Asian stocks rose, driving the regional benchmark index to a three-week high, after a report showing U.S. jobs grew faster than forecast and a weakening yen boosted optimism in an economic recovery.
Canon Inc. (7751), which receives 28 percent of its revenue from the Americas, gained 1.2 percent in Tokyo. Fast Retailing Co., Asia’s biggest apparel chain, jumped 5.7 percent after Credit Suisse Group AG and UBS AG recommended investors “buy” the Japanese stock. Woodside Petroleum Ltd. (WPL), Australia’s second- largest oil and gas producer, increased 0.8 percent after oil prices climbed to a 30-month high.
“The U.S. jobs data had recovered more than expected, so investors’ risk tolerance will increase,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The yen is reacting to the jobs data, and this should be a plus for exporters.”
The MSCI Asia Pacific Index advanced 0.5 percent to 136 as of 9:45 a.m. in Tokyo, heading for its highest close since March 10, with two stocks rising for each that fell. The index has increased for two straight weeks as Japanese companies began resuming production after the nation’s worst earthquake on record on March 11 and as Chinese firms posted profits that beat analyst estimates.
Japan’s Nikkei 225 (NKY) Stock Average climbed 0.8 percent. Australia’s S&P/ASX 200 Index rose 0.6 percent and New Zealand’s NZX 50 Index gained 0.1 percent. South Korea’s Kospi Index fell 0.1 percent.
Futures on the Standard & Poor’s 500 Index were little changed today. The index rose 0.5 percent on April 1, adding to gains from the market’s biggest first-quarter rally since 1998, as faster-than-forecast jobs growth bolstered optimism and Nasdaq OMX Group Inc. started a bidding war for NYSE Euronext.
U.S. Employment
A U.S. government jobs report showed the U.S. unemployment rate dropped to a two-year low of 8.8 percent in March from 8.9 percent in February. Payrolls grew by 216,000 workers after a 194,000 gain the prior month, the Labor Department said. Economists projected a March gain of 190,000, according to the median estimate in a Bloomberg survey.
The yen depreciated to as low as 84.38 against the dollar today, compared with 83.55 at the close of stock trading in Tokyo on April 1. A drop in the yen increases the value of overseas income at Japanese companies when converted into their home currency.
Crude oil for May delivery advanced as much as 0.6 percent to $108.60 a barrel in electronic trading on the New York Mercantile Exchange.
The MSCI Asia Pacific Index lost 1.7 percent this year through April 1, compared with gains of 6 percent by the S&P 500 and 1.5 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.1 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.2 times for the Stoxx 600.
source:bloomberg.com
Sunday, April 03, 2011
Deutsche Boerse-NYSE Takeover Turning Table on Shareholder Value: Real M&A
Duncan Niederauer’s wish for NYSE Euronext (NYX)’s takeover by Deutsche Boerse AG (DB1) to be a merger of equals may be coming true -- at the expense of shareholders in the Frankfurt-based exchange.
Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE)’s unsolicited bid last week for NYSE Euronext valued the operator of the New York Stock Exchange at $42.50 a share, topping a February offer from Deutsche Boerse by almost 20 percent. Without committing any cash, the German exchange could be forced to surrender as much as 45 percent, up from about 40 percent, of the combined entity to NYSE Euronext’s owners to trump the Nasdaq OMX-ICE bid, according to data compiled by Bloomberg and Capstone Global Markets LLC.
While a bidding contest would help Niederauer, NYSE Euronext’s chief executive officer, recoup money for investors that lost more than 40 percent since the exchange went public in 2006, Deutsche Boerse’s all-stock offer has already cost the German exchange’s owners $1.4 billion since it was announced. Now, they face giving up even more equity if their managers counter Nasdaq OMX and ICE, which may push Deutsche Boerse to bid as much as $46 a share, the data show.
“If Deutsche Boerse were to engage in a bidding war, their shareholders will likely come out with the short end of the stick,” said Michael Wong, a Chicago-based analyst at Morningstar Inc. “NYSE shareholders would be the ultimate beneficiaries of the bidding war, with the acquirers being saddled with the winner’s curse.”
‘The Right Thing’
NYSE Euronext is studying the Nasdaq OMX-ICE bid, according to a letter from Niederauer, 51, to employees contained in a filing with the Securities and Exchange Commission last week.
“NYSE Euronext has always been committed to our shareholders, and our board will consider the new proposal and do the right thing for our shareholders,” he wrote. “In the meantime, we remain fully committed to our previously announced deal with Deutsche Boerse.”
Deutsche Boerse doesn’t plan to raise its bid, Die Welt reported in an advance release of a story to appear today, citing an unidentified person close to the situation.
Frank Herkenhoff, a spokesman for Deutsche Boerse, didn’t immediately respond to a message left on his mobile phone outside normal office hours. The company’s offer for NYSE Euronext is “the best possible combination for both shareholder groups and the stakeholders of the companies,” Deutsche Boerse said in a statement last week.
Nasdaq OMX Shares
Last week’s offer from Nasdaq OMX’s Robert Greifeld, 53, and ICE CEO Jeff Sprecher, 56, lifted New York-based NYSE Euronext 13 percent to $39.60 on April 1. Nasdaq OMX rose 9.3 percent to $28.23 for the biggest gain since March 2009, while Deutsche Boerse fell 1.4 percent to 52.81 euros ($75.19).
The German exchange, led by 55-year-old Reto Francioni, has declined 14 percent since Feb. 14, the day before it and NYSE Euronext announced their deal. The slump has lowered the value of its all-stock offer to $35.44, or 11 percent less than NYSE Euronext’s closing price last week.
Deutsche Boerse offered 0.47 of its own stock for each NYSE Euronext share in a deal currently valued at $9.3 billion to create the world’s largest exchange operator with venues in the U.S. and Europe.
At the time the deal was announced, Niederauer said on a conference call it was a “merger” with Deutsche Boerse, rather than an acquisition by the German exchange.
‘How Many More’
“I don’t know how many more times we can say that,” Niederauer said.
Last week, New York-based Nasdaq OMX and ICE of Atlanta made a cash-and-stock offer that valued the 219-year-old exchange operator at about $11.3 billion, Bloomberg data show.
NYSE Euronext owners will get 0.4069 Nasdaq OMX share, 0.1436 ICE share and $14.24 a share in cash, valuing the transaction at $42.50 on March 31. Currently, the offer is worth about $42.92 a share, the data show.
ICE would purchase NYSE Euronext’s Liffe futures markets, while Nasdaq OMX would keep its U.S. options markets. The deal would give Nasdaq OMX a monopoly on listing companies in the U.S., the world’s largest capital market.
Nasdaq OMX, the second-largest U.S. bourse operator, and ICE said they will eliminate about $740 million in expenses in three years. That’s 74 percent more than Deutsche Boerse predicted in its agreement.
‘One and Only’
“Deutsche Boerse has been very clear about this being the one and only deal for them,” said Ian McDonald, a Baltimore- based exchange analyst at T. Rowe Price Group Inc., which oversees $482 billion and is NYSE Euronext’s biggest shareholder. “To get it done, they have to raise their synergies and their price.”
Deutsche Boerse’s current offer gives its owners about 60 percent of the combined company, the data show.
While Deutsche Boerse could raise its bid to $54.13 and still retain a 51 percent stake, data compiled by Bloomberg show, issuing the additional shares would devalue its own stock as currency, according to Capstone Global’s Sachin Shah.
Without offering cash, retaining at least a 55 percent stake would keep Deutsche Boerse from increasing its bid above $45.86, based on last week’s closing price, the data show.
“The higher the stake they give up, the more control they’re giving up,” said Shah, a special situations and merger arbitrage strategist at Capstone Global in New York. “It becomes a little problematic not only in the context of shareholder value for their shareholders, but also the Germans are probably kind of wanting them to have significant control.”
‘The Only Game’
“At the end of the day they don’t want a U.S.-based company to be running a German exchange,” Shah said. Still, “the only game they can play is upping the offer,” he said.
Speculation of a bidding war for NYSE Euronext made it one of the stock market’s biggest winners in 2011. The shares have posted the 13th-biggest gain in the Standard & Poor’s 500 Index, rising 32 percent. The exchange is up 155 percent since the market bottomed on March 9, 2009, compared with a 97 percent advance in the S&P 500, according to data compiled by Bloomberg.
NYSE Euronext shares have still trailed the S&P 500 by more than 45 percentage points since its first trading session as a public company in March 2006. The company has fallen 64 percent from a record peak of $108.96 in November 2006. Losses in market share and pricing spurred by competition in equities trading weighed on the price, according to Morningstar’s Wong.
Overall, there have been 6,113 deals announced globally this year, totaling $603.3 billion, a 19 percent increase from the $504.9 billion in the same period in 2010.
source:bloomberg.com
Nasdaq OMX Group Inc. (NDAQ) and IntercontinentalExchange Inc. (ICE)’s unsolicited bid last week for NYSE Euronext valued the operator of the New York Stock Exchange at $42.50 a share, topping a February offer from Deutsche Boerse by almost 20 percent. Without committing any cash, the German exchange could be forced to surrender as much as 45 percent, up from about 40 percent, of the combined entity to NYSE Euronext’s owners to trump the Nasdaq OMX-ICE bid, according to data compiled by Bloomberg and Capstone Global Markets LLC.
While a bidding contest would help Niederauer, NYSE Euronext’s chief executive officer, recoup money for investors that lost more than 40 percent since the exchange went public in 2006, Deutsche Boerse’s all-stock offer has already cost the German exchange’s owners $1.4 billion since it was announced. Now, they face giving up even more equity if their managers counter Nasdaq OMX and ICE, which may push Deutsche Boerse to bid as much as $46 a share, the data show.
“If Deutsche Boerse were to engage in a bidding war, their shareholders will likely come out with the short end of the stick,” said Michael Wong, a Chicago-based analyst at Morningstar Inc. “NYSE shareholders would be the ultimate beneficiaries of the bidding war, with the acquirers being saddled with the winner’s curse.”
‘The Right Thing’
NYSE Euronext is studying the Nasdaq OMX-ICE bid, according to a letter from Niederauer, 51, to employees contained in a filing with the Securities and Exchange Commission last week.
“NYSE Euronext has always been committed to our shareholders, and our board will consider the new proposal and do the right thing for our shareholders,” he wrote. “In the meantime, we remain fully committed to our previously announced deal with Deutsche Boerse.”
Deutsche Boerse doesn’t plan to raise its bid, Die Welt reported in an advance release of a story to appear today, citing an unidentified person close to the situation.
Frank Herkenhoff, a spokesman for Deutsche Boerse, didn’t immediately respond to a message left on his mobile phone outside normal office hours. The company’s offer for NYSE Euronext is “the best possible combination for both shareholder groups and the stakeholders of the companies,” Deutsche Boerse said in a statement last week.
Nasdaq OMX Shares
Last week’s offer from Nasdaq OMX’s Robert Greifeld, 53, and ICE CEO Jeff Sprecher, 56, lifted New York-based NYSE Euronext 13 percent to $39.60 on April 1. Nasdaq OMX rose 9.3 percent to $28.23 for the biggest gain since March 2009, while Deutsche Boerse fell 1.4 percent to 52.81 euros ($75.19).
The German exchange, led by 55-year-old Reto Francioni, has declined 14 percent since Feb. 14, the day before it and NYSE Euronext announced their deal. The slump has lowered the value of its all-stock offer to $35.44, or 11 percent less than NYSE Euronext’s closing price last week.
Deutsche Boerse offered 0.47 of its own stock for each NYSE Euronext share in a deal currently valued at $9.3 billion to create the world’s largest exchange operator with venues in the U.S. and Europe.
At the time the deal was announced, Niederauer said on a conference call it was a “merger” with Deutsche Boerse, rather than an acquisition by the German exchange.
‘How Many More’
“I don’t know how many more times we can say that,” Niederauer said.
Last week, New York-based Nasdaq OMX and ICE of Atlanta made a cash-and-stock offer that valued the 219-year-old exchange operator at about $11.3 billion, Bloomberg data show.
NYSE Euronext owners will get 0.4069 Nasdaq OMX share, 0.1436 ICE share and $14.24 a share in cash, valuing the transaction at $42.50 on March 31. Currently, the offer is worth about $42.92 a share, the data show.
ICE would purchase NYSE Euronext’s Liffe futures markets, while Nasdaq OMX would keep its U.S. options markets. The deal would give Nasdaq OMX a monopoly on listing companies in the U.S., the world’s largest capital market.
Nasdaq OMX, the second-largest U.S. bourse operator, and ICE said they will eliminate about $740 million in expenses in three years. That’s 74 percent more than Deutsche Boerse predicted in its agreement.
‘One and Only’
“Deutsche Boerse has been very clear about this being the one and only deal for them,” said Ian McDonald, a Baltimore- based exchange analyst at T. Rowe Price Group Inc., which oversees $482 billion and is NYSE Euronext’s biggest shareholder. “To get it done, they have to raise their synergies and their price.”
Deutsche Boerse’s current offer gives its owners about 60 percent of the combined company, the data show.
While Deutsche Boerse could raise its bid to $54.13 and still retain a 51 percent stake, data compiled by Bloomberg show, issuing the additional shares would devalue its own stock as currency, according to Capstone Global’s Sachin Shah.
Without offering cash, retaining at least a 55 percent stake would keep Deutsche Boerse from increasing its bid above $45.86, based on last week’s closing price, the data show.
“The higher the stake they give up, the more control they’re giving up,” said Shah, a special situations and merger arbitrage strategist at Capstone Global in New York. “It becomes a little problematic not only in the context of shareholder value for their shareholders, but also the Germans are probably kind of wanting them to have significant control.”
‘The Only Game’
“At the end of the day they don’t want a U.S.-based company to be running a German exchange,” Shah said. Still, “the only game they can play is upping the offer,” he said.
Speculation of a bidding war for NYSE Euronext made it one of the stock market’s biggest winners in 2011. The shares have posted the 13th-biggest gain in the Standard & Poor’s 500 Index, rising 32 percent. The exchange is up 155 percent since the market bottomed on March 9, 2009, compared with a 97 percent advance in the S&P 500, according to data compiled by Bloomberg.
NYSE Euronext shares have still trailed the S&P 500 by more than 45 percentage points since its first trading session as a public company in March 2006. The company has fallen 64 percent from a record peak of $108.96 in November 2006. Losses in market share and pricing spurred by competition in equities trading weighed on the price, according to Morningstar’s Wong.
Overall, there have been 6,113 deals announced globally this year, totaling $603.3 billion, a 19 percent increase from the $504.9 billion in the same period in 2010.
source:bloomberg.com
Japan Tankan Signals Concern Confidence Will Keep Sliding
Japan’s large manufacturers signaled increased concern about business confidence in coming months after the nation’s strongest earthquake on record devastated the northeast region on March 11.
The quarterly outlook index of sentiment among big manufacturers is seen falling to minus 2 in June from 6 in March, the biggest drop since September, according to a breakdown of the Bank of Japan’s Tankan survey released in Tokyo today. A negative number means pessimists outnumber optimists.
The report underscores how last month’s disaster has worsened corporate sentiment, as damage to plants and power shortages limit production. Economists at Nomura Securities Co. and RBS Securities Japan Ltd. forecast gross domestic product will contract this quarter and stagnating sentiment may increase the case for the central bank to ease monetary policy further.
“Given the earthquake, the economy will likely contract both in the first quarter and the second quarter, putting off an escape from the economic lull,” Takahide Kiuchi, chief economist at Nomura in Tokyo, said before the report. “The BOJ may expand the size of its asset purchase program” this month.
The yen traded at 84.17 per dollar as of 9 a.m. in Tokyo. The Nikkei 225 (NKY) Stock Average rose 0.7 percent.
Car Sales Plunge
A report last week including all responses gathered from Feb. 24 to March 31 showed sentiment improving to 6 from 5 in December. Confidence among large manufacturers after the earthquake was little changed from a reading of 7 based on responses collected before the temblor.
Data so far for March have shown that manufacturing fell at the fastest pace in at least nine years, while new car sales in Japan decreased 37 percent, the biggest drop for the month ever. The earthquake and tsunami crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant, causing the world’s worst nuclear crisis since Chernobyl in 1986.
Companies from Honda Motor Co. and Sony Corp. have halted production after the disaster.
Shortage of Parts
Toyota Motor Corp., the world’s largest automaker, has said it lost 140,000 units of production from March 14 to March 26, citing a shortage of electronic parts, rubber and plastics. Scarce parts and electricity may prompt it to delay making at least 500,000 vehicles in Japan, according to Koji Endo, an auto analyst at Advanced Research Japan. Honda Motor Co. has seen a production loss of 46,600 cars and trucks and 5,000 motorcycles.
March reports have overshadowed February data that showed industrial production rose for a fourth month and the unemployment rate dropped to a two-year low, data that indicated the economy’s resilience would cushion the effect of the natural disaster this quarter.
The overall sentiment index among large manufacturers climbed to 6 in March from 5 in December, the central bank said on April 1. The survey was conducted from Feb. 24 to March 31 and 72 percent of responses came by March 11, the day of the quake, the bank said.
Currency Intervention
The disaster, which has claimed more than 11,000 lives, has also caused a plunge in Japanese stocks and sent the yen to a post-World War II high against the dollar, prompting the first coordinated currency intervention by Group of Seven nations in more than a decade. Damage from the quake and tsunami is estimated by the government to swell to as much as 25 trillion yen ($300 billion). Prime Minister Naoto Kan is preparing an extra budget to pay for reconstruction efforts.
The BOJ doubled its asset-purchase program to 10 trillion yen on March 14, increasing the funds injections into the financial system. Nomura’s Kiuchi said the bank may increase the size of the asset buying program by between 3 trillion yen and 5 trillion yen at its meeting on April 28. The central bank will next meet on April 6-7.
The central bank is also considering offering temporary loans to banks to encourage lending to companies with cash-flow shortages in the wake of the quake, according to three people familiar with the matter.
source:bloomberg.com
The quarterly outlook index of sentiment among big manufacturers is seen falling to minus 2 in June from 6 in March, the biggest drop since September, according to a breakdown of the Bank of Japan’s Tankan survey released in Tokyo today. A negative number means pessimists outnumber optimists.
The report underscores how last month’s disaster has worsened corporate sentiment, as damage to plants and power shortages limit production. Economists at Nomura Securities Co. and RBS Securities Japan Ltd. forecast gross domestic product will contract this quarter and stagnating sentiment may increase the case for the central bank to ease monetary policy further.
