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
10/06/2008
Europeans scramble to save failing banks
5/27/2008
An oil saviour?
Iraq has the potential to supply much more oil
The growing concerns in the world energy market about the risks of a supply crunch have been a critical factor behind the recent surge in oil prices to a new record of US$135/barrel. Speculators are betting huge sums on the assumption that the oil market (and other primary energy markets) will remain tight for many years to come, owing to the inelasticity of demand and to the constraints on long-term supply. Saudi Arabia, the world's largest oil exporter, is doing its bit to allay these concerns, but has acknowledged that once its current crop of oilfield projects is complete in around 2013, there will be little scope for further capacity increases. Similar strains are evident in most of the other major oil-producing countries. One significant exception is Iraq, which holds (at least) 10% of the world's proven reserves, but accounts for only 2.5% of total production. Iraq has the potential to furnish a long-term solution to the oil market's long-term supply problem, but it will need to improve dramatically on its recent performance before buyers of oil futures will be convinced that it can deliver.
If history had been kinder, Iraq could now be producing at a comparable level to Saudi Arabia. Instead, three wars, 13 years of sanctions and five years of internal conflict have eroded Iraq's oil infrastructure and human capital. However, Iraq also has a history of recovery. Production peaked at over 3.5m barrels/day (b/d) in 1980 on the eve of the Iran-Iraq war, but then averaged less than half that level during the eight-year war. It had nearly recovered to 3.5m b/d in 1990, after which the invasion of Kuwait and the subsequent UN sanctions severely limited exports, and hence production. In the five years before the US-led invasion of 2003, the sanctions regime gradually permitted greater exports, and production was often above 2.5m b/d. However, it fluctuated considerably due to the impact of years of underinvestment, restrictions on the import of spare parts and isolation from the international oil industry. ...
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[Source: The Economist: News analysis
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. ...
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[Source: The Economist: News analysis
5/03/2008
On the brink
Venerable newspapers face extinction
THE New York Times once epitomised all that was great about American newspapers; now it symbolises its industry?s deep malaise. The Grey Lady?s circulation is tumbling, down another 3.9% in the latest data from America?s Audit Bureau of Circulations (ABC). Its advertising revenues are down, too (12.5% lower in March than a year earlier), as is the share price of its owner, the New York Times Company, up from its January low but still over 20% below what it was last July. On Tuesday April 29th Standard & Poor?s cut the firm?s debt rating to one notch above junk.
At the company?s annual meeting a week earlier, its embattled publisher, Arthur ?Pinch? Sulzberger, attempted to quash rumours that his family is preparing to jettison the firm it has owned since 1896. Carnage is expected soon as dozens of what were once the safest jobs in journalism are axed, since too few of the staff have accepted a generous offer of voluntary redundancy. ...
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[Source: The Economist: News analysis
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. ...
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[Source: The Economist: News analysis
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. ...
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[Source: The Economist: News analysis
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
Providing cover
The Bank of England offers help
AS THE global banking crisis has gone on, central banks have repeatedly had to improvise responses to an ever-worsening financial storm. In America, the Federal Reserve stretched its powers to the limit when it organised the rescue of Bear Stearns. Now the Bank of England has come up with an innovative plan?a ?special liquidity scheme? that may provide at least GBP50 billion ($100 billion) to help troubled British banks.
The need for a new approach has been clear for several weeks. The most obvious sign has been the elevated (Libor) rate at which banks raise funds through the money markets. This is normally quite close to the Bank of England?s base rate, which sets the cost of overnight funds. When the crisis struck last August, however, it soared (see chart). ...
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[Source: The Economist: News analysis - Posted by FreeAutoBlogger]
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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[Source: The Economist: News analysis -
Goldman Sachs and Wells Fargo warn 'delusional' investors on stocks
Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.
Goldman Sachs said the key for equities will be the full-year guidance offered by companies
David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.
"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'.
Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.
Merrill Lynch announces job cuts after $2 billion loss
The bank reported worst-than-expected earnings for the first quarter, including $6.5 billion in write-downs and adjustments to assets in its mortgage, leveraged finance and other divisions. The write-downs bring the total taken by Merrill Lynch in the last three quarters to more than $30 billion.
Merrill Lynch said it suffered a loss of $1.96 billion, or $2.19 a share, after its write-downs, in the first three months, down from a profit of $2.11 billion, or $2.26 a share, a year ago.
Analysts surveyed by Bloomberg News had expected a loss of $1.79 a share. Revenue, including interest and dividends, was $2.9 billion - down 69 percent from a year ago.
The job cuts will come from the company's global markets and investment banking division, which includes fixed income, currency, commodity and equity trading as well as banking. That part of the bank recorded a pre-tax loss of $4 billion for the first quarter and negative revenue of $690 million. The layoffs will save $800 million a year in compensation expenses, the bank said.
