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Yoshihiko Noda, 54, Japan's finance minister (second from right in group of five DJP candidates) is set to become Japan's sixth prime minister since 2006, on Tuesday, Tokyo, Aug 29, 2011. Source: DJP
Yoshihiko Noda, Japan's
finance minister is set to become Japan's sixth prime minister in five years,
after beating industry minister Banri Kaieda in a runoff Monday in the
Democratic Party of Japan's leadership election.
The ruling Democratic Party
of Japan's election was held after Naoto Kan, the party chief for 14 months and
prime minister, announced his resignation last Friday amid criticism of his
leadership in the aftermath of the March 11 devastating earthquake and tsunami
that triggered the ongoing nuclear crisis at the Fukushima Daiichi power plant.
In the initial round, Kaieda,
62, supported by Ichiro Ozawa, the controversial party founder and his allies,
won 143 votes, the biggest number among the 398 DPJ lawmakers, followed by Noda,
54, with 102 votes.
In a run-off after the
elimination of three other candidates Noda and Kaieda immediately faced each
other in the runoff, which Noda won by 215 votes to 177.
The winner will serve out
Kan's term as head of the DPJ until September next year (giving rise to more
instability) and will be named as Japan's new prime minister as early as Tuesday
in the Diet, the lower House of Representatives.
Economic View: Some welcome news on the
banking system; Dermot O’Leary,
chief economist at Goodbody, comments - - "A rare piece of good news emerged
from the half-year results of Anglo Irish Bank on Friday. The bank has cost the
Irish state €29.3bn to date, while government estimates suggested that this bill
could have risen to €34bn. Comments from Chief Executive Mike Aynsley now
suggest that the bank (now renamed Irish Bank Resolution Corporation after its
merger with Irish Nationwide) may be able to return up to €4bn in capital to the
State when it is finally wound down. Media reports this morning also suggest
that the wind-up period for the institution may be much shorter than previously
estimated, with a time period of 3-4 years mooted, although the results
themselves pencilled in a 2020 date for the final closure.
Both of these developments should be welcomed.
Concerns around the possible bill for Anglo in 2010 were a major factor in the
increased concern around Ireland Inc., which, of course, culminated in the
sovereign being shut out of funding markets. This occurred as estimates for the
"final" bill continued to drift ever higher. The bill for the recapitalisation
of the banking system, still estimated at over €65bn, is enormous, but it is
somewhat comforting that estimates for that bill are now going in the opposite
Better news from Ireland’s banking system has been
rare over recent years (and there are still issues if one looks at the mortgage
arrears data to be released today). News this morning that Greece’s second and
third lenders are to merge and receive outside capital, following the private
capital injection into Ireland, confirm that the “peripherals” are no longer a
no-go area for investors. Liquidity problems still remain of course, as
evidenced by the still large dependence on central bank funding. With the State
still the majority holder in most of the domestic institutions, further
international investor interest would be very much welcomed here too."
Irish Financials 1: Central bank figures to show
rising mortgage arrears; Eamonn Hughes,
head of research at Goodbody, comments - -- "Press reports this morning
(in the Irish Times) indicate that the Government is considering setting up a
new agency, between the banks and struggling home owners, to deal with mortgage
arrears. As in many instances of the discussion around debt forgiveness,
official commentary indicates proceedings will be on a case by case basis and a
report into such a proposed agency is due before government at the end of next
In the meantime, the report indicates that mortgage
statistics due out later today will show that 7% of mortgages were in arrears at
the end of June, up from 6.3% in March and 5.7% in December. This implies a
c.70bps deterioration after the c.60bps rise in the first quarter and c.50bps
rise in the previous two quarters, so the pace of deterioration is accelerating.
The report doesn’t reveal the level of restructured mortgages, so presumably
we’ll have to wait till mid-morning to get that figure as well. Last quarter,
restructured loans were 4.7% of total, up from 4.5% in the previous quarter.
Elsewhere, this morning, press reports indicate that
a report from the Credit Review Office (CRO) which oversees lending to small to
medium sized enterprises indicates demand is so low that the banks are unlikely
to meet lending targets of €3bn apiece for the 2 pillar banks.
The issue of debt forgiveness has been kicked about
for months now at this stage, so the revelation that an expert group is looking
into the matter is unlikely to be much of a surprise. We are still very doubtful
of the proper workings of such a scheme and the risks for an easing of
commitments by customers on a wider basis to repay, notwithstanding that arrears
continue to rise. Finally, we were never big fans of credit targets for banks,
so the CRO data showing SME credit targets are failing to be met is no surprise.
