuho Asset Management Co. in Tokyo. ``I am sure the U.S. knows the gravity of the situation and a plan will be reached to save their financial institutions.''
To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net
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Schwarzenegger Says Federal Loan to State an Option
By Michael B. Marois
Oct. 3 (Bloomberg) -- Passage of a $700 billion financial- market rescue plan doesn't mean California won't need to ask the federal government for an emergency loan to pay bills, Governor Arnold Schwarzenegger said.
Schwarzenegger, a 61-year-old Republican, has called a meeting of top legislative leaders Oct. 8 to discuss the state's looming cash shortage, brought on by the global credit crisis that dried up the supply of money for loans.
The governor wrote a letter to U.S. Secretary Henry Paulson last night, saying turmoil in the credit markets has impeded the state's access to short-term financing commonly used by states and local governments to pay bills until tax revenue arrives later in the year. California and other U.S. states may need emergency federal loans if the credit crisis doesn't ease soon, Schwarzenegger said.
California, the most populous U.S. state, will run out of money by the end of this month and needs $7 billion in funding.
President George W. Bush today signed the legislation passed minutes earlier by the House of Representatives that is supposed to restart lending by authorizing the government to buy troubled assets from financial institutions reeling from record home foreclosures.
``On the way from the airport to here, I heard the great news that the House has voted for the $700 billion bill, which is extremely important not only for the state of California but the whole nation,'' Schwarzenegger told reporters in San Diego. ``Right now, because liquidity has dried up, it's very difficult to get a loan. So if we can't get it through the normal course, we will go to the federal government for help and we have already set that in motion.''
Salaries Threatened
Without the short-term funding, California may be forced to halt or significantly delay payments for teachers' salaries, nursing homes, law enforcement and ``every other state-funded service,'' said Treasurer Bill Lockyer, a Democrat.
``The fed has long had authority to provide liquidity to the municipal market,'' Lockyer said during an interview on Bloomberg Radio. ``The (rescue bill) actually has a little bit more explicit authority to do that. If we can't rely on traditional markets, maybe that's where we will go. It's an alternative if nothing else works.''
Bank of America Corp. and Goldman Sachs Group Inc. have already been selected to manage the note sale, now scheduled for the week of Oct. 13. One option Lockyer said he is considering is to borrow the money from Wall Street in chucks rather than seeking all $7 billion at once.
Pension Plan Investment
One California lawmaker said the state should consider borrowing the money from its public employee pension system, the largest such pension fund in the U.S., with $214 billion in assets.
Senator Dean Florez, a Democrat, said the California Public Employees' Retirement System could buy all the state's cash flow notes, earning more in interest than the system would by investing that same amount of money in U.S. Treasury notes.
``Many financial institutions have moved a great deal of their liquid assets into low-interest Treasury notes as a safety strategy. Rather than keeping these assets at the federal level, it would make more sense if these assets were used to purchase the short-term California debt especially with the state facing the current unprecedented cash shortage,'' Florez said in a letter to Lockyer, a member of the pension fund's governing board.
Letters of Credit
Tom Dressler, spokesman for Lockyer, said the treasurer plans to ask Calpers and its sister fund, the California State Teachers' Retirement System, about purchasing some of the notes or providing letters of credit. The teacher's fund is the second biggest in the nation.
The pension fund already invests in state and local governments by selling letters of credit to bond issuers. In June, Calpers doubled to $10 billion its credit enhancement program, seeking to take advantage in the rise in the cost of letters of credit, another byproduct of the credit crisis. The fund in June voted to withdraw a prohibition against backing no more than $250 million of any one bond issue.
California finance officials had wanted to obtain the cash from the credit market in late August or early September. The sale was delayed as lawmakers and Schwarzenegger fought through a record-long budget stalemate that left the state without an enacted spending plan until Sept. 23.
The state borrowed $7 billion through short-term notes last October, $3 billion in 2006 and $6 billion in fiscal 2005. It has borrowed $4.7 billion annually on average in the short-term market since 1990.
California, the biggest borrower in the municipal-bond market, has $51 billion in general-obligation debt outstanding The state is rated A+ by Fitch Ratings and Standard & Poor's, fifth-highest rankings, and a comparable A1 by Moody's Investors Service.
To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- Passage of a $700 billion financial- market rescue plan doesn't mean California won't need to ask the federal government for an emergency loan to pay bills, Governor Arnold Schwarzenegger said.
Schwarzenegger, a 61-year-old Republican, has called a meeting of top legislative leaders Oct. 8 to discuss the state's looming cash shortage, brought on by the global credit crisis that dried up the supply of money for loans.
The governor wrote a letter to U.S. Secretary Henry Paulson last night, saying turmoil in the credit markets has impeded the state's access to short-term financing commonly used by states and local governments to pay bills until tax revenue arrives later in the year. California and other U.S. states may need emergency federal loans if the credit crisis doesn't ease soon, Schwarzenegger said.
California, the most populous U.S. state, will run out of money by the end of this month and needs $7 billion in funding.
President George W. Bush today signed the legislation passed minutes earlier by the House of Representatives that is supposed to restart lending by authorizing the government to buy troubled assets from financial institutions reeling from record home foreclosures.
``On the way from the airport to here, I heard the great news that the House has voted for the $700 billion bill, which is extremely important not only for the state of California but the whole nation,'' Schwarzenegger told reporters in San Diego. ``Right now, because liquidity has dried up, it's very difficult to get a loan. So if we can't get it through the normal course, we will go to the federal government for help and we have already set that in motion.''
Salaries Threatened
Without the short-term funding, California may be forced to halt or significantly delay payments for teachers' salaries, nursing homes, law enforcement and ``every other state-funded service,'' said Treasurer Bill Lockyer, a Democrat.
``The fed has long had authority to provide liquidity to the municipal market,'' Lockyer said during an interview on Bloomberg Radio. ``The (rescue bill) actually has a little bit more explicit authority to do that. If we can't rely on traditional markets, maybe that's where we will go. It's an alternative if nothing else works.''
Bank of America Corp. and Goldman Sachs Group Inc. have already been selected to manage the note sale, now scheduled for the week of Oct. 13. One option Lockyer said he is considering is to borrow the money from Wall Street in chucks rather than seeking all $7 billion at once.
Pension Plan Investment
One California lawmaker said the state should consider borrowing the money from its public employee pension system, the largest such pension fund in the U.S., with $214 billion in assets.
Senator Dean Florez, a Democrat, said the California Public Employees' Retirement System could buy all the state's cash flow notes, earning more in interest than the system would by investing that same amount of money in U.S. Treasury notes.
``Many financial institutions have moved a great deal of their liquid assets into low-interest Treasury notes as a safety strategy. Rather than keeping these assets at the federal level, it would make more sense if these assets were used to purchase the short-term California debt especially with the state facing the current unprecedented cash shortage,'' Florez said in a letter to Lockyer, a member of the pension fund's governing board.
Letters of Credit
Tom Dressler, spokesman for Lockyer, said the treasurer plans to ask Calpers and its sister fund, the California State Teachers' Retirement System, about purchasing some of the notes or providing letters of credit. The teacher's fund is the second biggest in the nation.
The pension fund already invests in state and local governments by selling letters of credit to bond issuers. In June, Calpers doubled to $10 billion its credit enhancement program, seeking to take advantage in the rise in the cost of letters of credit, another byproduct of the credit crisis. The fund in June voted to withdraw a prohibition against backing no more than $250 million of any one bond issue.
California finance officials had wanted to obtain the cash from the credit market in late August or early September. The sale was delayed as lawmakers and Schwarzenegger fought through a record-long budget stalemate that left the state without an enacted spending plan until Sept. 23.
The state borrowed $7 billion through short-term notes last October, $3 billion in 2006 and $6 billion in fiscal 2005. It has borrowed $4.7 billion annually on average in the short-term market since 1990.
California, the biggest borrower in the municipal-bond market, has $51 billion in general-obligation debt outstanding The state is rated A+ by Fitch Ratings and Standard & Poor's, fifth-highest rankings, and a comparable A1 by Moody's Investors Service.
