March 28 (Bloomberg) -- Japan’s 10-year bonds completed the biggest loss in seven weeks as stock gains sapped demand for the relative safety of government debt.
Benchmark yields approached a six-week high as optimism the worst of the global financial turmoil is over helped propel the Nikkei 225 Stock Average to its third weekly advance. Bonds also fell on speculation the supply of debt will keep increasing as the government raises record amounts to fund measures to combat the deepening recession.
“Bonds are being sold given stronger stocks and this trend may continue,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees $3.3 billion. “As long as there are no negative surprises in economic data, bonds are likely not to be bought.”
The yield on the 1.3 percent bond due March 2019 rose 6.5 basis points this week to 1.32 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.576 yen to 99.823 yen. The yield yesterday reached 1.325 percent, the highest level since Feb. 10.
Ten-year bond futures for June delivery fell 1.36 this week to 138.21 on the Tokyo Stock Exchange.
The Nikkei 225 advanced 8.6 percent over the five trading days, a fourth week of gains, and touched the highest level since Jan. 9, boosted by a rally in U.S. shares.
‘Rising Pressure’
“The Nikkei will be under rising pressure following U.S. stocks” and that is negative for bonds, said Jun Ishii, a fixed-income strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
Benchmark bonds have handed investors a loss of 0.03 percent in the three weeks through March 26, according to Merrill Lynch & Co. indexes. The Nikkei has surged 22 percent in the same period.
Japanese bonds are headed for a quarterly loss and Treasuries are set for their worst start to the year since 1996 as the governments of the world’s two biggest economies increase debt sales to fund measures to combat the global recession.
“Even though fundamentals remain weak, supply concerns will dominate the bond market,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA.
Third Package
Japanese Prime Minister Taro Aso, whose approval rating has slumped before elections that must be called by September, is compiling a third stimulus package to add to the amount pledged since he took office six months ago.
The government is likely to pass an additional supplementary budget in June and bond issuance will probably increase by as much as 10 trillion yen ($102 billion), said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. in Tokyo, the top-rated debt analyst in Japan according to Nikkei Veritas newspaper.
The last time Japan stepped up bond sales, in the financial year starting in April 2005, 10-year yields surged 45 basis points. A basis point is 0.01 percentage point.
This week’s drop in bonds was tempered after a government report yesterday showed consumer prices excluding fresh food were unchanged in February from a year earlier. An absence of inflation helps preserve the value of the fixed payments of debt.
Japan will experience a general drop in prices, known as deflation, through the first quarter of next year, according to a Bloomberg News survey of economists. Business sentiment may have slid to the lowest level in 34 years in April, a separate Bloomberg survey of economists showed before the Bank of Japan’s Tankan survey on April 1.
‘Huge Impact’
“Deflation will have a huge impact on markets and monetary policy,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of Citigroup Inc. Investors should “buy bonds on dips.”
Inflation-linked bonds signal the world’s second-largest economy may enter a period deflation. Ten-year bonds protected against inflation yielded about 2.12 percentage points more than similar-dated conventional bonds yesterday, Bloomberg data show. The securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
Friday, March 27, 2009
Wednesday, March 25, 2009
Australia’s Banks Better Placed Than Most, RBA Says
March 26 (Bloomberg) -- Australian banks continue to report solid profits, haven’t accumulated large holdings of high-risk securities, and didn’t ease lending standards to the same extent as counterparts around the world, the central bank said.
“The Australian banking system is considerably better placed to weather the current challenges than many other systems around the world,” the Reserve Bank of Australia said in its half-yearly Financial Stability Review published today in Sydney. The nation’s five largest banks, led by Westpac Banking Corp., reported an annualized post-tax return on equity in the latest half year of 15 percent, the report said. Still, the slowing economy has led to an increase in charges for bad and doubtful debts to A$5.3 billion ($3.7 billion) from A$1.4 billion a year earlier.
“Compared with other financial systems around the world, Australia looks to be a shining light,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. The Reserve Bank “has no real concern about a vulnerable or fragile banking system.”
Australia’s dollar traded at 69.96 U.S. cents at 11:43 a.m. in Sydney from 69.95 cents before the central bank’s report was released. The S&P/ASX 200 stock index gained 0.7 percent to 3,633, led by shares in exporters and banks.
“Notwithstanding this positive assessment, the banking system is facing a more difficult environment than it has for some years,” the report said.
Bad Loans
Problem loans have risen from “very low levels” and lending growth has also slowed recently, the Reserve Bank added.
The ratio of non-performing assets to total on-balance- sheets assets was about 1 percent in December, compared with 0.4 percent a year earlier, the central bank said. “This ratio is now marginally higher than that recorded in the 2001 downturn” and “well below” the 6 percent peak in the early 1990s, when the nation’s economy was last in a recession.
Housing loans that were 90 days or more in arrears accounted for 0.48 percent of outstanding loans in December, compared with 0.32 percent a year earlier.
“Looking ahead, the main downside risk to the performance of banks’ housing portfolios is from a rise in unemployment as the economy slows,” the report said.
