India’s headline inflation has hit double digits, raising the possibility that the Reserve Bank of India will raise rates before a scheduled monetary policy review meeting next month.
Revised figures released yesterday showed that the wholesale price index had risen 11 per cent in March year-on-year, overturning earlier relief that the economy had restrained inflation in single digits. In May the WPI rose 10.2 per cent, double what the government considers its “comfort level”.
The stubbornly high inflation was above most analysts’ expectations and threatens to spell trouble for Manmohan Singh, the prime minister. Last month he acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
The Hindu nationalist opposition Bharatiya Janata party has criticised the Congress party-led government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises.
Some analysts, including Stephen Roach, chairman of Morgan Stanley Asia, have warned India is in danger of overstimulating its economy in the aftermath of the global financial crisis.
Yesterday’s figures showed that price pressures remain strong, with rapid growth of 8.6 per cent in the past quarter. The inflationary pressure was registered among primary products, such as sugar cane, tea, metals, textiles and wood.
Rohini Malkani, an economist at Citigroup in Mumbai, said the high inflation reflected the importance of changes in India’s economy, such as rising incomes, changing dietary patterns and low agricultural yields. Non-food manufactured goods inflation showed the force of demand in a fast-growing, yet constrained, domestic economy.
India, in recent months, has been the most aggressive tightener of monetary policy among the G20 leading nations, after Australia. More interest rate rises are on the way, but the RBI has said it is prepared for “baby steps” rather than more dramatic action. Some analysts predict the repo rate will rise 100 basis points from the current rate of 5.25 per cent in December.
Resistance to sudden rate rises by Pranab Mukherjee, the finance minister, and strong lobbying by India’s business groups, however, have left only a few of the more hawkish economists believing another rate rise is imminent.
“The RBI must take action to cool demand now, otherwise it will run the risk of having to tighten more aggressively later,” said Frederic Neumann, co-head of Asian economic research at HSBC. “A 25 basis point hike in repo rates before the next quarterly review meeting in July is still on the cards.”
Last night, business groups urged the RBI not to choke off liquidity at a time when foreign portfolio investment had slowed.
Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, said inflation would fall in coming months. “The primary sector is where the maximum pressure is coming from. It is the lean season [before the monsoon] as far as agricultural supplies are concerned. Once the new season begins . . . we can expect inflation in primary articles to come down.”
Tuesday, June 15, 2010
Monday, June 14, 2010
Singapore Employers Added More Jobs Than Estimated
June 15 (Bloomberg) -- Singapore employers added more jobs than initially estimated last quarter, pushing the unemployment rate to the lowest level in almost two years as a strengthening economy boosted hiring sentiment.
The city state added 36,500 jobs, compared with an earlier forecast of 34,000, according to revised figures released by the Ministry of Manpower today. The seasonally adjusted unemployment rate fell to 2.2 percent in the three months through March from 2.3 percent the previous quarter.
The opening of Singapore’s two casino resorts this year, which include a theme park and convention centers, is spurring tourism and fueling employment. The job gains have led to the first increase in average wages in more than a year, supporting consumer spending. A separate report today may show retail sales resumed growth in April, according to the median forecast of eight economists surveyed by Bloomberg News.
“The hospitality industry with the opening of the casino resorts is leading the way in hiring while the rebound in export demand is supporting jobs growth in the manufacturing sector,” said Vishnu Varathan, an economist at Forecast Pte in Singapore. “The tightening of the labor market may lead to a build-up in wage pressures.”
Singapore’s economy expanded an annualized 38.6 percent from the previous three months in the first quarter, and the government has raised its growth forecast twice this year as Asia leads a rebound from last year’s global slump. The nation expects the economy to grow as much as 9 percent this year.
Services, Manufacturing
“The strong economic recovery has led to more people securing jobs,” the ministry said. “Employment grew strongly, contributing to an improvement in unemployment for the second straight quarter as redundancies remained at pre-recessionary levels.”
Services companies, such as Genting Singapore Plc, added 33,400 positions in the first quarter, while the manufacturing industry created 3,100 jobs in the same period. The construction industry lost 400 workers, the report showed.
There were 37,300 job vacancies as of March, compared with 33,800 at the end of December, according to today’s report. Average wages before adjusting for inflation rose 3.7 percent in the three months through March from a year earlier, after declining for four quarters.
Singapore’s unemployment rate may be 2 percent by the end of 2010, according to the median estimate in a survey of 19 economists by the Monetary Authority of Singapore released last week.
The city state added 36,500 jobs, compared with an earlier forecast of 34,000, according to revised figures released by the Ministry of Manpower today. The seasonally adjusted unemployment rate fell to 2.2 percent in the three months through March from 2.3 percent the previous quarter.