To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net.
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Bank-Rescue Plan Wins Approval as House Reverses Vote
By Christopher Stern and Laura Litvan
Oct. 3 (Bloomberg) -- Congress passed and President George W. Bush signed a $700 billion financial-market rescue plan designed to unlock credit markets and restore confidence in the nation's banking system.
The bipartisan legislation reversed the House rejection earlier this week that sent global stock markets plunging. The measure authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures. The bill contains $149 billion in tax breaks and affirms regulators' power to suspend asset-valuing rules that companies blame for fueling the crisis.
``These steps represent decisive action to ease the credit crunch that is now threatening our economy,'' Bush said at the White House.
The House approved the measure 263-171, four days after rejecting an earlier version. The bill's defeat on Sept. 29 caused a 778-point drop in the Dow Jones Industrial Average, prompting dozens of lawmakers to switch their vote on the legislation, the government's largest intervention in the markets since Franklin Roosevelt's New Deal.
`Stopping the Panic'
``The issue is stopping the panic,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. ``The plan's not perfect, but it's certainly better than doing nothing. Now Treasury has to be very aggressive about purchasing a wide range of assets very quickly.''
The Dow Jones Industrial Average fell 12 points to 10,470.74 at 2:50 p.m. in New York.
House Majority Leader Steny Hoyer, a Maryland Democrat, said the bill is ``critical to stabilizing our economy.''
Bush made more than a dozen phone calls to Republican lawmakers to lobby for the bill. The bill was backed by 172 Democrats and 91 Republicans. Over two-thirds of Democrats voted for the measure while fewer than half of Republicans supported it. On Sept. 29, the 140 Democrats voting for the plan were joined by 65 Republicans.
``The stock-market drop on Monday served as a wake-up call to a lot of people,'' said Representative John Yarmuth, a Kentucky Democrat who announced today he was switching his vote in favor of the bailout plan.
House leaders, who said they wouldn't set a vote on the revised measure unless they were sure it would pass, decided to go forward with the debate after conferring last night.
Republican Alternative
A group of Republicans last night tried to offer an alternative that would spend only $250 billion until the end of the year.
Representative Spencer Bachus said that out of ``prudence'' Congress should appropriate only the $50 billion a month the Treasury could distribute this year.
The Democratic-controlled Rules Committee rejected the amendment, saying any changes to the measure would require Senate action, delaying the start of the program. The Senate approved the legislation on Wednesday.
Some Republican lawmakers opposed the measure today, defying Bush and the party's congressional leaders.
``If Congress bails out some firms and sectors, how can it say no to others?'' said Representative Jeb Hensarling of Texas.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed last month the largest intervention in financial markets since the Great Depression, in a three-page outline.
Economic Turmoil
They said it was needed to prevent the spread of economic turmoil sparked by a record number of home foreclosures. Among the victims were Lehman Brothers Holdings Inc., which was forced into bankruptcy last month, and Fannie Mae, Freddie Mac and American International Group Inc., which were taken over by the government.
Paulson urged Congress to immediately give him almost unchecked legislative authority to take action. Lawmakers responded by demanding increased oversight, more aid to prevent foreclosures and limits on executive compensation at companies that benefit from the program.
Bush endorsed a compromise, saying it was needed to prevent a painful recession.
Credit-market turmoil is hitting local governments. U.S. states and municipalities have managed to sell about $700 million of tax-exempt bonds this week, less than 15 percent of a typical week's new fixed-rate issues.
Emergency Loans
California Governor Arnold Schwarzenegger wrote Paulson last night, saying that his and other states may need emergency federal loans to maintain government operations if the credit crunch continues.
``This credit crisis has the power to grind the U.S. economy to a halt,'' Schwarzenegger wrote in a letter e-mailed to Paulson.
Companies lobbied in support of the rescue measure. Automakers said tougher loan standards partly accounted for a 27 percent plunge in U.S. auto sales last month.
The market for commercial paper, short-term borrowing by businesses, suffered the biggest one-week drop on record, the Federal Reserve said yesterday. The amount of commercial paper outstanding fell by $94.9 billion, or 5.6 percent, during the week ended Oct. 1.
``This is not a bailout for Wall Street anymore,'' Carolyn McCarthy, a New York Democrat who represents suburbs near New York City, said on the House floor this morning. ``This is about the small stores on Main Street.''
Risky and Costly
Still, House lawmakers earlier this week rejected the agreement that congressional leaders reached with the administration, with many saying it was too risky and costly.
The Senate then sweetened the package -- and enlarged the legislation to 450 pages -- by linking the rescue plan to a temporary increase in the limit on federal deposit insurance to $250,000 from $100,000.
The Senate also tied the package to a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, a move popular among House Republicans. The provisions include $17 billion in credits for the development of solar, wind and other forms of renewable energy.
Democrat Barack Obama and Republican John McCain returned from the presidential campaign trail to vote for the plan in the Senate this week.
Obama said he had talked to several lawmakers in an attempt to generate support for the legislation.
`Some Assurance'
``There were a number of members of Congress who had voted no that I talked to,'' Obama said in Glenside, Pennsylvania. ``And I think more than anything what they wanted was some assurance that this $700 billion was not going to a few banks but that in fact, that it is designed to ensure that the credit markets are working for Main Street.''
McCain, in comments in Flagstaff, Arizona, said the bill ``isn't perfect and it's an outrage that it's even necessary.''
``The action Congress took today is a tourniquet,'' he said. ``Further action is needed and it shouldn't take a crisis to get this country to act.''
The bill also affirms the U.S. Securities and Exchange Commission's authority to suspend an accounting rule that bankers and other corporate executives say exacerbates their troubles.
The so-called fair-value standard requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association and companies including American International Group Inc. have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages.
Federal Reserve Chairman Ben S. Bernanke, applauding enactment of the rescue plan, said the central bank will keep using ``all of the powers at our disposal'' to ease the credit crisis.
To contact the reporters on this story: Laura Litvan in Washington at litvan@bloomberg.net
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Oct. 3 (Bloomberg) -- Congress passed and President George W. Bush signed a $700 billion financial-market rescue plan designed to unlock credit markets and restore confidence in the nation's banking system.
The bipartisan legislation reversed the House rejection earlier this week that sent global stock markets plunging. The measure authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures. The bill contains $149 billion in tax breaks and affirms regulators' power to suspend asset-valuing rules that companies blame for fueling the crisis.
``These steps represent decisive action to ease the credit crunch that is now threatening our economy,'' Bush said at the White House.
The House approved the measure 263-171, four days after rejecting an earlier version. The bill's defeat on Sept. 29 caused a 778-point drop in the Dow Jones Industrial Average, prompting dozens of lawmakers to switch their vote on the legislation, the government's largest intervention in the markets since Franklin Roosevelt's New Deal.
`Stopping the Panic'
``The issue is stopping the panic,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. ``The plan's not perfect, but it's certainly better than doing nothing. Now Treasury has to be very aggressive about purchasing a wide range of assets very quickly.''
The Dow Jones Industrial Average fell 12 points to 10,470.74 at 2:50 p.m. in New York.
House Majority Leader Steny Hoyer, a Maryland Democrat, said the bill is ``critical to stabilizing our economy.''
Bush made more than a dozen phone calls to Republican lawmakers to lobby for the bill. The bill was backed by 172 Democrats and 91 Republicans. Over two-thirds of Democrats voted for the measure while fewer than half of Republicans supported it. On Sept. 29, the 140 Democrats voting for the plan were joined by 65 Republicans.
``The stock-market drop on Monday served as a wake-up call to a lot of people,'' said Representative John Yarmuth, a Kentucky Democrat who announced today he was switching his vote in favor of the bailout plan.
House leaders, who said they wouldn't set a vote on the revised measure unless they were sure it would pass, decided to go forward with the debate after conferring last night.
Republican Alternative
A group of Republicans last night tried to offer an alternative that would spend only $250 billion until the end of the year.
