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Last Updated:
Apr 24, 2009 - 5:31:05 PM |
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US Secretary of the Treasury Timothy Geithner appeared on This Week with George Stephanopoulos on Sunday, March 29, 2009. Geithner said: There's no doubt there's more losses ahead for the financial system, but George, we've had a lot of adjustment already. One of the things about the American economy is, change happens here with brutal force, much more quickly than it happens around the world. And we've already had -- you know, we're 18 months into this, and we've had...
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Bloomberg reports, UK Business Secretary Peter Mandelson called for criticism of British banks to subside so that lenders can begin rebuilding their business and contributing to the economy.
The comments were the first by a senior minister to urge a change in attitude toward banks and their executives who have been criticized for failing in their duty and rewarding themselves with excessive pay.
“The banks have received a well-deserved bloody nose from public opinion and the government and, given the impact on business and jobs, I am hardly one to sympathize,” Mandelson told reporters yesterday on a flight back to London from Santiago, Chile. /SPAN>
The UK financial services sector has been hit by record drops in income levels while business volumes have continued to fall sharply, a new survey said today.
The industry has cut jobs at the fastest rate since 1993 to try and trim costs and alleviate steep falls in profitability. Investment plans have also been heavily scaled back.
Asked how their business volumes fared in the three months to early March, 9%t of firms responding to the latest CBI / PWC Financial Services Survey said that volumes rose, while 56% said they fell.
The ensuing balance of -47% marked a sixth quarter of steep declines and was worse than firms had expected (-25%). A balance of 10% expects volumes to drop further over the next three months.
A balance of 47% of firms reported a decline in profitability, which reflected a slight easing back from December’s record drop (-55%), and a further slowing in the decline is expected over the three months ahead (-27%).
The values of two income categories both fell at the fastest rate since the survey began in December 1989. A net 53% of firms reported a drop in fee, commission and premium incomes, while a balance of 54% saw falls in net interest, investment and trading incomes. Falls in both measures are forecast over the next three months, but a more moderate rate is expected for fee, commission and premium incomes.
The Obama administration has used the threat of withholding more public support to force out General Motors (GM) Chief Executive Rick Wagoner and set strict conditions for the third US car maker Chrysler.
The administration's auto task force on Sunday announced the departure of Wagoner. In a summary of its findings, the task force said it doesn't believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."
The Wall Street Journal reports, that the Treasury Department said it has about $134.5 billion left in its financial-rescue fund, giving the Obama administration a cushion as it implements expensive programs aimed at unlocking credit markets and boosting ailing industries.
The figure means that about 81% of the $700 billion in the Troubled Asset Relief Program, or TARP, has been committed. It also means that the Obama administration may not have to go to Congress to request additional funds, at least until well into the year. Many lawmakers who criticized the administration's bank-rescue efforts have vowed to oppose any requests for more money for the fund.
The Wall Street Journal also reports, that banks almost unanimously agree that their compensation packages contributed to the global financial crisis but still are struggling to correct some of the flaws in their pay structures, according to a survey of financial institutions due for publication Monday.
The survey, conducted by U.K. management consultancy Oliver Wyman, was commissioned by the Institute of International Finance, a global association of banks and other financial companies based in Washington, D.C. It found 98% of responding banks"believe the compensation structures were a factor underlying the crisis."
But it also brought to light some of the obstacles to changing pay arrangements, including the concern among bankers they still don't have reliable methods to measure risks.
The missing blueprint for dealing with the most distressed assets on US bank balance sheets has arrived, but it's still too early for rated issuers to celebrate, according to a Standard & Poor's Ratings Services report published on Friday.
After a false start with the original Troubled Asset Relief Program (TARP) in 2008, the US Treasury last week unveiled its concrete plan for the Public Private Investment Program (PPIP), which aims to introduce some liquidity--and hence some pricing transparency--into the markets for banks' "toxic assets," namely real estate-related loans and securities. If PPIP unlocks the market and establishes prices for these hard-to-value assets, S&P says it could signal the beginning of a recovery for the US banking sector. Its effects, however, won't likely be visible for several months, nor are they certain enough to affect ratings at this point.
"We still believe that fostering price discovery and price stability for toxic assets is important in restoring investor confidence in bank balance sheets," said Standard & Poor's credit analyst Tanya Azarchs in Treasury's Public Private Investment Program Could Break The U.S. Banking Logjam."To evaluate PPIP fully, we must first understand how attractive the pricing will be for both buyers and sellers--about which there is little information as yet."
From the perspective of how the program might affect banks' creditworthiness, S&P said it regards PPIP as but one of a complete spectrum of support programs, each of which addresses a different aspect of the problem, and no one of which is a silver bullet. TARP and other capital programs have injected capital in banks. Various liquidity facilities of the Federal Reserve Bank and through the Federal Depository Insurance Corp.'s Temporary Liquidity Guarantee Program have also effectively infused needed cash. Without these programs, S&P say many more institutions would have failed.
The MSCI Asia Pacific Index lost almost 4% on Monday.
The Nikkei 225 dropped 4.5%; India's BSE Sensex 30 Index dipped 4.3% and China's CSI 300 declined 0.58%.
Asia-Pacific -benchmarks
In early trading in Europe Monday, the Dow Jones Stoxx 600 is down 3%.
Most European markets are down sharply.
German retail sales dropped for a 10th month in March as Europe’s largest economy grappled with a recession, the Bloomberg purchasing managers’ index showed.
German property lender Hypo Real Estate Holding on Saturday said its supervisory board and the German government agreed on a further capital boost by the government aimed to achieve sufficient recapitalization of Hypo RE, with the government taking an initial 8.7% stake. in Hypo RE.
The ISEQ is down 1.25% in Dublin.
The Managing director of C&C's cider operations in the UK has resigned.
John Holberry joined the group last year from Coors Brewers Limited.
'The appointment of the new management team, headed by John Dunsmore, reduces the opportunities for me to develop my career,'Holberry said.
C&C recently forecast a 23% sales plunge in its Magners cider brand in the UK for the year ending February.
E-learning company Thirdforce today confirmed that it has received an approach for the firm - valued at eight cent a share - from certain members of Thirdforce's management team and board.
It said the Thirdforce board has appointed a committee of independent directors, who have engaged Goodbody Corporate Finance to advise on any potential offer for the company.
'There can be no certainty that an offer will ultimately be forthcoming. A further announcement in relation to the possible offer will be made if and when appropriate,"the statement concluded.
European Benchmarks
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
Currencies
The euro is trading at $1.3176 and at £0.9320.
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 May delivery is currently trading on the New York Mercantile Exchange (Nymex) at $50.79 per barrel down $1.59 from Friday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $50.52 down $1.46.
Gold spot price
Gold is trading at $925.40 up $2.30 from Friday's spot price close in New York.
Rossa White, economist at Davy comments: "The recent strong rally in stocks hit a bump on Friday March 27th, and the Asian performance overnight is not encouraging. Last week was thin on data, but this week's calendar will really test the sustainability of the run over the last three weeks. Much focus will centre on the G20 meeting and particularly its new vision for the Bretton Woods institutions. But we reckon that ISM/PMI data (real-time) and Friday's payrolls (lagging) will not confirm any real improvement in economic conditions.
From an Irish viewpoint, there will be plenty to chew on. On the positive side, the European Central Bank will cuts its main refi rate to 1% on Thursday. We think it is odds on that it will follow the Bank of England and Fed lead by announcing a purchase plan for financial assets at this meeting. But political and investor pressure is growing. Elsewhere, Irish tax revenue data for March will highlight the scale of the challenge in framing next week's Budget. Tax revenue is under huge pressure, but current spending is headed for a record as a share of GNP unless action is taken.
After a week of more promising data points, Friday's US spending figures brought back some realism. Spending was not down much, but February actually saw a slight fall in savings. So, as the savings ratio renews its upward trajectory, it is hard to see any growth at all in spending as incomes are set to shrink. The ISM manufacturing index (due on Wednesday) has ticked up slightly in the last couple of months, but it will take much further progress to keep the rally going. That is unlikely in Q2."
Goodbody economist Dermot O’Leary comments on the G-20 summit: Pivotal events, but no quick fixes - - "All roads lead to London this week for the G20 summit (starting April 2nd). The larger nations have, in recent weeks, tried to downplay expectations as to what can be agreed at this meeting. Rightly so. While the summit should play a key role in coordinating efforts to fight the economic and financial crisis, it is too much to ask that all the world’s problems will be solved at one meeting. Instead, the Europeans in particular have warned not to expect further fiscal stimulus packages, over and above those already announced. It is too early to tell whether the previously announced packages will have the desired impact, and there is a balance to be struck between sovereign debt stability and economic stimulus. The failed UK bond auction and Bank of England Governor Mervyn King’s warnings last week highlight this very fact.
Apart from the G20, markets will also be looking for word of further monetary stimulus from the ECB this week. We now expect a further 50bps cut in the base rate (to 1%), but more important is the Governing Council’s views on quantitative easing, after the actions of the Fed and the Bank of England over recent weeks. There have been some hints in that direction by the ECB and, given that the types of problems being experienced in the different economies are common, we would expect the policy responses to be similar too. As for Ireland, it is just a very keen observer in all of these deliberations. However, it needs to concentrate on getting its own house in order, with negotiations still ongoing on next week’s Budget. It could be a pivotal two weeks, both internationally and domestically. One thing is for sure, though, no-one should expect quick fixes to the current economic malaise."
Goodbody analyst Anna Lalor comments: Irish Financials; Asset management company for impaired loans looking increasingly likely : "Press reports over the weekend and this morning indicate that the Irish Government is likely to set up an asset management company (AMC) or bad bank to deal with impaired property loans on Irish bank balance sheets. Discussions are said to have been held with the banks and while a detailed plan is unlikely to be ready for next week’s budget, a “roadmap” may be outlined at that stage. The AMC, run by the National Treasury Management Agency and the National Pension Reserve fund, is expected to buy development land loans from the banks initially, with a case-by-case evaluation of commercial property assets subsequently, and all assets being transferred at a written-down value. The AMC will then dispose of the assets, although the time frame is not discussed in the articles (auctions to private sector buyers are mentioned). The treatment by capital markets of any debt issued by the AMC to purchase these loans from the banks will be important from the point of view of the sovereign’s ability to raise debt internationally.
Some form of segregation and identification of losses on problem loans is becoming increasingly necessary as a means of letting the banks move on with their key function of lending to the economy and at a time when similar schemes are being put in place internationally. Early recognition of losses under such a scheme (as opposed to over a number of years where pre-provision profit is generated to absorb write-downs) make it increasingly likely that the banks would need an equity capital injection at the same time, with the likelihood that the Government would become a significant shareholder at that stage.
Government ownership of banks is becoming increasingly common and the list is growing, with Spain taking over Caja Castilla-La Mancha at the weekend, Germany taking an 8.7% stake in Hypo Real Estate and Dunfermline Building Society in the UK likely to be taken over by the British Government today. Separately, Barclays is expected to not seek to enter the UK’s insurance scheme as the Regulator there appears to have said that it doesn’t need capital as it plans to sell its iShares business. Barclays has until tomorrow to decide if it wants to participate in the UK’s Asset Protection Scheme."
