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Markets News Friday: Media report in China says Google may announce pullout next week; Seán FitzPatrick kept in Garda custody overnight
By Finfacts Team
Mar 19, 2010 - 9:03:50 AM
Google may pull out of China in April the China Business News newspaper reported today.
The Shanghai-based newspaper reported that a Google China employee said the search engine giant may announce its decision on Monday next.
Google said last January that it had been the subject of sophisticated cyberattacks from China to access Gmail accounts of Chinese human rights activists. The world's leading Internet search engine said it may have to abandon China and it had decided it was no longer willing to continue censoring its results on Google.cn, and over the following weeks it "will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all."
The Wall Street Journal said the attack targeted as many as 34 different companies or other entities, which has been under way for weeks. The Financial Times said that US intelligence officials believed hackers supported by the Chinese government had been behind major breaches at US defence contractors, who have in some cases been targeted using the same previous unknown software vulnerabilities as trick emails sent to Chinese dissidents.
Google said that in mid-December it had identified a “highly sophisticated and targeted attack” on its corporate systems “originating in China.” It added that it had found evidence of similar attacks on “at least” 20 other companies in finance, the media and other sectors.
The Chinese government rejected the claims.
FitzPatrick: Gardaí resumed questioning Seán FitzPatrick, the former chairman of Anglo Irish Bank, at 8am this morning. FitzPatrick was detained overnight at Bray Garda Station where he can be held until one o'clock this afternoon. The former chairman and chief executive of Anglo Irish Bank was arrested by members of the Garda Bureau of Fraud Investigation at his home in Greystones, Co Wicklow after 6.00 am yesterday. Gardaí also searched FitzPatrick's home.He cannot be held for longer than 24 hours without being charged.
It is believed that the investigation is focusing on the movement of €7.45bn in deposits between Anglo and Irish Life and Permanent to bolster Anglo's books; the hiding of multimillion bank loans to FitzPatrick and and the loan of €450m to a "golden circle" of 10 investors in connenction with unwinding of contracts for difference contracts.
Economic View; After St. Patrick’s Day, a big week for Ireland Inc. beckons; Goodbody chief economist, Dermot O’Leary, comments -- "After the St. Patrick’s Day hangovers have subsided, an important pair of economic releases, along with possible further details on Government plans for the banking sector, beckons in Ireland next week. Next Wednesday sees the release of the Q4 employment data (Quarterly National Household Survey), while Thursday sees the release of the Q4 GDP/GNP data. The most visible impact of the recession thus far in Ireland has been the collapse in the number of people working (-11% from peak) and the consequent increase in the unemployment rate (from 4.5% to 12.6%).
The monthly Live Register has shown that the unemployment rate has stabilised over the past six months, but next week’s QNHS will show the reasons behind this. We were reluctant to read too much into this stabilisation over the past few months because as it is not known whether this was simply due to an increase in the numbers leaving the labour force, (by either emigrating or returning to education), rather than a slowdown in the rate of job losses. The distinction is critical given that employment, rather than unemployment, is the key driver of economic activity. In relation to the GDP/GNP data, most of these details are already known, with consumer spending on services and trade in services being the two main unknown quantities.
We know for sure that 2009 was a year to forget, with the numbers likely to reveal a 7.5% GDP decline (-10.5% GNP) on our forecasts. More important though is the trajectory of economic growth as we entered 2010, which may have implications for our forecasts. The trajectory going forward will depend importantly on whether credit availability can be improved, which is why it is somewhat of a relief that NAMA loan transfers, announcements on capital requirements and recapitalisations seem imminent (see financials piece). It could be an interesting week for Ireland."
Bill Evans, global head of economics at Westpac Bank says he hopes the Federal Reserve keeps interest rates at zero for at least one year. Evans talks to CNBC's Martin Soong & Karen Tso about the global economy and how it might be affected by the fed's next move:
Renewed concerns over Greece weigh on markets: Davy analyst, Stephen Lyons, comments - -" Equity markets gave up some of their recent gains yesterday (March 18th), and sovereign bond yields for peripheral Eurozone countries came under pressure as doubts about EU support for Greece created anxiety in the markets. Greek CDS increased by 26bps to 313bps and its ten-year bond yield increased by 17bps to 626bps.
Opposition to firm support for Greece from Germany placed further pressure on Greece to fix its budget deficit, with the German Chancellor yesterday ruling out "overly hasty" aid pledges. This was despite the fact that the German Finance Minister earlier this week endorsed a European solution. In turn, the Greek Prime Minister set a one-week deadline for the European Union to outline its support and suggested that Greece may seek support from the IMF. The Prime Minister noted that Greece is in effect now operating under an IMF-style programme but without the benefits of its funding. However, Greece has not yet asked for any money and the hope is that visible EU support in itself would force down market rates, which are over twice that of the German ten-year bund. "
Can Greece sell their debt and stay out of bankruptcy? Insight with John Carney, BusinessInsider.com managing editor:
US markets
On Thursday, the Dow Jones rose 45 points or 0.42% to 10,779.
The S&P 500 dipped 0.03% and the Nasdaq added 0.09%.
Discussing the $18 billion jobs bill signed into law by President Obama, with Christina Romer, chair of the Council of Economic Advisors:
Asia
The MSCI Asia Pacific Index climbed 0.6% Friday.
The Nikkei 225 rose 0.75%; the Shanghai Composite gained 0.71%; Australia’s S&P/ASX 200 Index advanced 0.19% and India's Sensex Index inched up 0.09%.