Australia’s economy unexpectedly shrank 0.5 percent in the three months through December from the previous quarter, the first contraction in eight years, and the jobless rate rose in February to a four-year high of 5.2 percent as companies such as Macquarie Group Ltd. and BHP Billiton Ltd. cut full-time jobs.
Interest Rates
To boost the economy, central bank policy makers led by Governor Glenn Stevens have cut the benchmark lending rate by a record four percentage points since September to a 45-year low of 3.25 percent.
The cuts and government grants to first-time home buyers of as much as A$21,000 are unlikely to cause a U.S.-style subprime crisis, Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-confirming lending,” Richards told a housing conference. Such loans are often compared with U.S. subprime loans.
Reductions in borrowing costs “have helped to alleviate debt-servicing pressures,” the central bank said in today’s report.
Government Guarantee
Many businesses have taken a “more conservative approach to their finances, by paying down debt and raising equity,” the report said. “This is despite the business sector, as a whole, having entered the current period of financial turmoil with its balance sheet in good shape after a number of years of solid profit growth.”
Following the collapse of Lehman Brothers Holdings Inc. in September, which deepened a global credit squeeze, Australia’s government in November provided a guarantee for wholesale funding for the nation’s banks.
“Since these arrangements have been in place, Australian banks have issued A$85 billion of long-term debt,” the report said. Of that, some A$81 billion was issued under the guarantee.
“This compares with just A$3.5 billion of term debt that was issued in the three months to November,” the report said.
The nation’s four largest banks raised a total of A$18 billion from shareholders in the second half of 2008.
Bank Ratings
Moody’s Investors Service this month lowered its outlook on Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Bank to negative from stable. That was the first time Australia’s four biggest banks have had a negative outlook since the 1991 recession.
All four banks remain Aa rated by the New York-based ratings agency. Moody’s revised the outlook for National Australia Bank Ltd. to negative in August.
Today’s report also noted the U.S. government’s plan, announced this week, to support so-called public-private investment funds to purchase troubled loans and securities, has “received widespread market support.”
“Despite this, it could be some time before it is clear whether these initiatives have been sufficient to put the financial sector on the path to recovery,” the report added.
“The Australian banking system is considerably better placed to weather the current challenges than many other systems around the world,” the Reserve Bank of Australia said in its half-yearly Financial Stability Review published today in Sydney. The nation’s five largest banks, led by Westpac Banking Corp., reported an annualized post-tax return on equity in the latest half year of 15 percent, the report said. Still, the slowing economy has led to an increase in charges for bad and doubtful debts to A$5.3 billion ($3.7 billion) from A$1.4 billion a year earlier.
“Compared with other financial systems around the world, Australia looks to be a shining light,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. The Reserve Bank “has no real concern about a vulnerable or fragile banking system.”
Australia’s dollar traded at 69.96 U.S. cents at 11:43 a.m. in Sydney from 69.95 cents before the central bank’s report was released. The S&P/ASX 200 stock index gained 0.7 percent to 3,633, led by shares in exporters and banks.
“Notwithstanding this positive assessment, the banking system is facing a more difficult environment than it has for some years,” the report said.
Bad Loans
Problem loans have risen from “very low levels” and lending growth has also slowed recently, the Reserve Bank added.
The ratio of non-performing assets to total on-balance- sheets assets was about 1 percent in December, compared with 0.4 percent a year earlier, the central bank said. “This ratio is now marginally higher than that recorded in the 2001 downturn” and “well below” the 6 percent peak in the early 1990s, when the nation’s economy was last in a recession.
Housing loans that were 90 days or more in arrears accounted for 0.48 percent of outstanding loans in December, compared with 0.32 percent a year earlier.
“Looking ahead, the main downside risk to the performance of banks’ housing portfolios is from a rise in unemployment as the economy slows,” the report said.
Australia’s economy unexpectedly shrank 0.5 percent in the three months through December from the previous quarter, the first contraction in eight years, and the jobless rate rose in February to a four-year high of 5.2 percent as companies such as Macquarie Group Ltd. and BHP Billiton Ltd. cut full-time jobs.
Interest Rates
To boost the economy, central bank policy makers led by Governor Glenn Stevens have cut the benchmark lending rate by a record four percentage points since September to a 45-year low of 3.25 percent.
The cuts and government grants to first-time home buyers of as much as A$21,000 are unlikely to cause a U.S.-style subprime crisis, Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-confirming lending,” Richards told a housing conference. Such loans are often compared with U.S. subprime loans.
Reductions in borrowing costs “have helped to alleviate debt-servicing pressures,” the central bank said in today’s report.
Government Guarantee
Many businesses have taken a “more conservative approach to their finances, by paying down debt and raising equity,” the report said. “This is despite the business sector, as a whole, having entered the current period of financial turmoil with its balance sheet in good shape after a number of years of solid profit growth.”
Following the collapse of Lehman Brothers Holdings Inc. in September, which deepened a global credit squeeze, Australia’s government in November provided a guarantee for wholesale funding for the nation’s banks.