“Given the earthquake, the economy will likely contract both in the first quarter and the second quarter, putting off an escape from the economic lull,” Takahide Kiuchi, chief economist at Nomura in Tokyo, said before the report. “The BOJ may expand the size of its asset purchase program” this month.
The yen traded at 84.17 per dollar as of 9 a.m. in Tokyo. The Nikkei 225 (NKY) Stock Average rose 0.7 percent.
Car Sales Plunge
A report last week including all responses gathered from Feb. 24 to March 31 showed sentiment improving to 6 from 5 in December. Confidence among large manufacturers after the earthquake was little changed from a reading of 7 based on responses collected before the temblor.
Data so far for March have shown that manufacturing fell at the fastest pace in at least nine years, while new car sales in Japan decreased 37 percent, the biggest drop for the month ever. The earthquake and tsunami crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant, causing the world’s worst nuclear crisis since Chernobyl in 1986.
Companies from Honda Motor Co. and Sony Corp. have halted production after the disaster.
Shortage of Parts
Toyota Motor Corp., the world’s largest automaker, has said it lost 140,000 units of production from March 14 to March 26, citing a shortage of electronic parts, rubber and plastics. Scarce parts and electricity may prompt it to delay making at least 500,000 vehicles in Japan, according to Koji Endo, an auto analyst at Advanced Research Japan. Honda Motor Co. has seen a production loss of 46,600 cars and trucks and 5,000 motorcycles.
March reports have overshadowed February data that showed industrial production rose for a fourth month and the unemployment rate dropped to a two-year low, data that indicated the economy’s resilience would cushion the effect of the natural disaster this quarter.
The overall sentiment index among large manufacturers climbed to 6 in March from 5 in December, the central bank said on April 1. The survey was conducted from Feb. 24 to March 31 and 72 percent of responses came by March 11, the day of the quake, the bank said.
Currency Intervention
The disaster, which has claimed more than 11,000 lives, has also caused a plunge in Japanese stocks and sent the yen to a post-World War II high against the dollar, prompting the first coordinated currency intervention by Group of Seven nations in more than a decade. Damage from the quake and tsunami is estimated by the government to swell to as much as 25 trillion yen ($300 billion). Prime Minister Naoto Kan is preparing an extra budget to pay for reconstruction efforts.
The BOJ doubled its asset-purchase program to 10 trillion yen on March 14, increasing the funds injections into the financial system. Nomura’s Kiuchi said the bank may increase the size of the asset buying program by between 3 trillion yen and 5 trillion yen at its meeting on April 28. The central bank will next meet on April 6-7.
The central bank is also considering offering temporary loans to banks to encourage lending to companies with cash-flow shortages in the wake of the quake, according to three people familiar with the matter.
source:bloomberg.com
Friday, April 01, 2011
Foreign Banks Tapped Fed’s Secret Lifeline Most at Crisis Peak
U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.
Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.
The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.
“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.
Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.
Bank of America
Those programs also loaned tens of billions of dollars to each of the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. and Morgan Stanley.
The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”
The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed was ordered to release more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.
Public Outrage
“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.
“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”
The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount window credit.
David Skidmore, a Fed spokesman, declined to comment.
Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.
The Charlotte, North Carolina-based bank borrowed $29 billion from the discount window on Oct. 6, in the week after it nearly collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.
Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.
Bank of Scotland
Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.
The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)
“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”
Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.
Bank of China
“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.
Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month, while two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.
Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to borrow at least $1.1 billion from the discount window in October 2008.
The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.
Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.
‘Backward-Looking’
Dexia’s outstanding balance at the Fed has been reduced to zero, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.
“This information is backward-looking,” she said. “We experienced a great deal of tension concerning the liquidity of the dollar at the time of the crisis. The Fed played its role as central banker, providing liquidity to banks that needed it.”
Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009. Oliver Gruss, a spokesman for Depfa’s parent company, didn’t respond to requests for comment.
Many foreign banks own large pools of dollar assets --bonds, securities and loans -- funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.
‘Playing With Fire’
“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding -- bingo, you have a liquidity crisis.”
The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.
Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.
The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.
“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.
Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall -- a combined $274.1 billion -- to the Commercial Paper Funding Facility.
Bank of America
Those programs also loaned tens of billions of dollars to each of the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. and Morgan Stanley.
The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”
The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed was ordered to release more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.
Public Outrage
“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.
“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”
The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount window credit.
David Skidmore, a Fed spokesman, declined to comment.
Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.
The Charlotte, North Carolina-based bank borrowed $29 billion from the discount window on Oct. 6, in the week after it nearly collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.
Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.
Bank of Scotland
Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.
The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)
“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”
Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.
Bank of China
“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.
Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month, while two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.
Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to borrow at least $1.1 billion from the discount window in October 2008.
The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.
Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.
‘Backward-Looking’
Dexia’s outstanding balance at the Fed has been reduced to zero, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.
“This information is backward-looking,” she said. “We experienced a great deal of tension concerning the liquidity of the dollar at the time of the crisis. The Fed played its role as central banker, providing liquidity to banks that needed it.”
Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009. Oliver Gruss, a spokesman for Depfa’s parent company, didn’t respond to requests for comment.
Many foreign banks own large pools of dollar assets --bonds, securities and loans -- funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.
‘Playing With Fire’
“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding -- bingo, you have a liquidity crisis.”
The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.
Sunday, January 23, 2011
Bank Valuations Stuck at 2009 Lows Showing No Crisis Recovery
Valuations for U.S. financial stocks have fallen so far, it’s like the rebound from the worst crisis since the 1930s never happened.
Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 percent this year, exceeding the S&P 500, data compiled by Bloomberg show.
While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc. collapsed in September 2008, the failure of price- earnings ratios to widen is a sign to Pioneer Investments and Gamco Investors Inc. that gains in banks may end when government stimulus ends. Bulls such as OppenheimerFunds Inc. say forecasts for a three-year economic expansion mean the stocks will prove bargains as earnings and dividends increase.
“It may be awhile before investors feel comfortable paying above-average multiples for financial companies,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “What everyone is waiting for is a sign that the companies are really back, that they’re really on their feet again and can survive without continued government support and subsidy.”
Industrial Production
The biggest yearly increase in U.S. retail sales since 1999 and higher-than-estimated industrial production show the U.S. expansion is gaining momentum. The Commerce Department may say Jan. 28 that gross domestic product rose at an annual rate of 3.5 percent in the fourth quarter, based on the median estimate from 67 economists surveyed by Bloomberg.
That may not be enough to boost bank shares because investors are still trying to gauge how much profits will be reduced by last year’s financial reform law, Carey said. The last time the industry was this cheap, in March 2009, the economy had been in a recession for about 14 months, the S&P 500 was at a 12-year low and regulators were conducting stress tests to determine how much capital lenders needed to cover losses.
Earnings for S&P 500 companies rose 30 percent in 2010, the fastest growth since 1995, according to analyst estimates. Profits for financial companies almost doubled, aided by the Federal Reserve’s decision to keep benchmark interest rates near zero. The U.S. government and Fed have pledged about $12.8 trillion since 2008 to fix the financial system and prevent deflation, and policy makers committed $600 billion to buy Treasuries to stimulate economic growth, data compiled by Bloomberg show.
Weekly Retreat
The S&P 500 fell 0.8 percent to 1,283.35 last week, halting the longest streak of increases since May 2007. Among the 25 financial institutions in the U.S. equity benchmark to report results since Jan. 10, the average company beat analyst estimates by 2.2 percent, data compiled by Bloomberg show. Banks topped forecasts by an average 17 percent in the previous earnings season and 24 percent in the period that began in July, data compiled by Bloomberg show.
Investors will get more information on profits this week, with at least 128 companies in the S&P 500 scheduled to report results, according to Bloomberg data. Peoria, Illinois-based Caterpillar Inc., the world’s largest maker of construction and mining equipment, and Procter & Gamble Co. in Cincinnati, the maker of Tide detergent, are scheduled for Jan. 27.
Goldman, Citigroup
Goldman Sachs Group Inc. fell 5 percent and Citigroup Inc. lost 4.7 percent last week as earnings from the New York-based companies failed to exceed analysts’ estimates. New York-based American Express Co., the world’s biggest credit-card issuer by purchases, lost 0.5 percent after reporting lower-than-estimated profit and cutting 550 jobs.
Bank of America Corp. in Charlotte, North Carolina, fell 2 percent on Jan. 21 and 6.6 percent for the week. The largest U.S. bank by assets reported a $1.24 billion fourth-quarter loss as costs mounted for refunds, writedowns and litigation tied to faulty mortgages. The S&P 500 Financials Index declined 1.7 percent, the biggest weekly retreat in almost two months.
“Banks have lost the revenue stream from mortgage lending, and M&A activities and capital markets activities have been muted,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset management Inc., which oversees about $51.4 billion. “All these things just add up to basically speculating on banking stocks as opposed to feeling really secure about the future.”
Estimated Profit
Goldman Sachs, JPMorgan Chase & Co. and Bank of America trade for less than 10 times estimated 2011 profit, making them among the 50 cheapest companies in the S&P 500, data compiled by Bloomberg show. Valuations have held steady even as the S&P 500 Financials Index gained 165 percent since March 9, 2009, leading the broader gauge’s 90 percent advance.
Financial institutions in the benchmark measure of U.S. equities are cheaper using estimated income than utilities, whose earnings are forecast to drop 0.9 percent in 2011 and 1.2 percent in 2012, according to data compiled by Bloomberg.
Banks and brokerages trade at 1.2 times book value, or assets minus liabilities, compared with the 18-year average multiple of 2. Still, that marks a recovery from right after Lehman Brothers collapsed in September 2008. Two months later, Goldman Sachs was valued as low as 0.5 times book, while Citigroup’s fell to 0.1 in March 2009 and the bank required a $45 billion taxpayer-funded bailout. The companies are now valued at multiples of 1.3 and 0.9.
Valuing Paper
For industrial companies, book value represents the liquidation value of plants and equipment. Financial firms’ valuations depend on prices for paper assets such as stocks, bonds, loans and contracts.
Starting in 2007, record declines in property values and rising mortgage defaults made it impossible for banks to value securities whose prices were derived from home loans, sparking the credit crisis that led to $1.98 trillion in losses and writedowns for financial institutions worldwide, according to data compiled by Bloomberg.
Even after the Fed took steps to reduce soured credit, financial companies in the U.S. have $378 billion in loans and leases that are 90 days or more past due, data from the Federal Deposit Insurance Corp. show. The ratio of so-called noncurrent assets and other foreclosed properties to total assets was 3.25 percent at the end of the third quarter, compared with 0.7 percent three years ago.
Book Value Calculations
“The issue here is how trustworthy are the book value calculations given all the asset quality issues banks have had the last couple of years,” said Howard Ward, a money manager at Mario Gabelli’s Gamco, which oversees about $30 billion in Rye, New York. “This is not an industry that is poised for a sharp return.”
The Dodd-Frank Act, passed in July, created the Consumer Financial Protection Bureau and requires most swap trades in the $583 trillion over-the-counter derivatives market to be processed by clearinghouses. The top five U.S. commercial banks generated an estimated $28 billion in revenue from privately negotiated swaps in 2009, according to company reports collected by the Fed and people familiar with banks’ income sources.
“Revenue growth is certainly an issue,” said Michael Levine, a money manager at OppenheimerFunds, which oversees about $180 billion. Levine remains bullish, with financial stocks representing the biggest share of the Oppenheimer Equity Income Fund, which has beaten 97 percent of its rivals in the past five years, according to data from the New York-based firm’s website and Bloomberg.
Dividend Increase
JPMorgan, the fund’s top holding, will quadruple its quarterly dividend to 20 cents a share in March, according to Bloomberg estimates that factor in criteria such as earnings and options prices. The New York-based bank, Wells Fargo & Co., Bank of America and Morgan Stanley are among at least 10 financial stocks in the S&P 500 likely to increase payouts by twofold or more this year, the data show.
The 19 biggest U.S. banks must show regulators they can withstand losses before boosting dividends or buying back shares, the Fed said in a Nov. 17 report. More companies may lift their payout in February than any other month, Howard Silverblatt, a New York-based analyst at S&P, wrote in an e-mail this month.
“The banks think they’re going to be allowed to start returning capital to shareholders sometime this year,” said David Honold, a fund manager and financial stock analyst for Turner Investment Partners Inc., which oversees about $18 billion in Berwyn, Pennsylvania. “That’s a very important inflection point.”
TARP Payments
Fifth Third Bancorp, Ohio’s largest lender, raised $2.7 billion through debt and equity sales last week to pay back borrowings under the Treasury Department’s Troubled Asset Relief Program, created in 2008 to prevent a collapse of the U.S. financial system. The Treasury has $118.5 billion of TARP borrowings outstanding, a 64 percent decline from $328.9 billion of funds received, according to data compiled by Bloomberg.
While companies may boost payouts in 2011, the biggest U.S. banks said the profitability of loans narrowed in the fourth quarter. JPMorgan’s net interest margin, the difference between what the bank pays for funds and what it charges borrowers, dropped to 2.88 percent from 3.01 percent in the third quarter. Citigroup’s fell to 2.97 percent from 3.09 percent, and San Francisco-based Wells Fargo’s narrowed to 4.16 percent from 4.25 percent.
“It’s going to take a return to significant profitability and resumption of meaningful dividends before people breathe a sigh of relief and think it’s safe to go back in the water here,” said Pioneer’s Carey. “It’s still a mixed picture. We’re still careful and cautious about the group, but getting more involved as the quarters go by.”
source:bloomberg.com
Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 percent this year, exceeding the S&P 500, data compiled by Bloomberg show.
While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc. collapsed in September 2008, the failure of price- earnings ratios to widen is a sign to Pioneer Investments and Gamco Investors Inc. that gains in banks may end when government stimulus ends. Bulls such as OppenheimerFunds Inc. say forecasts for a three-year economic expansion mean the stocks will prove bargains as earnings and dividends increase.
“It may be awhile before investors feel comfortable paying above-average multiples for financial companies,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “What everyone is waiting for is a sign that the companies are really back, that they’re really on their feet again and can survive without continued government support and subsidy.”
Industrial Production
The biggest yearly increase in U.S. retail sales since 1999 and higher-than-estimated industrial production show the U.S. expansion is gaining momentum. The Commerce Department may say Jan. 28 that gross domestic product rose at an annual rate of 3.5 percent in the fourth quarter, based on the median estimate from 67 economists surveyed by Bloomberg.
That may not be enough to boost bank shares because investors are still trying to gauge how much profits will be reduced by last year’s financial reform law, Carey said. The last time the industry was this cheap, in March 2009, the economy had been in a recession for about 14 months, the S&P 500 was at a 12-year low and regulators were conducting stress tests to determine how much capital lenders needed to cover losses.
Earnings for S&P 500 companies rose 30 percent in 2010, the fastest growth since 1995, according to analyst estimates. Profits for financial companies almost doubled, aided by the Federal Reserve’s decision to keep benchmark interest rates near zero. The U.S. government and Fed have pledged about $12.8 trillion since 2008 to fix the financial system and prevent deflation, and policy makers committed $600 billion to buy Treasuries to stimulate economic growth, data compiled by Bloomberg show.
Weekly Retreat
The S&P 500 fell 0.8 percent to 1,283.35 last week, halting the longest streak of increases since May 2007. Among the 25 financial institutions in the U.S. equity benchmark to report results since Jan. 10, the average company beat analyst estimates by 2.2 percent, data compiled by Bloomberg show. Banks topped forecasts by an average 17 percent in the previous earnings season and 24 percent in the period that began in July, data compiled by Bloomberg show.
Investors will get more information on profits this week, with at least 128 companies in the S&P 500 scheduled to report results, according to Bloomberg data. Peoria, Illinois-based Caterpillar Inc., the world’s largest maker of construction and mining equipment, and Procter & Gamble Co. in Cincinnati, the maker of Tide detergent, are scheduled for Jan. 27.
Goldman, Citigroup
Goldman Sachs Group Inc. fell 5 percent and Citigroup Inc. lost 4.7 percent last week as earnings from the New York-based companies failed to exceed analysts’ estimates. New York-based American Express Co., the world’s biggest credit-card issuer by purchases, lost 0.5 percent after reporting lower-than-estimated profit and cutting 550 jobs.
Bank of America Corp. in Charlotte, North Carolina, fell 2 percent on Jan. 21 and 6.6 percent for the week. The largest U.S. bank by assets reported a $1.24 billion fourth-quarter loss as costs mounted for refunds, writedowns and litigation tied to faulty mortgages. The S&P 500 Financials Index declined 1.7 percent, the biggest weekly retreat in almost two months.
“Banks have lost the revenue stream from mortgage lending, and M&A activities and capital markets activities have been muted,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset management Inc., which oversees about $51.4 billion. “All these things just add up to basically speculating on banking stocks as opposed to feeling really secure about the future.”
Estimated Profit
Goldman Sachs, JPMorgan Chase & Co. and Bank of America trade for less than 10 times estimated 2011 profit, making them among the 50 cheapest companies in the S&P 500, data compiled by Bloomberg show. Valuations have held steady even as the S&P 500 Financials Index gained 165 percent since March 9, 2009, leading the broader gauge’s 90 percent advance.
Financial institutions in the benchmark measure of U.S. equities are cheaper using estimated income than utilities, whose earnings are forecast to drop 0.9 percent in 2011 and 1.2 percent in 2012, according to data compiled by Bloomberg.
Banks and brokerages trade at 1.2 times book value, or assets minus liabilities, compared with the 18-year average multiple of 2. Still, that marks a recovery from right after Lehman Brothers collapsed in September 2008. Two months later, Goldman Sachs was valued as low as 0.5 times book, while Citigroup’s fell to 0.1 in March 2009 and the bank required a $45 billion taxpayer-funded bailout. The companies are now valued at multiples of 1.3 and 0.9.
Valuing Paper
For industrial companies, book value represents the liquidation value of plants and equipment. Financial firms’ valuations depend on prices for paper assets such as stocks, bonds, loans and contracts.
Starting in 2007, record declines in property values and rising mortgage defaults made it impossible for banks to value securities whose prices were derived from home loans, sparking the credit crisis that led to $1.98 trillion in losses and writedowns for financial institutions worldwide, according to data compiled by Bloomberg.
Even after the Fed took steps to reduce soured credit, financial companies in the U.S. have $378 billion in loans and leases that are 90 days or more past due, data from the Federal Deposit Insurance Corp. show. The ratio of so-called noncurrent assets and other foreclosed properties to total assets was 3.25 percent at the end of the third quarter, compared with 0.7 percent three years ago.