The opening of Singapore’s two casino resorts this year, which include a theme park and convention centers, is spurring tourism and fueling employment. The job gains have led to the first increase in average wages in more than a year, supporting consumer spending. A separate report today may show retail sales resumed growth in April, according to the median forecast of eight economists surveyed by Bloomberg News.
“The hospitality industry with the opening of the casino resorts is leading the way in hiring while the rebound in export demand is supporting jobs growth in the manufacturing sector,” said Vishnu Varathan, an economist at Forecast Pte in Singapore. “The tightening of the labor market may lead to a build-up in wage pressures.”
Singapore’s economy expanded an annualized 38.6 percent from the previous three months in the first quarter, and the government has raised its growth forecast twice this year as Asia leads a rebound from last year’s global slump. The nation expects the economy to grow as much as 9 percent this year.
Services, Manufacturing
“The strong economic recovery has led to more people securing jobs,” the ministry said. “Employment grew strongly, contributing to an improvement in unemployment for the second straight quarter as redundancies remained at pre-recessionary levels.”
Services companies, such as Genting Singapore Plc, added 33,400 positions in the first quarter, while the manufacturing industry created 3,100 jobs in the same period. The construction industry lost 400 workers, the report showed.
There were 37,300 job vacancies as of March, compared with 33,800 at the end of December, according to today’s report. Average wages before adjusting for inflation rose 3.7 percent in the three months through March from a year earlier, after declining for four quarters.
Singapore’s unemployment rate may be 2 percent by the end of 2010, according to the median estimate in a survey of 19 economists by the Monetary Authority of Singapore released last week.
BOJ to Offer 3 Trillion Yen to Spur Corporate Loans
June 15 (Bloomberg) -- The Bank of Japan will offer as much as 3 trillion yen ($33 billion) in a new credit program that will extend loans to companies for as long as four years in an effort to strengthen the economic recovery.
The central bank will accept loan requests through March 2012, it said in a statement released today in Tokyo. New loans will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.
Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt. The facility will do little to spur demand and is mainly aimed at averting calls for broader monetary easing, said economist Yasunari Ueno.
“The new program is a tool to flag the BOJ’s cooperation to the government,” Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before the announcement. “It’s also an attempt to prevent the bank’s monetary policy from being driven in an unfavorable direction.”
Yesterday, on the first day of the bank’s meeting, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken.
Critical Challenge
“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries.”
Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. The BOJ has discussed the boundaries of the program, with some members voicing concern that the bank should avoid getting too involved in allocating capital, minutes of an April 30 meeting show.
The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. The bank decided to resume a U.S. dollar currency swap agreement with the Federal Reserve in an unscheduled policy meeting on May 10.
Interest Rates
Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today.
Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent.
“The BOJ has already provided abundant liquidity” by lowering borrowing costs and through existing programs, said Mizuho’s Ueno. “Under the current circumstances surrounding interest rates, the advantages of tapping a new facility for commercial lenders is extremely small.”
If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage.
Recovery Trend
Japan’s economy is on a recovery trend and spending by companies is showing signs of picking up, the central bank said today.
Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months.
He is expected to unveil the midterm growth and fiscal strategy before the Group of 20 leaders’ summit this month. Vice Finance Minister Motohisa Ikeda, who has also pressed the BOJ to do more, is attending today’s gathering as a government representative.
“With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.”
The central bank will accept loan requests through March 2012, it said in a statement released today in Tokyo. New loans will be extended at the benchmark interest rate, which the board today unanimously voted to keep unchanged at 0.1 percent.
Pressure on Governor Masaaki Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world’s largest debt. The facility will do little to spur demand and is mainly aimed at averting calls for broader monetary easing, said economist Yasunari Ueno.
“The new program is a tool to flag the BOJ’s cooperation to the government,” Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before the announcement. “It’s also an attempt to prevent the bank’s monetary policy from being driven in an unfavorable direction.”
Yesterday, on the first day of the bank’s meeting, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could “go bankrupt” if remedies aren’t taken.
Critical Challenge
“The most critical challenge the Japanese economy is currently facing is raise the potential economic growth rate and productivity,” the central bank said. Today’s measure “aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth.” The bank said it will seek to ensure that it “does not directly involve itself in the allocation of funds to individual firms and industries.”
Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits. The BOJ has discussed the boundaries of the program, with some members voicing concern that the bank should avoid getting too involved in allocating capital, minutes of an April 30 meeting show.
The Bank of Japan offered to provide dollar loans to lenders at 1.23 percent today, to help ease concerns that credit will contract in the wake of Europe’s sovereign-debt crisis. The bank decided to resume a U.S. dollar currency swap agreement with the Federal Reserve in an unscheduled policy meeting on May 10.