Representative Spencer Bachus said that out of ``prudence'' Congress should appropriate only the $50 billion a month the Treasury could distribute this year.
The Democratic-controlled Rules Committee rejected the amendment, saying any changes to the measure would require Senate action, delaying the start of the program. The Senate approved the legislation on Wednesday.
Some Republican lawmakers opposed the measure today, defying Bush and the party's congressional leaders.
``If Congress bails out some firms and sectors, how can it say no to others?'' said Representative Jeb Hensarling of Texas.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed last month the largest intervention in financial markets since the Great Depression, in a three-page outline.
Economic Turmoil
They said it was needed to prevent the spread of economic turmoil sparked by a record number of home foreclosures. Among the victims were Lehman Brothers Holdings Inc., which was forced into bankruptcy last month, and Fannie Mae, Freddie Mac and American International Group Inc., which were taken over by the government.
Paulson urged Congress to immediately give him almost unchecked legislative authority to take action. Lawmakers responded by demanding increased oversight, more aid to prevent foreclosures and limits on executive compensation at companies that benefit from the program.
Bush endorsed a compromise, saying it was needed to prevent a painful recession.
Credit-market turmoil is hitting local governments. U.S. states and municipalities have managed to sell about $700 million of tax-exempt bonds this week, less than 15 percent of a typical week's new fixed-rate issues.
Emergency Loans
California Governor Arnold Schwarzenegger wrote Paulson last night, saying that his and other states may need emergency federal loans to maintain government operations if the credit crunch continues.
``This credit crisis has the power to grind the U.S. economy to a halt,'' Schwarzenegger wrote in a letter e-mailed to Paulson.
Companies lobbied in support of the rescue measure. Automakers said tougher loan standards partly accounted for a 27 percent plunge in U.S. auto sales last month.
The market for commercial paper, short-term borrowing by businesses, suffered the biggest one-week drop on record, the Federal Reserve said yesterday. The amount of commercial paper outstanding fell by $94.9 billion, or 5.6 percent, during the week ended Oct. 1.
``This is not a bailout for Wall Street anymore,'' Carolyn McCarthy, a New York Democrat who represents suburbs near New York City, said on the House floor this morning. ``This is about the small stores on Main Street.''
Risky and Costly
Still, House lawmakers earlier this week rejected the agreement that congressional leaders reached with the administration, with many saying it was too risky and costly.
The Senate then sweetened the package -- and enlarged the legislation to 450 pages -- by linking the rescue plan to a temporary increase in the limit on federal deposit insurance to $250,000 from $100,000.
The Senate also tied the package to a two-year extension of tax breaks that will save individuals and corporations about $149 billion over the next decade, a move popular among House Republicans. The provisions include $17 billion in credits for the development of solar, wind and other forms of renewable energy.
Democrat Barack Obama and Republican John McCain returned from the presidential campaign trail to vote for the plan in the Senate this week.
Obama said he had talked to several lawmakers in an attempt to generate support for the legislation.
`Some Assurance'
``There were a number of members of Congress who had voted no that I talked to,'' Obama said in Glenside, Pennsylvania. ``And I think more than anything what they wanted was some assurance that this $700 billion was not going to a few banks but that in fact, that it is designed to ensure that the credit markets are working for Main Street.''
McCain, in comments in Flagstaff, Arizona, said the bill ``isn't perfect and it's an outrage that it's even necessary.''
``The action Congress took today is a tourniquet,'' he said. ``Further action is needed and it shouldn't take a crisis to get this country to act.''
The bill also affirms the U.S. Securities and Exchange Commission's authority to suspend an accounting rule that bankers and other corporate executives say exacerbates their troubles.
The so-called fair-value standard requires companies to review assets and report losses if their values decline. Lawmakers, the American Bankers Association and companies including American International Group Inc. have urged the SEC to suspend or ease the rule, saying it forces firms to report deeper losses than needed on assets such as subprime mortgages.
Federal Reserve Chairman Ben S. Bernanke, applauding enactment of the rescue plan, said the central bank will keep using ``all of the powers at our disposal'' to ease the credit crisis.
To contact the reporters on this story: Laura Litvan in Washington at litvan@bloomberg.net
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Paulson Recruits Asset Managers as Rescue Moves Ahead
By Rebecca Christie and Robert Schmidt
Oct. 3 (Bloomberg) -- Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to jumpstart the government's new $700 billion bank-rescue program.
The Treasury began implementing the plan within an hour of the House of Representatives vote giving Paulson the extraordinary powers he had sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.
``This is something that, for a typical company, would take no less than five years,'' said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. ``Anyone who thinks they can do this in two weeks is insane.''
Already, BlackRock Inc., Pacific Investment Management Co. and Legg Mason Inc. are seeking to become money managers for the program, people familiar with the matter said. The three firms have been informally advising the Treasury as it negotiated the bailout package with Congress, the people said.
Ed Forst, the former Goldman Sachs Group Inc. executive Paulson hired to head the transition team, started work last week and is charged with helping establish the new Office of Financial Stability.
``Paulson did not want to lose precious days waiting,'' said Howard Glaser, a former chief legal adviser of the Department of Housing and Urban Development.
Treasury officials said Forst, who was given a contract worth $5,000, is likely to stay for several weeks before returning to Harvard University, where he sits on the board that oversees the $34.9 billion endowment.
Outside Contractors
Lobbyists say the Treasury wants to run the program as much as possible with outside contractors. Career Treasury staff would handle the administrative tasks.
While the department will bypass some government contracting rules, as the legislation allows, it says it plans to put a formal and transparent process in place to hire the private-sector help. The department may also tap the Federal Deposit Insurance Corp. to manage the mortgage portfolio.
``We've been doing a lot of work getting ready for this,'' Paulson told reporters immediately after the House voted. ``Once the legislation is signed, we're going to be going out and lining up advisers from the private sector.''
Signed Into Law
President George W. Bush signed the measure shortly after Paulson spoke.
The Treasury plans to hire about two dozen employees along with five to 10 asset-management firms. The workers will be a mix of government employees and contractors, with a range of legal, financial and accounting skills.
The firms will be evaluated based on the cost and scope of services they offer. The Treasury is still working out a conflict-of-interest policy and details for guidelines on compensation.
Officials cautioned it will take at least four weeks to set up the first of the long-sought asset purchases. These purchases will start slowly with a series of pilot programs.
The Emergency Economic Stabilization Act of 2008 gives Paulson immediate authority to buy as much as $250 billion in troubled assets from banks and other financial institutions. The White House may expand the program by another $100 billion, and the Treasury can access the remaining $350 billion with Congressional consultation.
`Very Quickly'
The plan allows Treasury officials to ``intervene very quickly if they want to,'' said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and former director of the Federal Reserve Board's Division of Monetary Affairs. He predicts the Treasury will ``act in markets first,'' possibly by working through the Fed.
While the new law gives the Treasury power to inject capital directly into the banking system, department officials say their focus will be to help banks get rid of illiquid assets.
Reinhart says Paulson will take his time setting up asset- buying competitions such as reverse auctions, in which the government would accept the lowest price offered by banks selling a type of asset.
``Auctions are complicated,'' Reinhart said. ``If you're talking about mortgages, there is a very significant information disadvantage to the government relative to the private sector, so they have to be really careful about the way they structure those auctions.''
Horizon
Paulson has an incentive to be deliberate: The next president, along with his new cabinet, takes office Jan. 20, and Paulson's reputation depends on his program's long-term track record.
``No one will know if this works for several years,'' said Stuart Eizenstat, former deputy secretary of the Treasury and now a partner at Covington & Burling, a Washington-based law firm. ``This is very much his plan; it will bear his name and his imprint for generations to come.''
The plan sets up a Troubled Asset Relief Program, or TARP, available to ``any financial institution'' that meets the Treasury's conditions. Residential and commercial mortgages and mortgage-backed securities are the primary targets, although the Treasury and the Fed are able to add other asset classes as needed. The Treasury also will set up an insurance fund for mortgage securities that will charge premiums.