Book Value Calculations
“The issue here is how trustworthy are the book value calculations given all the asset quality issues banks have had the last couple of years,” said Howard Ward, a money manager at Mario Gabelli’s Gamco, which oversees about $30 billion in Rye, New York. “This is not an industry that is poised for a sharp return.”
The Dodd-Frank Act, passed in July, created the Consumer Financial Protection Bureau and requires most swap trades in the $583 trillion over-the-counter derivatives market to be processed by clearinghouses. The top five U.S. commercial banks generated an estimated $28 billion in revenue from privately negotiated swaps in 2009, according to company reports collected by the Fed and people familiar with banks’ income sources.
“Revenue growth is certainly an issue,” said Michael Levine, a money manager at OppenheimerFunds, which oversees about $180 billion. Levine remains bullish, with financial stocks representing the biggest share of the Oppenheimer Equity Income Fund, which has beaten 97 percent of its rivals in the past five years, according to data from the New York-based firm’s website and Bloomberg.
Dividend Increase
JPMorgan, the fund’s top holding, will quadruple its quarterly dividend to 20 cents a share in March, according to Bloomberg estimates that factor in criteria such as earnings and options prices. The New York-based bank, Wells Fargo & Co., Bank of America and Morgan Stanley are among at least 10 financial stocks in the S&P 500 likely to increase payouts by twofold or more this year, the data show.
The 19 biggest U.S. banks must show regulators they can withstand losses before boosting dividends or buying back shares, the Fed said in a Nov. 17 report. More companies may lift their payout in February than any other month, Howard Silverblatt, a New York-based analyst at S&P, wrote in an e-mail this month.
“The banks think they’re going to be allowed to start returning capital to shareholders sometime this year,” said David Honold, a fund manager and financial stock analyst for Turner Investment Partners Inc., which oversees about $18 billion in Berwyn, Pennsylvania. “That’s a very important inflection point.”
TARP Payments
Fifth Third Bancorp, Ohio’s largest lender, raised $2.7 billion through debt and equity sales last week to pay back borrowings under the Treasury Department’s Troubled Asset Relief Program, created in 2008 to prevent a collapse of the U.S. financial system. The Treasury has $118.5 billion of TARP borrowings outstanding, a 64 percent decline from $328.9 billion of funds received, according to data compiled by Bloomberg.
While companies may boost payouts in 2011, the biggest U.S. banks said the profitability of loans narrowed in the fourth quarter. JPMorgan’s net interest margin, the difference between what the bank pays for funds and what it charges borrowers, dropped to 2.88 percent from 3.01 percent in the third quarter. Citigroup’s fell to 2.97 percent from 3.09 percent, and San Francisco-based Wells Fargo’s narrowed to 4.16 percent from 4.25 percent.
“It’s going to take a return to significant profitability and resumption of meaningful dividends before people breathe a sigh of relief and think it’s safe to go back in the water here,” said Pioneer’s Carey. “It’s still a mixed picture. We’re still careful and cautious about the group, but getting more involved as the quarters go by.”
source:bloomberg.com
Euro's Slide Meets Resistance as Analysts Draw Line at $1.30
Traders are starting to believe German Chancellor Angela Merkel when she says Europe’s biggest economy will do whatever it takes to save the region’s currency.
Demand for contracts used to hedge against a decline in the euro is disappearing at the fastest pace since September as speculators slash bets that the currency will fall, a pattern that preceded a 13 percent gain over about two months. Strategists have stopped cutting their estimates for the euro against the dollar, with their fourth-quarter predictions at $1.30 since Jan. 10, according to data compiled by Bloomberg.
Since then, the euro climbed 5.9 percent to $1.3621 from a four-month low of $1.2867 as Germany joined euro-region finance ministers for the first time in saying it’s contemplating expanding a financial backstop that Economic and Monetary Affairs Commissioner Olli Rehn predicts will repel the most aggressive speculators. A bigger safety net would free European Central Bank President Jean-Claude Trichet to fight an emerging inflation threat as Germany fuels regional growth.
“Euro-zone policy makers are finally moving ahead of the curve,” said Thomas Stolper, a global markets economist at Goldman Sachs Group Inc. in London. “We are near a breaking point in terms of the pressure. It’s getting more difficult for the skeptics to find a crack in the euro.”
Attractive Yields
For all the focus on Europe’s debt crisis, the region’s economy is showing signs of improvement. The Munich-based Ifo institute said Jan. 21 that its index of German business confidence increased to 110.3 in January from 109.8 in December, the highest since records for a reunified Germany began in 1991. French business sentiment also rose.
The euro and the region’s fiscal crisis will be discussed at the “Bloomberg European Debt Briefing” conference in New York tomorrow.
Traders are buying the currency for returns of as much as three times the equivalent American assets amid signs the region’s debt crisis may not get any worse. German two-year notes yield 68 basis points more than Treasuries, the most since January 2009. As recently as July they were the same. The three- month euro interbank offered rate is 1.03 percent, compared with 0.30 percent for the London interbank offered rate in dollars.
The euro rose 1.7 percent versus the dollar last week, and climbed 1.4 percent to 112.48 yen. It has strengthened 2 percent this year in a basket of 10 developed-nation currencies including the Australian and Canadian dollars, after tumbling 10 percent in 2010, its worst year since the successor to the deutsche mark and the French franc was introduced in 1999. It appreciated almost 15 percent against the dollar from a four- year low on June 7.
Bonds, Swaps, Stocks
“Markets are clearly buying into the view that the European debt crisis is being resolved with modest pain,” Steven Englander, the head of currency strategy for the group of 10 nations at Citigroup Inc. in New York, wrote in a Jan. 21 research note.
Portuguese 10-year yields fell last week to the lowest this month relative to benchmark German bunds, and demand increased at a Spanish debt auction Jan. 13. The cost to protect European sovereign securities fell the most on record the past two weeks, based on the Markit iTraxx SovX Western Europe Index of credit- default swaps. The Euro Stoxx 50 Index rose to 2,970.56 last week, the highest level since April.
“We support whatever is needed to support the euro, also with respect to the rescue fund,” Merkel told reporters in Berlin on Jan. 12.
‘Comprehensive’ Plan
Merkel was responding to remarks by Rehn, who called for a “comprehensive” plan to contain Europe’s debt crisis. His proposals included an expansion of the European Union’s 440 billion-euro ($599 billion) rescue fund, the European Financial Stability Facility.
The EU has already agreed to bail out Greece and Ireland, and bond investors are concerned Portugal, and possibly Belgium and Spain may be next. Portugal 10-year yields have reached the 7 percent mark that preceded Ireland and Greece’s aid requests.
Bonds yields are still sending danger signals to some of the most-accurate forecasters, who say the rebound won’t last.
Wells Fargo & Co., the best foreign-exchange predictor in the 18 months ended Dec. 31, expects a drop to $1.25 by year- end. John Taylor, chairman of the world’s largest currency hedge-fund firm, FX Concepts LLC, said on Jan. 5 the euro may fall below parity with the dollar this year.
“There’s a very significant risk of restructuring in the not too distant future in one of those peripheral economies, which we think should drive the euro quite a bit lower,” said Shaun Osborne, chief currency strategist at TD Securities in Toronto, who sees a decline to $1.05 by the third quarter.
China’s Support
Finance ministers from Europe’s top-rated countries, Germany, France, Austria, the Netherlands, Finland and Luxembourg, met on Jan. 17 to discuss strengthening the rescue fund. A “comprehensive package” will be assembled by March, Finance Minister Wolfgang Schaeuble said Jan. 13.
China, which has the world’s largest foreign-currency reserves, said this month it plans to buy securities from the region’s most-indebted countries. Japan said on Jan. 11 it will purchase bonds issued by one of Europe’s bailout funds, while Russia, holder of almost $500 billion of reserves, said it may do the same on Jan. 18.
“You have to take the broadening of the safety net as a good development for the euro zone,” said Paul Mackel, director of currency strategy at HSBC Holdings Plc in London. “There’s going to be this realization that what Europe has done has been the right thing, and that’s going to put the spotlight on the dollar in a very negative way.”
Risk-Reversals
Euro-dollar three-month risk reversals, which measure demand for options to sell the single currency relative to those that allow for purchases, declined to 1.325 on Jan. 13 from 2.150 on Jan. 7, the fastest drop since the three days ended Sept. 16, according to data compiled by Bloomberg. The euro rallied from $1.2644 on Sept. 10 to about a 10-month high of $1.4282 on Nov. 4.
Futures traders reversed bets the euro will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a gain compared with those on a drop, so-called net longs, was 4,109 on Jan. 18, compared with net shorts of 45,182 a week earlier, the biggest increase since June.
“The fast-acting speculative community has probably closed out most of their shorts,” said Goldman Sachs’s Stolper. Further improvement in the euro-region economy “will probably imply quite a bit more euro buying,” he said.
‘Muddle Through’
A Citigroup gauge of data surprises, which measures how often and by how much economic indicators surpass Bloomberg median estimates, was at 73 last week for the euro region and 39 for the U.S.
Europe is ahead of the U.S. in tackling deficits from the global financial crisis and recession. U.S. federal government debt will climb to 99 percent of gross domestic product this year from 93 percent in 2010, while the euro region will total 87 percent, according to International Monetary Fund forecasts.
“As there is more evidence of progress being made in Europe on that front it will heighten the attention on the fact the U.S. has made next to no progress in reigning in their deficit,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “The euro-zone will muddle through the crisis.”
source:bloomberg.com
Demand for contracts used to hedge against a decline in the euro is disappearing at the fastest pace since September as speculators slash bets that the currency will fall, a pattern that preceded a 13 percent gain over about two months. Strategists have stopped cutting their estimates for the euro against the dollar, with their fourth-quarter predictions at $1.30 since Jan. 10, according to data compiled by Bloomberg.
Since then, the euro climbed 5.9 percent to $1.3621 from a four-month low of $1.2867 as Germany joined euro-region finance ministers for the first time in saying it’s contemplating expanding a financial backstop that Economic and Monetary Affairs Commissioner Olli Rehn predicts will repel the most aggressive speculators. A bigger safety net would free European Central Bank President Jean-Claude Trichet to fight an emerging inflation threat as Germany fuels regional growth.
“Euro-zone policy makers are finally moving ahead of the curve,” said Thomas Stolper, a global markets economist at Goldman Sachs Group Inc. in London. “We are near a breaking point in terms of the pressure. It’s getting more difficult for the skeptics to find a crack in the euro.”
Attractive Yields
For all the focus on Europe’s debt crisis, the region’s economy is showing signs of improvement. The Munich-based Ifo institute said Jan. 21 that its index of German business confidence increased to 110.3 in January from 109.8 in December, the highest since records for a reunified Germany began in 1991. French business sentiment also rose.
The euro and the region’s fiscal crisis will be discussed at the “Bloomberg European Debt Briefing” conference in New York tomorrow.
Traders are buying the currency for returns of as much as three times the equivalent American assets amid signs the region’s debt crisis may not get any worse. German two-year notes yield 68 basis points more than Treasuries, the most since January 2009. As recently as July they were the same. The three- month euro interbank offered rate is 1.03 percent, compared with 0.30 percent for the London interbank offered rate in dollars.
The euro rose 1.7 percent versus the dollar last week, and climbed 1.4 percent to 112.48 yen. It has strengthened 2 percent this year in a basket of 10 developed-nation currencies including the Australian and Canadian dollars, after tumbling 10 percent in 2010, its worst year since the successor to the deutsche mark and the French franc was introduced in 1999. It appreciated almost 15 percent against the dollar from a four- year low on June 7.
Bonds, Swaps, Stocks
“Markets are clearly buying into the view that the European debt crisis is being resolved with modest pain,” Steven Englander, the head of currency strategy for the group of 10 nations at Citigroup Inc. in New York, wrote in a Jan. 21 research note.
Portuguese 10-year yields fell last week to the lowest this month relative to benchmark German bunds, and demand increased at a Spanish debt auction Jan. 13. The cost to protect European sovereign securities fell the most on record the past two weeks, based on the Markit iTraxx SovX Western Europe Index of credit- default swaps. The Euro Stoxx 50 Index rose to 2,970.56 last week, the highest level since April.
“We support whatever is needed to support the euro, also with respect to the rescue fund,” Merkel told reporters in Berlin on Jan. 12.
‘Comprehensive’ Plan
Merkel was responding to remarks by Rehn, who called for a “comprehensive” plan to contain Europe’s debt crisis. His proposals included an expansion of the European Union’s 440 billion-euro ($599 billion) rescue fund, the European Financial Stability Facility.
The EU has already agreed to bail out Greece and Ireland, and bond investors are concerned Portugal, and possibly Belgium and Spain may be next. Portugal 10-year yields have reached the 7 percent mark that preceded Ireland and Greece’s aid requests.
Bonds yields are still sending danger signals to some of the most-accurate forecasters, who say the rebound won’t last.
Wells Fargo & Co., the best foreign-exchange predictor in the 18 months ended Dec. 31, expects a drop to $1.25 by year- end. John Taylor, chairman of the world’s largest currency hedge-fund firm, FX Concepts LLC, said on Jan. 5 the euro may fall below parity with the dollar this year.
“There’s a very significant risk of restructuring in the not too distant future in one of those peripheral economies, which we think should drive the euro quite a bit lower,” said Shaun Osborne, chief currency strategist at TD Securities in Toronto, who sees a decline to $1.05 by the third quarter.
China’s Support
Finance ministers from Europe’s top-rated countries, Germany, France, Austria, the Netherlands, Finland and Luxembourg, met on Jan. 17 to discuss strengthening the rescue fund. A “comprehensive package” will be assembled by March, Finance Minister Wolfgang Schaeuble said Jan. 13.
China, which has the world’s largest foreign-currency reserves, said this month it plans to buy securities from the region’s most-indebted countries. Japan said on Jan. 11 it will purchase bonds issued by one of Europe’s bailout funds, while Russia, holder of almost $500 billion of reserves, said it may do the same on Jan. 18.
“You have to take the broadening of the safety net as a good development for the euro zone,” said Paul Mackel, director of currency strategy at HSBC Holdings Plc in London. “There’s going to be this realization that what Europe has done has been the right thing, and that’s going to put the spotlight on the dollar in a very negative way.”
Risk-Reversals
Euro-dollar three-month risk reversals, which measure demand for options to sell the single currency relative to those that allow for purchases, declined to 1.325 on Jan. 13 from 2.150 on Jan. 7, the fastest drop since the three days ended Sept. 16, according to data compiled by Bloomberg. The euro rallied from $1.2644 on Sept. 10 to about a 10-month high of $1.4282 on Nov. 4.
Futures traders reversed bets the euro will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a gain compared with those on a drop, so-called net longs, was 4,109 on Jan. 18, compared with net shorts of 45,182 a week earlier, the biggest increase since June.
“The fast-acting speculative community has probably closed out most of their shorts,” said Goldman Sachs’s Stolper. Further improvement in the euro-region economy “will probably imply quite a bit more euro buying,” he said.
‘Muddle Through’
A Citigroup gauge of data surprises, which measures how often and by how much economic indicators surpass Bloomberg median estimates, was at 73 last week for the euro region and 39 for the U.S.
Europe is ahead of the U.S. in tackling deficits from the global financial crisis and recession. U.S. federal government debt will climb to 99 percent of gross domestic product this year from 93 percent in 2010, while the euro region will total 87 percent, according to International Monetary Fund forecasts.
“As there is more evidence of progress being made in Europe on that front it will heighten the attention on the fact the U.S. has made next to no progress in reigning in their deficit,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “The euro-zone will muddle through the crisis.”
source:bloomberg.com
Chinese Corporate Bond Sales Have Busiest Start on Record
Chinese companies raised four times more from bonds than from equities this year in a record start for the debt market as government efforts to curb inflation curbed access to loans and the stock market.
Corporate bond sales totaled 100 billion yuan ($15.2 billion) since Jan. 1, up 68 percent from a year earlier and the most since Bloomberg started tracking the data in 1999. Domestic currency share sales in 2011 total 23.5 billion yuan, down from 34 billion yuan a year earlier, data compiled by Bloomberg show.
“Regulators have strengthened their control over the amount of loans,” said Chen Jianbo, a Beijing-based fixed- income analyst at BOC International, a unit of Bank of China Ltd. “This has put an obstacle in the way of companies getting loans. On the other hand the regulators are encouraging direct financing, especially debt financing.”
Slumping equity prices and restrictions on loan growth mean that bonds have become the only option for many companies to raise funds. The Shanghai Composite Index slumped 13 percent in the past year, the worst performer among benchmark measures in the 10 biggest equity markets tracked by Bloomberg. Fixed-income fund managers avoided losses as yuan corporate bonds returned 3.1 percent in the same period, according to the Bank of America Merrill Lynch China Corporate Index.
Debt sales have been led this year by companies such as China National Petroleum Corp., the country’s biggest oil and gas producer, which has issued 30 billion yuan of notes through four sales, and Beijing-based Huaneng Power International Inc., a unit of China’s biggest electricity producer, which has completed one sale of 5 billion yuan, according to data compiled by Bloomberg.
Beating Rate Rises
Chinese firms may be selling bonds on expectations that interest rate rises in the coming months will boost their borrowing costs, according to Wu Tianshu, a Beijing-based fixed- income analyst at China Galaxy Securities Co. “As long as the economy keeps growing there will be more demand for debt financing,” he said.
Yields on 10-year AAA corporate bonds have climbed 1.05 percentage points from last year’s low on Aug. 20 to 5.19 percent, according to data compiled by Bloomberg. Similar- maturity government yields climbed 72 basis points in that period to 4 percent, a spread of 119 basis points.
The yield on the 2.68 percent government bond due November 2013 rose two basis point, or 0.02 percentage point, to 3.40 percent on Jan. 21, Chinabond prices show. The yield on India’s three-year bonds is 8.31 percent, while similar-maturity bonds yielded 7.03 percent in Russia and 12.77 percent in Brazil.
China’s benchmark money-market rate has surged to the highest since October 2007 as lenders ran short of cash after the central bank’s four increases in their reserve requirements in the past three months.
Cash Crunch
The seven-day repurchase rate, which measures money availability between banks, climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center in Shanghai on Jan. 21, after reaching 8.8 percent earlier that day. China reported Jan. 20 its economy grew at a faster-than-expected 9.8 percent in the fourth quarter from a year earlier, and inflation averaged 3.3 percent in 2010, breaching the government’s goal.
The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 37 basis points last week to 3.64 percent.