“Since these arrangements have been in place, Australian banks have issued A$85 billion of long-term debt,” the report said. Of that, some A$81 billion was issued under the guarantee.
“This compares with just A$3.5 billion of term debt that was issued in the three months to November,” the report said.
The nation’s four largest banks raised a total of A$18 billion from shareholders in the second half of 2008.
Bank Ratings
Moody’s Investors Service this month lowered its outlook on Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Bank to negative from stable. That was the first time Australia’s four biggest banks have had a negative outlook since the 1991 recession.
All four banks remain Aa rated by the New York-based ratings agency. Moody’s revised the outlook for National Australia Bank Ltd. to negative in August.
Today’s report also noted the U.S. government’s plan, announced this week, to support so-called public-private investment funds to purchase troubled loans and securities, has “received widespread market support.”
“Despite this, it could be some time before it is clear whether these initiatives have been sufficient to put the financial sector on the path to recovery,” the report added.
Australia Not at Risk of U.S.-Style Subprime Crisis
March 26 (Bloomberg) -- Australia’s lowest benchmark interest rate in four decades and government grants to first- time home buyers are unlikely to cause a U.S.-style subprime crisis, an official at Australia’s central bank said.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-conforming lending,” Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today. He didn’t address monetary policy.
Concerns have been raised that four percentage points of interest-rate reductions since September and government grants of as much as A$21,000 ($14,700) to first-home buyers could lead to an expansion of lending to riskier borrowers, Richards said. First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.
“No doubt some of the loans being written now will turn sour,” Richards told the Fourth Annual Housing Congress today. “However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the U.S. is low.”
Still, potential buyers “need to carefully consider their own circumstances, including whether they would be able to continue to service their loans if mortgage rates were at some point to begin to return to more normal levels,” he added.
The Australian dollar traded at 69.86 U.S. cents at 9:15 a.m. in Sydney from 69.86 cents just before the speech was released. The two-year government bond yield was unchanged at 3.07 percent. A basis point is 0.01 percentage point.
Mortgage Payments
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate to 3.25 percent in February to help stoke an economy that unexpectedly shrank in the fourth quarter for the first time in eight years. Since September, commercial banks have reduced the rate on variable home loans by 375 basis points.
The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” Richards said.
By contrast, central banks in other countries have also cut their policy rates by at least as much as the Reserve Bank, but have typically seen much smaller reductions in the actual rates paid by households and businesses, Richards added.
Debt Burden
“The fall in borrowing rates has reduced the debt- servicing burden of the household sector by approximately 5 percent of household disposable income,” he said. “That implies a significant amount of cash flow relief, for spending on other goods and services or to save and/or pay down debt.”
Policy makers left the benchmark rate unchanged this month for the first time in six meetings, saying recent cuts are supporting the economy.
While property prices fell around 3 percent last year, most of the declines were in more expensive suburbs, which have “fallen noticeably,” Richards said. “This presumably reflects the greater exposure of people in higher-priced suburbs to financial developments.”
Richards added that auction clearance rates for Sydney and Melbourne this year have shown “a significant pickup relative to late 2008.”
Government Handouts
Government grants to first-time buyers, the central bank’s rate cuts and lower prices have led to a “significant improvement” in housing affordability for people paying mortgages or contemplating a purchase, he said.
Home-building approvals unexpectedly fell in January for a seventh month, adding to signs the economy is in its first recession since 1991. Gross domestic product shrank 0.5 percent in the fourth quarter from the previous three months.
While “home-building is likely to remain weak in the near term, there are a number of factors which should support activity over the medium term, providing stimulus to the broader economy,” Richards said.
Richards said there may be a need for about 40,000 new dwellings a year to keep rental vacancy rates at “normal levels of around 3 percent,” compared with the current rate of 1.5 percent.
“Whatever the true shortfall of dwellings, we can say with some confidence that our housing market is relatively tight,” he said. That will “‘support homebuilding in the period ahead.”
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-conforming lending,” Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today. He didn’t address monetary policy.
Concerns have been raised that four percentage points of interest-rate reductions since September and government grants of as much as A$21,000 ($14,700) to first-home buyers could lead to an expansion of lending to riskier borrowers, Richards said. First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.
“No doubt some of the loans being written now will turn sour,” Richards told the Fourth Annual Housing Congress today. “However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the U.S. is low.”
Still, potential buyers “need to carefully consider their own circumstances, including whether they would be able to continue to service their loans if mortgage rates were at some point to begin to return to more normal levels,” he added.
The Australian dollar traded at 69.86 U.S. cents at 9:15 a.m. in Sydney from 69.86 cents just before the speech was released. The two-year government bond yield was unchanged at 3.07 percent. A basis point is 0.01 percentage point.
Mortgage Payments
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate to 3.25 percent in February to help stoke an economy that unexpectedly shrank in the fourth quarter for the first time in eight years. Since September, commercial banks have reduced the rate on variable home loans by 375 basis points.
The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” Richards said.