Guidelines
Banks won't be allowed to sell assets to the Treasury for more than what they paid, unless they purchased the assets from another bank already in bankruptcy or conservatorship. Congress instructed the Treasury to issue conflict-of-interest guidelines, so banks don't take unfair advantage of the new program.
Because the Treasury is able to buy whole mortgage loans under the plan, it may be able to encourage mortgage servicers to work out easier repayment arrangements for strapped homeowners, although the mechanics are likely to be very difficult, said Michael Carliner, a consultant and former economist for the National Association of Home Builders, a trade group in Washington.
Debt Sales
The new program, combined with existing borrowing needs, could add up to a half-trillion dollars worth of debt the Treasury will have to sell before the end of December, said Ward McCarthy, a former Fed economist who is now a principal at Stone and McCarthy Research Associates in New Jersey. The department was already was weighing additional types of debt sales to finance this year's budget deficit. Fiscal year 2009 started on Oct. 1; in July the Bush administration projected a $482 billion shortfall.
As a result, markets should be prepared for the Treasury to move more suddenly than usual, McCarthy said. ``Expect them to come out with six-guns blazing because Paulson wants to make an impression.''
The Treasury could add three- and seven-year notes, as its borrowing advisory committee has proposed. It also could reopen existing notes and bonds, or even hold a series of one-time medium- and long-term debt sales.
``Under normal circumstances, the Treasury's financing decisions are guided by its desire to be regular and predictable,'' said Louis Crandall, chief economist at Wrightson ICAP in New Jersey.
``However, there is certainly nothing `regular' about this rescue package, so that approach is not relevant,'' he said.
To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.netRobert Schmidt in Washington at rschmidt5@bloomberg.net.
Read more...
Oct. 3 (Bloomberg) -- Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to jumpstart the government's new $700 billion bank-rescue program.
The Treasury began implementing the plan within an hour of the House of Representatives vote giving Paulson the extraordinary powers he had sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to arrange purchases.
``This is something that, for a typical company, would take no less than five years,'' said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. ``Anyone who thinks they can do this in two weeks is insane.''
Already, BlackRock Inc., Pacific Investment Management Co. and Legg Mason Inc. are seeking to become money managers for the program, people familiar with the matter said. The three firms have been informally advising the Treasury as it negotiated the bailout package with Congress, the people said.
Ed Forst, the former Goldman Sachs Group Inc. executive Paulson hired to head the transition team, started work last week and is charged with helping establish the new Office of Financial Stability.
``Paulson did not want to lose precious days waiting,'' said Howard Glaser, a former chief legal adviser of the Department of Housing and Urban Development.
Treasury officials said Forst, who was given a contract worth $5,000, is likely to stay for several weeks before returning to Harvard University, where he sits on the board that oversees the $34.9 billion endowment.
Outside Contractors
Lobbyists say the Treasury wants to run the program as much as possible with outside contractors. Career Treasury staff would handle the administrative tasks.
While the department will bypass some government contracting rules, as the legislation allows, it says it plans to put a formal and transparent process in place to hire the private-sector help. The department may also tap the Federal Deposit Insurance Corp. to manage the mortgage portfolio.
``We've been doing a lot of work getting ready for this,'' Paulson told reporters immediately after the House voted. ``Once the legislation is signed, we're going to be going out and lining up advisers from the private sector.''
Signed Into Law
President George W. Bush signed the measure shortly after Paulson spoke.
The Treasury plans to hire about two dozen employees along with five to 10 asset-management firms. The workers will be a mix of government employees and contractors, with a range of legal, financial and accounting skills.
The firms will be evaluated based on the cost and scope of services they offer. The Treasury is still working out a conflict-of-interest policy and details for guidelines on compensation.
Officials cautioned it will take at least four weeks to set up the first of the long-sought asset purchases. These purchases will start slowly with a series of pilot programs.
The Emergency Economic Stabilization Act of 2008 gives Paulson immediate authority to buy as much as $250 billion in troubled assets from banks and other financial institutions. The White House may expand the program by another $100 billion, and the Treasury can access the remaining $350 billion with Congressional consultation.
`Very Quickly'
The plan allows Treasury officials to ``intervene very quickly if they want to,'' said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington and former director of the Federal Reserve Board's Division of Monetary Affairs. He predicts the Treasury will ``act in markets first,'' possibly by working through the Fed.
While the new law gives the Treasury power to inject capital directly into the banking system, department officials say their focus will be to help banks get rid of illiquid assets.
Reinhart says Paulson will take his time setting up asset- buying competitions such as reverse auctions, in which the government would accept the lowest price offered by banks selling a type of asset.
``Auctions are complicated,'' Reinhart said. ``If you're talking about mortgages, there is a very significant information disadvantage to the government relative to the private sector, so they have to be really careful about the way they structure those auctions.''
Horizon
Paulson has an incentive to be deliberate: The next president, along with his new cabinet, takes office Jan. 20, and Paulson's reputation depends on his program's long-term track record.
``No one will know if this works for several years,'' said Stuart Eizenstat, former deputy secretary of the Treasury and now a partner at Covington & Burling, a Washington-based law firm. ``This is very much his plan; it will bear his name and his imprint for generations to come.''
The plan sets up a Troubled Asset Relief Program, or TARP, available to ``any financial institution'' that meets the Treasury's conditions. Residential and commercial mortgages and mortgage-backed securities are the primary targets, although the Treasury and the Fed are able to add other asset classes as needed. The Treasury also will set up an insurance fund for mortgage securities that will charge premiums.
Guidelines
Banks won't be allowed to sell assets to the Treasury for more than what they paid, unless they purchased the assets from another bank already in bankruptcy or conservatorship. Congress instructed the Treasury to issue conflict-of-interest guidelines, so banks don't take unfair advantage of the new program.
Because the Treasury is able to buy whole mortgage loans under the plan, it may be able to encourage mortgage servicers to work out easier repayment arrangements for strapped homeowners, although the mechanics are likely to be very difficult, said Michael Carliner, a consultant and former economist for the National Association of Home Builders, a trade group in Washington.
Debt Sales
The new program, combined with existing borrowing needs, could add up to a half-trillion dollars worth of debt the Treasury will have to sell before the end of December, said Ward McCarthy, a former Fed economist who is now a principal at Stone and McCarthy Research Associates in New Jersey. The department was already was weighing additional types of debt sales to finance this year's budget deficit. Fiscal year 2009 started on Oct. 1; in July the Bush administration projected a $482 billion shortfall.
As a result, markets should be prepared for the Treasury to move more suddenly than usual, McCarthy said. ``Expect them to come out with six-guns blazing because Paulson wants to make an impression.''
The Treasury could add three- and seven-year notes, as its borrowing advisory committee has proposed. It also could reopen existing notes and bonds, or even hold a series of one-time medium- and long-term debt sales.
``Under normal circumstances, the Treasury's financing decisions are guided by its desire to be regular and predictable,'' said Louis Crandall, chief economist at Wrightson ICAP in New Jersey.
``However, there is certainly nothing `regular' about this rescue package, so that approach is not relevant,'' he said.
To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.netRobert Schmidt in Washington at rschmidt5@bloomberg.net.
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Brazil's Real Has Biggest Weekly Decline Since September 2002
By Adriana Brasileiro
Oct. 3 (Bloomberg) -- Brazil's real dropped the most this week in six years as a deepening global credit crisis curbed investment in Latin America's biggest economy.
The currency erased gains today on speculation the $700 billion U.S. financial bailout won't be an economic cure-all. The real rose as much as 1.6 percent before the U.S. Congress passed legislation to unlock credit markets.
``I don't see a more consistent recovery of the currency, even after the approval of the rescue plan,'' said Gabriel Levy, an economist who helps manage 250 million reais ($123 million) at Sparta Administradora de Recursos, an asset-management firm in Sao Paulo.
The real sank 9.8 percent this week to 2.0440 per dollar at 5:29 p.m. New York time, from 1.8445 on Sept. 26. It's the steepest weekly decline since September 2002. The real fell 1.1 percent today, its third straight daily drop.