Interest Rates
Japan’s central bank cut the benchmark interest rate to 0.1 percent in December 2008 and all 14 economists surveyed by Bloomberg News expected it to be kept unchanged today.
Last December, following calls to act from politicians including Kan, the board unveiled a credit program that it doubled to 20 trillion yen in March, which offers three-month funds at 0.1 percent.
“The BOJ has already provided abundant liquidity” by lowering borrowing costs and through existing programs, said Mizuho’s Ueno. “Under the current circumstances surrounding interest rates, the advantages of tapping a new facility for commercial lenders is extremely small.”
If the economy were to receive a severe shock, the BOJ would consider expanding the facility, a person familiar with the matter said last week. The outstanding amount of loans provided through the program was around 20 trillion yen yesterday, according to Tokyo Tanshi, a money market brokerage.
Recovery Trend
Japan’s economy is on a recovery trend and spending by companies is showing signs of picking up, the central bank said today.
Kan, who was finance minister before becoming premier, has advocated inflation targeting and said he hopes to see consumer prices gain as much as 2 percent. Prices have slumped for 14 straight months.
He is expected to unveil the midterm growth and fiscal strategy before the Group of 20 leaders’ summit this month. Vice Finance Minister Motohisa Ikeda, who has also pressed the BOJ to do more, is attending today’s gathering as a government representative.
“With the economy recovering, political pressure on the BOJ probably won’t mount immediately,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. “Should the economy start to lose momentum or if European financial turmoil flares up, the government may have difficulty pushing for its fiscal reform and then put heat on the BOJ.”
Sunday, June 13, 2010
Reliance Industries eyes more US shale gas
Reliance Industries is in talks to acquire what would be its second US shale gas interest in as many months as India’s largest private sector oil refining and production group seeks to build a foothold in overseas markets.
Reliance, controlled by Mukesh Ambani, India’s richest man, is considering buying a stake in shale gas assets owned by Pioneer Natural Resources, which is developing a large field in south Texas, people familiar with the matter said.
The deal is still under negotiation but one person familiar with the talks said the price was expected to be less than the $1.7bn Reliance paid in April for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
The deal follows similar agreements between some of the world’s largest energy companies and smaller independents with exposure to so-called unconventional gas.
Proponents of these unconventional deposits claim new drilling technology makes them economical to develop for the first time. This has raised estimates for US gas reserves from 30 years to 100 years at current usage rates.
In the biggest deals, ExxonMobil has agreed a $41bn deal to buy XTO, the shale gas specialist, while BP, Statoil and Total have each struck deals with Chesapeake Energy to tap into its US shale assets.
Reliance Industries has been shopping for overseas acquisitions, resulting in the deal with Atlas Energy, under which the Indian company took a 40 per cent interest in the shale field owned by the US company and committed funds for development.
Dallas-based Pioneer said last month it had drilled its fifth successful well in its 310,000-acre Eagle Ford Shale in south Texas.
“To further accelerate Eagle Ford Shale development, the company is actively pursuing a joint venture, with an announcement expected by the end of the second quarter of 2010,” Pioneer said last month.
Reliance yesterday said it did not comment on “market speculation”.
Pioneer has another shale gas field, Barnett, near Fort Worth, with 80,000 acres.
Reliance – whose upstream operations are headed by Walter Van De Vijver, a former Shell executive – is keen to gain hands-on experience developing shale assets.
Reliance operates the world’s biggest refinery complex in a single location on India’s west coast and the country’s largest gas field on its east coast.
It sought to buy bankrupt chemicals group Lyondell-Bassell earlier this year but was thwarted by a management-backed debt restructuring proposal.
Mr Ambani is known for his ability to build large projects, particularly in oil and gas. But analysts say he now needs to show he is equally adept at acquisitions so that he can put the billions of dollars of cash flow being generated by his gas field and refinery to good use.
Reliance, controlled by Mukesh Ambani, India’s richest man, is considering buying a stake in shale gas assets owned by Pioneer Natural Resources, which is developing a large field in south Texas, people familiar with the matter said.
The deal is still under negotiation but one person familiar with the talks said the price was expected to be less than the $1.7bn Reliance paid in April for a joint venture with Atlas Energy, which has a shale gas field on the borders of Pennsylvania, West Virginia and New York states.
The deal follows similar agreements between some of the world’s largest energy companies and smaller independents with exposure to so-called unconventional gas.
Proponents of these unconventional deposits claim new drilling technology makes them economical to develop for the first time. This has raised estimates for US gas reserves from 30 years to 100 years at current usage rates.