Chinese new bank loans fell for three straight months to 480.7 billion yuan at the end of December, down from 563.97 billion yuan a month earlier, and a year-high of 1.39 trillion yuan last January, government data show. Regulators set a 7.5 trillion yuan annual limit on bank lending last year following the record 9.59 trillion yuan of new lending in 2009.
‘Abnormal’ Loan Growth
Premier Wen Jiabao pledged last week to prevent “abnormal” loan growth. The People’s Bank of China raised reserve ratios for lenders effective Jan. 20 to slow inflation that reached a 28-month high in November. The central bank also raised the benchmark one-year lending rate by 25 basis points to 5.81 percent Dec. 25.
The government may raise interest rates by another 25 basis points, as early as next month, Wensheng Peng, a China International Capital Corp. economist, wrote in a Jan. 21 report. This may be followed by another increase in the second quarter, Peng wrote.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has fallen 3.3 percent this year after plunging 14 percent in 2010.
Stock Markets
“Valuation for IPOs needs to be lower to reflect weak market sentiment,” said Wang Yang, director of fixed-income research at the China unit of UBS AG in Beijing, referring to initial public offerings on nation’s stock markets. “Regulators may also consider slowing down new issuance to ease supply pressure in such a weak market.”
Five-year credit-default swaps on the nation’s bonds have risen nine basis points this year to 77 basis points on concern economic growth that’s averaged more than 10 percent over the past five years will be derailed on anti-inflation measures. The swaps protect debt against default and traders use them to speculate on credit quality. An increase in price suggests deteriorating perceptions of creditworthiness.
Yuan Strength
The yuan traded near a 17-year high on Jan. 21 after the U.S. stepped up pressure for faster appreciation while President Hu Jintao is in the country on a state visit. The yuan rose 0.1 percent last week to 6.5833 per dollar, according to China Foreign Exchange Trade System data. Non-deliverable forwards show traders are betting on a 2 percent increase in the coming 12 months.
Demand for yuan-denominated assets on expectations of currency appreciation helped Hong Kong sales of yuan bonds increase 10-fold since 2008 to 35.7 billion yuan last year, Bloomberg data show. Sales in the so-called dim sum bond market, total 4.5 billion yuan this year, the data show.
Companies may sell around 1 trillion yuan in China’s bond market this year, according to Guo Qinmiao, a Beijing-based analyst at Citic Securities Co., China’s largest brokerage by market value, in an e-mail interview.
Investment companies linked to local governments set up to fund infrastructure projects will drive bond sales this year, said Tan Weisi, who oversees about 400 million yuan as head of Fortune SGAM Fund Management Co.’s fixed-income arm in Shanghai.
Chongqing City Construction Investment Corp. sold 2.5 billion yuan of 10-year bonds on Jan. 10, according to data compiled by Bloomberg. Guiyang City Construction Investment Group Co. issued 2 billion yuan of bonds due January 2018 the following day, the data show.
“They have no options,” Tan said. “They can’t get loans easily from the bank. If the project is already underway the only option is to issue bonds. They can’t issue equity.”
source:www.bloomberg.com
Corporate bond sales totaled 100 billion yuan ($15.2 billion) since Jan. 1, up 68 percent from a year earlier and the most since Bloomberg started tracking the data in 1999. Domestic currency share sales in 2011 total 23.5 billion yuan, down from 34 billion yuan a year earlier, data compiled by Bloomberg show.
“Regulators have strengthened their control over the amount of loans,” said Chen Jianbo, a Beijing-based fixed- income analyst at BOC International, a unit of Bank of China Ltd. “This has put an obstacle in the way of companies getting loans. On the other hand the regulators are encouraging direct financing, especially debt financing.”
Slumping equity prices and restrictions on loan growth mean that bonds have become the only option for many companies to raise funds. The Shanghai Composite Index slumped 13 percent in the past year, the worst performer among benchmark measures in the 10 biggest equity markets tracked by Bloomberg. Fixed-income fund managers avoided losses as yuan corporate bonds returned 3.1 percent in the same period, according to the Bank of America Merrill Lynch China Corporate Index.
Debt sales have been led this year by companies such as China National Petroleum Corp., the country’s biggest oil and gas producer, which has issued 30 billion yuan of notes through four sales, and Beijing-based Huaneng Power International Inc., a unit of China’s biggest electricity producer, which has completed one sale of 5 billion yuan, according to data compiled by Bloomberg.
Beating Rate Rises
Chinese firms may be selling bonds on expectations that interest rate rises in the coming months will boost their borrowing costs, according to Wu Tianshu, a Beijing-based fixed- income analyst at China Galaxy Securities Co. “As long as the economy keeps growing there will be more demand for debt financing,” he said.
Yields on 10-year AAA corporate bonds have climbed 1.05 percentage points from last year’s low on Aug. 20 to 5.19 percent, according to data compiled by Bloomberg. Similar- maturity government yields climbed 72 basis points in that period to 4 percent, a spread of 119 basis points.
The yield on the 2.68 percent government bond due November 2013 rose two basis point, or 0.02 percentage point, to 3.40 percent on Jan. 21, Chinabond prices show. The yield on India’s three-year bonds is 8.31 percent, while similar-maturity bonds yielded 7.03 percent in Russia and 12.77 percent in Brazil.
China’s benchmark money-market rate has surged to the highest since October 2007 as lenders ran short of cash after the central bank’s four increases in their reserve requirements in the past three months.
Cash Crunch
The seven-day repurchase rate, which measures money availability between banks, climbed 127 basis points to 7.3 percent, according to the daily fixing rate of the National Interbank Funding Center in Shanghai on Jan. 21, after reaching 8.8 percent earlier that day. China reported Jan. 20 its economy grew at a faster-than-expected 9.8 percent in the fourth quarter from a year earlier, and inflation averaged 3.3 percent in 2010, breaching the government’s goal.
The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, jumped 37 basis points last week to 3.64 percent.
Chinese new bank loans fell for three straight months to 480.7 billion yuan at the end of December, down from 563.97 billion yuan a month earlier, and a year-high of 1.39 trillion yuan last January, government data show. Regulators set a 7.5 trillion yuan annual limit on bank lending last year following the record 9.59 trillion yuan of new lending in 2009.
‘Abnormal’ Loan Growth
Premier Wen Jiabao pledged last week to prevent “abnormal” loan growth. The People’s Bank of China raised reserve ratios for lenders effective Jan. 20 to slow inflation that reached a 28-month high in November. The central bank also raised the benchmark one-year lending rate by 25 basis points to 5.81 percent Dec. 25.
The government may raise interest rates by another 25 basis points, as early as next month, Wensheng Peng, a China International Capital Corp. economist, wrote in a Jan. 21 report. This may be followed by another increase in the second quarter, Peng wrote.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, has fallen 3.3 percent this year after plunging 14 percent in 2010.
Stock Markets
“Valuation for IPOs needs to be lower to reflect weak market sentiment,” said Wang Yang, director of fixed-income research at the China unit of UBS AG in Beijing, referring to initial public offerings on nation’s stock markets. “Regulators may also consider slowing down new issuance to ease supply pressure in such a weak market.”
Five-year credit-default swaps on the nation’s bonds have risen nine basis points this year to 77 basis points on concern economic growth that’s averaged more than 10 percent over the past five years will be derailed on anti-inflation measures. The swaps protect debt against default and traders use them to speculate on credit quality. An increase in price suggests deteriorating perceptions of creditworthiness.
Yuan Strength
The yuan traded near a 17-year high on Jan. 21 after the U.S. stepped up pressure for faster appreciation while President Hu Jintao is in the country on a state visit. The yuan rose 0.1 percent last week to 6.5833 per dollar, according to China Foreign Exchange Trade System data. Non-deliverable forwards show traders are betting on a 2 percent increase in the coming 12 months.
Demand for yuan-denominated assets on expectations of currency appreciation helped Hong Kong sales of yuan bonds increase 10-fold since 2008 to 35.7 billion yuan last year, Bloomberg data show. Sales in the so-called dim sum bond market, total 4.5 billion yuan this year, the data show.
Companies may sell around 1 trillion yuan in China’s bond market this year, according to Guo Qinmiao, a Beijing-based analyst at Citic Securities Co., China’s largest brokerage by market value, in an e-mail interview.
Investment companies linked to local governments set up to fund infrastructure projects will drive bond sales this year, said Tan Weisi, who oversees about 400 million yuan as head of Fortune SGAM Fund Management Co.’s fixed-income arm in Shanghai.
Chongqing City Construction Investment Corp. sold 2.5 billion yuan of 10-year bonds on Jan. 10, according to data compiled by Bloomberg. Guiyang City Construction Investment Group Co. issued 2 billion yuan of bonds due January 2018 the following day, the data show.
“They have no options,” Tan said. “They can’t get loans easily from the bank. If the project is already underway the only option is to issue bonds. They can’t issue equity.”
source:www.bloomberg.com
ICBC Gets U.S. Retail Network With Purchase of Bank of East Asia Unit
Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, agreed to buy a stake in Bank of East Asia Ltd.’s U.S. operations, according to a company statement today.
ICBC will buy an 80 percent stake in Bank of East Asia’s U.S. unit for $140 million, the two companies said in a joint e- mailed statement today. Both companies are seeking regulatory approval in the U.S. and in China for the transaction, according to the statement.
“Our acquisition of an 80 percent interest in BEA USA will enable us to establish a solid presence in the U.S.,” ICBC Chairman Jiang Jianqing said in the statement. “With this commercial bank license in the U.S., ICBC can further expand its retail banking business and operating network across the nation.”
If completed, the deal would mark the first purchase of a majority stake in a U.S. depository institution by a Chinese bank. It may give financial companies in both countries greater access to each others’ markets, Chip MacDonald, a partner a law firm Jones Day in Atlanta, said of the transaction on Jan. 22.
Chinese President Hu Jintao concluded a four-day visit to the U.S. with a signing ceremony in Chicago on Jan. 22. China’s Commerce Minister Chen Deming said that deals worth $25 billion were being reached among U.S. and Chinese companies during the visit, excluding an accord with Boeing Co.
Agreements Reached
Beijing-based ICBC and Bank of East Asia, based in Hong Kong, are among as many as 60 companies signing contracts, the Chicago Council on Global Affairs said in a statement. The list of firms didn’t include details on the agreements.
ICBC opened its first branch in the U.S. in October 2008. The Chinese bank bought a 70 percent stake in Bank of East Asia’s Canadian unit for about C$80.3 million last year to gain a “strong platform to further expand our businesses and network across North America,” ICBC’s Jiang said then. ICBC last week opened five branches in Europe, doubling its presence in the region to nine countries.
The Federal Reserve will have to make a determination, under the Bank Holding Company Act, that China’s central bank has enough information on ICBC operations to supervise its financial condition and compliance with the law, MacDonald said.
The U.S. operations of Bank of East Asia include 13 branches, with 10 in California and three in New York, according to its website. Bank of East Asia is run by the family of Chairman David Li. The U.S. unit held about $425.2 million in domestic deposits at the end of September, according to the Federal Deposit Insurance Corp.
source:http://www.bloomberg.com
ICBC will buy an 80 percent stake in Bank of East Asia’s U.S. unit for $140 million, the two companies said in a joint e- mailed statement today. Both companies are seeking regulatory approval in the U.S. and in China for the transaction, according to the statement.
“Our acquisition of an 80 percent interest in BEA USA will enable us to establish a solid presence in the U.S.,” ICBC Chairman Jiang Jianqing said in the statement. “With this commercial bank license in the U.S., ICBC can further expand its retail banking business and operating network across the nation.”
If completed, the deal would mark the first purchase of a majority stake in a U.S. depository institution by a Chinese bank. It may give financial companies in both countries greater access to each others’ markets, Chip MacDonald, a partner a law firm Jones Day in Atlanta, said of the transaction on Jan. 22.
Chinese President Hu Jintao concluded a four-day visit to the U.S. with a signing ceremony in Chicago on Jan. 22. China’s Commerce Minister Chen Deming said that deals worth $25 billion were being reached among U.S. and Chinese companies during the visit, excluding an accord with Boeing Co.
Agreements Reached
Beijing-based ICBC and Bank of East Asia, based in Hong Kong, are among as many as 60 companies signing contracts, the Chicago Council on Global Affairs said in a statement. The list of firms didn’t include details on the agreements.
ICBC opened its first branch in the U.S. in October 2008. The Chinese bank bought a 70 percent stake in Bank of East Asia’s Canadian unit for about C$80.3 million last year to gain a “strong platform to further expand our businesses and network across North America,” ICBC’s Jiang said then. ICBC last week opened five branches in Europe, doubling its presence in the region to nine countries.
The Federal Reserve will have to make a determination, under the Bank Holding Company Act, that China’s central bank has enough information on ICBC operations to supervise its financial condition and compliance with the law, MacDonald said.
The U.S. operations of Bank of East Asia include 13 branches, with 10 in California and three in New York, according to its website. Bank of East Asia is run by the family of Chairman David Li. The U.S. unit held about $425.2 million in domestic deposits at the end of September, according to the Federal Deposit Insurance Corp.
source:http://www.bloomberg.com
Brisbane Roads Circling Globe Twice Needed in Flood Disaster
To build an average house, you need 6,200 bricks, 2,950 roof tiles, 785 floor tiles and 15 cans of paint -- multiply that 28,000 times and you get a picture of the task to rebuild Brisbane after Australia’s worst flood.
It gets worse: the state of Queensland will need to rebuild 90,000 kilometers (56,000 miles) of roads, enough to circle the globe twice, thousands of kilometers of rail line, almost 100 schools, an unknown number of bridges, several regional airports, power lines, sewers and water treatment -- the list goes on.
Australian companies, including its largest building- materials seller Boral Ltd., the No. 1 furniture and electrical retailer Harvey Norman Holdings Ltd., paint maker DuluxGroup Ltd. and plumbing supplier Reece Australia Ltd., will benefit from the reconstruction estimated to cost A$20 billion ($20 billion). The floods are the most expensive natural disaster in the nation’s history and have claimed at least 20 lives.
“The state’s a disaster zone,” said Greg Hoffman, general manager at the Queensland Local Government Association, which estimates up to 90,000 kilometers of road and “tens of thousands of drains” will need to be replaced or repaired across Queensland. “Roads have been torn away, airport terminals have been uprooted and you can’t believe your eyes when you see the wasteland left behind,” he said in a telephone interview.
Reinforcements Needed
The average cost of building a new home is A$300,000, meaning the bill to replace housing alone in Brisbane, Australia’s third-largest city with a population of 2 million, may be A$8 billion, Australia & New Zealand Banking Group Ltd. says. ANZ based its forecast on the state Premier Anna Bligh’s Jan. 16 comment that 28,000 dwellings need rebuilding. Bligh says 2.1 million people have been affected by Queensland’s flood.
Since Jan. 10, 20 people have died and nine are missing as a result of the floods, Queensland police said yesterday.
It will take two years and 34,000 tradesmen to rebuild homes in Brisbane, according to Graham Cuthbert, Master Builders Queensland executive director.
“Australia has never before seen a program of this scale,” Cuthbert said in a telephone interview. “We will probably need reinforcements.”
Builder John Rist, from Port Sorrell in Australia’s southernmost island state of Tasmania, is ready to pack his tools and drive 1,800 kilometers north to Queensland.
“I’ll be there in a flash, as long as there is a need,” 38-year-old Rist said in a telephone interview. “Things will probably slow down here, so it could be just what I need.”
Competition for Labor
Finding skilled labor for the reconstruction in Queensland, plus the flood-damaged eastern states of Victoria and New South Wales, may be difficult. A mining boom, to feed China’s appetite for raw materials, has caused a shortage of tradesmen at a time when the jobless rate was just 5 percent in December, the lowest level since January 2009.
Already two coal-seam gas projects, expected to cost more than A$30 billion, are proceeding near the Queensland port of Gladstone. Santos Ltd., Australia’s third-largest oil producer, and BG Group Plc, the U.K.’s third-biggest gas producer, will start hiring the first of more than 10,000 construction workers needed for the two projects later this year.
The Queensland Resources Council estimates A$2.3 billion of coal sales have been lost because of the floods and just 15 percent of Queensland coalmines have been at full production.
The extra construction work and spending to replace lost consumer goods may add as much as 1 percentage point to the nation’s economic growth rate, according to ICAP Australia Ltd. senior economist Adam Carr. The Reserve Bank of Australia forecast in November that the economy would grow 3.75 percent this year.
Curtains to Cars
“Think of the building supplies that will need to be purchased, the carpets that need to be bought, the curtains, toasters, refrigerators and the cars,” Carr said in a Jan. 19 note.
Gerry Harvey, executive chairman of Harvey Norman, said sales in Queensland would outpace the rest of the country in February and March as people replaced plasma televisions, washing machines and household goods.
“This is Queensland’s very own economic stimulus and our sales will be stronger there than anywhere else,” Harvey said in a telephone interview. “People will need to refurnish their homes, so there will be a benefit for retailers.”
Boral and James Hardie Industries NV, Australia’s largest supplier of fiber cement products, both told Bloomberg News they expect demand for their products will increase as the damage becomes clearer. The Insurance Council of Australia on Jan. 19 said companies had so far received 12,000 claims worth A$410 million.
Stocks to Watch
“It’s clear that there’s going to be a significant rebuild required in areas both involving construction materials and building products,” said Penny Berger, a spokeswoman for timber, tiles and concrete supplier Boral. Berger said customers would lodge orders after the clean-up was completed.
Since Jan. 12, after evacuations began in Brisbane, Boral shares gained 0.8 percent, Reece rose 4.3 percent, Harvey Norman gained 7.9 percent, James Hardie fell 4 percent and DuluxGroup advanced 1.1 percent.
“There are more losers than winners, but the winners are the homebuilders and some of the smaller retailers,” said Chris Stott, who helps oversee about $400 million at Wilson Asset Management in Sydney. “It’s clear they’ll benefit, but in terms of quantifying that, it’s still too early because the clean-up is still happening.”
Stocks he tips will benefit include Boral, Harvey Norman, Reece, Dulux, Fantastic Holdings Ltd., a furniture seller, Breville Group Ltd., an electrical appliances maker, CSR Ltd., which manufactures building materials, and Brickworks Ltd., which makes bricks and floor tiles.
Volunteer Army
Queensland’s initial flood clean-up is being done by about 60,000 mop-wielding volunteers.
“They’re scraping mud from walls, shifting ruined furniture, it’s dirty work,” Volunteering Australia spokesman Peter Cocks said from Brisbane. “After the clean-up, people can assess the damage and look toward replacing things and rebuilding their homes. It’s a process.”