The real was the biggest loser against the dollar this week among the 16 most-active currencies tracked by Bloomberg. It's down 24 percent from a nine-year high reached Aug. 1.
Finance Minister Guido Mantega said today in Sao Paulo that he doesn't expect the real to return to ``excessively overvalued'' levels.
The government is studying ``creative ways'' to use the country's record international reserves to add liquidity to local credit markets, Mantega said. Brazil's foreign reserves reached $207.3 billion yesterday.
Falling commodity prices also contributed to losses in the real. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 29 percent from a record high on July 2.
Brazil is the world's biggest exporter of beef, orange juice, sugar and coffee. Commodities account for two-thirds of the country's exports, according to the Brazilian Foreign Trade Association in Rio de Janeiro.
The yield on Brazil's overnight futures contract for January 2009 delivery fell 1 basis point to 14 percent.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Oct. 3 (Bloomberg) -- Brazil's real dropped the most this week in six years as a deepening global credit crisis curbed investment in Latin America's biggest economy.
The currency erased gains today on speculation the $700 billion U.S. financial bailout won't be an economic cure-all. The real rose as much as 1.6 percent before the U.S. Congress passed legislation to unlock credit markets.
``I don't see a more consistent recovery of the currency, even after the approval of the rescue plan,'' said Gabriel Levy, an economist who helps manage 250 million reais ($123 million) at Sparta Administradora de Recursos, an asset-management firm in Sao Paulo.
The real sank 9.8 percent this week to 2.0440 per dollar at 5:29 p.m. New York time, from 1.8445 on Sept. 26. It's the steepest weekly decline since September 2002. The real fell 1.1 percent today, its third straight daily drop.
The real was the biggest loser against the dollar this week among the 16 most-active currencies tracked by Bloomberg. It's down 24 percent from a nine-year high reached Aug. 1.
Finance Minister Guido Mantega said today in Sao Paulo that he doesn't expect the real to return to ``excessively overvalued'' levels.
The government is studying ``creative ways'' to use the country's record international reserves to add liquidity to local credit markets, Mantega said. Brazil's foreign reserves reached $207.3 billion yesterday.
Falling commodity prices also contributed to losses in the real. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 29 percent from a record high on July 2.
Brazil is the world's biggest exporter of beef, orange juice, sugar and coffee. Commodities account for two-thirds of the country's exports, according to the Brazilian Foreign Trade Association in Rio de Janeiro.
The yield on Brazil's overnight futures contract for January 2009 delivery fell 1 basis point to 14 percent.
To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net
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Cocoa Rises on Expectations Demand to Rise, Weakness in Dollar
By Yi Tian
Oct. 3 (Bloomberg) -- Cocoa rose in New York on expectations sales of the chocolate ingredient will pick up during the holidays and as the falling dollar increases the appeal of the commodity for buyers holding other currencies.
Cocoa demand tends to increase toward year-end, said Stephanie Kinard, a broker with JKV Global in Chicago. The dollar lost as much as 0.6 percent today against a basket of six major currencies, including the pound. Cocoa is traded in pounds in the U.K. and West Africa, the biggest cocoa exporting region.
``We may see some near-term positive momentum as we approach the holidays in spite of an economic slowdown,'' Kinard said. ``The rule of falling greenback and rising pound applies to today's market.''
Cocoa futures for December delivery rose $18, or 0.7 percent, to $2,469 a metric ton on ICE Futures U.S. Still, cocoa fell 10 percent this week, the biggest such decline since the week ended March 21.
In the third quarter, the most-active contract tumbled 20 percent, the most since the first quarter of 1992.
Cocoa ``has been a bit oversold,'' which also helped to explain the gains today, Kinard said.
The price may fall as low as $2,445, now that the six- month low of $2,496 reached on Sept. 15, was breached, according to Michael Ragazzo, the president of MBL Commodities Ltd. in New York.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Oct. 3 (Bloomberg) -- Cocoa rose in New York on expectations sales of the chocolate ingredient will pick up during the holidays and as the falling dollar increases the appeal of the commodity for buyers holding other currencies.
Cocoa demand tends to increase toward year-end, said Stephanie Kinard, a broker with JKV Global in Chicago. The dollar lost as much as 0.6 percent today against a basket of six major currencies, including the pound. Cocoa is traded in pounds in the U.K. and West Africa, the biggest cocoa exporting region.
``We may see some near-term positive momentum as we approach the holidays in spite of an economic slowdown,'' Kinard said. ``The rule of falling greenback and rising pound applies to today's market.''
Cocoa futures for December delivery rose $18, or 0.7 percent, to $2,469 a metric ton on ICE Futures U.S. Still, cocoa fell 10 percent this week, the biggest such decline since the week ended March 21.
In the third quarter, the most-active contract tumbled 20 percent, the most since the first quarter of 1992.
Cocoa ``has been a bit oversold,'' which also helped to explain the gains today, Kinard said.
The price may fall as low as $2,445, now that the six- month low of $2,496 reached on Sept. 15, was breached, according to Michael Ragazzo, the president of MBL Commodities Ltd. in New York.
To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net.
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Gold Futures Have Weekly Drop on Dollar's Rally; Silver Rises
By Pham-Duy Nguyen
Oct. 3 (Bloomberg) -- Gold fell, capping the biggest weekly decline since August, as the dollar rose, reducing the appeal of the precious metal as an alternative investment. Silver advanced.
The dollar has risen 4.3 percent this week against a weighted basket of six major currencies. The U.S. Congress approved a $700 billion plan to rescue ailing banks. Gold gained 5.5 percent last month as Lehman Brothers Holdings Inc. collapsed and the U.S. government took over American International Group Inc., Fannie Mae and Freddie Mac.
``Gold is looking at dollar strength,'' said Frank Lesh, a trader at FuturePath Trading LLC Chicago. ``The approval of the bailout package is dollar-friendly and equity-friendly and holds gold back.''
Gold futures for December delivery fell $11.10, or 1.3 percent, to $833.20 an ounce on the Comex division of the New York Mercantile Exchange. The metal is down 6.2 percent this week, the most since the week that ended Aug. 15.
Silver futures for December delivery rose 20.5 cents, or 1.8 percent, to $11.325 an ounce. The metal dropped 13 percent yesterday and 30 percent in the third quarter.
``Yesterday's plunge in silver was absolutely too much,'' said Frank McGhee, head dealer at Integrated Brokerage Services LLC in Chicago.
Precious metals have declined this week as investors sold holdings to cover losses in other markets, McGhee said.
`Massive Asset Liquidation'
``There's been massive asset liquidation from hedge funds and long-term holders who needed to raise cash,'' McGhee said. ``Gold is doing what it should do as a store of value -- gold has held its value against other assets.''
Gold may still rally following the U.S. House vote on the bailout plan, said James Turk, founder of Goldmoney.com, which held $405 million of gold and silver in storage for investors at the end of September.
``Gold has not lost its safe-haven status because there is no counterparty risk when you own gold,'' Turk said. ``The bailout plan accomplishes little because it does not address the underlying issue, which is solvency.''
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 755.3 metric tons on September 30.
The dollar index and the Standard & Poor's 500 Index pared gains after the bailout plan was passed.
``It's one of those buy-the-rumor, sell-the-news trades,'' Lesh said. ``The fact is that housing is still horrible and the economy is getting worse. We've lost the support of large commodity index buyers and commodities are under pressure. They're not buying gold.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 3 (Bloomberg) -- Gold fell, capping the biggest weekly decline since August, as the dollar rose, reducing the appeal of the precious metal as an alternative investment. Silver advanced.
The dollar has risen 4.3 percent this week against a weighted basket of six major currencies. The U.S. Congress approved a $700 billion plan to rescue ailing banks. Gold gained 5.5 percent last month as Lehman Brothers Holdings Inc. collapsed and the U.S. government took over American International Group Inc., Fannie Mae and Freddie Mac.
``Gold is looking at dollar strength,'' said Frank Lesh, a trader at FuturePath Trading LLC Chicago. ``The approval of the bailout package is dollar-friendly and equity-friendly and holds gold back.''