In the biggest deals, ExxonMobil has agreed a $41bn deal to buy XTO, the shale gas specialist, while BP, Statoil and Total have each struck deals with Chesapeake Energy to tap into its US shale assets.
Reliance Industries has been shopping for overseas acquisitions, resulting in the deal with Atlas Energy, under which the Indian company took a 40 per cent interest in the shale field owned by the US company and committed funds for development.
Dallas-based Pioneer said last month it had drilled its fifth successful well in its 310,000-acre Eagle Ford Shale in south Texas.
“To further accelerate Eagle Ford Shale development, the company is actively pursuing a joint venture, with an announcement expected by the end of the second quarter of 2010,” Pioneer said last month.
Reliance yesterday said it did not comment on “market speculation”.
Pioneer has another shale gas field, Barnett, near Fort Worth, with 80,000 acres.
Reliance – whose upstream operations are headed by Walter Van De Vijver, a former Shell executive – is keen to gain hands-on experience developing shale assets.
Reliance operates the world’s biggest refinery complex in a single location on India’s west coast and the country’s largest gas field on its east coast.
It sought to buy bankrupt chemicals group Lyondell-Bassell earlier this year but was thwarted by a management-backed debt restructuring proposal.
Mr Ambani is known for his ability to build large projects, particularly in oil and gas. But analysts say he now needs to show he is equally adept at acquisitions so that he can put the billions of dollars of cash flow being generated by his gas field and refinery to good use.
India May Put Off Debt Sales on Cash Shortages, JPMorgan Says
June 14 (Bloomberg) -- India may postpone or cut the size of its scheduled bond sales this week as the payment of corporate taxes and mobile-phone license fees squeezes cash at banks, JPMorgan Chase & Co. and Securities Trading Corp. said.
Overnight interbank rates climbed to 5.43 percent on June 11, their highest level in more than two months, increasing the cost of funding to buy bonds. The average amount of cash borrowed each day by banks from the central bank’s repurchase auction window jumped six-fold last week, showing the shortage of funds. The Finance Ministry is due to auction up to 110 billion rupees ($2.8 billion) in the week beginning today, according to the government’s debt sale calendar.
“This tight liquidity situation is going to be there for quite some time, probably until at least August,” Jahangir Aziz, chief India economist at JPMorgan in Mumbai said in a June 12 telephone interview. “They may postpone the week’s auction because that’s when the big shock is going to be.”
The yield on the benchmark 7.80 percent bonds due in May 2020 rose nine basis points to 7.61 percent last week, the highest level in a month.
Wireless broadband operators will have to pay a combined 385.4 billion rupees for licenses by June 22. The payment for 110 billion rupees of bonds sold by the government last week is due today. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp. of India, known as STCI.
Room for Delays
The companies that won permits to provide third-generation services last month paid 677.2 billion rupees to the government, reducing cash at banks.
“Since the government has mobilized so much money, they can truncate the borrowing for a couple of auctions,” said Mumbai-based Madhav.
Madhav predicts lenders may borrow up to 900 billion rupees from the Reserve Bank of India during this week. Banks borrowed an average of 599.3 billion rupees from the central bank through its repurchase-auction window every day last week, compared with 94.1 billion rupees the previous week.
The government plans to complete 63 percent of its record borrowing program of 4.57 trillion rupees for the fiscal year that began April 1 in the first half.
Overnight interbank rates climbed to 5.43 percent on June 11, their highest level in more than two months, increasing the cost of funding to buy bonds. The average amount of cash borrowed each day by banks from the central bank’s repurchase auction window jumped six-fold last week, showing the shortage of funds. The Finance Ministry is due to auction up to 110 billion rupees ($2.8 billion) in the week beginning today, according to the government’s debt sale calendar.
“This tight liquidity situation is going to be there for quite some time, probably until at least August,” Jahangir Aziz, chief India economist at JPMorgan in Mumbai said in a June 12 telephone interview. “They may postpone the week’s auction because that’s when the big shock is going to be.”
The yield on the benchmark 7.80 percent bonds due in May 2020 rose nine basis points to 7.61 percent last week, the highest level in a month.
Wireless broadband operators will have to pay a combined 385.4 billion rupees for licenses by June 22. The payment for 110 billion rupees of bonds sold by the government last week is due today. Companies may pay up to 350 billion rupees in quarterly tax this week, said Pradeep Madhav, managing director of Mumbai-based Securities Trading Corp. of India, known as STCI.
Room for Delays
The companies that won permits to provide third-generation services last month paid 677.2 billion rupees to the government, reducing cash at banks.
“Since the government has mobilized so much money, they can truncate the borrowing for a couple of auctions,” said Mumbai-based Madhav.