By contrast, central banks in other countries have also cut their policy rates by at least as much as the Reserve Bank, but have typically seen much smaller reductions in the actual rates paid by households and businesses, Richards added.
Debt Burden
“The fall in borrowing rates has reduced the debt- servicing burden of the household sector by approximately 5 percent of household disposable income,” he said. “That implies a significant amount of cash flow relief, for spending on other goods and services or to save and/or pay down debt.”
Policy makers left the benchmark rate unchanged this month for the first time in six meetings, saying recent cuts are supporting the economy.
While property prices fell around 3 percent last year, most of the declines were in more expensive suburbs, which have “fallen noticeably,” Richards said. “This presumably reflects the greater exposure of people in higher-priced suburbs to financial developments.”
Richards added that auction clearance rates for Sydney and Melbourne this year have shown “a significant pickup relative to late 2008.”
Government Handouts
Government grants to first-time buyers, the central bank’s rate cuts and lower prices have led to a “significant improvement” in housing affordability for people paying mortgages or contemplating a purchase, he said.
Home-building approvals unexpectedly fell in January for a seventh month, adding to signs the economy is in its first recession since 1991. Gross domestic product shrank 0.5 percent in the fourth quarter from the previous three months.
While “home-building is likely to remain weak in the near term, there are a number of factors which should support activity over the medium term, providing stimulus to the broader economy,” Richards said.
Richards said there may be a need for about 40,000 new dwellings a year to keep rental vacancy rates at “normal levels of around 3 percent,” compared with the current rate of 1.5 percent.
“Whatever the true shortfall of dwellings, we can say with some confidence that our housing market is relatively tight,” he said. That will “‘support homebuilding in the period ahead.”
Asian Technology Stocks Advance; Healthcare, Utilities Decline
March 26 (Bloomberg) -- Asian technology and finance stocks rose on better-than-expected U.S. economic reports. Healthcare and utility shares fell, led by Japanese companies trading without rights to their latest dividends.
Sony Corp., which earns a quarter of its sales from the U.S., advanced 6.7 percent in Tokyo after U.S. durable-goods orders rose the most in more than a year. Takeda Pharmaceutical Co., Asia’s biggest drugmaker, and Tokyo Electric Power Co., Japan’s largest power company, fell more than 2 percent in Tokyo as they went ex-dividend.
“The landslide-like deterioration of the global economy has halted,” Juichi Wako, a strategist at Tokyo-based Nomura Securities Co., said in an interview with Bloomberg Television. “We’ve seen continued resilience in the market, but today there could be a pause in the rally.”
The MSCI Asia Pacific Index rose 0.3 percent to 84.57 as of 10:33 a.m. in Tokyo. The index has climbed 20 percent from a five-year low on March 9 on speculation the worst of the financial crisis is over. The rally raised average valuations of companies on the gauge to 16.4 times profit, the highest level since Dec. 27, 2007, data compiled by Bloomberg show.
Japan’s Topix Index fell 0.2 percent, the first decline in nine days. Australia’s S&P/ASX 200 Index rose 0.7 percent as the central bank said the country wasn’t at risk of a U.S.-style subprime crisis. All markets open for trading advanced except New Zealand and Malaysia.
Brokerage Upgrade
Futures on the Standard & Poor’s 500 Index climbed 0.8 percent today. The gauge gained 1 percent yesterday as government reports showed February orders for U.S. durable goods gained the most since December 2007, while sales of new homes increased last month from a record-low pace in January. Economists had expected both figures to decline.
Sony, world’s second-biggest maker of consumer electronics, climbed 6.7 percent to 2,200 yen. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral,” saying the company’s reorganization would boost earnings.
Takeda dropped 2.2 percent to 3,600 yen. Tokyo Electric lost 2.7 percent to 2,520 yen. More than 2,800 Japanese companies trade without rights to a dividend today, weighing down the Nikkei by 74.23 points, according to data compiled by Bloomberg.
Sony Corp., which earns a quarter of its sales from the U.S., advanced 6.7 percent in Tokyo after U.S. durable-goods orders rose the most in more than a year. Takeda Pharmaceutical Co., Asia’s biggest drugmaker, and Tokyo Electric Power Co., Japan’s largest power company, fell more than 2 percent in Tokyo as they went ex-dividend.
“The landslide-like deterioration of the global economy has halted,” Juichi Wako, a strategist at Tokyo-based Nomura Securities Co., said in an interview with Bloomberg Television. “We’ve seen continued resilience in the market, but today there could be a pause in the rally.”
The MSCI Asia Pacific Index rose 0.3 percent to 84.57 as of 10:33 a.m. in Tokyo. The index has climbed 20 percent from a five-year low on March 9 on speculation the worst of the financial crisis is over. The rally raised average valuations of companies on the gauge to 16.4 times profit, the highest level since Dec. 27, 2007, data compiled by Bloomberg show.
Japan’s Topix Index fell 0.2 percent, the first decline in nine days. Australia’s S&P/ASX 200 Index rose 0.7 percent as the central bank said the country wasn’t at risk of a U.S.-style subprime crisis. All markets open for trading advanced except New Zealand and Malaysia.