Gold futures for December delivery fell $11.10, or 1.3 percent, to $833.20 an ounce on the Comex division of the New York Mercantile Exchange. The metal is down 6.2 percent this week, the most since the week that ended Aug. 15.
Silver futures for December delivery rose 20.5 cents, or 1.8 percent, to $11.325 an ounce. The metal dropped 13 percent yesterday and 30 percent in the third quarter.
``Yesterday's plunge in silver was absolutely too much,'' said Frank McGhee, head dealer at Integrated Brokerage Services LLC in Chicago.
Precious metals have declined this week as investors sold holdings to cover losses in other markets, McGhee said.
`Massive Asset Liquidation'
``There's been massive asset liquidation from hedge funds and long-term holders who needed to raise cash,'' McGhee said. ``Gold is doing what it should do as a store of value -- gold has held its value against other assets.''
Gold may still rally following the U.S. House vote on the bailout plan, said James Turk, founder of Goldmoney.com, which held $405 million of gold and silver in storage for investors at the end of September.
``Gold has not lost its safe-haven status because there is no counterparty risk when you own gold,'' Turk said. ``The bailout plan accomplishes little because it does not address the underlying issue, which is solvency.''
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 755.3 metric tons on September 30.
The dollar index and the Standard & Poor's 500 Index pared gains after the bailout plan was passed.
``It's one of those buy-the-rumor, sell-the-news trades,'' Lesh said. ``The fact is that housing is still horrible and the economy is getting worse. We've lost the support of large commodity index buyers and commodities are under pressure. They're not buying gold.''
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Emerging Market Stocks Post Biggest Weekly Retreat in 7 Years
By William Mauldin
Oct. 3 (Bloomberg) -- Emerging-market stocks had the biggest weekly decline in seven years, led by banks and energy companies as commodity prices dropped on speculation the U.S. is headed for a recession.
The MSCI Emerging Markets Index dropped 2.3 percent to 741.73, after a 3.4 percent decline yesterday. The index lost 10 percent this week, the most since the September 2001 terrorist attacks.
``Investors are running from emerging markets because they're thinking a slowdown in the U.S. and developed markets will have a much greater effect on their own economies,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. ``U.S. consumers are using about a million barrels less of oil a day than they were 18 months ago, and the U.S. financial sector is bringing money back home, taking a lot of cash out of emerging markets and commodities.''
Turkey's benchmark index fell the most in three weeks, losing 4.2 percent to 34,553 in the first trading day since Sept. 29. Russia's Micex Index slumped 5.3 percent, extending its annual loss to 51 percent.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, had a weekly decline of 10 percent, the most since at least 1956. The index has slumped 31 percent from a record on July 3.
India, Russia
India's Sensex index slid 4.1 percent to 12,526.32. Reliance Industries Ltd., India's biggest company by market value, slumped 7.6 percent, to its lowest in a year.
The Philippine Stock Exchange Index fell 1.8 percent to 2,566.21 at the close in Manila, the most since Sept. 18. Banco de Oro Unibank Inc., the nation's No. 2 lender by value, fell 2.6 percent.
VTB Group, Russia's second-biggest lender, fell 5.5 percent, to 4.57 kopeks on the Micex Stock Exchange. The bank said it lost 9.31 billion rubles ($360 million) in September due to ``negative market dynamics.''
Russia suspended trading for two days and pledged more than $150 billion in emergency funding last month as the seizure in capital markets, falling oil prices and a five-day war with Georgia in August drove away investors. About $58.9 billion has left the country since Aug. 8, according to BNP Paribas SA.
OAO Rosneft, Russia's biggest oil producer, fell 7 percent to 143.22 rubles, a seventh day of declines.
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
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Oct. 3 (Bloomberg) -- Emerging-market stocks had the biggest weekly decline in seven years, led by banks and energy companies as commodity prices dropped on speculation the U.S. is headed for a recession.
The MSCI Emerging Markets Index dropped 2.3 percent to 741.73, after a 3.4 percent decline yesterday. The index lost 10 percent this week, the most since the September 2001 terrorist attacks.
``Investors are running from emerging markets because they're thinking a slowdown in the U.S. and developed markets will have a much greater effect on their own economies,'' said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. ``U.S. consumers are using about a million barrels less of oil a day than they were 18 months ago, and the U.S. financial sector is bringing money back home, taking a lot of cash out of emerging markets and commodities.''
Turkey's benchmark index fell the most in three weeks, losing 4.2 percent to 34,553 in the first trading day since Sept. 29. Russia's Micex Index slumped 5.3 percent, extending its annual loss to 51 percent.
Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, had a weekly decline of 10 percent, the most since at least 1956. The index has slumped 31 percent from a record on July 3.
India, Russia
India's Sensex index slid 4.1 percent to 12,526.32. Reliance Industries Ltd., India's biggest company by market value, slumped 7.6 percent, to its lowest in a year.
The Philippine Stock Exchange Index fell 1.8 percent to 2,566.21 at the close in Manila, the most since Sept. 18. Banco de Oro Unibank Inc., the nation's No. 2 lender by value, fell 2.6 percent.
VTB Group, Russia's second-biggest lender, fell 5.5 percent, to 4.57 kopeks on the Micex Stock Exchange. The bank said it lost 9.31 billion rubles ($360 million) in September due to ``negative market dynamics.''
Russia suspended trading for two days and pledged more than $150 billion in emergency funding last month as the seizure in capital markets, falling oil prices and a five-day war with Georgia in August drove away investors. About $58.9 billion has left the country since Aug. 8, according to BNP Paribas SA.
OAO Rosneft, Russia's biggest oil producer, fell 7 percent to 143.22 rubles, a seventh day of declines.
To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.
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Canada Stocks Have Worst Week Since 2000 on Recession Concerns
By John Kipphoff
Oct. 3 (Bloomberg) -- Canadian stocks fell a third day, completing their steepest weekly slide in almost eight years, on concern the $700 billion U.S. plan to rescue banks won't avert a recession for the Canada's biggest trade partner.
Financial shares dropped, led by Manulife Financial Corp. and Brookfield Asset Management Inc., after borrowing costs climbed as the financial-system bailout headed for approval. Potash Corp. of Saskatchewan Inc. paced a record slide in mining companies and Canadian Natural Resources Ltd. led energy producers lower as crude oil posted its worst weekly drop since 2004.
The Standard & Poor's/TSX Composite Index fell 0.9 percent to 10,803.35 in Toronto after rising 4.2 percent earlier. Canada's main stock benchmark, which derives more than two- fifths of its value from raw-materials and energy shares, slid 10.9 percent this week as commodity prices plunged. The S&P/TSX fell 11.1 percent in the last week of October 2000.
``Sell on the news,'' said Paul Hand, managing director of equity trading at RBC Capital Markets in Toronto. ``This is only the beginning of the hard work of re-liquifying credit markets. A lot of people are getting off the materials trade, saying we'll still have a recession.''
Manulife Financial, Canada's largest insurance company, fell 2 percent to C$36.47 completing its worst weekly drop since June. Brookfield, the manager of $95 billion in assets including real estate and power stations, dropped 5.5 percent to C$26.16, the lowest since January. Toronto-Dominion Bank, the nation's second-biggest lender, slid 1.8 percent to C$59.43 after climbing as much as 3.6 percent earlier.
Reeling
U.S. Congress passed and President George W. Bush signed a mesure that authorizes the government to buy troubled assets from financial institutions reeling from record U.S. home foreclosures. The S&P/TSX fell 6.95 percent yesterday, and 6.93 percent on Sept. 29 when the House of Representatives' rejected the government's earlier rescue plan.
Global financial institutions have had almost $590 billion in losses and writedowns on mortgage-related securities. Canadian banks account for about $10.8 billion of the total. The London interbank offered rate that banks charge each other for loans in U.S. dollars rose the highest since January.
Canadian Imperial Bank of Commerce rose 1.2 percent to C$58.50 after Cerberus Capital Management LP agreed to invest more than $1 billion cash in the bank's troubled U.S. real- estate portfolio, helping reduce the lender's risk.