Madhav predicts lenders may borrow up to 900 billion rupees from the Reserve Bank of India during this week. Banks borrowed an average of 599.3 billion rupees from the central bank through its repurchase-auction window every day last week, compared with 94.1 billion rupees the previous week.
The government plans to complete 63 percent of its record borrowing program of 4.57 trillion rupees for the fiscal year that began April 1 in the first half.
Europe’s Banks Face Second Funding Squeeze on Sovereign Crisis
June 14 (Bloomberg) -- European banks at risk of writedowns from the sovereign debt crisis face a funding squeeze that may depress earnings, curb lending and imperil economic recovery in the region.
Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.
“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”
The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
The cost of insuring bank debt from default rose close to a record last week. The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed to 208 basis points on June 8, approaching the all-time high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show.
Italy’s Intesa Sanpaolo SpA, SEB AB, the second-biggest bank in the Baltic states, DnB NOR ASA and ING Groep NV have isolated themselves from the freeze by already selling all the debt they needed this year, according to estimates by Morgan Stanley analyst Huw van Steenis. Germany’s Commerzbank AG, France’s Natixis SA and Spain’s Banco Espanol de Credito SA have raised less than 35 percent of the senior funding they require, he wrote in a note to clients on June 9.
“If you’re not a quality borrower, you’re not going to get funding from the market until you reduce your loan-to-deposit ratio and shrink your balance sheet,” said Simon Maughan, an analyst at MF Global Ltd. in London. “The credit and bond markets are doing their job. Unless you reform, you’ll be stuck on government support for the foreseeable future.”
An official at Natixis declined to comment. Officials at Banesto in Madrid didn’t return calls for comment. “We are comfortably funded,” Commerzbank spokesman Reiner Rossman said by telephone.
Risk aversion is helping to spur sales of covered bonds, securities that are guaranteed by the issuer and backed by mortgages and other loans, reducing risk for investors and interest payments for the issuer. Financial firms have sold 11.5 billion euros ($13.9 billion) of the bonds this month, three times the total for May, according to van Steenis. Frankfurt- based Commerzbank raised 1 billion euros in a June 9 offering.
‘Rare And Expensive’
Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are “rare and expensive,” making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.
Shut out of the interbank market, lenders tapped the ECB for 122 billion euros of seven-day cash at the central bank’s last weekly tender on June 8. The 96 bidders paid an interest rate of 1 percent on those loans, almost three times the one- week euro interbank offered rate of 0.37 percent. The ECB didn’t identify the banks involved.
Europe’s lenders deposited a record 369 billion euros in the ECB’s overnight deposit facility on June 9, more than in the aftermath of Lehman’s collapse. Deposits have surpassed 360 billion euros for the past week. In the eight years leading up to Lehman’s collapse, euro-region banks deposited an average of about 277 million euros with the ECB.
‘Dangerous Games’
Firms are leaving cash with the central bank instead of lending it to other banks amid concern that counterparties may collapse. Deposits have also climbed to a record as the ECB flooded money markets with cash since 2008.
“Central banks are helping with funding and liquidity and, if push came to shove, further accommodation would be provided,” said Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London, which has 35 billion euros of assets under management. “The ECB’s role isn’t to play dangerous games by withdrawing funding early: it’s to prevent a sovereign issue becoming a banking issue.”
Increased reliance on short-term ECB loans and interbank funding runs counter to the rules being proposed by the Basel Committee on Banking Supervision. The committee, which sets minimum standards for banks in 27 countries, plans to require banks to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months.
Basel Delayed?
The Basel Committee’s proposals will have to be modified and phased in over a long period of time, according to Morgan Stanley’s van Steenis. Basel will require 1.5 trillion euros of incremental bank deposits and bond funding alone, he estimated.
WestLB AG, the German state-owned lender bailed out during the financial crisis, is among banks paying the most to borrow for three months in euros, dollars and pounds, according to data from the British Bankers’ Association.
“Funding costs for any bank are a reflection of an institution’s credit ratings,” WestLB spokesman Richard Bassett said, referring to the bank’s BBB+ credit rating from Standard & Poor’s. “WestLB has benefited from recent restructuring and is now a profitable bank with a stable earnings base.”
European banks are on average paying 4 basis points more than U.S. lenders to access three-month dollar cash, close to the widest since November, the BBA data show.
Bonds ‘Crowded Out’
The ECB said on May 31 that Europe’s banks will have to write down 195 billion euros of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, bringing the total to the equivalent of $762 billion. U.S. banks will have written down $885 billion by the end of 2010, the International Monetary Fund said in April.
The ECB said European banks’ ability to sell bonds may be hampered as governments seek to finance fiscal deficits amassed in part to finance a bailout of the banking industry.
