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Markets News Afternoon: Shares slide in Europe and US; Fed to investigate Goldman Sachs and other banks' roles in hiding Greek public borrowings
By Finfacts Team
Feb 25, 2010 - 4:28:49 PM
Federal Reserve Chairman Ben Bernanke said today the central bank is examining the arrangements of Goldman Sachs and other banks have had with Greece to hide public borrowings.
“We are looking into a number of questions related to Goldman Sachs and other companies and their derivatives arrangements with Greece,”Bernanke said today in testimony before the Senate Banking Committee in Washington. The Fed chairman was responding to remarks made by committee chairman Chris Dodd. Bernanke also added that the Securities and Exchange Commission was also “interested” in whether other Wall Street firms had a role in Greece’s use of derivatives and in how they were used. “Obviously, using these instruments in a way that potentially destabilizes a company or a country is counterproductive,” Bernanke said. “We’ll certainly be evaluating what we learn from the activities of the holding companies that we supervise here in the US.”
In related news, Greece is reported to be planning to issue a 10-year bond next week, after the government announces a new austerity package of between €2 to €2.5 billion, according to The Wall Street Journal.
The Journal says one person said the government had planned to issue the 10-year paper this week, but it was put on hold due to a 24-hour general strike on Wednesday and a warning by ratings agency Standard & Poor's that it could downgrade Greece's sovereign debt within a month.
The downgrade threat hit Greek government bonds Thursday, with the spread of the 10-year Greek bonds spreads over German bunds last seen at 3.55 percentage points, wider than the 3.39 percentage points seen at Wednesday's close. Similarly, the pressure on Greek credit default swaps intensified.
Irish insurance premiums to rise because of impact of bad weather
The Irish Insurance Federation said today that consumers can expect an increase in premium prices as a result of the cost of recent bad weather.
The Federation says claims as a result of flooding and frost will exceed €500m, almost 60% of what the industry took in through premiums last year. Cork, Galway and Dublin are among the worst affected counties.
In 2009, thousands of acres of land and hundreds of homes were flooded last year. The cost to insurance companies for that damage runs to €244m, well behind the €300m cost of insurance pay-outs for frost damage suffered by more than 22,000 customers.
The impact of this bill on consumers will be an inevitable increase in premium prices. The IIF says price rises are a matter for individual companies, who are in the market to make a profit.
However, chief executive Mike Kemp says poor infrastructure, planning and management are part of the problem and greater investment is needed to ease the impact of severe weather conditions.
Rising premiums for some may be a problem, but for others the possibility of withdrawing flood cover in a growing number of areas has not been ruled out by the IIF.
"When you see the Greek authorities having to use tear gas to manage the public as they begin to understand the true cost of the debt they've incurred, it's not surprising consumer confidence starts to wobble a bit," Philippa Malmgren from Principalis Asset Management:
US markets
The number of US workers filing new jobless benefit claims jumped last week to the highest level in over 3 months while durable goods - - items expected to last at least 3 years, - - surged in January, rising twice what was expected due to a 126% rise in aircraft orders.
Initial claims for jobless benefits increased by 22,000 to 496,000 in the week ended Feb. 20th, according to the Labor Department today. The previous week's level was revised upward to 474,000 from 473,000. The claims were at the highest level since Nov. 14, 2009.
In Europe, the Dow Jones Stoxx 600 has dipped 1.43% Thursday.
All 18 Western European markets are in the red, with the exception of Iceland.
In Dublin, the ISEQ has slid 0.71%.
CRH has fallen 1.98% and Elan has gained 1.12%.
A day after Federal Reserve Chairman Bernanke's comments of low interest rates for a long time, Standard & Poor's threatened a credit downgrade for Greece. Julian Callow from Barclays Capital, David Kotok from Cumberland Advisors and Philippa Malmgren from Principalis Asset Management weigh in on the economic outlook and how it affects the euro-dollar:
On the New York Mercantile Exchange, oil for April 2010 delivery is trading at $78.10, down $1.90 from Wednesday's close, on the weak US jobs data. In London, Brent crude for April delivery is trading at $76.37 a barrel.
Currencies
The euro is trading at $1.3516 and at £0.8859.
For live currency updates, check the right-hand column of the Finfacts home page.The dollar traded at a record low $1.6038 per euro on July 15, 2008.
The Senate Banking Committee is questioning Federal Reserve Chairman Ben Bernanke on monetary policy. CNBC's Steve Liesman and John O'Donoghue, from Cowen & Co., have the highlights:
