See Search Box
lower down this column for searches of Finfacts news pages. Where there may be
the odd special character missing from an older page, it's a problem that
developed when Interactive Tools upgraded to a new content management system.
Welcome
Finfacts is Ireland's leading business information site and
you are in its business news section.
We
provide access to live business television and business
related videos from: Bloomberg TV; The Wall Street Journal;
CNBC and the Financial Times. Click image:
Market News Friday: Shares rise in Europe; China expects to grow at annual 8.5% rate in third quarter of 2009
By Finfacts Team
Aug 21, 2009 - 11:36:34 AM
China on Thursday called for more efforts to boost economic growth in its western regions. Premier Wen Jiabao chaired a meeting of the leading group under the State Council for the development of China's western regions, in an apparent response to recent unrest in part of the area. Photo: Xinhua Photo
China
China's State Information Centre (SIC) government think-tank said today that the economy will grow at an annual rate of around 8.5% in the third quarter, picking up from the second quarter's 7.9% pace.
The government's target growth rate for 2009 is 8%.
The forecast comes at the end of a week when stockmarket investors got the jitters after the central bank signalled a tightening in lending and an export growth decline in July.
The SIC said growth in bank credit would "normalise" in the coming months but it warned that any abrupt slowdown in lending would leave many State-backed projects unfinished and result in a new crop of non-performing loans.
The SIC said China would maintain its "proactive" fiscal policy and "appropriately loosen" the monetary stance in the second half of the year.
A 4 trillion yuan ($585 billion) stimulus package and record growth in credit has boosted activity in the the world’s third-biggest economy.
Also today, Bloomberg reported that China plans to tighten capital requirements for banks, threatening to curb the record lending that’s fueled a 60% rally in the nation’s stock market, three people familiar with the matter said.
The China Banking Regulatory Commission sent draft rule changes to banks on August 19th requiring them to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, said the people, who have seen the document. Banks have until Aug. 25 to give feedback, said the people, declining to be named as the matter is private.
US banks
The Wall Street Journal reports US banks have been dying at the fastest rate since 1992, mainly because of bad loans they made. Now the banking crisis is entering a new stage, as lenders succumb to large amounts of toxic loans and securities they bought from other banks.
Federal officials on Thursday were poised to seize Guaranty Financial Group Inc., in what would be the 10th-largest bank failure in U.S. history, and broker a sale of the Texas bank to Banco Bilbao Vizcaya Argentaria SA of Spain. Guaranty's woes were caused by its investment portfolio, stuffed with deteriorating securities created from pools of mortgages originated by some of the nation's worst lenders.
Guaranty is among nearly 1,400 banks that own mortgage-backed securities that aren't backed by government-related entities such as Fannie Mae and Freddie Mac. Such "private issuer" and "private label" securities are carved out of loans originated by mortgage companies, packaged by Wall Street firms and then sold to investors.
US pensions and private equity
Bloomberg reports that US pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.
The California Public Employees’ Retirement System, the Washington State Investment Board and the Oregon Public Employees’ Retirement Fund -- among the few pension managers to disclose details of their investments -- had recouped just $22.1 billion in cash by the end of 2008 from buyout funds started since 2000, according to data compiled by Bloomberg. That amounts to a shortfall of 59 percent. In total, they haven’t reaped a paper gain from funds formed in the past seven years.
Professor Peter Morici of the University of Maryland commenst on the progress of US healthcare reform: Blue Dogs, Health Care and the Devil - -"If Daniel Webster were alive, the Blue Dogs in the House of Representatives would do well to seek his counsel. On health care, these conservative-leaning lawmakers are caught between the public trust and the devil.
Most Americans believe the U.S. health care system needs reform but don’t like the reforms the President Obama and the House leadership want to serve up.
The plan on the table would require everyone to obtain health insurance, subsidize those that can’t afford the full price, impose an 8 percent payroll tax on businesses that do not provide health insurance, and offer a government run plan to those without employer-paid insurance.
According to the most recent NBC poll, 47 percent of voters oppose a government run health insurance option, whereas 43 percent support one. Importantly, only 24 percent believe the plan emerging would improve the quality of health care.