The flooding across three states represents Australia’s biggest natural disaster in economic terms, said Prime Minister Julia Gillard, who has pledged the federal government will cover 75 percent of the reconstruction cost. ANZ Bank said the bill to rebuild just Queensland could be as much as A$20 billion, or 1.5 percent of the national economy.
The sugar- and coal-producing state accounts for about 20 percent of the A$1.3 trillion economy. The national and state governments have not yet said how much the flooding will cost.
“This effort is bigger than Cyclone Tracy in 1974, which destroyed Darwin, it’s bigger than the 1989 Newcastle earthquake, the 1999 Sydney hail storm and any other flood or bushfire we have seen,” said Professor Peter Grace, from the Queensland University of Technology. “It will take at least two years.”
source:http://www.bloomberg.com
It gets worse: the state of Queensland will need to rebuild 90,000 kilometers (56,000 miles) of roads, enough to circle the globe twice, thousands of kilometers of rail line, almost 100 schools, an unknown number of bridges, several regional airports, power lines, sewers and water treatment -- the list goes on.
Australian companies, including its largest building- materials seller Boral Ltd., the No. 1 furniture and electrical retailer Harvey Norman Holdings Ltd., paint maker DuluxGroup Ltd. and plumbing supplier Reece Australia Ltd., will benefit from the reconstruction estimated to cost A$20 billion ($20 billion). The floods are the most expensive natural disaster in the nation’s history and have claimed at least 20 lives.
“The state’s a disaster zone,” said Greg Hoffman, general manager at the Queensland Local Government Association, which estimates up to 90,000 kilometers of road and “tens of thousands of drains” will need to be replaced or repaired across Queensland. “Roads have been torn away, airport terminals have been uprooted and you can’t believe your eyes when you see the wasteland left behind,” he said in a telephone interview.
Reinforcements Needed
The average cost of building a new home is A$300,000, meaning the bill to replace housing alone in Brisbane, Australia’s third-largest city with a population of 2 million, may be A$8 billion, Australia & New Zealand Banking Group Ltd. says. ANZ based its forecast on the state Premier Anna Bligh’s Jan. 16 comment that 28,000 dwellings need rebuilding. Bligh says 2.1 million people have been affected by Queensland’s flood.
Since Jan. 10, 20 people have died and nine are missing as a result of the floods, Queensland police said yesterday.
It will take two years and 34,000 tradesmen to rebuild homes in Brisbane, according to Graham Cuthbert, Master Builders Queensland executive director.
“Australia has never before seen a program of this scale,” Cuthbert said in a telephone interview. “We will probably need reinforcements.”
Builder John Rist, from Port Sorrell in Australia’s southernmost island state of Tasmania, is ready to pack his tools and drive 1,800 kilometers north to Queensland.
“I’ll be there in a flash, as long as there is a need,” 38-year-old Rist said in a telephone interview. “Things will probably slow down here, so it could be just what I need.”
Competition for Labor
Finding skilled labor for the reconstruction in Queensland, plus the flood-damaged eastern states of Victoria and New South Wales, may be difficult. A mining boom, to feed China’s appetite for raw materials, has caused a shortage of tradesmen at a time when the jobless rate was just 5 percent in December, the lowest level since January 2009.
Already two coal-seam gas projects, expected to cost more than A$30 billion, are proceeding near the Queensland port of Gladstone. Santos Ltd., Australia’s third-largest oil producer, and BG Group Plc, the U.K.’s third-biggest gas producer, will start hiring the first of more than 10,000 construction workers needed for the two projects later this year.
The Queensland Resources Council estimates A$2.3 billion of coal sales have been lost because of the floods and just 15 percent of Queensland coalmines have been at full production.
The extra construction work and spending to replace lost consumer goods may add as much as 1 percentage point to the nation’s economic growth rate, according to ICAP Australia Ltd. senior economist Adam Carr. The Reserve Bank of Australia forecast in November that the economy would grow 3.75 percent this year.
Curtains to Cars
“Think of the building supplies that will need to be purchased, the carpets that need to be bought, the curtains, toasters, refrigerators and the cars,” Carr said in a Jan. 19 note.
Gerry Harvey, executive chairman of Harvey Norman, said sales in Queensland would outpace the rest of the country in February and March as people replaced plasma televisions, washing machines and household goods.
“This is Queensland’s very own economic stimulus and our sales will be stronger there than anywhere else,” Harvey said in a telephone interview. “People will need to refurnish their homes, so there will be a benefit for retailers.”
Boral and James Hardie Industries NV, Australia’s largest supplier of fiber cement products, both told Bloomberg News they expect demand for their products will increase as the damage becomes clearer. The Insurance Council of Australia on Jan. 19 said companies had so far received 12,000 claims worth A$410 million.
Stocks to Watch
“It’s clear that there’s going to be a significant rebuild required in areas both involving construction materials and building products,” said Penny Berger, a spokeswoman for timber, tiles and concrete supplier Boral. Berger said customers would lodge orders after the clean-up was completed.
Since Jan. 12, after evacuations began in Brisbane, Boral shares gained 0.8 percent, Reece rose 4.3 percent, Harvey Norman gained 7.9 percent, James Hardie fell 4 percent and DuluxGroup advanced 1.1 percent.
“There are more losers than winners, but the winners are the homebuilders and some of the smaller retailers,” said Chris Stott, who helps oversee about $400 million at Wilson Asset Management in Sydney. “It’s clear they’ll benefit, but in terms of quantifying that, it’s still too early because the clean-up is still happening.”
Stocks he tips will benefit include Boral, Harvey Norman, Reece, Dulux, Fantastic Holdings Ltd., a furniture seller, Breville Group Ltd., an electrical appliances maker, CSR Ltd., which manufactures building materials, and Brickworks Ltd., which makes bricks and floor tiles.
Volunteer Army
Queensland’s initial flood clean-up is being done by about 60,000 mop-wielding volunteers.
“They’re scraping mud from walls, shifting ruined furniture, it’s dirty work,” Volunteering Australia spokesman Peter Cocks said from Brisbane. “After the clean-up, people can assess the damage and look toward replacing things and rebuilding their homes. It’s a process.”
The flooding across three states represents Australia’s biggest natural disaster in economic terms, said Prime Minister Julia Gillard, who has pledged the federal government will cover 75 percent of the reconstruction cost. ANZ Bank said the bill to rebuild just Queensland could be as much as A$20 billion, or 1.5 percent of the national economy.
The sugar- and coal-producing state accounts for about 20 percent of the A$1.3 trillion economy. The national and state governments have not yet said how much the flooding will cost.
“This effort is bigger than Cyclone Tracy in 1974, which destroyed Darwin, it’s bigger than the 1989 Newcastle earthquake, the 1999 Sydney hail storm and any other flood or bushfire we have seen,” said Professor Peter Grace, from the Queensland University of Technology. “It will take at least two years.”
source:http://www.bloomberg.com
Super-Cycle Leaves No Economy Behind Before Davos Summit
For only the third time since the Industrial Revolution, the world may be entering a long-term growth cycle that will lift all economies simultaneously, driving bond yields and commodity prices higher.
The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.
With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.
Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.
Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.
Investment, Urbanization
Lyons and his colleagues predict a “super-cycle” of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before World War I and the three following World War II. He’s betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.
Richard Dobbs, a director of the research division at New York-based McKinsey & Co., will use the Davos meeting to highlight a study by the international consulting firm that sees an imminent end to cheap capital. The causes are a building bonanza in developing economies and aging populations who are draining their savings, according to the report, which was released Dec. 9.
Signs of Momentum
The 10-year U.S. Treasury note yielded 3.41 percent in New York on Jan. 21, according to BGCantor Market Data, compared with 15.8 percent in 1981 and a record low of 2.04 percent in December 2008. Signs of momentum in the U.S. economy have helped increase the yield from about 2.9 percent at the start of December.
“It’s a topic capturing the attention of people who want to think beyond the crisis,” said Seoul-based Dobbs.
While Goldman Sachs Asset Management Chairman Jim O’Neill has found fame for promoting the “BRIC” economies of Brazil, Russia, India and China, he says their rise has positive impact beyond their borders, with Chinese imports totaling about $400 billion, almost the equivalent of South Africa’s economy last year. That should attract investors to rich-nation companies with links to these markets, and the resurgence in the U.S. economy has prompted O’Neill to predict higher U.S. bond yields in 2011. He didn’t provide a specific forecast.
‘Out of Date’
“World-trend economic growth is being lifted,” said London-based O’Neill, who helps manage $840 billion. “The notion that BRICs benefit at the expense of others is increasingly out of date.”
Investors should buy copper, coal and oil to take advantage of the growth of cities in emerging markets, according to Standard Chartered, which says the Chinese yuan, Indian rupee and Korean won will appreciate on strengthening domestic growth.
Developed nations also will benefit as their emerging- market counterparts invest more abroad, hire more of their workers and rely on their expertise in areas such as financial services, said Lyons, who will be at Davos. He predicts both the U.S. and European Union will enjoy an average trend growth of 2.5 percent through 2030, compared with the 1.9 percent and 1.7 percent he forecasts for this year.
“It’s a win-win situation,” said Lyons, who concedes growth won’t always be strong and continuous during the entire period.
Increasing Integration
The increasing integration of China and other developing economies will boost commerce and investment worldwide, agrees Edward Prescott, a senior monetary adviser to the Federal Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for analysis of business cycles and economic policy.
Prescott points to South Carolina, which has benefited from new factories opened by Chinese companies such as appliance maker Haier Group. The International Monetary Fund projects this year will be the first in which Chinese foreign investment outpaces inward flows.
“The whole world’s going to be rich by the end of this century,” Prescott said.
Such euphoria may be muted in Davos, given the European sovereign-debt crisis, fears of a real-estate bubble in China and mounting public-debt burdens, said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, who is attending the meeting.
“There’s going to be more optimism but still some worries,” he said.
High Unemployment
Talk of a super-cycle gets little support from Joseph Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends that globalization and free trade may be stymied by unemployment in rich nations and the risk that more of these countries’ jobs will be lost abroad. The U.S. jobless rate has remained above 9 percent since May 2009.
“Standard Chartered works mostly in developing markets, and that shapes its world view,” said Stiglitz, an economics professor at Columbia University in New York. “If you work in emerging markets, you feel the energy. If you are in the U.S. or Europe, you see the numbers and it’s hard not to feel depressed.”
The difference reflects a “shift in the center of gravity in the world economy, in which the West is struggling to keep up with turbo-charged,” emerging markets, says Stephen King, chief global economist in London at HSBC Holdings Plc and a former U.K. Treasury official. He will outline in Davos what he calls the next phase of globalization: increased trade among emerging countries.
Rising Global Output
His team calculated this month that by 2050, global output will have trebled and average annual growth will accelerate toward 3 percent from 2 percent in the last decade, with emerging markets contributing twice as much to the expansion as the developed world.
Ian Bremmer, president and founder of the Eurasia Group, a political-risk consulting company in New York, is more downbeat as he heads to the Swiss ski resort. He predicts what he calls a “G-Zero” era in which no country has the political or economic leverage to dominate the international agenda and all nations focus on their own priorities. That will reduce economic efficiency and prompt trade conflicts, he said.
Volatility, Uncertainty
The subsequent volatility and uncertainty mean U.S. assets will prove the “comparative safest bet” and the price of gold will stay high, Bremmer said, after touching a record $1,432.50 an ounce on Dec. 7. Fixed-income securities still may suffer as nations impose capital controls, which Brazil and South Korea have done lately, while companies will continue saving rather than spending, he predicted.
“Corporations will keep trillions of dollars on the sidelines,” he said Jan. 5 on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “They’re just very uncertain about where the world is heading.”
John Hawksworth, the London-based head of macroeconomics at PricewaterhouseCoopers, is confident a so-called zero-sum world isn’t in the cards. His own attempt to see into the future this month generated a projection that a bloc of seven leading emerging markets, including India and China, will be 64 percent larger than the current Group of Seven by 2050 at market- exchange rates, compared with 36 percent smaller today.
Even so, average income levels in the G-7 countries will rise in absolute terms as new market opportunities open up for their businesses, and consumers will benefit from lower-cost imports, predicts Hawksworth, who has served as a consultant to the World Bank and whose company will release its annual survey of executives in Davos tomorrow.
“There is a shift in economic power from West to East, but the West can still do well,” Lyons said.
source:http://www.bloomberg.com
The depth and scope of the expansion will be a focus for discussion at this week’s annual meeting of the World Economic Forum in Davos, Switzerland. Evidence of a broadening global recovery will enable U.S. Treasury Secretary Timothy F. Geithner, investor George Soros and 2,500 political, business and academic leaders to shift their emphasis away from crisis- fighting.
With the economic and investment outlooks “much better” than in recent years, “people are talking about how to get back to business as normal and what comes next,” said Jitesh Gadhia, a delegate to the conference and the London-based senior managing director at Blackstone Group LP, which runs the world’s largest buyout fund.
Goldman Sachs Group Inc., PricewaterhouseCoopers LLP and London’s Standard Chartered Bank are among the financial companies sending executives to the meeting. Their economists predict a growth spurt in coming decades led by emerging nations that will be strong enough to boost developed countries.
Global gross domestic product will swell to $143 trillion by 2030, allowing for inflation and market-exchange rates, from $62 trillion in 2010, with China and other emerging markets accounting for about two thirds of the rise, estimates Gerard Lyons, chief economist and group head of global research in London for Standard Chartered, which generates most of its earnings from Asia.
Investment, Urbanization
Lyons and his colleagues predict a “super-cycle” of historically high growth that will last at least a generation and will be led by booming trade, investment and urbanization, according to a report published in November. He reckons such a cycle has occurred only twice since the end of the 18th century: the four decades before World War I and the three following World War II. He’s betting the new phase will contribute to a reversal in the three-decade decline for U.S. bond yields after 10-year Treasury notes lost an average 40 basis points a year since the early 1980s.
Richard Dobbs, a director of the research division at New York-based McKinsey & Co., will use the Davos meeting to highlight a study by the international consulting firm that sees an imminent end to cheap capital. The causes are a building bonanza in developing economies and aging populations who are draining their savings, according to the report, which was released Dec. 9.
Signs of Momentum
The 10-year U.S. Treasury note yielded 3.41 percent in New York on Jan. 21, according to BGCantor Market Data, compared with 15.8 percent in 1981 and a record low of 2.04 percent in December 2008. Signs of momentum in the U.S. economy have helped increase the yield from about 2.9 percent at the start of December.
“It’s a topic capturing the attention of people who want to think beyond the crisis,” said Seoul-based Dobbs.
While Goldman Sachs Asset Management Chairman Jim O’Neill has found fame for promoting the “BRIC” economies of Brazil, Russia, India and China, he says their rise has positive impact beyond their borders, with Chinese imports totaling about $400 billion, almost the equivalent of South Africa’s economy last year. That should attract investors to rich-nation companies with links to these markets, and the resurgence in the U.S. economy has prompted O’Neill to predict higher U.S. bond yields in 2011. He didn’t provide a specific forecast.
‘Out of Date’
“World-trend economic growth is being lifted,” said London-based O’Neill, who helps manage $840 billion. “The notion that BRICs benefit at the expense of others is increasingly out of date.”
Investors should buy copper, coal and oil to take advantage of the growth of cities in emerging markets, according to Standard Chartered, which says the Chinese yuan, Indian rupee and Korean won will appreciate on strengthening domestic growth.
Developed nations also will benefit as their emerging- market counterparts invest more abroad, hire more of their workers and rely on their expertise in areas such as financial services, said Lyons, who will be at Davos. He predicts both the U.S. and European Union will enjoy an average trend growth of 2.5 percent through 2030, compared with the 1.9 percent and 1.7 percent he forecasts for this year.
“It’s a win-win situation,” said Lyons, who concedes growth won’t always be strong and continuous during the entire period.
Increasing Integration
The increasing integration of China and other developing economies will boost commerce and investment worldwide, agrees Edward Prescott, a senior monetary adviser to the Federal Reserve Bank of Minneapolis who shared the 2004 Nobel Prize for analysis of business cycles and economic policy.
Prescott points to South Carolina, which has benefited from new factories opened by Chinese companies such as appliance maker Haier Group. The International Monetary Fund projects this year will be the first in which Chinese foreign investment outpaces inward flows.
“The whole world’s going to be rich by the end of this century,” Prescott said.
Such euphoria may be muted in Davos, given the European sovereign-debt crisis, fears of a real-estate bubble in China and mounting public-debt burdens, said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, who is attending the meeting.
“There’s going to be more optimism but still some worries,” he said.
High Unemployment
Talk of a super-cycle gets little support from Joseph Stiglitz, a Davos veteran and 2001 Nobel laureate. He contends that globalization and free trade may be stymied by unemployment in rich nations and the risk that more of these countries’ jobs will be lost abroad. The U.S. jobless rate has remained above 9 percent since May 2009.
“Standard Chartered works mostly in developing markets, and that shapes its world view,” said Stiglitz, an economics professor at Columbia University in New York. “If you work in emerging markets, you feel the energy. If you are in the U.S. or Europe, you see the numbers and it’s hard not to feel depressed.”
The difference reflects a “shift in the center of gravity in the world economy, in which the West is struggling to keep up with turbo-charged,” emerging markets, says Stephen King, chief global economist in London at HSBC Holdings Plc and a former U.K. Treasury official. He will outline in Davos what he calls the next phase of globalization: increased trade among emerging countries.
Rising Global Output
His team calculated this month that by 2050, global output will have trebled and average annual growth will accelerate toward 3 percent from 2 percent in the last decade, with emerging markets contributing twice as much to the expansion as the developed world.
Ian Bremmer, president and founder of the Eurasia Group, a political-risk consulting company in New York, is more downbeat as he heads to the Swiss ski resort. He predicts what he calls a “G-Zero” era in which no country has the political or economic leverage to dominate the international agenda and all nations focus on their own priorities. That will reduce economic efficiency and prompt trade conflicts, he said.
Volatility, Uncertainty
The subsequent volatility and uncertainty mean U.S. assets will prove the “comparative safest bet” and the price of gold will stay high, Bremmer said, after touching a record $1,432.50 an ounce on Dec. 7. Fixed-income securities still may suffer as nations impose capital controls, which Brazil and South Korea have done lately, while companies will continue saving rather than spending, he predicted.
“Corporations will keep trillions of dollars on the sidelines,” he said Jan. 5 on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “They’re just very uncertain about where the world is heading.”
