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| President Obama visits Nellis Air Force Base, in Las Vegas, Nevada May 27, 2009. Obama marked the 100th day anniversary of the anniversary of the enactment of his $787 billion economic stimulus program - - the American Recovery and Reinvestment Act - - by highlighting the development and use of
geothermal and solar energy. |
Bloomberg reports negotiators in Berlin working through the night failed to finalize the rescue of General Motors Corp.’s Opel unit after the US automaker demanded an extra €300 million ($415 million) in cash.
The talks at German Chancellor Angela Merkel’s offices, which included members of her Cabinet and state-level officials, a representative of the US, Treasury and corporate executives, narrowed the bidders to Fiat SpA and Magna International Inc. as they haggled over terms. The government hopes to reach a solution by tomorrow, German Economy Minister Karl-Theodor zu Guttenberg told reporters at 4:30 a.m. in Berlin.
“This was a bizarre night”said Guttenberg. “The talks were turned upside down by GM’s unexpected demands. We do not have the assurances we need in order to extend a bridge loan.”
The Wall Street Journal reports, that in the US, General Motors bondholders soundly rejected a debt-swap offer critical to the auto maker's survival, pushing the company closer to a bankruptcy filing that could come in the next few days.
GM's board of directors will meet later this week to decide the ailing company's next move after bondholders dashed its best hope of pulling off an out-of-court restructuring, the company said Wednesday.
The Journal also reports, that a government program designed to rid banks of bad loans, part of a broader effort once viewed as central to tackling the financial crisis, is stalling and may soon be put on hold, according to people familiar with the matter.
The Legacy Loans Program, being crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to willing investors.
But prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.
Also on Wednesday, well-known hedge-fund manager Arthur Samberg announced he is closing down his firm amid an ongoing investigation into possible insider trading.
"Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction," Samberg wrote in a letter that was sent to investors of his Pequot Capital Management Inc. on Wednesday. "With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business."
The Obama administration is reported to be close to recommending that Congress create a single regulator to oversee the banking sector; Citigroup is reported to be in the early stages of negotiating with the Securities and Exchange Commission to settle an investigation into whether it misled investors by not properly disclosing the amount of troubled mortgage assets it held as the market began to implode in 2007; The Wall Street Journal says big banks were hoping billions of dollars in future revenue would help them fill the capital holes found in the government's stress tests earlier this month. Now the Federal Reserve is limiting how much of that performance can be counted.
The Fed's decision is forcing Bank of America to come up with billions of dollars in capital from other sources. Other stress-tested banks also have revamped their capital-raising plans or might need to, including PNC Financial Services Group and Wells Fargo.
The move by the Fed, which began notifying banks last week, has deepened tensions over the stress tests, which are intended to help steady the banking industry and shore up confidence in the financial system. The results were announced May 7, and banks face a June 8 deadline for government approval of their capital-raising plans.
On the markets, the Dow Jones Industrial Average fell 172 points, closing at 8300.02, after Treasury yields rose on increasing inflation fears. The yield on the 10-year note jumped above 3.70%, a level last seen in November.
Rates on a 30-year fixed Fannie Mae mortgage hit 4.69% up from 3.94% a week ago.
The New York Times reported analysts said the gyration in bond markets was putting the Fed in an increasingly tough position.
Although the central bank has aimed its official interest rate at near zero, a historic low, if market interest rates continue to rise, the Fed would face more pressure to expand its purchases of $300 billion in longer-term Treasuries, analysts said. But to do so, it would have to print even more money, a move that could dilute the value of dollars already in circulation and lead to inflation down the road.
Besides, the government will sell nearly $2 trillion in U.S. Treasury bonds this year to fund its stimulus programs, and investors worry there won't be enough demand for it. Low demand would send bond prices down and push up the government's cost of raising money.
Davy's Stephen Lyons comments: US housing market shows signs of stabilisation - - "The US housing market activity shows further signs of stabilisation, but prices remain under downward pressure. According to the latest figures from the National Association of Realtors, existing home sales increased by 2.9% month-on-month from 4.55m in March to 4.68m in April – which was marginally above expectations. This indicates that sales have been above their trough for the last four months but are still nearly 40% below their peak. Markets had little reaction to the news.
Distressed properties account for nearly 45% of sales, and this is reducing the sales price for homes. The latest Case-Shiller house price data showed prices off 18.7% percent in March compared to the same period last year. Distressed property sales are important to reduce the inventory of unsold existing homes, which rose 8.8% in April to 3.97m.
A separate report from the Mortgage Bankers Association showed that applications for mortgages fell to their lowest level since early March as higher lending rates over the last couple of months affected demand for refinancing last week. The low level of activity in the sector and the high level of supply suggest that, despite the stabilisation in home sales, prices still have further to fall."
The MSCI Asia Pacific Index fell almost 1% Thursday.
Japan’s retail sales fell for an eighth month in April as worsening job prospects and falling wages deterred shoppers.
Bloomberg says Japan’s ruling Liberal Democratic Party may abandon a bill that would set aside ¥50 trillion ($520 billion) to buy shares from the market because stocks have rebounded from a 26-year low, lawmakers said.
Exporters helped to raise the Nikkei 225, 0.13%.
China's CSI 300 gained 1.47% and India's BSE Sensex 300 rose 1.1%.