Brokerage Upgrade
Futures on the Standard & Poor’s 500 Index climbed 0.8 percent today. The gauge gained 1 percent yesterday as government reports showed February orders for U.S. durable goods gained the most since December 2007, while sales of new homes increased last month from a record-low pace in January. Economists had expected both figures to decline.
Sony, world’s second-biggest maker of consumer electronics, climbed 6.7 percent to 2,200 yen. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral,” saying the company’s reorganization would boost earnings.
Takeda dropped 2.2 percent to 3,600 yen. Tokyo Electric lost 2.7 percent to 2,520 yen. More than 2,800 Japanese companies trade without rights to a dividend today, weighing down the Nikkei by 74.23 points, according to data compiled by Bloomberg.
Tuesday, March 24, 2009
U.S. Plan Seeking Expanded Power in Seizing Firms
25 March , 2009
WASHINGTON — The Obama administration and the Federal Reserve, still smarting from the political furor over the bailout of American International Group, began a full-court press on Tuesday to expand the federal government’s power to seize control of troubled financial institutions deemed too big to fail.n his news conference on Tuesday night, President Obama said the government could have handled the A.I.G. bailout much more effectively if it had had the same power to seize large financial companies as it did to take over failed banks.
“It is precisely because of the lack of this authority that the A.I.G. situation has gotten worse,” Mr. Obama said, predicting that “there is going to be strong support from the American people and from Congress to provide that authority.”
Earlier on Tuesday, the Treasury secretary, Timothy F. Geithner, offered a proposal that would allow the government to take control, restructure and possibly close any kind of financial institution that was in trouble and big enough to destabilize the broader financial system.
The federal government has long had the power to take over and close banks and other deposit-taking institutions whose deposits are insured by the government and subject to detailed regulation.
But the Obama administration and the Fed would extend that authority to insurance companies like A.I.G., investment banks, hedge funds, private equity firms and any other kind of financial institution considered “systemically” important. That would let the government for the first time take control of private equity firms like Carlyle or industrial finance giants like GE Capital should they falter.
The Treasury and the Fed each sent their own proposals to the House Financial Services Committee on Tuesday, and President Obama has asked Congressional leaders to put the legislation on a fast track. House Democrats said they planned to act quickly and hoped to bring a bill to the House floor within the next several weeks.
If Congress approves such a measure, it would represent one of the biggest permanent expansions of federal regulatory power in decades. But scores of questions remained on Tuesday about how the authority would actually work, and industry experts cautioned that it would only be one step in a broad overhaul of financial regulation that President Obama and Congress were beginning to map out.
Mr. Geithner, testifying before the House Financial Services Committee, said the government could have grappled more effectively with A.I.G. — an insurance conglomerate over which neither the Fed nor any other federal bank regulator had much authority — if the Treasury had already had broader authority to “resolve” troubled institutions.“As we have seen with A.I.G., distress at large, interconnected, nondepository financial institutions can pose systemic risks just as the distress at banks can,” Mr. Geithner told lawmakers. “We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient.”
Ben S. Bernanke, chairman of the Federal Reserve, said that such powers would have allowed the government to scale back A.I.G.’s contracts to pay outsize bonuses and perhaps negotiate lower payments to the domestic and foreign banks that were among its creditors.
“If a federal agency had had such tools on Sept. 16, they could have been used to put A.I.G. into conservatorship, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties,” Mr. Bernanke told lawmakers.
But even as they made their case, administration officials left many of the big questions unanswered. Among them: what kinds of companies are “systemically important” and how does that get decided? What should be the government’s ultimate goal — to wind down the troubled company as quickly and smoothly as possible, or to rehabilitate it and return it to health?
Under Mr. Geithner’s plan, the decision-making power would lie primarily with Treasury and the F.D.I.C., though the Treasury would have to consult with the White House and the Fed.
But that idea could clash with plans to create a new, overarching “risk regulator” that would be responsible for monitoring risk across the financial system. Some lawmakers have proposed that the Fed, which is already at the heart of the financial system, should play that role.
Other experts say the F.D.I.C. would be a more logical choice, taking advantage of its experience in taking over smaller banks. Supporters of this approach are concerned that the Fed will be overburdened with its regulatory duties and note that the Fed failed for years to exercise its authority to regulate dangerous mortgage practices.
Jamie Dimon, the chief executive of JPMorgan Chase and an outspoken supporter for creating a systemic risk regulator, said it was hard to expand the government’s authority to seize troubled financial companies without also dealing with the regulatory issues. “You can’t take care of your heart and not your lungs,” he said in a telephone interview on Tuesday. “You need someone to look behind the corners and to say something like, ‘this company is too big or too risky.’ ”
Mr. Dimon said that giving the government this power would have provided a process for dealing with failing institutions like Lehman Brothers, Bear Stearns, Wachovia and A.I.G.
“You don’t want too big to fail,” he said. “You want a resolution process where the process doesn’t damage the whole system.”