John Hawksworth, the London-based head of macroeconomics at PricewaterhouseCoopers, is confident a so-called zero-sum world isn’t in the cards. His own attempt to see into the future this month generated a projection that a bloc of seven leading emerging markets, including India and China, will be 64 percent larger than the current Group of Seven by 2050 at market- exchange rates, compared with 36 percent smaller today.
Even so, average income levels in the G-7 countries will rise in absolute terms as new market opportunities open up for their businesses, and consumers will benefit from lower-cost imports, predicts Hawksworth, who has served as a consultant to the World Bank and whose company will release its annual survey of executives in Davos tomorrow.
“There is a shift in economic power from West to East, but the West can still do well,” Lyons said.
source:http://www.bloomberg.com
Tuesday, January 18, 2011
China Mobile Uses Hotspots to Stem Internet Addicts Defections
Yolkie Sun’s addiction to Facebook Inc. cost China Mobile Communications Corp. a longtime customer.
Sun, who used China Mobile for 11 years, switched to China United Network Communications Group Co., parent of China Unicom, to access the social networking site. Her smartphone accesses the website through a virtual private network that can take three times longer to run on China Mobile.
“I can’t live without Facebook,” Sun, 23, said. “Lots of people use Unicom for the 3G because the Internet is very fast. China Mobile’s 3G is not as good.”
Defections such as Sun’s may cause the world’s largest mobile-phone company by users to lose market share even as the nation doubles its 3G subscribers this year. The Beijing-based company plans to more than triple its Wi-Fi hotspots this year so subscribers have another way to connect to the Internet, said Kelvin Ho, a Shanghai-based analyst at Yuanta Securities Co.
China Mobile may increase its number of hotspots to 1.1 million by year’s end from the 300,000 it had in June, he said. Its capital expenditures of 111 billion yuan ($16.8 billion) this year may be 13 percent above previous projections, he said.
‘Worried’ About Unicom
“They are more aggressive than before in terms of Wi-Fi rollout and coverage,” Ho said. “China Mobile is worried its higher-spending customers will turn to Unicom.”
China Mobile, the world’s largest phone carrier by market value, has the nation’s largest 3G user base with 18.8 million as of Nov. 30, compared with China Unicom’s 12.8 million, according to subscriber data. China Unicom is the only carrier offering Apple Inc.’s iPhone with a contract.
China Mobile’s 3G market share may drop to 40 percent this year from 44 percent last year, and China Unicom’s may rise to 33 percent from 31 percent, Donald Lu, a Beijing-based analyst for Goldman Sachs Group Inc., said in a Jan. 6 report.
China Mobile Chairman Wang Jianzhou said building out the Wi-Fi network is “the fastest way” to meet rising Web demand by phone users. The company started the expansion last year and will speed it up this year, he said.
“The competition in the 3G market is very fierce,” Wang said Monday at the Asian Financial Forum in Hong Kong. “We will be adding a lot more hotspots and access points in areas with high population density.”
China Mobile Ltd. rose 6 percent last year in Hong Kong, trailing the 8.2 percent gain in shares of China Unicom (Hong Kong) Ltd.
Italy’s Population
China’s 3G users will reach 103.3 million this year from an estimated 46.8 million last year, Lu said. Those 57 million new subscribers almost equal Italy’s population.
China Mobile’s subscriber numbers include 5.2 million people using its less lucrative “fixed wireless” phone package, according to estimates from Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. The phones for home or office use the 3G network for voice and texting, though not the Internet.
The growing popularity of tablet computers, including Apple’s iPad, is stoking demand for 3G services that China Mobile hopes to meet with Wi-Fi, Wuh said.
“If people with smartphones or iPads or iPhones want to surf the Web and don’t want to switch to China Unicom, Wi-Fi is one way that China Mobile can help them get around that,” he said.
Zhang Jie received an iPhone three years ago and still uses China Mobile’s 2G network and Wi-Fi, believing it handles phone calls better.
Inferior Network
“China Unicom can be quicker with data, but in many areas even the voice service won’t work,” Zhang said. “China Mobile still has the broader coverage.”
China Mobile in January 2009 received its 3G license for the Time Division Synchronous Code Division Multiple Access system, or TD-SCDMA. The Chinese system was developed as an alternative to the global W-CDMA and CDMA2000 standards.
China Mobile was picked to use the homegrown network because of its market dominance, said Jim Tang, a Shanghai-based analyst at Shenyin Wanguo Securities Co. The government gave China Unicom a license for W-CDMA and China Telecommunications Corp., with a 26 percent market share, one for CDMA2000.
“TD-SCDMA is not as mature,” Tang said. “To offer users a better Web experience, China Mobile has to rely on Wi-Fi.”
In a test by Tang, China Unicom’s 3G network loaded a video clip of a popular song in China called “Tan Te,” or “Perturbed,” about three times faster than China Mobile’s network. Unicom started playing the clip in 25 seconds, compared with 75 seconds for China Mobile, Tang said. Unicom’s data- transfer speed of 110 kilobytes per second compared with China Mobile’s 33 kilobytes.
Planning for 4G
China Mobile customers can buy unlocked iPhones at Apple’s Beijing store and at gray markets. The handsets only work on its older, international 2G network because they aren’t compatible with the homegrown 3G standard.
China Mobile wants Wi-Fi to be an interim solution until it gets a fourth-generation network in place, Ho said.
China Mobile said last month it received government approval to start a network trial in six cities, including Shanghai and Shenzhen. China Mobile likely won’t get a 4G license within two years because the government wants carriers to recoup 3G investments, Ho said.
“China Mobile is pushing 4G hard because their network technology is lagging,” he said.
China Mobile customer Wang Zhen of Beijing said he can wait. The tour guide will use an unlocked iPhone on China Mobile’s 2G network rather than lose his current phone number.
“China Mobile’s network will be slower, but if I need to make heavy use of the Internet, there are lots of hotspots around,” Wang, 24, said. “The problem is I don’t want to change my number.”
Li Gang, 30, started using China Mobile 10 years ago with his first mobile phone. When he recently bought an iPhone 4 for downloading maps and directions, he switched to China Unicom.
“I always used China Mobile but their 3G service is just not as good,” Li, a mining equipment salesman at Jin Feng Co., said at the Apple store. “I like to use my phone to watch movies online, and I don’t want to be restricted to having to find a Wi-Fi hotspot to do it.”
source:bloomberg.com
Sun, who used China Mobile for 11 years, switched to China United Network Communications Group Co., parent of China Unicom, to access the social networking site. Her smartphone accesses the website through a virtual private network that can take three times longer to run on China Mobile.
“I can’t live without Facebook,” Sun, 23, said. “Lots of people use Unicom for the 3G because the Internet is very fast. China Mobile’s 3G is not as good.”
Defections such as Sun’s may cause the world’s largest mobile-phone company by users to lose market share even as the nation doubles its 3G subscribers this year. The Beijing-based company plans to more than triple its Wi-Fi hotspots this year so subscribers have another way to connect to the Internet, said Kelvin Ho, a Shanghai-based analyst at Yuanta Securities Co.
China Mobile may increase its number of hotspots to 1.1 million by year’s end from the 300,000 it had in June, he said. Its capital expenditures of 111 billion yuan ($16.8 billion) this year may be 13 percent above previous projections, he said.
‘Worried’ About Unicom
“They are more aggressive than before in terms of Wi-Fi rollout and coverage,” Ho said. “China Mobile is worried its higher-spending customers will turn to Unicom.”
China Mobile, the world’s largest phone carrier by market value, has the nation’s largest 3G user base with 18.8 million as of Nov. 30, compared with China Unicom’s 12.8 million, according to subscriber data. China Unicom is the only carrier offering Apple Inc.’s iPhone with a contract.
China Mobile’s 3G market share may drop to 40 percent this year from 44 percent last year, and China Unicom’s may rise to 33 percent from 31 percent, Donald Lu, a Beijing-based analyst for Goldman Sachs Group Inc., said in a Jan. 6 report.
China Mobile Chairman Wang Jianzhou said building out the Wi-Fi network is “the fastest way” to meet rising Web demand by phone users. The company started the expansion last year and will speed it up this year, he said.
“The competition in the 3G market is very fierce,” Wang said Monday at the Asian Financial Forum in Hong Kong. “We will be adding a lot more hotspots and access points in areas with high population density.”
China Mobile Ltd. rose 6 percent last year in Hong Kong, trailing the 8.2 percent gain in shares of China Unicom (Hong Kong) Ltd.
Italy’s Population
China’s 3G users will reach 103.3 million this year from an estimated 46.8 million last year, Lu said. Those 57 million new subscribers almost equal Italy’s population.
China Mobile’s subscriber numbers include 5.2 million people using its less lucrative “fixed wireless” phone package, according to estimates from Paul Wuh, a Hong Kong-based analyst at Samsung Securities Co. The phones for home or office use the 3G network for voice and texting, though not the Internet.
The growing popularity of tablet computers, including Apple’s iPad, is stoking demand for 3G services that China Mobile hopes to meet with Wi-Fi, Wuh said.
“If people with smartphones or iPads or iPhones want to surf the Web and don’t want to switch to China Unicom, Wi-Fi is one way that China Mobile can help them get around that,” he said.
Zhang Jie received an iPhone three years ago and still uses China Mobile’s 2G network and Wi-Fi, believing it handles phone calls better.
Inferior Network
“China Unicom can be quicker with data, but in many areas even the voice service won’t work,” Zhang said. “China Mobile still has the broader coverage.”
China Mobile in January 2009 received its 3G license for the Time Division Synchronous Code Division Multiple Access system, or TD-SCDMA. The Chinese system was developed as an alternative to the global W-CDMA and CDMA2000 standards.
China Mobile was picked to use the homegrown network because of its market dominance, said Jim Tang, a Shanghai-based analyst at Shenyin Wanguo Securities Co. The government gave China Unicom a license for W-CDMA and China Telecommunications Corp., with a 26 percent market share, one for CDMA2000.
“TD-SCDMA is not as mature,” Tang said. “To offer users a better Web experience, China Mobile has to rely on Wi-Fi.”
In a test by Tang, China Unicom’s 3G network loaded a video clip of a popular song in China called “Tan Te,” or “Perturbed,” about three times faster than China Mobile’s network. Unicom started playing the clip in 25 seconds, compared with 75 seconds for China Mobile, Tang said. Unicom’s data- transfer speed of 110 kilobytes per second compared with China Mobile’s 33 kilobytes.
Planning for 4G
China Mobile customers can buy unlocked iPhones at Apple’s Beijing store and at gray markets. The handsets only work on its older, international 2G network because they aren’t compatible with the homegrown 3G standard.
China Mobile wants Wi-Fi to be an interim solution until it gets a fourth-generation network in place, Ho said.
China Mobile said last month it received government approval to start a network trial in six cities, including Shanghai and Shenzhen. China Mobile likely won’t get a 4G license within two years because the government wants carriers to recoup 3G investments, Ho said.
“China Mobile is pushing 4G hard because their network technology is lagging,” he said.
China Mobile customer Wang Zhen of Beijing said he can wait. The tour guide will use an unlocked iPhone on China Mobile’s 2G network rather than lose his current phone number.
“China Mobile’s network will be slower, but if I need to make heavy use of the Internet, there are lots of hotspots around,” Wang, 24, said. “The problem is I don’t want to change my number.”
Li Gang, 30, started using China Mobile 10 years ago with his first mobile phone. When he recently bought an iPhone 4 for downloading maps and directions, he switched to China Unicom.
“I always used China Mobile but their 3G service is just not as good,” Li, a mining equipment salesman at Jin Feng Co., said at the Apple store. “I like to use my phone to watch movies online, and I don’t want to be restricted to having to find a Wi-Fi hotspot to do it.”
source:bloomberg.com
Apple Profit Rises 78% on Holiday Demand for Gadgets
Apple Inc., whose Chief Executive Officer Steve Jobs said yesterday he is taking a medical leave of absence, posted a 78 percent jump in quarterly profit, helped by holiday buying of iPads, iPhones and Macintosh computers.
Net income in the fiscal first quarter rose to $6 billion, or $6.43 a share, from $3.38 billion, or $3.67, a year earlier, Apple said today in a statement. Analysts projected profit of $5.41 a share, the average of estimates compiled by Bloomberg. Apple rose as much as 4.8 percent in extended trading.
Sales increased 71 percent to a record $26.7 billion, exceeding the $24.4 billion predicted by analysts in a Bloomberg survey. The company sold 7.33 million iPad tablet computers in the first holiday season for the device, topping the 6 million projected by Mike Abramsky at RBC Capital Markets LLC. The results suggest Apple will fare well in the coming months as Jobs hands day-to-day operations to Chief Operating Officer Tim Cook, said Ashok Kumar, an analyst at Rodman & Renshaw LLC.
“It was a blowout quarter,” said Kumar, who’s based in Palo Alto, California. “The momentum should sustain for the next 12 months with the iPad and iPhone refresh. The uncertainty investors have to prepare for is beyond that time frame in terms of the company’s ability to execute in this flawless manner and develop new markets.” He rates Apple a “buy” and doesn’t own it.
Apple, based in Cupertino, California, climbed to as high as $357 in extended trading, after earlier falling $7.83 to $340.65 at 4 p.m. New York time on the Nasdaq Stock Market. The shares rose 53 percent last year. The company is the world’s second-most valuable company behind Exxon Mobil Corp.
‘Well-Oiled Machine’
Jobs, 55, who has been fighting a rare form of cancer since 2004, said in an e-mail disclosed yesterday, “I love Apple so much and hope to be back as soon as I can.”
The company is likely to fare well under Cook, said Barry Jaruzelski, a partner at Booz & Co.
“It’s a well-oiled machine,” said Jaruzelski. Jobs’s “ethos and things he focuses on from marketing and innovation are deeply embedded in the process and people, making it an institutional capability,” he said.
Apple sold 16.2 million iPhones, 4.13 million Mac computers and 19.5 million iPod media players, according to the statement. Abramsky at RBC Capital Markets predicted sales of 16 million iPhones, 6 million iPads, 18.7 million iPods and 4.2 million Macs.
More Products Coming
Apple, whose potential U.S. customer base for the iPhone will almost double by adding Verizon Wireless as a carrier next month, said profit this quarter will be $4.90 a share on sales of $22 billion.
“We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon, which customers can’t wait to get their hands on,” Jobs said in the statement.
Analysts estimate Apple will have second-quarter profit of $4.47 a share on sales of $20.9 billion, according to data compiled by Bloomberg.
The period will be the first to include sales from Verizon Wireless, the largest U.S. carrier, which will begin selling the iPhone on Feb. 10. The arrangement ends AT&T Inc.’s exclusive U.S. rights to the iPhone and adds 93.2 million potential customers for Apple.
The iPhone is Apple’s top-selling product, accounting for 39 percent of revenue last fiscal year. The iPad also is becoming a bestselling product for Apple, accounting for 17 percent of revenue last quarter. The company has now sold 14.8 million since it was introduced in April.
Macbooks, Beatles
Gross margin, the percentage of sales left after deducting production costs, was 38.5 percent in the first quarter, compared with 36.9 percent in the fourth quarter.
Apple introduced a lineup of the Macbook Air notebook computers and iPod media players to entice shoppers last quarter, while also adding songs from the Beatles to iTunes for the first time.
Jobs took a leave of absence as his health deteriorates from a bout with a rare form of cancer and the effects of a liver transplant he had almost two years ago, according to a person with knowledge of the situation.
The CEO has been unable to keep on weight as he undergoes treatment for his conditions, said the person, who requested anonymity because the matter is private. He took two previous leaves -- for cancer surgery in 2004 and the transplant in 2009.
Jobs will continue as the CEO, according to a company statement citing an e-mail he sent to employees. Jobs co-founded Apple in 1976 and after being ousted in 1985, he returned in 1997 and transformed it from a computer-industry also-ran into the world’s largest technology company by market value.
“I hope he comes back,” said Jane Snorek, who helps oversee about $75 billion at Nuveen Asset Management and said Apple is Nuveen’s biggest holding. “I don’t care who they get, there’s no way you can replace Steve Jobs.”
source:www.bloomberg.com
Net income in the fiscal first quarter rose to $6 billion, or $6.43 a share, from $3.38 billion, or $3.67, a year earlier, Apple said today in a statement. Analysts projected profit of $5.41 a share, the average of estimates compiled by Bloomberg. Apple rose as much as 4.8 percent in extended trading.
Sales increased 71 percent to a record $26.7 billion, exceeding the $24.4 billion predicted by analysts in a Bloomberg survey. The company sold 7.33 million iPad tablet computers in the first holiday season for the device, topping the 6 million projected by Mike Abramsky at RBC Capital Markets LLC. The results suggest Apple will fare well in the coming months as Jobs hands day-to-day operations to Chief Operating Officer Tim Cook, said Ashok Kumar, an analyst at Rodman & Renshaw LLC.
“It was a blowout quarter,” said Kumar, who’s based in Palo Alto, California. “The momentum should sustain for the next 12 months with the iPad and iPhone refresh. The uncertainty investors have to prepare for is beyond that time frame in terms of the company’s ability to execute in this flawless manner and develop new markets.” He rates Apple a “buy” and doesn’t own it.
Apple, based in Cupertino, California, climbed to as high as $357 in extended trading, after earlier falling $7.83 to $340.65 at 4 p.m. New York time on the Nasdaq Stock Market. The shares rose 53 percent last year. The company is the world’s second-most valuable company behind Exxon Mobil Corp.
‘Well-Oiled Machine’
Jobs, 55, who has been fighting a rare form of cancer since 2004, said in an e-mail disclosed yesterday, “I love Apple so much and hope to be back as soon as I can.”
The company is likely to fare well under Cook, said Barry Jaruzelski, a partner at Booz & Co.
“It’s a well-oiled machine,” said Jaruzelski. Jobs’s “ethos and things he focuses on from marketing and innovation are deeply embedded in the process and people, making it an institutional capability,” he said.
Apple sold 16.2 million iPhones, 4.13 million Mac computers and 19.5 million iPod media players, according to the statement. Abramsky at RBC Capital Markets predicted sales of 16 million iPhones, 6 million iPads, 18.7 million iPods and 4.2 million Macs.
More Products Coming
Apple, whose potential U.S. customer base for the iPhone will almost double by adding Verizon Wireless as a carrier next month, said profit this quarter will be $4.90 a share on sales of $22 billion.
“We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon, which customers can’t wait to get their hands on,” Jobs said in the statement.