Industry Groups
Measures of financial companies in the S&P/TSX retreated 1.4 percent. An index of energy stocks dropped 1.6 percent today, while a gauge of raw-materials stocks added 1.9 percent. Energy producers and raw-materials companies' respective weekly drops of 15 percent and 20 percent were the groups' worst such performance since 1995 when the indexes began.
Canadian Natural, the country's second-largest natural-gas producer, fell 1.8 percent to C$63.92. Imperial Oil Ltd., the biggest oil and gas producer, dropped 4.5 percent to C$41.51. Enbridge Inc., Canada's biggest pipeline company, retreated 3.2 percent to C$39.42.
Crude oil futures fell 9 cents to $93.88 a barrel in New York, taking their weekly drop to 12 percent this week after fuel demand fell to the lowest since October 2001. Oil, copper and corn led commodities toward their worst week since at least 1956 this week, according to the Reuters/Jefferies CRB Index.
Potash Corp. advanced 1.2 percent to C$102.21 today. The biggest maker of crop nutrients fell 33 percent this week, the worst such drop since trading began in 1989, after declining commodity prices, missed earnings at Mosaic Co. and a downgrade to ``underperform'' at Merrill Lynch & Co. sparked a slump in Potash and other agricultural companies.
Barrick Gold Corp. added 5.1 percent to C$34.95 even as price of the precious metal fell for a second day. The biggest producer of gold dropped the most in two decades yesterday.
Magna International Inc. plunged after Russian billionaire Oleg Deripaska ceded his investment in the car-parts maker. Magna fell 5.9 percent to C$46.32, the lowest price since February 1996, after a bank financing Deripaska's $1.54 billion purchase of shares in the company asked for the money back.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
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Oct. 3 (Bloomberg) -- Canadian stocks fell a third day, completing their steepest weekly slide in almost eight years, on concern the $700 billion U.S. plan to rescue banks won't avert a recession for the Canada's biggest trade partner.
Financial shares dropped, led by Manulife Financial Corp. and Brookfield Asset Management Inc., after borrowing costs climbed as the financial-system bailout headed for approval. Potash Corp. of Saskatchewan Inc. paced a record slide in mining companies and Canadian Natural Resources Ltd. led energy producers lower as crude oil posted its worst weekly drop since 2004.
The Standard & Poor's/TSX Composite Index fell 0.9 percent to 10,803.35 in Toronto after rising 4.2 percent earlier. Canada's main stock benchmark, which derives more than two- fifths of its value from raw-materials and energy shares, slid 10.9 percent this week as commodity prices plunged. The S&P/TSX fell 11.1 percent in the last week of October 2000.
``Sell on the news,'' said Paul Hand, managing director of equity trading at RBC Capital Markets in Toronto. ``This is only the beginning of the hard work of re-liquifying credit markets. A lot of people are getting off the materials trade, saying we'll still have a recession.''
Manulife Financial, Canada's largest insurance company, fell 2 percent to C$36.47 completing its worst weekly drop since June. Brookfield, the manager of $95 billion in assets including real estate and power stations, dropped 5.5 percent to C$26.16, the lowest since January. Toronto-Dominion Bank, the nation's second-biggest lender, slid 1.8 percent to C$59.43 after climbing as much as 3.6 percent earlier.
Reeling
U.S. Congress passed and President George W. Bush signed a mesure that authorizes the government to buy troubled assets from financial institutions reeling from record U.S. home foreclosures. The S&P/TSX fell 6.95 percent yesterday, and 6.93 percent on Sept. 29 when the House of Representatives' rejected the government's earlier rescue plan.
Global financial institutions have had almost $590 billion in losses and writedowns on mortgage-related securities. Canadian banks account for about $10.8 billion of the total. The London interbank offered rate that banks charge each other for loans in U.S. dollars rose the highest since January.
Canadian Imperial Bank of Commerce rose 1.2 percent to C$58.50 after Cerberus Capital Management LP agreed to invest more than $1 billion cash in the bank's troubled U.S. real- estate portfolio, helping reduce the lender's risk.
Industry Groups
Measures of financial companies in the S&P/TSX retreated 1.4 percent. An index of energy stocks dropped 1.6 percent today, while a gauge of raw-materials stocks added 1.9 percent. Energy producers and raw-materials companies' respective weekly drops of 15 percent and 20 percent were the groups' worst such performance since 1995 when the indexes began.
Canadian Natural, the country's second-largest natural-gas producer, fell 1.8 percent to C$63.92. Imperial Oil Ltd., the biggest oil and gas producer, dropped 4.5 percent to C$41.51. Enbridge Inc., Canada's biggest pipeline company, retreated 3.2 percent to C$39.42.
Crude oil futures fell 9 cents to $93.88 a barrel in New York, taking their weekly drop to 12 percent this week after fuel demand fell to the lowest since October 2001. Oil, copper and corn led commodities toward their worst week since at least 1956 this week, according to the Reuters/Jefferies CRB Index.
Potash Corp. advanced 1.2 percent to C$102.21 today. The biggest maker of crop nutrients fell 33 percent this week, the worst such drop since trading began in 1989, after declining commodity prices, missed earnings at Mosaic Co. and a downgrade to ``underperform'' at Merrill Lynch & Co. sparked a slump in Potash and other agricultural companies.
Barrick Gold Corp. added 5.1 percent to C$34.95 even as price of the precious metal fell for a second day. The biggest producer of gold dropped the most in two decades yesterday.
Magna International Inc. plunged after Russian billionaire Oleg Deripaska ceded his investment in the car-parts maker. Magna fell 5.9 percent to C$46.32, the lowest price since February 1996, after a bank financing Deripaska's $1.54 billion purchase of shares in the company asked for the money back.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
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El Paso, Gannett, National City, Yahoo: U.S. Equity Preview
By Lu Wang
Oct. 3 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 6. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 16.10, or 1.4 percent, to 1,108.30. Dow Jones Industrial Average futures fell 193, or 1.8 percent, to 10,364. Nasdaq-100 Index futures slipped 33, or 2.2 percent, to 1,477.50.
El Paso Corp. (EP US): The owner of the largest U.S. network of natural-gas pipelines said two of its 27 operated platforms in the Gulf of Mexico were ``heavily damaged'' by recent hurricanes and that much of its production in the region remains shut-in. The stock added 0.7 percent to $10.96 in regular trading.
Gannett Co. (GCI US): The largest U.S. newspaper publisher borrowed $1.2 billion under its unsecured revolving credit lines, bringing the total amount of such debt to about $1.9 billion. The stock fell 6.8 percent to $15.18 in regular trading.
National City Corp. (NCC US) fell 14 cents, or 4 percent, to $3.37. Ohio's biggest bank had its debt downgraded by Fitch Ratings as the economy weakens and real estate-related loans go bad.
Yahoo! Inc. (YHOO US): The company said Google Inc. (GOOG US) agreed to a ``brief delay'' in the start of a planned Internet-advertising partnership. Yahoo rose 2.7 percent to $16 in regular trading while Google lost 0.9 percent to $386.91.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Oct. 3 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 6. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 16.10, or 1.4 percent, to 1,108.30. Dow Jones Industrial Average futures fell 193, or 1.8 percent, to 10,364. Nasdaq-100 Index futures slipped 33, or 2.2 percent, to 1,477.50.
El Paso Corp. (EP US): The owner of the largest U.S. network of natural-gas pipelines said two of its 27 operated platforms in the Gulf of Mexico were ``heavily damaged'' by recent hurricanes and that much of its production in the region remains shut-in. The stock added 0.7 percent to $10.96 in regular trading.
Gannett Co. (GCI US): The largest U.S. newspaper publisher borrowed $1.2 billion under its unsecured revolving credit lines, bringing the total amount of such debt to about $1.9 billion. The stock fell 6.8 percent to $15.18 in regular trading.
National City Corp. (NCC US) fell 14 cents, or 4 percent, to $3.37. Ohio's biggest bank had its debt downgraded by Fitch Ratings as the economy weakens and real estate-related loans go bad.