Representative Barney Frank, chairman of the House Financial Services Committee, plans to start drafting a bill in the next several days.
Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, said Congress might consider putting the oversight authority in the hands of a task force, rather than consolidating it at the Fed.
Mr. Dodd talked of establishing a council that includes the Fed, the F.D.I.C. and the Office of Comptroller of the Currency to avoid giving too much power to a single agency. “I for one would be sort of intrigued in looking at alternative ideas,” Mr. Dodd said.
On Thursday, Mr. Geithner plans to outline his broader plan for overhauling the financial regulatory system.
On Friday, President Obama plans to meet at the White House with top executives from many of the nation’s largest financial institutions to discuss his financial stabilization effort.
Administration officials have said their regulatory plan will create a broad role for the Fed as the lead risk regulator.
The administration is also expected to propose tighter regulation for derivative financial products, like the credit-default swaps that caused most of A.I.G.’s problems, and to require that such instruments be traded in a more transparent manner on exchanges or through clearinghouses.
Mr. Geithner made it clear on Tuesday that he would be pushing for tighter oversight of executive compensation, in part to make sure that financial incentives did not encourage reckless financial practices.
WASHINGTON — The Obama administration and the Federal Reserve, still smarting from the political furor over the bailout of American International Group, began a full-court press on Tuesday to expand the federal government’s power to seize control of troubled financial institutions deemed too big to fail.n his news conference on Tuesday night, President Obama said the government could have handled the A.I.G. bailout much more effectively if it had had the same power to seize large financial companies as it did to take over failed banks.
“It is precisely because of the lack of this authority that the A.I.G. situation has gotten worse,” Mr. Obama said, predicting that “there is going to be strong support from the American people and from Congress to provide that authority.”
Earlier on Tuesday, the Treasury secretary, Timothy F. Geithner, offered a proposal that would allow the government to take control, restructure and possibly close any kind of financial institution that was in trouble and big enough to destabilize the broader financial system.
The federal government has long had the power to take over and close banks and other deposit-taking institutions whose deposits are insured by the government and subject to detailed regulation.
But the Obama administration and the Fed would extend that authority to insurance companies like A.I.G., investment banks, hedge funds, private equity firms and any other kind of financial institution considered “systemically” important. That would let the government for the first time take control of private equity firms like Carlyle or industrial finance giants like GE Capital should they falter.
The Treasury and the Fed each sent their own proposals to the House Financial Services Committee on Tuesday, and President Obama has asked Congressional leaders to put the legislation on a fast track. House Democrats said they planned to act quickly and hoped to bring a bill to the House floor within the next several weeks.
If Congress approves such a measure, it would represent one of the biggest permanent expansions of federal regulatory power in decades. But scores of questions remained on Tuesday about how the authority would actually work, and industry experts cautioned that it would only be one step in a broad overhaul of financial regulation that President Obama and Congress were beginning to map out.
Mr. Geithner, testifying before the House Financial Services Committee, said the government could have grappled more effectively with A.I.G. — an insurance conglomerate over which neither the Fed nor any other federal bank regulator had much authority — if the Treasury had already had broader authority to “resolve” troubled institutions.“As we have seen with A.I.G., distress at large, interconnected, nondepository financial institutions can pose systemic risks just as the distress at banks can,” Mr. Geithner told lawmakers. “We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient.”
Ben S. Bernanke, chairman of the Federal Reserve, said that such powers would have allowed the government to scale back A.I.G.’s contracts to pay outsize bonuses and perhaps negotiate lower payments to the domestic and foreign banks that were among its creditors.
“If a federal agency had had such tools on Sept. 16, they could have been used to put A.I.G. into conservatorship, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties,” Mr. Bernanke told lawmakers.
But even as they made their case, administration officials left many of the big questions unanswered. Among them: what kinds of companies are “systemically important” and how does that get decided? What should be the government’s ultimate goal — to wind down the troubled company as quickly and smoothly as possible, or to rehabilitate it and return it to health?
Under Mr. Geithner’s plan, the decision-making power would lie primarily with Treasury and the F.D.I.C., though the Treasury would have to consult with the White House and the Fed.
But that idea could clash with plans to create a new, overarching “risk regulator” that would be responsible for monitoring risk across the financial system. Some lawmakers have proposed that the Fed, which is already at the heart of the financial system, should play that role.
Other experts say the F.D.I.C. would be a more logical choice, taking advantage of its experience in taking over smaller banks. Supporters of this approach are concerned that the Fed will be overburdened with its regulatory duties and note that the Fed failed for years to exercise its authority to regulate dangerous mortgage practices.
Jamie Dimon, the chief executive of JPMorgan Chase and an outspoken supporter for creating a systemic risk regulator, said it was hard to expand the government’s authority to seize troubled financial companies without also dealing with the regulatory issues. “You can’t take care of your heart and not your lungs,” he said in a telephone interview on Tuesday. “You need someone to look behind the corners and to say something like, ‘this company is too big or too risky.’ ”
Mr. Dimon said that giving the government this power would have provided a process for dealing with failing institutions like Lehman Brothers, Bear Stearns, Wachovia and A.I.G.