Analysts estimate Apple will have second-quarter profit of $4.47 a share on sales of $20.9 billion, according to data compiled by Bloomberg.
The period will be the first to include sales from Verizon Wireless, the largest U.S. carrier, which will begin selling the iPhone on Feb. 10. The arrangement ends AT&T Inc.’s exclusive U.S. rights to the iPhone and adds 93.2 million potential customers for Apple.
The iPhone is Apple’s top-selling product, accounting for 39 percent of revenue last fiscal year. The iPad also is becoming a bestselling product for Apple, accounting for 17 percent of revenue last quarter. The company has now sold 14.8 million since it was introduced in April.
Macbooks, Beatles
Gross margin, the percentage of sales left after deducting production costs, was 38.5 percent in the first quarter, compared with 36.9 percent in the fourth quarter.
Apple introduced a lineup of the Macbook Air notebook computers and iPod media players to entice shoppers last quarter, while also adding songs from the Beatles to iTunes for the first time.
Jobs took a leave of absence as his health deteriorates from a bout with a rare form of cancer and the effects of a liver transplant he had almost two years ago, according to a person with knowledge of the situation.
The CEO has been unable to keep on weight as he undergoes treatment for his conditions, said the person, who requested anonymity because the matter is private. He took two previous leaves -- for cancer surgery in 2004 and the transplant in 2009.
Jobs will continue as the CEO, according to a company statement citing an e-mail he sent to employees. Jobs co-founded Apple in 1976 and after being ousted in 1985, he returned in 1997 and transformed it from a computer-industry also-ran into the world’s largest technology company by market value.
“I hope he comes back,” said Jane Snorek, who helps oversee about $75 billion at Nuveen Asset Management and said Apple is Nuveen’s biggest holding. “I don’t care who they get, there’s no way you can replace Steve Jobs.”
source:www.bloomberg.com
Thursday, January 13, 2011
Toyota Readying Electric Motors That Don't Use Rare Earths
Toyota Motor Corp., the world’s largest seller of hybrid autos, is developing an alternative motor for future hybrid and electric cars that doesn’t need rare-earth minerals at risk of supply disruptions.
Toyota engineers in Japan and the U.S. are working on a so- called inductive motor that’s lighter and more efficient than the magnet-type motor now used in its Prius, said John Hanson, a company spokesman. Research is at an “advanced stage,” he said, without saying when vehicles with the motors may be sold.
“It’s a long-term approach,” said Hanson, who is based at Toyota’s U.S. unit in Torrance, California. “When you’re looking at a geopolitical issue like rare-earth supply, that can lead to developments that create very good solutions.”
The motor could help cut Toyota’s dependency on rare-earth materials from China, which controls more than 90 percent of the global market for the metals. China’s government cut export quotas for the first half of 2011 by 35 percent last month. That follows a 72 percent reduction in the second half of 2010, causing the price of some of the metals to more than double.
In addition to the Prius, rare-earth minerals such as neodymium and dysprosium are used in motor magnets in Nissan Motor Co.’s all-electric Leaf car, General Motors Co.’s plug-in Volt and Honda Motor Co.’s Insight hybrid, as well as in mobile phones and rechargeable batteries. Toyota confirmed last year it has a task force to find rare-earth supplies outside China.
Toyota rose 1.6 percent to 3,590 yen as of 10:40 a.m. in Tokyo trading. The stock has gained 11 percent this year.
Battery-Powered RAV4
In 2012, Toyota will sell a battery-powered RAV4 compact sport-utility vehicle with an inductive motor supplied by Tesla Motors Inc. that uses no rare-earth minerals. Tesla’s all- electric Roadster sports car and future Model S sedan use a similar motor, also without rare-earth materials.
The RAV4 EV motor is separate from Toyota’s next-generation electric motor project, Hanson said.
Toyota is developing efficient, cheaper, lighter motors, along with advanced batteries and power electronics, as electric propulsion is essential for next-generation autos, Takeshi Uchiyamada, Toyota’s executive vice president for research and product development, said in an interview this week in Detroit. The company is making progress in all three areas, he said, without elaborating.
Toyota engineers in Japan and the U.S. are working on a so- called inductive motor that’s lighter and more efficient than the magnet-type motor now used in its Prius, said John Hanson, a company spokesman. Research is at an “advanced stage,” he said, without saying when vehicles with the motors may be sold.
“It’s a long-term approach,” said Hanson, who is based at Toyota’s U.S. unit in Torrance, California. “When you’re looking at a geopolitical issue like rare-earth supply, that can lead to developments that create very good solutions.”
The motor could help cut Toyota’s dependency on rare-earth materials from China, which controls more than 90 percent of the global market for the metals. China’s government cut export quotas for the first half of 2011 by 35 percent last month. That follows a 72 percent reduction in the second half of 2010, causing the price of some of the metals to more than double.
In addition to the Prius, rare-earth minerals such as neodymium and dysprosium are used in motor magnets in Nissan Motor Co.’s all-electric Leaf car, General Motors Co.’s plug-in Volt and Honda Motor Co.’s Insight hybrid, as well as in mobile phones and rechargeable batteries. Toyota confirmed last year it has a task force to find rare-earth supplies outside China.
Toyota rose 1.6 percent to 3,590 yen as of 10:40 a.m. in Tokyo trading. The stock has gained 11 percent this year.
Battery-Powered RAV4
In 2012, Toyota will sell a battery-powered RAV4 compact sport-utility vehicle with an inductive motor supplied by Tesla Motors Inc. that uses no rare-earth minerals. Tesla’s all- electric Roadster sports car and future Model S sedan use a similar motor, also without rare-earth materials.
The RAV4 EV motor is separate from Toyota’s next-generation electric motor project, Hanson said.
Toyota is developing efficient, cheaper, lighter motors, along with advanced batteries and power electronics, as electric propulsion is essential for next-generation autos, Takeshi Uchiyamada, Toyota’s executive vice president for research and product development, said in an interview this week in Detroit. The company is making progress in all three areas, he said, without elaborating.
Singapore Plans More Housing Curbs as Prices Rise to Record
Singapore will raise down payment requirements for second mortgages and extend the period homeowners must hold properties to avoid a sales tax as it steps up efforts to curb speculation after prices rose to a record.
Individuals with more than one mortgage can only borrow up to 60 percent of a property’s value, down from 70 percent, the government said in a statement yesterday. On loans to entities other than individuals it will be reduced to 50 percent from 60 percent. Sellers will now have to pay a stamp duty for all homes and land sold within four years of purchase, from three years.
Singapore private home prices climbed to a record as the nation’s fastest economic growth since independence in 1965 overwhelmed government measures to cool the market. The city- state has been attempting to rein in home prices since 2009 when the government barred interest-only loans for some housing projects and stopped allowing developers to cover interest payments for apartments still being built.
“The government is erring on the side of caution,” said Donald Han, Singapore-based managing director at Cushman & Wakefield, the world’s largest closely held real estate services company. “We need to monitor this because history has shown that some of these measures lasted only two to three months, and the market comes right back to full life again.”
Singapore’s Straits Times Real Estate Index fell as much as 1.4 percent, with 28 index members out of 38 falling as of 9:18 a.m. CapitaLand Ltd., Southeast Asia’s biggest developer, declined as much as 3.7 percent to S$3.70.
Buoyant Sentiments
While Singapore’s private home prices climbed 2.7 percent to a record in the fourth quarter from the previous three months, the increase was the smallest in six quarters, government data showed. Han said he expects the gain in home prices to cap at 5 percent this year with the latest curbs, from an earlier estimate of as much as 12 percent.
“Previous government measures have to some extent moderated the market, but sentiments remain buoyant,” according to the statement yesterday. “The government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence.”
With the additional steps, Singapore joins markets across Asia that added measures to curb property speculation driven by low interest rates. Hong Kong imposed additional taxes and higher down payments in November after home prices climbed more than 50 percent since the beginning of 2009. China, battling at least 18 months of price increases, suspended third mortgages and raised interest rates for the first time in three years.
‘Strong Disincentive’
Singapore’s homeowners who sell a property within a year of purchase will have to pay a tax of 16 percent from 3 percent now. That drops to 12 percent in the second year, 8 percent in the third, and 4 percent in the final year. The government also said it will take further steps if necessary.
“The seller’s stamp duty rates will be increased sharply so as to provide a strong disincentive for investors looking to make short term gains,” the government said. “The impact of the seller’s stamp duty is especially significant as it is payable regardless whether the property is eventually sold at a gain or loss.”
Singapore in February last year said it will levy a seller’s stamp duty on all residential properties and land that are sold within one year from the date of purchase. That was increased to three years in August, when the government also raised down payments for second mortgages.
Caught by Surprise
“This new round of cooling measures will adversely affect sentiments in the property market in the coming months,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “They could also catch many investors who had bought residential properties in the last two years by surprise. Some of the buyers could be investors who are banking on rising property prices to make a quick profit.”
Private residential sales in November rose the most in seven months. Property transactions reached an unprecedented level in the first 11 months of 2010 as developers sold 15,025 properties, according to preliminary data from the government. That exceeded the high of 14,811 homes in 2007.
“December sales would be as aggressive as the November numbers,” Han said. “The tide is coming onto the shores of places like Singapore, China and Hong Kong, and it’s hard to stop the tide with low interest rates. The only way is to pump in regular measures like what we’ve seen.”
Singapore’s three-month interbank rate fell to 0.43751 percent on Jan. 3, the lowest since Bloomberg began compiling the data in 1999. It was at 0.43779 percent yesterday.
‘Incremental’ Measures
CapitaLand said in November that government measures to curb property speculation had been “incremental” and will help the real estate market develop sustainably over the long term.
The Monetary Authority of Singapore in November said low borrowing costs and excess liquidity globally may push the island’s property prices higher again. There is a risk that financial institutions may ease lending standards and extend more loans to make up for narrowing interest margins, while buyers may also take on “excessive leverage” amid expectations of a sustained period of low rates, the central bank said.
“Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals,” according to yesterday’s statement. “The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.”
Individuals with more than one mortgage can only borrow up to 60 percent of a property’s value, down from 70 percent, the government said in a statement yesterday. On loans to entities other than individuals it will be reduced to 50 percent from 60 percent. Sellers will now have to pay a stamp duty for all homes and land sold within four years of purchase, from three years.
Singapore private home prices climbed to a record as the nation’s fastest economic growth since independence in 1965 overwhelmed government measures to cool the market. The city- state has been attempting to rein in home prices since 2009 when the government barred interest-only loans for some housing projects and stopped allowing developers to cover interest payments for apartments still being built.
“The government is erring on the side of caution,” said Donald Han, Singapore-based managing director at Cushman & Wakefield, the world’s largest closely held real estate services company. “We need to monitor this because history has shown that some of these measures lasted only two to three months, and the market comes right back to full life again.”
Singapore’s Straits Times Real Estate Index fell as much as 1.4 percent, with 28 index members out of 38 falling as of 9:18 a.m. CapitaLand Ltd., Southeast Asia’s biggest developer, declined as much as 3.7 percent to S$3.70.
Buoyant Sentiments
While Singapore’s private home prices climbed 2.7 percent to a record in the fourth quarter from the previous three months, the increase was the smallest in six quarters, government data showed. Han said he expects the gain in home prices to cap at 5 percent this year with the latest curbs, from an earlier estimate of as much as 12 percent.
“Previous government measures have to some extent moderated the market, but sentiments remain buoyant,” according to the statement yesterday. “The government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence.”
With the additional steps, Singapore joins markets across Asia that added measures to curb property speculation driven by low interest rates. Hong Kong imposed additional taxes and higher down payments in November after home prices climbed more than 50 percent since the beginning of 2009. China, battling at least 18 months of price increases, suspended third mortgages and raised interest rates for the first time in three years.
‘Strong Disincentive’
Singapore’s homeowners who sell a property within a year of purchase will have to pay a tax of 16 percent from 3 percent now. That drops to 12 percent in the second year, 8 percent in the third, and 4 percent in the final year. The government also said it will take further steps if necessary.
“The seller’s stamp duty rates will be increased sharply so as to provide a strong disincentive for investors looking to make short term gains,” the government said. “The impact of the seller’s stamp duty is especially significant as it is payable regardless whether the property is eventually sold at a gain or loss.”
Singapore in February last year said it will levy a seller’s stamp duty on all residential properties and land that are sold within one year from the date of purchase. That was increased to three years in August, when the government also raised down payments for second mortgages.
Caught by Surprise
“This new round of cooling measures will adversely affect sentiments in the property market in the coming months,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “They could also catch many investors who had bought residential properties in the last two years by surprise. Some of the buyers could be investors who are banking on rising property prices to make a quick profit.”
Private residential sales in November rose the most in seven months. Property transactions reached an unprecedented level in the first 11 months of 2010 as developers sold 15,025 properties, according to preliminary data from the government. That exceeded the high of 14,811 homes in 2007.
“December sales would be as aggressive as the November numbers,” Han said. “The tide is coming onto the shores of places like Singapore, China and Hong Kong, and it’s hard to stop the tide with low interest rates. The only way is to pump in regular measures like what we’ve seen.”
Singapore’s three-month interbank rate fell to 0.43751 percent on Jan. 3, the lowest since Bloomberg began compiling the data in 1999. It was at 0.43779 percent yesterday.
‘Incremental’ Measures
CapitaLand said in November that government measures to curb property speculation had been “incremental” and will help the real estate market develop sustainably over the long term.
The Monetary Authority of Singapore in November said low borrowing costs and excess liquidity globally may push the island’s property prices higher again. There is a risk that financial institutions may ease lending standards and extend more loans to make up for narrowing interest margins, while buyers may also take on “excessive leverage” amid expectations of a sustained period of low rates, the central bank said.
“Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals,” according to yesterday’s statement. “The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.”
China Inflation May Ease Yuan Pressure at Hu-Obama Summit
Rising inflation in China that is causing headaches for President Hu Jintao at home may help relieve tensions with the U.S. over the yuan as he prepares to meet President Barack Obama in Washington next week.
Prices are climbing faster in China than in the U.S., making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said this week. Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported U.S. goods such as Boeing Co. aircraft and Microsoft Corp. software.
Hu may seek the easing of a U.S. ban on technology exports, while Obama is likely to focus on access to Chinese markets, lower subsidies for companies and cooperation on North Korea. Meantime, the U.S. economic recovery and new Republican leaders in Congress who don’t see the yuan as a priority may also help make the issue less contentious, said Michael Paulus, who heads the Asia Public Sector Group at Citigroup Inc. in Hong Kong.
“That the renminbi is starting to get on a track that people feel somewhat comfortable with takes it off the front burner,” former Treasury official Paulus said in an interview. “The people at the White House and the Treasury and elsewhere will not try to downplay it, but not play it up either.”
Geithner, speaking in Washington on Jan. 12, said that while the yuan was still “substantially undervalued” the “fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates.”
Factoring in rising prices, the erosion of Chinese companies’ advantage over U.S. rivals was equivalent to the yuan strengthening at an annual rate of about 10 percent, he said.
Trading Range
The yuan’s trading range, set each morning by the People’s Bank of China, is increasingly linked to political events between China and the U.S. Shares in the exchange-traded, New York-based WisdomTree Dreyfus China Yuan Fund gained 3.1 percent in the month leading up to a scheduled Oct. 15 release of a Treasury report on whether China manipulates its currency, which was delayed. Shares fell 1 percent over the next two weeks. In the first three days of this week the fund gained 0.51 percent.
Last year Obama and Congress pushed China repeatedly to speed up yuan gains amid historically high unemployment. The jobless rate reached a 26-year peak of 10.1 percent in October 2009, and is now at 9.4 percent.
Obama said after meeting Hu in November that China is spending “enormous amounts of money” to keep the yuan undervalued. Democrats in the House pushed through a measure, which never saw a vote in the full Senate, making it easier for U.S. companies to seek penalties against Chinese imports because of an undervalued currency.
New Congress
With a new Congress elected in November, the legislation must pass the House again. The Republican leaders of the panels in charge of trade and currency have other priorities.
Representative Kevin Brady, a Texas Republican who now chairs the House Ways & Means subcommittee on trade, voted against the currency measure last year. David Camp, the Michigan Republican who is chairman of the full committee, said in September that the currency measure was “not on my trade agenda.”
“We’re going to keep pressure on China to float their currency, but we are not going to look at China just through the viewpoint of currency,” Brady said in an interview last month. “We think there are broader issues and a broader relationship with them that we have overlooked.”
Stronger Yuan
The yuan has appreciated more than 3 percent since China ended a two-year peg to the dollar last June. High inflation in China -- prices in November rose 5.1 percent from a year earlier after falling for most of 2009 -- continues to “stealthily” erode China’s competitiveness as U.S. inflation stands at about 1 percent, Paulus said.
China’s exports rose 17.9 percent to $154.2 billion from a year earlier and imports climbed 25.6 percent to $141.1 billion, the customs bureau reported Jan. 10.
Economists including Dariusz Kowalczyk at Credit Agricole CIB in Hong Kong, expect the yuan to gain because of the need to fight inflation and to improve the atmosphere for the Hu-Obama summit that begins Jan. 18.
Li Daokui, an adviser to China’s central bank, said last month that the yuan can strengthen at a faster pace if gains are “controllable.” Twelve-month non-deliverable yuan forwards rose for a fourth day yesterday to 6.4377, reflecting bets the currency will gain more than 2 percent in the coming year.
Stephen Roach
Stephen Roach, non-executive Chairman of Morgan Stanley Asia Ltd., says that while the Obama administration “gets” the effect of price gains on the dollar-yuan exchange rate, the U.S. public and lawmakers may demand more action amid continued high unemployment and a bilateral trade deficit. New commercial deals for companies like Chicago-based Boeing and Redmond, Washington- based Microsoft may not placate Congress, he said.
A poll released Jan. 12 by the Washington-based Pew Research Center for the People and the Press, found that 53 percent of 1,503 Americans surveyed from Jan. 5-9 said the U.S. should get tougher on China on the trade and economic fronts.
According to the poll, 47 percent of Americans consider China to be the world’s preeminent economic power, compared to 31 percent who say that title goes to the U.S. The survey had a margin of error of plus or minus three percentage points.
“From the U.S. point of view the domestic political dynamic is more aimed at China,” Roach said in an interview. “This trip is really going to be challenging.”
Prices are climbing faster in China than in the U.S., making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said this week. Chinese officials may also seek to speed up gains in the currency, also known as the renminbi, to fight inflation, lowering the cost of imported U.S. goods such as Boeing Co. aircraft and Microsoft Corp. software.