Most voters understand it would be cheaper for many private employers to drop their health plans, pay the 8 percent tax, and push their employees into the government run program. As tiresome and inflexible as private insurance claims departments may be, most voters simply don’t want their health insurance run by the Post Office and disputes adjudicated by the IRS.
The Democratic leadership notwithstanding, the distribution of votes in the House of Representatives reflects these sentiments. Democrats hold 256 of 435 seats but the 52 conservative-leaning Blue Dog Democrats generally don’t support a public plan.
Left free to vote their conscience and the sentiments of their constituents, it is fair to say about 200 members of Congress would vote for a public plan, whereas the remaining 235—mostly Republicans and Blue Dogs—would vote against it.
Democratic leaders in both chambers view those that oppose their health care plan not merely wrong but “evil mongers,” to repeat the words of Senate Majority Leader Harry Reid.
Convinced the voters are not competent to know what is good for them, Congressional leaders will pressure Blue Dogs to vote for a bill that pushes many Americans into a government run health care program.
Blue Dogs should just say no, but Pelosi and her lieutenants have levers.
Liberal Democrats in the House won’t vote for a bill without a public option, and if the Blue Dogs don’t go along, no health care bill may pass this Congress. Then congressional Democrats will appear inept and to have failed to address the public desire for genuine reform. Democrats would take losses in the mid-term elections, many Blue Dogs could lose their seats, and they would be blamed for pulling down the party.
The Democratic leadership can lavish generous campaign support on helpful Blue Dogs, and campaign money is such a temptation.
Although Blue Dogs tend to represent conservative-leaning constituencies, a public plan would not harm most voters until after November 2010. Blue Dogs can make their deal with the devil and burnish their conservative credentials, later, on other issues.
Ultimately, the Blue Dogs are caught between voting their conscience and supporting a Democratic leadership that holds the judgment of most voters in contempt."
US markets
The Dow rose 71 points or 0.8% Thursday.
The Nasdaq and S&P 500 both gained 1%.
Asia
The MSCI Asia Pacific Index fell 0.7% Friday, taking its weekly dip to 2.9%. It has rallied 57% from a five-year low on March 9th.
Japanese stocks closed lower as a rising yen hit exporters. Markets in the rest of the region were mixed.
Japan's Nikkei 225 Average closed 1.4% lower while China's Shanghai Composite rose 1.7% after Thursday's 4.5% gain. The index is down more than 13% so far since early August.
The pan-European Dow Jones Stoxx 600 is up 0.9% Friday.
In Dublin, the ISEQ is up 0.8%.
CRH has gained 0.2%; McInerney Holdings is up 18%.
Kentz
Kentz Corporation Limited , the holding company of the Malaysian/Irish Kentz engineering and construction group, through its Australian arm Kentz (pty) Ltd, has been awarded a telecommunications package by Chevron Australia Pty Ltd for the Gorgon Project in Western Australia.
The contract value is approximately AUS$150 million (or approximately US$125 million) and includes the design, supply, installation, testing and commissioning of the telecommunications scope on Barrow Island. Final investment decision on the Chevron operated Gorgon Project, from the Gorgon Joint Venture participants, is expected in the second half of 2009. Work on Barrow Island is expected to commence after receipt of all the necessary government approvals.
Kentz is listed on London's AIM market.
Davy analyst Barry Dixon comments on CRH: State budgets under pressure with limited cuts in highway spend - - "A recent report from the National Conference of State Legislatures (NCSL) indicates that US state budget deficits could be 10% on average in 2009 and up to 20% in 2010. A trawl through the individual state budgets reveals that cuts in education and local government, combined with higher taxes, are the main methods being used to balance budgets. Funds from the American Reinvestment and Recovery Act (ARRA) are also being used by some states to bridge the gaps. A number of states have announced plans to cut highway spending in 2009 and 2010.
State and local governments contribute approximately half of the total US spend on highways. Even if state highway budgets decline in-line with the budget deficit, funding from ARRA will more than offset this. Our current assumption of 1% volume growth in CRH's Americas Materials division in 2010 could prove conservative, particularly if underlying state highway spending holds up.
Every 1% rise in our volume assumption for the Americas Materials division increases group earnings by circa 1%. Every 1% rise in aggregates prices adds 3-4% to EPS. We reiterate our 'outperform' rating for CRH."