“You don’t want too big to fail,” he said. “You want a resolution process where the process doesn’t damage the whole system.”
Representative Barney Frank, chairman of the House Financial Services Committee, plans to start drafting a bill in the next several days.
Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, said Congress might consider putting the oversight authority in the hands of a task force, rather than consolidating it at the Fed.
Mr. Dodd talked of establishing a council that includes the Fed, the F.D.I.C. and the Office of Comptroller of the Currency to avoid giving too much power to a single agency. “I for one would be sort of intrigued in looking at alternative ideas,” Mr. Dodd said.
On Thursday, Mr. Geithner plans to outline his broader plan for overhauling the financial regulatory system.
On Friday, President Obama plans to meet at the White House with top executives from many of the nation’s largest financial institutions to discuss his financial stabilization effort.
Administration officials have said their regulatory plan will create a broad role for the Fed as the lead risk regulator.
The administration is also expected to propose tighter regulation for derivative financial products, like the credit-default swaps that caused most of A.I.G.’s problems, and to require that such instruments be traded in a more transparent manner on exchanges or through clearinghouses.
Mr. Geithner made it clear on Tuesday that he would be pushing for tighter oversight of executive compensation, in part to make sure that financial incentives did not encourage reckless financial practices.
HSBC Said to Plan 1,000 U.K. Job Cuts, Consider Closing Offices
March 25 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank by market value, may cut about 1,000 jobs in the U.K., according to a person familiar with the situation.
The jobs will be eliminated in processing and operations, and some administration sites may be closed, said the person, who declined to be identified because the information is confidential. London-based HSBC employs about 58,000 people in the U.K. and 330,000 worldwide.
“HSBC, like all banks, must be thinking it’s going to be a tough year and they are looking to make savings,” said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an “underperform” rating on the stock. “The bank has always been cost conscious.”
HSBC is raising 12.5 billion pounds ($18.4 billion) in the U.K.’s biggest rights offering to boost its capital and fund expansion in emerging markets. The company eliminated about 500 jobs in the U.K. in November and 1,100 positions at its global banking and markets unit in September. Barclays Plc, the U.K.’s third-largest bank, has shed more than 4,500 jobs this year.
An HSBC spokesman declined to comment, saying the bank would never discuss job cuts without first discussing the matter with employees.
HSBC, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, hasn’t needed a capital injection from the government and its share offering is fully underwritten.
The jobs will be eliminated in processing and operations, and some administration sites may be closed, said the person, who declined to be identified because the information is confidential. London-based HSBC employs about 58,000 people in the U.K. and 330,000 worldwide.
“HSBC, like all banks, must be thinking it’s going to be a tough year and they are looking to make savings,” said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an “underperform” rating on the stock. “The bank has always been cost conscious.”
HSBC is raising 12.5 billion pounds ($18.4 billion) in the U.K.’s biggest rights offering to boost its capital and fund expansion in emerging markets. The company eliminated about 500 jobs in the U.K. in November and 1,100 positions at its global banking and markets unit in September. Barclays Plc, the U.K.’s third-largest bank, has shed more than 4,500 jobs this year.
An HSBC spokesman declined to comment, saying the bank would never discuss job cuts without first discussing the matter with employees.
HSBC, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, hasn’t needed a capital injection from the government and its share offering is fully underwritten.
Japan Exports Drop Record 49% as Global Slump Deepens
March 25 (Bloomberg) -- Japan’s exports plunged a record 49.4 percent in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics.
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months, the sharpest since 1974. Prime Minister Taro Aso is compiling his third stimulus package as companies from Toyota Motor Corp. to Panasonic Corp. fire thousands of workers.
“There’s a still of lot of weakness out there; that’s going to be a big drag on production and most people are looking for the first-quarter GDP to be as bad as the previous quarter,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Japan is as dependent on exports as anybody.”
The Nikkei 225 Stock Average slipped 0.7 percent at the morning close in Tokyo. Panasonic and Sony Corp., the world’s biggest consumer electronics makers, led the declines.
The yen traded at 97.83 per dollar from 98.25 before the report. The currency has weakened 7.3 percent this year, offering some relief to exporters whose profits were eroded by its 23 percent gain in 2008.
Sharpest Since 1980
Last month’s drop in exports was the sharpest since at least 1980, when the government started to keep comparable data. Economists predicted a 47.6 percent decline.
Toyota, forecasting its first net loss in 59 years, yesterday said overseas shipments plunged 69 percent in February.
Demand fell across all regions. Exports to Europe dropped a record 54.7 percent, shipments to Asia declined 46.3 percent and goods sent to China slumped 39.7 percent.
Imports fell a record 43 percent, helping Japan post its first trade surplus in five months. The 82.4 billion yen ($842 million) surplus was still 91.2 percent lower than the same month a year earlier.
Sentiment among Japan’s largest manufacturers probably fell to a 33-year low this month, economists predict the Bank of Japan’s Tankan survey will show next week.
