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10/06/2008

Europeans scramble to save failing banks

Germany became the latest country to move to allay fears about the financial meltdown, enhancing a rescue plan for Hypo Real Estate AG and guaranteeing private bank accounts as European governments scrambled on their own Sunday to save failing banks.

Chancellor Angela Merkel said that no citizen should fear for the safety of their investments. Hours later, her government announced a new bailout package totaling 50 billion euros ($69 billion) for Hypo Real Estate, Germany's second-biggest commercial property lender.

Hypo said an original 35 billion ($48 billion) rescue plan fell apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU.

The deal was on top of the guarantees of private accounts. German Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568 billion euros ($785 billion) in savings and checking accounts as well as time deposits, or CDs.

At the same time, Belgian Prime Minister Yves Leterme said that France's BNP Paribas SA had committed to taking a 75-percent stake in Fortis NV.

Leterme said the Belgian and Luxembourg governments would, in turn, take a blocking minority share in BNP Paribas.

The deal came after two days of closed-door talks between the Paris-based bank, Fortis and government authorities in an effort to restore confidence in the company before markets open Monday.

In Iceland — particularly hard-hit by the credit crunch — government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.

British treasury chief Alistair Darling said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch.

In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.

"The European banking industry is feeling the wind of default blowing from the other side of the Atlantic," said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm.

The erosion has also injured overall confidence and caused concern among investors, politicians and the European public.

The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President Bush.

Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.

France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

French President Nicolas Sarkozy's top adviser, Claude Gueant, insisted that a "common European plan" had come out of the summit.

"What is certain and what the citizens of France and Europe must know is that their (banking) establishments won't be left in difficulty," he told Europe-1 radio on Sunday.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of 100 billion euros ($138 billion) — dwarfing the tiny country's gross domestic product of 14 billion euros ($19 billion euros).

The government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating.

Looming large was a growing sense that the Federal Reserve and Europe's major central banks — which have been flooding euros and dollars to banks that have grown increasingly unwilling to lend money even to themselves — were ready to institute emergency cuts to their benchmark interest rates this week.

None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate below 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.

Robert Brusca, chief economist at the New York-based Fact and Opinion Economics, said that the ECB does issue such a cut it would a be a sign "that they're really, really scared."

By MATT MOORE, AP Business Writer
Meltdown

5/14/2008

The past catches up

Nigeria's president is troubled by his predecessor

Olusegun Obasanjo's reputation as a financially prudent president is being undermined by a series of investigations. This presents his successor with a dilemma.

A year after coming to power, Umaru Yar'Adua is finding it increasingly difficult to fulfil his campaign pledge of tackling Nigeria's endemic corruption. While the Nigerian president made an encouraging start, initiating various investigations and annulling a number of suspect deals, he faces a dilemma: the more investigations that take place, the greater the evidence of misappropriation under the previous administration, headed by Olusegun Obasanjo. Mr Obasanjo's reputation for leading a financially prudent administration is thus being gradually unravelled. Given that President Yar?Adua was hand-picked by his predecessor, and that Olusegun Obasanjo is widely perceived to be his mentor, this is something of an embarrassment to the head of state, and many Nigerians are now watching to see how he responds to the mounting evidence of mismanagement and corruption during the Obasanjo era. ...

The Economist Intelligence Unit briefing: China and Japan

Despite warming relations, rivalry and suspicion persist

China and Japan have issued a joint communique emphasising their intention to take a forward-looking and constructive approach to bilateral relations. As a symbol of warming ties between the two countries, the communique is significant in its own right, as indeed is the state visit to Japan of China's president, Hu Jintao, during which the joint statement was released. Relations between China and Japan have undoubtedly improved compared with just a few years ago. Yet while both governments recognise the strategic benefits of a stronger friendship, fundamental tensions and areas of strategic rivalry remain.

At one level, Mr Hu's visit and the joint statement he signed with the Japanese prime minister, Yasuo Fukuda, on May 7th are proof positive of the "warm spring" in relations that the two governments have recently claimed is occurring. Mr Hu's visit is the first to Japan by a Chinese head of state since 1998, and would not have been possible without an improvement on the situation that has prevailed for much of the intervening period. Not only was the previous visit to Japan by a Chinese president, Jiang Zemin, a diplomatic disaster (Tokyo took offence when Mr Jiang demanded a stronger Japanese apology for prewar and wartime atrocities in China), but relations between the two countries were also badly strained by Junichiro Koizumi's visits to Yasukuni shrine in Tokyo during his five-year tenure as Japanese prime minister from 2001 to 2006. ...