Hu may seek the easing of a U.S. ban on technology exports, while Obama is likely to focus on access to Chinese markets, lower subsidies for companies and cooperation on North Korea. Meantime, the U.S. economic recovery and new Republican leaders in Congress who don’t see the yuan as a priority may also help make the issue less contentious, said Michael Paulus, who heads the Asia Public Sector Group at Citigroup Inc. in Hong Kong.
“That the renminbi is starting to get on a track that people feel somewhat comfortable with takes it off the front burner,” former Treasury official Paulus said in an interview. “The people at the White House and the Treasury and elsewhere will not try to downplay it, but not play it up either.”
Geithner, speaking in Washington on Jan. 12, said that while the yuan was still “substantially undervalued” the “fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates.”
Factoring in rising prices, the erosion of Chinese companies’ advantage over U.S. rivals was equivalent to the yuan strengthening at an annual rate of about 10 percent, he said.
Trading Range
The yuan’s trading range, set each morning by the People’s Bank of China, is increasingly linked to political events between China and the U.S. Shares in the exchange-traded, New York-based WisdomTree Dreyfus China Yuan Fund gained 3.1 percent in the month leading up to a scheduled Oct. 15 release of a Treasury report on whether China manipulates its currency, which was delayed. Shares fell 1 percent over the next two weeks. In the first three days of this week the fund gained 0.51 percent.
Last year Obama and Congress pushed China repeatedly to speed up yuan gains amid historically high unemployment. The jobless rate reached a 26-year peak of 10.1 percent in October 2009, and is now at 9.4 percent.
Obama said after meeting Hu in November that China is spending “enormous amounts of money” to keep the yuan undervalued. Democrats in the House pushed through a measure, which never saw a vote in the full Senate, making it easier for U.S. companies to seek penalties against Chinese imports because of an undervalued currency.
New Congress
With a new Congress elected in November, the legislation must pass the House again. The Republican leaders of the panels in charge of trade and currency have other priorities.
Representative Kevin Brady, a Texas Republican who now chairs the House Ways & Means subcommittee on trade, voted against the currency measure last year. David Camp, the Michigan Republican who is chairman of the full committee, said in September that the currency measure was “not on my trade agenda.”
“We’re going to keep pressure on China to float their currency, but we are not going to look at China just through the viewpoint of currency,” Brady said in an interview last month. “We think there are broader issues and a broader relationship with them that we have overlooked.”
Stronger Yuan
The yuan has appreciated more than 3 percent since China ended a two-year peg to the dollar last June. High inflation in China -- prices in November rose 5.1 percent from a year earlier after falling for most of 2009 -- continues to “stealthily” erode China’s competitiveness as U.S. inflation stands at about 1 percent, Paulus said.
China’s exports rose 17.9 percent to $154.2 billion from a year earlier and imports climbed 25.6 percent to $141.1 billion, the customs bureau reported Jan. 10.
Economists including Dariusz Kowalczyk at Credit Agricole CIB in Hong Kong, expect the yuan to gain because of the need to fight inflation and to improve the atmosphere for the Hu-Obama summit that begins Jan. 18.
Li Daokui, an adviser to China’s central bank, said last month that the yuan can strengthen at a faster pace if gains are “controllable.” Twelve-month non-deliverable yuan forwards rose for a fourth day yesterday to 6.4377, reflecting bets the currency will gain more than 2 percent in the coming year.
Stephen Roach
Stephen Roach, non-executive Chairman of Morgan Stanley Asia Ltd., says that while the Obama administration “gets” the effect of price gains on the dollar-yuan exchange rate, the U.S. public and lawmakers may demand more action amid continued high unemployment and a bilateral trade deficit. New commercial deals for companies like Chicago-based Boeing and Redmond, Washington- based Microsoft may not placate Congress, he said.
A poll released Jan. 12 by the Washington-based Pew Research Center for the People and the Press, found that 53 percent of 1,503 Americans surveyed from Jan. 5-9 said the U.S. should get tougher on China on the trade and economic fronts.
According to the poll, 47 percent of Americans consider China to be the world’s preeminent economic power, compared to 31 percent who say that title goes to the U.S. The survey had a margin of error of plus or minus three percentage points.
“From the U.S. point of view the domestic political dynamic is more aimed at China,” Roach said in an interview. “This trip is really going to be challenging.”
Monday, June 14, 2010
China Leading Indicator Rises the Most in 14 Months
A leading indicator for China jumped by the most in 14 months, adding to signs that the world’s third-biggest economy is maintaining momentum as Europe’s debt crisis threatens to undermine the global recovery.
The measure gained 1.7 percent to 147.1 in April, compared with a revised 1.2 percent increase in March, The Conference Board said on its website today.
“China is performing among the best of any economy around the world,” Bill Adams, resident economist for the New York- based research organization, said in Beijing today.
The nation’s expansion could be capped by weakness in exports in coming months and a government crackdown to cool property prices, which rose at a near-record pace in May. The banking regulator warned today of growing risks of non- performing loans, especially in real estate, after unprecedented credit growth under the nation’s stimulus program.
Events in Europe are underscoring China’s importance as a driver of world growth. Moody’s Investors Service cut Greece’s debt rating to junk yesterday. The Reserve Bank of Australia said that the European crisis will inevitably weigh “somewhat” on global growth prospects, according to minutes of a June 1 meeting released today.
In Shanghai, the stock exchange was closed for a public holiday. The benchmark index has tumbled almost 22 percent this year on concern that the government may wind back stimulus measures too aggressively.
Surging Exports
China’s May data released last week highlighted strength in the economy, with exports surging from year-earlier levels and industrial production and retail sales climbing. Inflation jumped to the highest in 19 months and property prices rose 12.4 percent from a year earlier.
The increase in the indicator was the biggest since February 2009, Adams said in an e-mail today. At the same time, he highlighted a weakening in export orders over most of the past six months and a decline in consumer expectations in April, factors that may help to cool growth.
New construction work, the key factor pushing up the indicator in April, may not continue to grow so quickly, and, excluding real estate, “there is no strong basis for assuming accelerating growth” in China, he said.
Officials may introduce a trial real-estate tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.
China Vanke
Sales by China Vanke Co., the nation’s biggest publicly traded property developer, dropped 20 percent in May from a year ago, and Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent on year, according to the developers’ stock exchange filings.
Besides industry-specific measures, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks after first-quarter economic growth of 11.9 percent, the fastest pace in almost three years.
Adams’ view today was similar to last month, when he said that the “front-loading” of real-estate projects ahead of government controls probably helped to boost the leading indicator.
source:www.bloomberg.com
The measure gained 1.7 percent to 147.1 in April, compared with a revised 1.2 percent increase in March, The Conference Board said on its website today.
“China is performing among the best of any economy around the world,” Bill Adams, resident economist for the New York- based research organization, said in Beijing today.
The nation’s expansion could be capped by weakness in exports in coming months and a government crackdown to cool property prices, which rose at a near-record pace in May. The banking regulator warned today of growing risks of non- performing loans, especially in real estate, after unprecedented credit growth under the nation’s stimulus program.
Events in Europe are underscoring China’s importance as a driver of world growth. Moody’s Investors Service cut Greece’s debt rating to junk yesterday. The Reserve Bank of Australia said that the European crisis will inevitably weigh “somewhat” on global growth prospects, according to minutes of a June 1 meeting released today.
In Shanghai, the stock exchange was closed for a public holiday. The benchmark index has tumbled almost 22 percent this year on concern that the government may wind back stimulus measures too aggressively.
Surging Exports
China’s May data released last week highlighted strength in the economy, with exports surging from year-earlier levels and industrial production and retail sales climbing. Inflation jumped to the highest in 19 months and property prices rose 12.4 percent from a year earlier.
The increase in the indicator was the biggest since February 2009, Adams said in an e-mail today. At the same time, he highlighted a weakening in export orders over most of the past six months and a decline in consumer expectations in April, factors that may help to cool growth.
New construction work, the key factor pushing up the indicator in April, may not continue to grow so quickly, and, excluding real estate, “there is no strong basis for assuming accelerating growth” in China, he said.
Officials may introduce a trial real-estate tax after already tightening sales rules for developers, raising some down payment requirements and restricting loans for multiple-home buyers, according to state media.
China Vanke
Sales by China Vanke Co., the nation’s biggest publicly traded property developer, dropped 20 percent in May from a year ago, and Guangzhou R&F Properties Co.’s contracted sales last month shrank 48 percent on year, according to the developers’ stock exchange filings.
Besides industry-specific measures, the government on May 2 raised banks’ reserve requirements for the third time this year to contain overheating risks after first-quarter economic growth of 11.9 percent, the fastest pace in almost three years.
Adams’ view today was similar to last month, when he said that the “front-loading” of real-estate projects ahead of government controls probably helped to boost the leading indicator.
source:www.bloomberg.com
New York Fed’s Enhanced Powers May Come With Reduced Autonomy
The Federal Reserve Bank of New York, which carried out central-bank rescues of money markets and Wall Street firms, is poised to have its powers expanded even more -- at the risk of reduced independence.
Senate and House negotiators meet today to begin hammering out a financial-regulation bill that puts the New York Fed at the forefront of the central bank’s new role as overseer for financial stability. Lawmakers also want its chief, now nominated by the bank’s board, to be a White House appointee.
Senate Banking Committee Chairman Christopher Dodd says the selection process must be overhauled to avoid conflicts of interest at the regional Fed bank, which supervises firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., where New York Fed chief William Dudley spent two decades. Opponents, including St. Louis Fed President James Bullard, say the legislation represents an effort by politicians to exert more control over monetary policy.
“Congress is concerned about accountability,” Gary Stern, Minneapolis Fed president from 1985 to 2009, said in a telephone interview. “You would get a different kind of person in the job. I am an economist by training. You might continue to get some people like that. But you might get people who are more active politically.”
The so-called base text of the financial-overhaul legislation would give the central bank a seat on a newly created Financial Stability Oversight Council. The Fed would be delegated to watch over firms that “may pose risks to financial stability,” including banks it supervises and non-bank financial firms.
Authority Extended
The New York Fed might have its authority extended to firms such as GE Capital. Jeffrey Immelt, chairman of General Electric Co., the parent of GE Capital, sits on the New York Fed Board.
Dodd’s proposal to have the regional Fed chief appointed to a five-year term subject to Senate approval means politicians would pick two-thirds of the Federal Open Market Committee. Dudley, whose term ends in February, is vice chairman of the rate-setting panel. Of the Fed’s 12 regional bank presidents, he’s the only one with a permanent vote on the FOMC alongside the seven Washington-based governors.
The New York Fed executes monetary policy through its trading desk, which bought billions in bonds during the financial crisis. The Fed’s total assets have expanded to $2.33 trillion as it bought Treasury bonds, mortgage-backed securities and agency debt to lower interest rates. That compares with $903 billion two years ago.
Treasury Secretary Timothy Geithner, a former New York Fed president, said in March he opposes White House appointment because it “would tilt the balance substantially in New York’s favor.”
‘Loose Money’
“What Congress ultimately wants out of this is loose money,” said Mark Calabria, a former Senate Banking Committee staffer who is now a director of financial-regulation studies at the Cato Institute in Washington, a research center that favors free markets.
Bernard Sanders, a Vermont independent, said having the New York Fed president nominated by the White House “is a great thing” because it removes bankers from the decision.
Senator Judd Gregg, a New Hampshire Republican, called it “bad policy” because it “injects too much congressional activity into the operational side of the Fed.” Even so, the presidential appointment clause probably “is going to survive” Gregg said in a June 9 interview.
Krishna Guha, a spokesman for the New York Fed, declined to comment.
Many emergency programs approved by the Board of Governors were designed by Geithner when he headed the Fed, with help from Dudley, who was then executive vice president in charge of markets. Dudley once slept on the carpet of his ninth-story Liberty Street office instead of checking into a nearby hotel during the crisis.
Berkeley Doctorate
Dudley, 57, holds an economics doctorate from the University of California at Berkeley and worked as a Fed economist from 1981 to 1983. He joined Goldman Sachs in 1986 and became its top U.S. economist. He moved to the New York Fed in 2007 and succeeded Geithner in 2009. Dudley’s salary at the New York Fed last year was $410,780.
The search committee that picked Dudley was comprised of former Goldman Sachs chairman Stephen Friedman, who was chairman of the New York Fed Board; Charles Wait, chairman of the Adirondack Trust Co. of Saratoga Springs, New York; and Denis Hughes, president of the AFL-CIO in New York. Six of the nine directors that sit on regional Fed boards are bankers or people chosen by them.
Political appointment of the New York Fed chief “makes a lot of sense” given its permanent vote on rates and the larger role the Fed will play in financial-system oversight, said Ken Rogoff, a Harvard University economist.
Center of Gravity
“I can understand concern about giving an administration too much power to shift the center of gravity at the Fed, but presumably the confirmation process still provides some degree of checks and balances,” said Rogoff, a former International Monetary Fund chief economist.
Fed officials disagree. The St. Louis Fed’s Bullard, in a letter to 13 senators last month, said the change “would introduce an unprecedented level of political intervention in the operation of a reserve bank.”
“I don’t think that is the right way to go,” Fed Chairman Ben S. Bernanke said at a Joint Economic Committee hearing in April.
Marvin Goodfriend, an economist at Carnegie Mellon University and a former Richmond Fed policy adviser, said the legislation “goes right to the heart of the Fed’s independent powers.”
The Fed opened the door to greater political pressures by stepping into the realm of fiscal policy with rescues of Bear Stearns Cos. and American International Group Inc., says Allan Meltzer, a historian of the central bank.
“The Fed has done more credit allocation and fiscal policy than ever before,” said Meltzer, an economist at Carnegie Mellon University in Pittsburgh. “Most of the damage was done before this bill.”
source:bloomberg.com
Senate and House negotiators meet today to begin hammering out a financial-regulation bill that puts the New York Fed at the forefront of the central bank’s new role as overseer for financial stability. Lawmakers also want its chief, now nominated by the bank’s board, to be a White House appointee.
Senate Banking Committee Chairman Christopher Dodd says the selection process must be overhauled to avoid conflicts of interest at the regional Fed bank, which supervises firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., where New York Fed chief William Dudley spent two decades. Opponents, including St. Louis Fed President James Bullard, say the legislation represents an effort by politicians to exert more control over monetary policy.
“Congress is concerned about accountability,” Gary Stern, Minneapolis Fed president from 1985 to 2009, said in a telephone interview. “You would get a different kind of person in the job. I am an economist by training. You might continue to get some people like that. But you might get people who are more active politically.”
The so-called base text of the financial-overhaul legislation would give the central bank a seat on a newly created Financial Stability Oversight Council. The Fed would be delegated to watch over firms that “may pose risks to financial stability,” including banks it supervises and non-bank financial firms.
Authority Extended
The New York Fed might have its authority extended to firms such as GE Capital. Jeffrey Immelt, chairman of General Electric Co., the parent of GE Capital, sits on the New York Fed Board.
Dodd’s proposal to have the regional Fed chief appointed to a five-year term subject to Senate approval means politicians would pick two-thirds of the Federal Open Market Committee. Dudley, whose term ends in February, is vice chairman of the rate-setting panel. Of the Fed’s 12 regional bank presidents, he’s the only one with a permanent vote on the FOMC alongside the seven Washington-based governors.
The New York Fed executes monetary policy through its trading desk, which bought billions in bonds during the financial crisis. The Fed’s total assets have expanded to $2.33 trillion as it bought Treasury bonds, mortgage-backed securities and agency debt to lower interest rates. That compares with $903 billion two years ago.
Treasury Secretary Timothy Geithner, a former New York Fed president, said in March he opposes White House appointment because it “would tilt the balance substantially in New York’s favor.”
‘Loose Money’
“What Congress ultimately wants out of this is loose money,” said Mark Calabria, a former Senate Banking Committee staffer who is now a director of financial-regulation studies at the Cato Institute in Washington, a research center that favors free markets.
Bernard Sanders, a Vermont independent, said having the New York Fed president nominated by the White House “is a great thing” because it removes bankers from the decision.
Senator Judd Gregg, a New Hampshire Republican, called it “bad policy” because it “injects too much congressional activity into the operational side of the Fed.” Even so, the presidential appointment clause probably “is going to survive” Gregg said in a June 9 interview.
Krishna Guha, a spokesman for the New York Fed, declined to comment.
Many emergency programs approved by the Board of Governors were designed by Geithner when he headed the Fed, with help from Dudley, who was then executive vice president in charge of markets. Dudley once slept on the carpet of his ninth-story Liberty Street office instead of checking into a nearby hotel during the crisis.
Berkeley Doctorate
Dudley, 57, holds an economics doctorate from the University of California at Berkeley and worked as a Fed economist from 1981 to 1983. He joined Goldman Sachs in 1986 and became its top U.S. economist. He moved to the New York Fed in 2007 and succeeded Geithner in 2009. Dudley’s salary at the New York Fed last year was $410,780.
The search committee that picked Dudley was comprised of former Goldman Sachs chairman Stephen Friedman, who was chairman of the New York Fed Board; Charles Wait, chairman of the Adirondack Trust Co. of Saratoga Springs, New York; and Denis Hughes, president of the AFL-CIO in New York. Six of the nine directors that sit on regional Fed boards are bankers or people chosen by them.
Political appointment of the New York Fed chief “makes a lot of sense” given its permanent vote on rates and the larger role the Fed will play in financial-system oversight, said Ken Rogoff, a Harvard University economist.
Center of Gravity
“I can understand concern about giving an administration too much power to shift the center of gravity at the Fed, but presumably the confirmation process still provides some degree of checks and balances,” said Rogoff, a former International Monetary Fund chief economist.
Fed officials disagree. The St. Louis Fed’s Bullard, in a letter to 13 senators last month, said the change “would introduce an unprecedented level of political intervention in the operation of a reserve bank.”
“I don’t think that is the right way to go,” Fed Chairman Ben S. Bernanke said at a Joint Economic Committee hearing in April.
Marvin Goodfriend, an economist at Carnegie Mellon University and a former Richmond Fed policy adviser, said the legislation “goes right to the heart of the Fed’s independent powers.”
The Fed opened the door to greater political pressures by stepping into the realm of fiscal policy with rescues of Bear Stearns Cos. and American International Group Inc., says Allan Meltzer, a historian of the central bank.
“The Fed has done more credit allocation and fiscal policy than ever before,” said Meltzer, an economist at Carnegie Mellon University in Pittsburgh. “Most of the damage was done before this bill.”
source:bloomberg.com
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