Setting targets in the depths of the UK recession didn’t work then and setting
them in the midst of our recession was always destined for the same result." Irish Financials 2: Haircuts on loan books:
Eamonn Hughes added - - "Press reports
over the weekend and this morning indicate that Anglo Irish Bank secured an
offer on Friday averaging 80c in the dollar for its $9.1bn US loan book. The
winning parties have a 2-week period before signing a contract at which stage
phased deposit payments must be made, with October 14 set as the final deadline.
The portfolio comprises 251 loans of which more than half are non-performing. A
consortium of JPMorgan Chase and Wells Fargo is to buy the top three of eight
pools, with Lone Star taking the balance. The former are believed to have paid
close to par value.
Anglo appears to have written down its US loan book
by €1bn to €5.6bn in its H1 accounts, released last week. This would equate to
roughly a 15% haircut, so it looks like further provisions are needed here,
though it appears that the Department of Finance was anticipating a figure
closer to 75% of par, so the final hit is likely to be slightly less than
Investors are likely to look at the 20% haircut on
the US loan book as an interesting reference point. We note that PLAR imposes a
c.30% haircut on loan disposals by the main Irish banks. Bear in mind that
includes disposals of Irish assets as well and the domestic haircuts were always
going to be higher than the international ones. We suspect one of the key
attractions for the recent investors in BOI was the equity leverage they would
get from any disposals less than PLAR. We continue to use the base PLAR
assumptions for our NAV estimates for the banks."
Qatar Puts Up Cash for Greek Bank Merger: CNBC's Guy Johnson reports from Greece on the proposed merger between the country's second and third largest banks, Alpha Bank and Eurobank:
US personal spending to bounce back in July: Conall Mac Coille, chief
economist at Davy, comments -- "The second release of UK GDP growth
released on Friday (August 26th) reinforced the view that the UK economy slowed
sharply in the second quarter. Overall GDP growth was unrevised but
manufacturing sector output growth was revised down by 0.2 percentage points to
-0.5% on the quarter. The contraction of the sector in Q2 brought to an end six
consecutive quarters of expansion in manufacturing, averaging around 1.0% per
quarter. With revisions to manufacturing sector output offset by upward
revisions to utilities, the view that weak UK GDP growth in Q2 was due to
temporary factors such as warm weather depressing electricity demand has now
US GDP growth in Q2 was revised down from an annualised rate of 1.3% to
1.0%. The expansion of GDP was primarily driven by investment which rose by 2.1%
on the quarter. However, the US economy has been reliant on robust consumer
spending in recent quarters, so the slowdown in consumption to just 0.1%
suggests that Q3 GDP is likely to remain weak.
Today, markets are likely to focus on the monthly US personal spending
data for July. Personal spending fell by 0.2% in June, the first contraction
since June 2010, and is expected to bounce back to growth of 0.5% in July.
Recent equity price falls are likely to depress consumer spending further as
households see the nominal value of their wealth decline. And consumer
confidence fell back around the time of the protracted negotiations to raise the
US debt ceiling. So, if markets do not see a bounce back in July, sentiment
towards the US consumer is likely deteriorate, ahead of the headwinds likely to
buffet spending in August."
The MSCI Asia
Pacific Index gained 1.5% Monday in reaction to the speech (see Box below) by
Ben Bernanke, Fed chairman, on Friday in which he hinted that the central bank
may take new measures to aid the US economy.
Nikkei 225 climbed 0.61%; China's Shanghai Composite index dipped 1.37%;
Australia's S&P/ASX 200 rose 1.51% and the Bombay Stock Exchange's Sensex
index climbed 2.83% in Mumbai.
The margin between the US
benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange
and Brent is over $25.
The US Energy department
recently said that growing volumes of Canadian crude oil imported into the
United States contributed to record-high
levels at Cushing, Oklahoma of over 41m barrels at the end of March 2011
(86% of working capacity at Cushing), and a price discount for WTI compared with
similar-quality world crudes such as Brent. A discount for WTI is expected to
persist until transportation bottlenecks impacting the movement of mid-continent
crude oil to the Gulf coast are relieved. Consequently, the projected US refiner
average acquisition cost of crude oil, which was about $2.70 per barrel below
WTI in 2010, is $1.60 per barrel above WTI in 2011 and $1.10 per barrel above
WTI in 2012.