Asia-Pacific benchmarks
In Europe, the Dow Jones Stoxx 600 has fallen 1.28%.
In Dublin, the ISEQ is down 1.52%.
CRH is down 1.4%
Blackrock International has not yet traded.
Blackrock International, the property spin-off of Fyffes, announced today that its Scottish partner is in receivership.
Blackrock says invested in five joint ventures in Scotland with Applecross Properties Limited between April 2007 and February 2009. These investments are held through stand-alone entities that were promoted and managed by Applecross.
Blackrock said it will review the affected joint ventures with the receiver as soon as practicable with a view to agreeing a future strategy in relation to each as appropriate, including consideration of any commercially attractive opportunities that may arise.
Certain of the joint ventures have been impacted by the changed market conditions in the property sector and it said "a prudent approach was therefore adopted to their valuation in Blackrock's financial statements at 31 December 2008. The company believes that adequate provision was made in the financial statements against all eventualities in respect of these joint ventures."
European Benchmarks
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
Currencies
The euro is trading at $1.3832 and at £0.8681.
For live currency updates, check the right-hand column of the Finfacts home page.
The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.
Commodities
Crude oil for July delivery is currently trading on the New York Mercantile Exchange (Nymex) at $62.83 per barrel down 62 cents from Wednesday's close. In London, Brent for July delivery is trading on the International Commodities Exchange at $61.90 down 60 cents.
Gold spot price
Gold is trading at $945.80 down $2.50 from Wednesday's spot price close in New York.
Goodbody economist Dermot O’Leary comments: what’s happening with Irish house prices? - - "There has been many debates in Ireland over the past two years on the issue of how far house prices have fallen from their peak. The most comprehensive and only mix-adjusted index of house prices in Ireland comes from permanent tsb and the ESRI. This index, which has been around since 1996 is a useful tool in tracking house prices in Ireland, but it has received some criticism over the past twelve months for apparently failing to pick up the scale of price declines that have been witnessed on the ground. We tend to agree with that view, but the latest reading suggests that the appropriate scale of monthly declines are starting to be reflected in the official data.
In April, house prices fell by 1.9% mom, representing a record decline for the index. If this rate of decline were to continue for the rest of the year, then by December the index would be down by 31% from the peak reached in February 2007. However, there are reasons to believe that in reality prices have already fallen by that extent already. Two points: (1) many industry contacts suggest that the timing of the market peak was some 6 months before that of the index above and; (2) the Daft.ie index already suggests that asking prices have fallen by 20%. Allowing for the fact that properties would have been transacting for more than the asking price in the boom period and are certainly transacting for less now, it is clear that prices have fallen by more than is reported by the official index.
Falling incomes, declining rents and an overhang of stock are likely to continue to impact on prices. On the latter point, our tracking of the stock of second-hand reveals that there were c.56,000 units for sale at the end of last week. Taking data released for the first time yesterday by the Department of the Environment, we know that there were 29,224 mortgages issued in 2008 for the purpose of purchasing a second-hand home.
Assuming that a further 20% of homes were purchased without the use of a mortgage (we do not have an accurate estimate on this issue), this would imply that the second-hand housing stock is equivalent to 19 months of supply. This compares to the current US level of ten months, and a long-term average of seven. There are very important regional differences in this analysis, but it is clear that until (1) the stock begins to reduce (helped by continued low levels of new supply) and (2) mortgage availability at reasonable standards returns, our forecast of a 40% decline in house prices from the peak will look optimistic."
Goodbody analyst Anna Lalor comments: EU commences process of supervisory reform - - "Yesterday, the European Commission announced that it has commenced the process of initial reforms of European financial supervision. The proposed change relates to recommendations from the Larosière Group report, which was released in February. The report made recommendations on changes to both supervision and regulation in the EU (and ultimately globally) and changes to the EU supervisory structure are likely to be a precursor to regulatory changes.
The Commission hopes to propose the necessary legislation on a new supervisory framework by the autumn and aims to have a new system in place in 2010, rather than 2012 (as proposed by the report). This step is to create a new European Systematic Risk Council to assess risks to the stability of the financial system as a whole, with a new European System of Financial Supervisors at a micro level, to add to the supervision of individual cross-border institutions (banks, insurance companies and securities companies).
The European System of Financial Supervisors is intended to work with national supervisors (through three separate authorities, depending on business area, with coordination among all three) to “develop common supervisory approaches, to the supervision of all financial institutions, financial services consumer protection and to contribute to the development of a single set of harmonised rules”. These authorities would also draw up new technical standards and help ensure consistent application of rules. Dispute resolution mechanisms will aim to “balance home and host interest”, which should see less regulatory arbitrage by banks passporting in from another country.
The creation of the European System of Financial Supervisors, is likely to start the process of regulatory change when in place, probably with reference to the Larosière report. This will see the gradual introduction of higher capital requirements for banks, with the quality of this capital also being better. It is likely that much of this increased capital is going to come through equity issuance in the coming years. On the revenue side, the report also recommends a revision of liquidity requirements for banks, which is likely to see more lower yielding liquid assets (government bonds) on bank balance sheets, reducing asset utilisation, which will also contribute to reduced banking ROEs for some time to come, and that’s before we take into account the regulatory costs of implementing these changes."