5/03/2008

Making the grade

Brazil gets recognition for improved economic management

Investment-grade status, which was awarded to Brazil?s foreign-currency-denominated debt on April 30th by Standard & Poor?s, one of the main US credit rating agencies, is an acknowledgment of the important progress achieved in macroeconomic management and of a substantial improvement in external solvency ratios. Indeed, with reserves close to US$200bn, Brazil has become a net external creditor. Nevertheless, weaknesses persist, as the government has confirmed its intention to keep increasing public spending as part of its state-led development policies.

The quest for investment grade was so long and fraught with difficulties that financial markets were taken somewhat by surprise when Standard & Poor?s (S&P) raised Brazil?s long-term foreign-currency credit rating from BB+ to BBB- on the eve of the May 1st Labour Day holiday. Even though some investors thought the upgrade had been long overdue, few expected it to materialise before the end of the year due to current global uncertainty. The Latin American giant is now on par with India, according to S&P?s ratings, but still two notches below the ratings given to Russia and Mexico, and far below that of China. ...

4/27/2008

Wealth mismanagement

A candid account of what went wrong

HOW did UBS, a Swiss bank whose core business is the staid one of wealth management, manage to lose $38 billion betting on American mortgage-backed assets, battering its core capital and share price in the process? Shareholders, out in force at the bank?s annual meeting on Wednesday April 23rd in Basel, asked just that question.

The mystery is being resolved. On Monday the bank released a summary of an internal investigation into the causes of the write-downs that had been demanded by the Swiss Federal Banking Commission. The 400-page report is now being chewed over by the regulator. Rivals should read it too. The report gives three broad explanations for the bank?s woes. The investment-banking arm?s preoccupation with growth, the reliance of the control team on flawed measures of risk and the culture of the bank. ...

NORTH AMERICAN UNION Secrecy Reported by CNN

BREAKING NEWS, CNN Money stumbled on to some truth. I was surprised to see this story on CNN Video. They obviously didn’t go far enough, but at least they are willing to mention it.It just shows the masses that this really is happening, and unless we come together to stop it, we are going to [...]

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[Source: War On You -

4/23/2008

A bloody crackdown

Worsening repression inside Zimbabwe

THE situation in Zimbabwe is akin to war, says the opposition Movement for Democratic Change (MDC). It is certainly looking ever more brutal. Violence and repression have escalated dramatically over the past few days. Pro-government militias roam the countryside, terrorising and beating suspected opposition supporters. The police remain idle or, in some cases, join in with the beatings. The Zimbabwe Association of Doctors for Human Rights, a local outfit, has treated over 240 cases of injury, including broken limbs, resulting from organised violence since parliamentary and presidential elections just over three weeks ago.

Human Rights Watch, an international group, says that ZANU-PF, the ruling party of President Robert Mugabe, has set up torture camps across the country as part of a systematic campaign to intimidate the opposition, which won the parliamentary elections and, it claims, the presidential vote too. Victims are taken to the camps at night and beaten for hours with thick sticks, bars and army batons. Huts and houses have been torched. An unofficial curfew is in force in the poor suburbs of Harare, the capital. The MDC says that ten of its supporters have been killed, some shot dead. The opposition also says that some 3,000 families have had to flee their homes, 500 people have been put in hospital and over 400 opposition activists have been arrested. ...

4/19/2008

And the cupboard was bare

British banks start to pass round the begging bowl

EVER since the emperor bought new clothes, there have been few instances of self-delusion quite as stark as that of cavalier British bankers at the start of 2008. Just as rivals in America and other parts of Europe were writing down billions on their investments in dodgy mortgage loans and frantically raising money, the bosses of Britain?s biggest banks were instead blithely increasing their dividends in a blustery display of financial strength. Just how hollow it was became apparent on Friday April 18th when it emerged that Royal Bank of Scotland, the country?s second biggest bank, might have to raise money to satisfy bank regulators.

The amount will not be trivial, not will be its impact on shareholders. Analysts reckon that Royal Bank may have to raise between GBP10 billion ($19.9 billion) and GBP13 billion, about a third of its current market value of GBP37 billion. It is expected to do so through a share sale which will probably be announced at its annual shareholders? meeting on April 23rd. ...

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