Gold is trading at $941.10 up 30 cents from Thursday's spot price close in New York.
Goodbody chief economist Dermot O’Leary comments: Economic View; Getting the taxation balance right - - "After being presented with an independent assessment of possible public expenditure reduction in July, the independent body charged with looking at the tax system in Ireland is now ready to present its findings. These findings are reported on in the Irish media this morning. If, like in the McCarthy report on spending, the Government believes that it can pick and choose from a menu of possible tax increases or new charges, the media reports this morning indicate that they will be disappointed.
Of course, nowhere in its terms of reference is it stated that the Commission should come up with such a menu. In fact, one of its considerations was to “consider how best the tax system can support economic activity and promote increased employment and prosperity while providing the resources necessary to meet the costs of public services and other Government outlays in the medium and longer term”. In other words, it was not simply an accounting exercise that the Commission was asked to come up with. The media reports state that the Commission makes a total of 250 recommendations, including the taxing of child benefit, an introduction of water charges and a property tax and the introduction of a carbon levy. In truth, these types of proposals have been in the public domain for some time. However, the Commission also states that there should be a reduction in the income levies that have been introduced over the past twelve months if these proposals are to be introduced.
Effectively, it is saying that households are close to the point where they cannot cope with any further increase in Government taxes or charges. Given the short-term need to reduce the budget deficit, it will be difficult to heed these calls, but taking the Commission at its word, it points again to the need for significant public expenditure reductions to play the major role in efforts to reduce the budget deficit over the coming years. The Government would want to enjoy the last few weeks of its summer break; with the NAMA legislation, the Lisbon Treaty referendum and then the Budget in December, it will be an extremely busy, and incredibly important, last few months of the year."
Goodbody analyst Anna Lalor comments: Irish Financials; Private sector credit down 1.2% qoq in Q2 and Anglo Irish’s capital base - - "The Central Bank yesterday released its sectoral breakdown of private sector credit (PSC). It noted that the “marginally lower” PSC figure yoy (-1.3%) was mainly due to write downs of existing credit and bad debt provisions, with the underlying stock relatively unchanged yoy. Quarter on quarter there was a 1.2% fall in PSC, reflecting slowing credit growth. Lending to non-property, non-financial companies was down 6.2% qoq, with the yoy decline at 7.7%. The Central Bank attributes part of the fall to “negative valuation effects from increasing bad debt provisions”. Lending to property-related companies was “broadly static” qoq, while the Central Bank notes that write-downs and rising bad debt provisions were likely to have been “significant factors” in the 3.7% yoy decline in the loan book.
Mortgage lending (adjusted for securitisations) is down 0.1% qoq and is still 1.9% ahead yoy and the declines in recent months have been driven by mortgage repayments now exceeding new business. Non-mortgage personal lending is down 11.5% yoy and the Central Bank highlights that it has been falling for five consecutive quarters, although the pace of decline eased towards the end of Q2. The contraction in private sector credit is to be expected in a downturn as; (i) loan losses lead to a decline in net loans outstanding; (ii) consumers and businesses are less inclined to borrow and/or spend money in order to save in an environment of increased uncertainty (in keeping with the recent Central Bank Lending Survey) and; (iii) as the private sector overall looks to de-lever. We are forecasting a 5% fall in AIB’s Irish loan book this year and a 6.6% decline in BOI’s Irish book in the year to March 2010.
Elsewhere, we note a report in the Irish Times this morning that the Irish Regulator has extended part of Anglo Irish Bank’s waiver from its capital rules until the end of the year. Previously, the nationalised bank had sought and received a temporary derogation from its capital requirements as bad debts mounted. The latest derogation will get it through the initial NAMA period where the bank will be incurring further losses on impaired property loans. The Financial Regulator has extended the derogation relating to maintaining a 9.5% minimum total capital ratio (was just over 8% at the half year).
Anglo’s capital ratios would have been recently boosted by the Government’s €3bn equity capital injection, while the portion of equity tier 1 capital would also have increased following its purchase of most of its hybrid capital securities well below par. The article also notes that the Government injected a further €827.7m on the 6th of August prior to which it had received a 7 day derogation on its requirement to hold 4% core tier 1 capital, which would indicate that a high level of loan losses have continued to flow through since the end of Anglo’s half year (March)."