With governments facing “heavy financing requirements over the coming years” there’s a “risk of bank bond issuance being crowded out,” the Frankfurt-based ECB said in its biannual Financial Stability Report.
The ECB is going to have to continue supporting banks in the region for at least the time being, said Danny Gabay, director of Fathom Financial Consulting in London and a former Bank of England economist.
“The banks are entering increasingly turbulent waters now,” Gabay said. “For too long policy makers in Europe were looking the other way, hoping we could sail through the financial crisis. Now their chickens have come home to roost.”
Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.
“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”
The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
The cost of insuring bank debt from default rose close to a record last week. The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed to 208 basis points on June 8, approaching the all-time high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show.
Italy’s Intesa Sanpaolo SpA, SEB AB, the second-biggest bank in the Baltic states, DnB NOR ASA and ING Groep NV have isolated themselves from the freeze by already selling all the debt they needed this year, according to estimates by Morgan Stanley analyst Huw van Steenis. Germany’s Commerzbank AG, France’s Natixis SA and Spain’s Banco Espanol de Credito SA have raised less than 35 percent of the senior funding they require, he wrote in a note to clients on June 9.
“If you’re not a quality borrower, you’re not going to get funding from the market until you reduce your loan-to-deposit ratio and shrink your balance sheet,” said Simon Maughan, an analyst at MF Global Ltd. in London. “The credit and bond markets are doing their job. Unless you reform, you’ll be stuck on government support for the foreseeable future.”
An official at Natixis declined to comment. Officials at Banesto in Madrid didn’t return calls for comment. “We are comfortably funded,” Commerzbank spokesman Reiner Rossman said by telephone.
Risk aversion is helping to spur sales of covered bonds, securities that are guaranteed by the issuer and backed by mortgages and other loans, reducing risk for investors and interest payments for the issuer. Financial firms have sold 11.5 billion euros ($13.9 billion) of the bonds this month, three times the total for May, according to van Steenis. Frankfurt- based Commerzbank raised 1 billion euros in a June 9 offering.
‘Rare And Expensive’
Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are “rare and expensive,” making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.
Shut out of the interbank market, lenders tapped the ECB for 122 billion euros of seven-day cash at the central bank’s last weekly tender on June 8. The 96 bidders paid an interest rate of 1 percent on those loans, almost three times the one- week euro interbank offered rate of 0.37 percent. The ECB didn’t identify the banks involved.
Europe’s lenders deposited a record 369 billion euros in the ECB’s overnight deposit facility on June 9, more than in the aftermath of Lehman’s collapse. Deposits have surpassed 360 billion euros for the past week. In the eight years leading up to Lehman’s collapse, euro-region banks deposited an average of about 277 million euros with the ECB.
‘Dangerous Games’
Firms are leaving cash with the central bank instead of lending it to other banks amid concern that counterparties may collapse. Deposits have also climbed to a record as the ECB flooded money markets with cash since 2008.
“Central banks are helping with funding and liquidity and, if push came to shove, further accommodation would be provided,” said Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London, which has 35 billion euros of assets under management. “The ECB’s role isn’t to play dangerous games by withdrawing funding early: it’s to prevent a sovereign issue becoming a banking issue.”
Increased reliance on short-term ECB loans and interbank funding runs counter to the rules being proposed by the Basel Committee on Banking Supervision. The committee, which sets minimum standards for banks in 27 countries, plans to require banks to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months.
Basel Delayed?
The Basel Committee’s proposals will have to be modified and phased in over a long period of time, according to Morgan Stanley’s van Steenis. Basel will require 1.5 trillion euros of incremental bank deposits and bond funding alone, he estimated.
WestLB AG, the German state-owned lender bailed out during the financial crisis, is among banks paying the most to borrow for three months in euros, dollars and pounds, according to data from the British Bankers’ Association.
“Funding costs for any bank are a reflection of an institution’s credit ratings,” WestLB spokesman Richard Bassett said, referring to the bank’s BBB+ credit rating from Standard & Poor’s. “WestLB has benefited from recent restructuring and is now a profitable bank with a stable earnings base.”
European banks are on average paying 4 basis points more than U.S. lenders to access three-month dollar cash, close to the widest since November, the BBA data show.
Bonds ‘Crowded Out’
The ECB said on May 31 that Europe’s banks will have to write down 195 billion euros of bad debt by 2011, on top of the 444 billion euros of writedowns they have already logged, bringing the total to the equivalent of $762 billion. U.S. banks will have written down $885 billion by the end of 2010, the International Monetary Fund said in April.
The ECB said European banks’ ability to sell bonds may be hampered as governments seek to finance fiscal deficits amassed in part to finance a bailout of the banking industry.
With governments facing “heavy financing requirements over the coming years” there’s a “risk of bank bond issuance being crowded out,” the Frankfurt-based ECB said in its biannual Financial Stability Report.