Yahoo! Inc. (YHOO US): The company said Google Inc. (GOOG US) agreed to a ``brief delay'' in the start of a planned Internet-advertising partnership. Yahoo rose 2.7 percent to $16 in regular trading while Google lost 0.9 percent to $386.91.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Brazilian Stocks Fall, Led by Aracruz, Banks; Bolsa Declines
By Paulo Winterstein and William Freebairn
Oct. 3 (Bloomberg) -- Brazilian stocks fell to the lowest since April 2007 as Aracruz Celulose SA, the world's biggest pulp producer, reported it may lose about $1 billion from derivatives and banks slid on the prospect of worsening credit conditions.
Aracruz dropped the most in 14 years after Morgan Stanley cut its profit estimates and Merrill Lynch & Co. downgraded the stock to ``neutral'' from ``buy.'' Votorantim Celulose & Papel SA, which plans to merge with Aracruz, slid more than 10 percent. Uniao de Bancos Brasileiros SA led declines in banks even as Congress passed a $700 billion financial-market rescue plan designed to unlock credit markets.
``You had a patient with a very high fever, almost in convulsions, and when you administer the medicine you come back to a lower temperature,'' said Ures Folchini, head of proprietary trading at WestLB AG's Brazilian unit. ``It will take a while for things to return to normal.''
The Bovespa index slid 3.5 percent to 44,517.32. The weekly decline of 12 percent was the most in six years. The BM&FBovespa MidLarge Cap index dropped 3.4 percent, while the BM&FBovespa Small Cap index slipped 3.7 percent. Mexico's Bolsa dropped 4.3 percent, while Chile's Ipsa retreated 2.4 percent.
Aracruz slid 25 percent to 4.85 reais, the biggest drop since at least August 1994. The company said the ``fair value'' of its currency-related derivative contracts at the end of last quarter was negative 1.95 billion reais, or $1.02 billion, after Brazil's real slumped. The accounting loss from derivative transactions is ``higher than what the market was expecting,'' Morgan Stanley analysts, including Carlos De Alba, wrote.
``We expect the negative short-term impact on the company's shares to persist, also affecting'' Votorantim shares, Unibanco analysts wrote.
Votorantim fell 11 percent to 22.99 reais. Brazil's third- largest pulp and paper maker agreed in August to pay 2.71 billion reais ($1.5 billion) to double its stake in Aracruz.
Banks Fall
Unibanco dropped 10 percent to 16.32 reais.
Brazil eased requirements on reserves that banks must keep at the central bank for the second time in two weeks in response to worsening credit conditions sparked by the international financial crisis.
``The central bank is being proactive, acknowledging that liquidity restrictions have increased in Brazil,'' Deutsche Bank AG analyst Mario Pierry wrote in a note to clients. ``This is the third measure implemented by the central bank in two weeks to improve liquidity conditions in the money market.''
Stocks had rallied earlier today on speculation the $700 billion bank bailout package would pass.
U.S. Bailout
The U.S. legislation, a bipartisan effort to restore confidence in the nation's banking system, authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures. The bill contains $149 billion in tax breaks and affirms regulators' power to suspend asset-valuing rules that companies blame for fueling the crisis.
``The package is without a doubt positive but it doesn't solve all the economic problems,'' said Italo Lombardi, economist at Roubini Global Economics LLC in a Bloomberg Television interview. ``It will help a bit some individual institutions but it doesn't guarantee that the system will begin to offer more credit.''
Mexico's Bolsa index had its biggest weekly decline in eight years. The daily drop was led by retailers on concern the U.S. economic slowdown will be prolonged and spread to Mexico.
Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, fell the most in two weeks after Banco Santander SA said the company may report ``modest'' third-quarter results. Comercial Mexicana may say third-quarter net income fell 75 percent and sales at stores open at least a year grew 3 percent, Santander analysts Joaquin Ley and Roberto Liano wrote in a research note today.
Comercial Mexicana retreated 8.2 percent to 22.37 pesos.
Argentina's Merval fell 0.5 percent. Colombia's IGBC and Peru's Lima General index were little changed. The MSCI index of Latin American shares dropped 4.8 percent and had its biggest weekly decline in 18 years.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
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Oct. 3 (Bloomberg) -- Brazilian stocks fell to the lowest since April 2007 as Aracruz Celulose SA, the world's biggest pulp producer, reported it may lose about $1 billion from derivatives and banks slid on the prospect of worsening credit conditions.
Aracruz dropped the most in 14 years after Morgan Stanley cut its profit estimates and Merrill Lynch & Co. downgraded the stock to ``neutral'' from ``buy.'' Votorantim Celulose & Papel SA, which plans to merge with Aracruz, slid more than 10 percent. Uniao de Bancos Brasileiros SA led declines in banks even as Congress passed a $700 billion financial-market rescue plan designed to unlock credit markets.
``You had a patient with a very high fever, almost in convulsions, and when you administer the medicine you come back to a lower temperature,'' said Ures Folchini, head of proprietary trading at WestLB AG's Brazilian unit. ``It will take a while for things to return to normal.''
The Bovespa index slid 3.5 percent to 44,517.32. The weekly decline of 12 percent was the most in six years. The BM&FBovespa MidLarge Cap index dropped 3.4 percent, while the BM&FBovespa Small Cap index slipped 3.7 percent. Mexico's Bolsa dropped 4.3 percent, while Chile's Ipsa retreated 2.4 percent.
Aracruz slid 25 percent to 4.85 reais, the biggest drop since at least August 1994. The company said the ``fair value'' of its currency-related derivative contracts at the end of last quarter was negative 1.95 billion reais, or $1.02 billion, after Brazil's real slumped. The accounting loss from derivative transactions is ``higher than what the market was expecting,'' Morgan Stanley analysts, including Carlos De Alba, wrote.
``We expect the negative short-term impact on the company's shares to persist, also affecting'' Votorantim shares, Unibanco analysts wrote.
Votorantim fell 11 percent to 22.99 reais. Brazil's third- largest pulp and paper maker agreed in August to pay 2.71 billion reais ($1.5 billion) to double its stake in Aracruz.
Banks Fall
Unibanco dropped 10 percent to 16.32 reais.
Brazil eased requirements on reserves that banks must keep at the central bank for the second time in two weeks in response to worsening credit conditions sparked by the international financial crisis.
``The central bank is being proactive, acknowledging that liquidity restrictions have increased in Brazil,'' Deutsche Bank AG analyst Mario Pierry wrote in a note to clients. ``This is the third measure implemented by the central bank in two weeks to improve liquidity conditions in the money market.''
Stocks had rallied earlier today on speculation the $700 billion bank bailout package would pass.
U.S. Bailout
The U.S. legislation, a bipartisan effort to restore confidence in the nation's banking system, authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures. The bill contains $149 billion in tax breaks and affirms regulators' power to suspend asset-valuing rules that companies blame for fueling the crisis.
``The package is without a doubt positive but it doesn't solve all the economic problems,'' said Italo Lombardi, economist at Roubini Global Economics LLC in a Bloomberg Television interview. ``It will help a bit some individual institutions but it doesn't guarantee that the system will begin to offer more credit.''
Mexico's Bolsa index had its biggest weekly decline in eight years. The daily drop was led by retailers on concern the U.S. economic slowdown will be prolonged and spread to Mexico.
Controladora Comercial Mexicana SAB, the owner of supermarkets and Costco stores in Mexico, fell the most in two weeks after Banco Santander SA said the company may report ``modest'' third-quarter results. Comercial Mexicana may say third-quarter net income fell 75 percent and sales at stores open at least a year grew 3 percent, Santander analysts Joaquin Ley and Roberto Liano wrote in a research note today.
Comercial Mexicana retreated 8.2 percent to 22.37 pesos.
Argentina's Merval fell 0.5 percent. Colombia's IGBC and Peru's Lima General index were little changed. The MSCI index of Latin American shares dropped 4.8 percent and had its biggest weekly decline in 18 years.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
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