Bloomberg reports that Morgan Stanley Asia Chairman Stephen Roach said that fellow economist Paul Krugman’s call to push China to allow a stronger yuan is "very bad" advice and that increased Chinese spending is a better way of reducing trade imbalances.
“We should take out the baseball bat on Paul Krugman -- I mean I think that the advice is completely wrong,”Roach said in an Bloomberg Television interview in Beijing when asked about Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising US savings, Roach said.
The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009.
The Baltic Dry Index, rose 3.9% last Friday according to the Baltic Exchange. The index jumped 18% last week - - the biggest advance since the five days to Nov. 13, 2009.
On last Friday, the BDI jumped 190 points or 5.73% to 3,506 - - a rise of 5.00% in the week and the highest close since mid-December.
On Monday this week, the BDI added 68 points or 1.94% to 3,574; On Tuesday the index rose 24 points and on Wednesday dipped 71 points or 2.03% to 3,427; the BDI dipped 31 points or 0.91% to 3,396.
In the Financial Times on Wednesday, Feb 17th, Javier Blaswrote that the weakness in the Baltic Dry Index, long seen as an indicator of global economic activity, does not reflect a downturn in global trade. Instead, the measure of freight costs is showing a strong supply of new vessels that helps explain the 40% drop in three months. “New supply is astonishingly high and it is overwhelming the otherwise robust demand for bulk commodities from China,” he wrote. “On the other hand, bullish investors should be cautious of any near-term turnround. Rather than a sign of stronger economic activity and commodities demand, it is likely to reflect cancelled orders, scrappage and port congestion.”
Irish Financials; Looking at loan losses (and life!) beyond NAMA: Goodbody analyst, Eamonn Hughes, comments - -"The transfer of the first tranche of loans into NAMA is almost upon us. We are forecasting an average 35% haircut for AIB and 26.5% for BOI on their full NAMA portfolios. However, the first tranche of loans incorporate the most distressed borrowers, so the initial haircuts are likely to be higher than the portfolio average, trending down to our targets over time.
But what happens after NAMA? Once the initial NAMA and capital headlines become a reality, we believe the market will start to think about loan losses in the non-NAMA loan books. We estimate only 18% of AIB’s loan book is NAMA eligible and 12% at BOI, though NAMA-related haircuts account for an estimated 50% of our over-the-cycle credit losses at AIB and 34% at BOI. So the rest of the credit cycle is just as important to the capital position of AIB and more material to BOI.
Our loan loss estimates hopefully provide comfort that we are being conservative relative to history and international stress test evidence, thereby minimising any perceived negative risk bias in our estimated capital requirements, other than the actual target capital ratios themselves. On this point, the key risk for the banks is that the Regulator requires higher capital targets, and/or gets there quicker than envisaged. Until clarity emerges, the market is likely to sit on the sidelines, but its getting closer to make up your mind time for all of us! See note for full details and wrap piece below for latest musings from the Regulator’s office."
Irish Financials; Result of stress test and new normal for capital to be announced soon: Goodbody's Ken Darmody comments - -"Press reports this morning mention that Irish Nationwide and EBS will require more capital than anticipated after the Financial Regulator completes the ‘stress test’ on the non-NAMA loans. The report mentions that within the stress test much higher unemployment, poorer economic and property prices are being used compared to what is expected. These tests look akin to what the FSA implemented in the UK last year as part of its recap exercise. The regulator is currently deciding the appropriate levels of capital required under both a base case and a stress test scenario. It is expected that the result of the stress test and the capital targets will be announced next week by the Minister for Finance and the Regulator in separate statements when they address the future of the Irish banking system. In relation to the non-NAMA loans for AIB and BOI, we have gone some way in our note published today and mentioned above (Looking at loan losses and life! beyond NAMA) to compare our loan loss figures with international comparisons.
Sticking with the Financial Regulator, there is an interview with the new regulator in today’s Irish Times. We commented last week on his first public appearance (see our comment dated March 12), however, he lays out more of his plans for the FR in today’s article. Of most interest to us are his comments on capital. He comments that the banks should be recapitalised “as swiftly as practical”, but that there will have to be “transitional arrangements” for the banks to reach the “end destination” for capital thresholds to be set under the new capital rules (Basel III). While everyone acknowledges that B3 is out there, much commentary has recently focused on likely delays or possible changes to a number of the targets given their mooted implementation at a time of such a fragile recovery.
However, if the FR is pushing ahead with transition to B3 in its current format, that would be a concern for the Irish banks given they could be materially impacted on a range of matters like deferred tax, pension deficits, available for sale portfolio marks, investments in other financial institutions. The FR indicated that “the recapitalisation exercise has to command market confidence, that the banks are put on a stronger footing, that they are well on the way to meeting the capital levels” and that it is “important to make good, fast progress”. Elsewhere, he adds that the cost of a “big bang” recapitalisation would be “manageable” for the government.
He doesn’t say it, but one interpretation of this last comment could be that the target capital level, if it requires more equity, fits within the €3.5bn of preference shares the government has put into the banks. Our own capital targets are for 6% core equity ratios at the trough, moving to 8% by 2014 on a Basel II basis. With the imminent release of the new requirements for capital it is difficult to weigh up the downside risks to both of the main banks, which is why we highlight in our report published this morning that while we are comfortable with our credit loss assumptions, the key risk for the banks is that the regulator requires higher capital targets, and/or get there quicker than currently envisaged."