The ECB is going to have to continue supporting banks in the region for at least the time being, said Danny Gabay, director of Fathom Financial Consulting in London and a former Bank of England economist.
“The banks are entering increasingly turbulent waters now,” Gabay said. “For too long policy makers in Europe were looking the other way, hoping we could sail through the financial crisis. Now their chickens have come home to roost.”
Saturday, June 12, 2010
Australia’s Rudd, Facing Tax Revolt, Backed as Leader
June 13 (Bloomberg) -- Australian Prime Minister Kevin Rudd, facing an electoral backlash over plans to introduce a 40 percent tax on mining profits, will remain as the leader going into the next election, Federal Finance Minister Lindsay Tanner said.
“Rudd will lead the government to the election,” Tanner said on ABC Television today. “I believe the government will win. Suddenly, it’s become a much tighter contest and we’re under a bit of pressure. It will be a tough fight.”
BHP Billiton Ltd., the world’s largest mining company, and Xstrata Plc have called on the Australian government to roll back or ditch plans for the tax to avoid a flight of investment from the country, while Sinosteel Corp. today said it was “concerned.” The so-called “super tax” is proving a hard sell in the main mining states of Western Australia, where a poll showed support for Rudd’s Labor Party has fallen to a record low, and Queensland.
“The mining tax, it’s a severe negative for the government at the moment,” Galaxy Research pollster David Briggs said on Sky News today. He said Labor would probably lose four of its 15 seats in Queensland should an election be held now.
Australia, which voted Rudd’s center-left Labor Party into power in October 2007 after 12 years of conservative Liberal Party rule, must go to the polls within 10 months. Most political experts are predicting the election will be held later this year.
Gillard Speculation
Deputy Prime Minister Julia Gillard said speculation she may challenge Rudd’s leadership was “absolutely absurd.”
“I’ve read the newspapers and the thing that matters is not what’s in the pages of the daily newspapers but a focus on making a difference to working families,” Gillard told reporters in Brisbane yesterday.
Nationally, a survey conducted between June 3 and June 5 showed 53 percent of voters preferred the opposition, compared with 47 percent who backed Rudd’s party, the first time Labor has trailed in four years.
The proposed 40 percent levy would be imposed on resource companies’ returns that exceed the rate on long-term Australian government bonds, currently about 6 percent, and be offset by a credit for royalties paid to state governments, according to government documents.
China Concern
Sinosteel is investigating the impact the proposed tax will have on its cashflow, Guilio Casello, chief operating officer of Sinosteel Midwest Corp., told ABC Television today. China’s biggest iron ore trader bought Australian company Midwest Corp. for A$1.4 billion in 2008 and is developing a mine in Western Australia.
“Obviously there’s concern,” Casello said. “The Chinese are very large investors into the region. They invest in obviously not just our project but in a number of projects into the region. They’re still very committed to the region. They understand the potential.”
BHP and Xstrata has joined Rio Tinto Group and Peabody Energy Corp. in reviewing, suspending or slowing Australian projects because of the tax.
The government may raise the threshold at which the levy kicks in to more than 10 percent from 6 percent, the Herald Sun newspaper reported June 12. Resources Minister Martin Ferguson has said the government is open to “refinements” to the tax.
“Our tax reforms are about making sure mining companies pay a fairer price for our mineral wealth,” Treasurer Wayne Swan said in an e-mailed statement today.
Facing Protests
Rudd faced protests from mining executives in Perth last week as he met with business leaders to promote the tax.
Industry groups say the tax would force companies to shift operations overseas, jeopardizing investment in a business that represents about 10 percent of the A$1.2 trillion ($980 billion) economy. Rudd has countered that the companies involved are exaggerating their importance to Australia, the world’s biggest shipper of iron ore and coal.
Wild West
Labor’s support has fallen to a record low of 26 percent in Western Australia, compared with 52 percent for the Liberals and their coalition partner the Nationals, according to a West Australian newspaper poll released yesterday. On those figures, Labor would lose all four of the seats it holds in the state, generator of a third of the nation’s exports.
“The Western Australian market has been unsettled by the combined impacts of the instability in Europe, the uncertainty caused by the proposed resource super profits tax in Australia and declining commodity prices,” Keith Jones, managing partner of Deloitte in the state, said in an e-mailed statement today.
The value of Western Australian-listed companies in May decreased by A$20.7 billion, or 13 percent, to A$143.8 billion, Deloitte said.
Western Australia, about four times the size of France, accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate.
In Rudd’s favor, voters supported his actions during the global financial crisis when he implemented a stimulus program that helped the nation avoid recession. He was aided by demand for raw materials from India and China, the world’s largest buyer of iron ore, which fueled purchases of Australia’s natural resources.
