From Federal Reserve Bank of St. Louis report: The Credit Crunch of 2007-2008: A Discussion of the Background, Market Reactions, and Policy Responses

The US Justice Department said it will insist on ''information on a significant number'' of UBS customers in any settlement between the US and Swiss governments over the high-stakes dispute on information on US tax evaders.

On Sunday, the United States government and Swiss banking giant UBS jointly requested a postponement of a court hearing due to begin Monday in Miami, to give the US and Swiss governments more time to resolve a dispute over whether the bank should be required to turn over the names of 52,000 clients with secret offshore bank accounts.

 -- see link to background on story, at bottom of page.

The Wall Street Journal reports Goldman Sachs Group is once again expected to report stellar earnings this week, to the envy of some rivals.

The bank is scheduled to release second-quarter results Tuesday, and analysts expect net income of $3.48 a share for the quarter ended June 30.

That compares with $4.58 a year ago for the quarter ended May 30, when Goldman was an investment bank rather than a bank-holding company, and had a different reporting schedule.

Some forecast even better results. Banc of America Securities-Merrill Lynch analyst Guy Moszkowski expects Goldman to surprise Wall Street with earnings of $3.90. In a July 9 report, he cited strong trading results in the quarter.

Goldman is known on Wall Street for its sophisticated computer-trading platform. It has become a dominant player in high-frequency trading, in which computers use complex formulas to conduct rapid-fire trades in markets around the world.

In the week ending July 3, Goldman accounted for 24% of all program trading, or computer-generated trading, on the New York Stock Exchange, according to NYSE data, making it No. 1.

Goodbody economist Deirdre Ryan comments: Glass half full approach for US consumers - - "US consumers, who tend to be an optimistic lot in general, are not looking on the bright side at present. The latest sentiment gauge, in the form of the Michigan index, indicates a sharp drop in the confidence levels with the index falling from 70.8 in June to 64.6 in the reading for July. This drop in sentiment comes after four consecutive monthly increases in confidence, with the index back to levels last seen in March.

An upturn in confidence levels is one of the first developments in any recovery, with this latest number highlighting the still fragile nature of sentiment. More relevant however, is the fact that the forward looking expectations component of the index led the overall drop, with this component dropping from 69.2 in June to 60.9 in July. While confidence measures among US consumers tend to be influenced by developments in equity markets, and movements on this front over recent days have been weak, the latest numbers do nevertheless provide a guide of spending intentions.

Continued increases in gas prices is likely also a factor in depressing sentiment as well as purchasing power, with gasoline prices up 15% in June to $2.64 a gallon. Unemployment also remains on a sharp upward trajectory, although some moderation has been seen here of late. Unarguably there are still a number of factors weighing on the minds of consumers, despite the improvement seen in some other indicators of US economic activity recently."

The MSCI Asia Pacific Index fell 2.5% Monday - - the most since May 14th and an eight straight decline. The measure has lost 6.7% from an eight-month high on June 12th.

The Nikkei 225 fell 2% and the Shanghai Composite was flat - - down 10 points.

C&C has dipped 10% after correcting data issued in a trading statement last week.

Davy chief economist Rossa White comments: Justification for further public pay cuts clear from official - - "The latest annual National Employment Survey (see link in Box above) showed that public workers enjoyed a huge hourly premium over their private sector counterparts. The gap was 48% for average hourly earnings (52% for the median) as of October 2007. In February, the first attempt was made to rectify the imbalance. But the public pension levy probably matched average wage cuts in the private sector, so the gap may not have closed. The public pay bill of €20bn in 2009 amounts to more than one-third of voted public expenditure. Further pay reductions of at least 10% are required.

The upshot is that the public pay bill has not been properly tackled, but there is justification for big cuts. Crucially, public employees enjoy a pay premium to their peers of equivalent occupation, experience or education levels in the private sector. The smallest gap is 21% and the largest is 76%. Looking at the most educated - - those with a third-level degree or above - - the public sector pay premium is 44%. Those with 20-29 years' experience achieve a wage that is 36% higher in the public service than in the private sector. Managers and administrators achieve 30% extra per hour.

Hourly earnings are 48% on average higher in the public sector. But average annual earnings are only 32% higher because public employees work fewer hours. But it is not the case that bonuses are much higher in the private sector. In 2002, bonuses (and benefit-in-kind) in the private sector amounted to €1,565 (or 5% of average annual earnings) versus only €149 in the public service. Five years on in 2007, bonuses in the public service had almost caught up at €1,807 versus €2,211."

Goodbody analyst Anna Lalor comments: AIB and BOI down c.45% from June peaks - - "Following 24% and 19% declines, respectively, for AIB and BOI’s share prices last week (with an 8% fall on Friday alone), they are now down 47% and 44% from their 12th June peaks. This compares with a 4% fall in the DJ Stoxx 600 banks index over the week and a 10% fall in the index from its’ June peak. The main stock specific news flow over this period has been BOI’s AGM, where it guided margins lower (see piece below), which saw us knock a further 10bps off our net interest margin at BOI. The price change also feeds through to our tangible NAV calculations, with the lower prices leading to greater dilution. Using Friday’s closing prices, our FY11 post-NAMA tNAV (total net asset value), if we require 4% equity tier 1 capital level, is €2.85 for AIB and €1.11 for BOI.

We believe that the banks will have a higher cost of capital for some time to come, while ROE’s will be suppressed over the medium term as new requirements for equity capital are brought in (reducing leverage) and margins reduce due to larger liquid assets holdings and greater competition for deposits. As a result, we apply a 0.65x price to multiple to these tNAV estimates, which generates fair values of €1.85 for AIB and €0.72 for BOI. Using the same multiple on Friday’s closing prices would imply that the market is assuming a tNAV for AIB of €1.92 and €1.90 for BOI. In order to reach this level, loan losses at AIB would need to be c.€2.5bn higher than those we have currently built in to our estimates for the period to December 2011. Using the same logic for BOI, would indicate that loan losses for the period to March 2012 at BOI will be c.€1.5bn better than our forecasts, and closer to guidance provided by the company."