World leaders from the Group of 20 economies will meet in London on April 2 to forge a common response to the financial crisis that spawned the global recession. Japan is siding with the U.S. in urging more fiscal stimulus, while European governments favor stricter rules for financial markets.
Worst Recession
Finance Minister Kaoru Yosano said on March 22 that a new stimulus package of as much as 20 trillion yen, double the amount pledged since October, is “not out of line” as the world’s second-biggest economy heads for its worst recession since 1945. The spending would add to public debt already estimated at 170 percent of gross domestic product.
“There’s been a structural shock to the manufacturing sector,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “Yes, the government can create demand temporarily, but that can’t fill the export gap forever.”
Japan has become more reliant on exports in the past decade, making it especially vulnerable to changes in global commerce, which the World Trade Organization forecasts will shrink 9 percent this year, the most since World War II. During Japan’s expansion of 2002 to 2007, exports as a portion of GDP rose to 15.6 percent from 10.4 percent.
Fared Worse
Asia’s largest economy fared worse last month than its neighbors. Exports from South Korea fell 17.1 percent, about half the pace of the decline in the previous month. Taiwan’s shipments slid 28.6 percent after dropping a record 44.1 percent in January.
“The fact that these other countries are doing a little better might give Japan some encouragement that world demand is bottoming out,” said Action Economics’ Cohen. “It should only be a matter of time before Japan shows the same stabilization.”
There are signs that China, Japan’s second-largest overseas market, is stabilizing. The World Bank said last week that government spending on roads, power grids and housing is “working” to take up the slack left by plunging exports.
“For some sectors like the chemical and raw-material industries, they’re seeing some rebound in demand coming from China,” said BNP’s Shiraishi. “Basically, demand for key industries -- transportation machinery, electronics, general machinery -- those aren’t recovering.”
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months, the sharpest since 1974. Prime Minister Taro Aso is compiling his third stimulus package as companies from Toyota Motor Corp. to Panasonic Corp. fire thousands of workers.
“There’s a still of lot of weakness out there; that’s going to be a big drag on production and most people are looking for the first-quarter GDP to be as bad as the previous quarter,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Japan is as dependent on exports as anybody.”
The Nikkei 225 Stock Average slipped 0.7 percent at the morning close in Tokyo. Panasonic and Sony Corp., the world’s biggest consumer electronics makers, led the declines.
The yen traded at 97.83 per dollar from 98.25 before the report. The currency has weakened 7.3 percent this year, offering some relief to exporters whose profits were eroded by its 23 percent gain in 2008.
Sharpest Since 1980
Last month’s drop in exports was the sharpest since at least 1980, when the government started to keep comparable data. Economists predicted a 47.6 percent decline.
Toyota, forecasting its first net loss in 59 years, yesterday said overseas shipments plunged 69 percent in February.
Demand fell across all regions. Exports to Europe dropped a record 54.7 percent, shipments to Asia declined 46.3 percent and goods sent to China slumped 39.7 percent.
Imports fell a record 43 percent, helping Japan post its first trade surplus in five months. The 82.4 billion yen ($842 million) surplus was still 91.2 percent lower than the same month a year earlier.
Sentiment among Japan’s largest manufacturers probably fell to a 33-year low this month, economists predict the Bank of Japan’s Tankan survey will show next week.
World leaders from the Group of 20 economies will meet in London on April 2 to forge a common response to the financial crisis that spawned the global recession. Japan is siding with the U.S. in urging more fiscal stimulus, while European governments favor stricter rules for financial markets.
Worst Recession
Finance Minister Kaoru Yosano said on March 22 that a new stimulus package of as much as 20 trillion yen, double the amount pledged since October, is “not out of line” as the world’s second-biggest economy heads for its worst recession since 1945. The spending would add to public debt already estimated at 170 percent of gross domestic product.
“There’s been a structural shock to the manufacturing sector,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “Yes, the government can create demand temporarily, but that can’t fill the export gap forever.”
Japan has become more reliant on exports in the past decade, making it especially vulnerable to changes in global commerce, which the World Trade Organization forecasts will shrink 9 percent this year, the most since World War II. During Japan’s expansion of 2002 to 2007, exports as a portion of GDP rose to 15.6 percent from 10.4 percent.
Fared Worse
Asia’s largest economy fared worse last month than its neighbors. Exports from South Korea fell 17.1 percent, about half the pace of the decline in the previous month. Taiwan’s shipments slid 28.6 percent after dropping a record 44.1 percent in January.
“The fact that these other countries are doing a little better might give Japan some encouragement that world demand is bottoming out,” said Action Economics’ Cohen. “It should only be a matter of time before Japan shows the same stabilization.”
There are signs that China, Japan’s second-largest overseas market, is stabilizing. The World Bank said last week that government spending on roads, power grids and housing is “working” to take up the slack left by plunging exports.
“For some sectors like the chemical and raw-material industries, they’re seeing some rebound in demand coming from China,” said BNP’s Shiraishi. “Basically, demand for key industries -- transportation machinery, electronics, general machinery -- those aren’t recovering.”
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