“People need to get serious,” Transport Minister Anthony Albanese said on the Ten television network today, referring to calls for Rudd to be replaced. “The fact is our prime minister is the one leader of the advanced world who negotiated successfully through the global financial crisis.”
“Rudd will lead the government to the election,” Tanner said on ABC Television today. “I believe the government will win. Suddenly, it’s become a much tighter contest and we’re under a bit of pressure. It will be a tough fight.”
BHP Billiton Ltd., the world’s largest mining company, and Xstrata Plc have called on the Australian government to roll back or ditch plans for the tax to avoid a flight of investment from the country, while Sinosteel Corp. today said it was “concerned.” The so-called “super tax” is proving a hard sell in the main mining states of Western Australia, where a poll showed support for Rudd’s Labor Party has fallen to a record low, and Queensland.
“The mining tax, it’s a severe negative for the government at the moment,” Galaxy Research pollster David Briggs said on Sky News today. He said Labor would probably lose four of its 15 seats in Queensland should an election be held now.
Australia, which voted Rudd’s center-left Labor Party into power in October 2007 after 12 years of conservative Liberal Party rule, must go to the polls within 10 months. Most political experts are predicting the election will be held later this year.
Gillard Speculation
Deputy Prime Minister Julia Gillard said speculation she may challenge Rudd’s leadership was “absolutely absurd.”
“I’ve read the newspapers and the thing that matters is not what’s in the pages of the daily newspapers but a focus on making a difference to working families,” Gillard told reporters in Brisbane yesterday.
Nationally, a survey conducted between June 3 and June 5 showed 53 percent of voters preferred the opposition, compared with 47 percent who backed Rudd’s party, the first time Labor has trailed in four years.
The proposed 40 percent levy would be imposed on resource companies’ returns that exceed the rate on long-term Australian government bonds, currently about 6 percent, and be offset by a credit for royalties paid to state governments, according to government documents.
China Concern
Sinosteel is investigating the impact the proposed tax will have on its cashflow, Guilio Casello, chief operating officer of Sinosteel Midwest Corp., told ABC Television today. China’s biggest iron ore trader bought Australian company Midwest Corp. for A$1.4 billion in 2008 and is developing a mine in Western Australia.
“Obviously there’s concern,” Casello said. “The Chinese are very large investors into the region. They invest in obviously not just our project but in a number of projects into the region. They’re still very committed to the region. They understand the potential.”
BHP and Xstrata has joined Rio Tinto Group and Peabody Energy Corp. in reviewing, suspending or slowing Australian projects because of the tax.
The government may raise the threshold at which the levy kicks in to more than 10 percent from 6 percent, the Herald Sun newspaper reported June 12. Resources Minister Martin Ferguson has said the government is open to “refinements” to the tax.
“Our tax reforms are about making sure mining companies pay a fairer price for our mineral wealth,” Treasurer Wayne Swan said in an e-mailed statement today.
Facing Protests
Rudd faced protests from mining executives in Perth last week as he met with business leaders to promote the tax.
Industry groups say the tax would force companies to shift operations overseas, jeopardizing investment in a business that represents about 10 percent of the A$1.2 trillion ($980 billion) economy. Rudd has countered that the companies involved are exaggerating their importance to Australia, the world’s biggest shipper of iron ore and coal.
Wild West
Labor’s support has fallen to a record low of 26 percent in Western Australia, compared with 52 percent for the Liberals and their coalition partner the Nationals, according to a West Australian newspaper poll released yesterday. On those figures, Labor would lose all four of the seats it holds in the state, generator of a third of the nation’s exports.
“The Western Australian market has been unsettled by the combined impacts of the instability in Europe, the uncertainty caused by the proposed resource super profits tax in Australia and declining commodity prices,” Keith Jones, managing partner of Deloitte in the state, said in an e-mailed statement today.
The value of Western Australian-listed companies in May decreased by A$20.7 billion, or 13 percent, to A$143.8 billion, Deloitte said.
Western Australia, about four times the size of France, accounts for 62 percent of the nation’s mineral production, 73 percent of natural gas and 64 percent of crude oil and condensate.
In Rudd’s favor, voters supported his actions during the global financial crisis when he implemented a stimulus program that helped the nation avoid recession. He was aided by demand for raw materials from India and China, the world’s largest buyer of iron ore, which fueled purchases of Australia’s natural resources.
“People need to get serious,” Transport Minister Anthony Albanese said on the Ten television network today, referring to calls for Rudd to be replaced. “The fact is our prime minister is the one leader of the advanced world who negotiated successfully through the global financial crisis.”
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