Tuesday, February 09, 2010

Today's Headlines


- Greek bonds jumped after the European Union signaled it may aid Greece in return for progress by the country in reducing the bloc’s biggest budget deficit. The advance pushed the Greek 10-year bond yield down the most since at least 1998. Olli Rehn, who takes over as European economic affairs commissioner tomorrow, said the group could offer “support in the broad sense of the word.” German Chancellor Angela Merkel’s government is preparing an assistance package, Financial Times Deutschland reported. European Central Bank President Jean-Claude Trichet will leave a gathering of policy makers in Sydney a day early today to attend a summit of European Union leaders.

- Credit-default swaps on Spain, which last week rose above contracts on Mexico, Brazil and Poland, will keep climbing until the European Union pledges to help its debt-laden members, according to Aviva Investors Ltd. The cost to protect against default by Spain jumped to a record 173 basis points yesterday, surpassing credit swaps linked to Mexico at 160 basis points, Brazil at 157 basis points and Poland at 163 basis points. EU assistance for Greece is a “prelude” to restoring investor confidence in Spain where “the onset of the real estate bubble popping has left an economy without a new engine for growth and with rising fiscal challenges,” said Jeremy Brewin, who helps manage $2.2 billion as head of emerging-market debt at Aviva in London.

- Portugal hired banks to help it sell bonds amid concern the nation will be forced to pay more to borrow as it struggles to cut its budget deficit. Portugal plans to issue 10-year notes in euros, according to two bankers involved in the transaction. Barclays Capital, Banco Espirito Santo SA, Credit Agricole CIB, Goldman Sachs Group Inc.(GS) and Societe Generale SA are managing the sale, said the bankers, who declined to be identified before the transaction is completed.

- UBS AG(UBS), the European bank with the biggest losses from the credit crisis, said withdrawals by wealthy clients accelerated in the fourth quarter even as the company reported its first profit in more than a year. The bank fell 5.4 percent in Swiss trading after saying net redemptions at its wealth management units increased to 45.2 billion francs ($42.3 billion) from 26.6 billion francs in the previous three months. Analysts surveyed by Bloomberg had estimated 17.5 billion francs in outflows.

- Jim Tisch, the leader of Loews Corp., said the U.S. did a “good job of killing” the hotel business by lambasting corporate travel and hurt American International Group Inc.’s ability to return bailout funds by curbing pay. “The criticism that took place of group travel was really a death knell for the industry,” Tisch said yesterday in an interview at an office of the New York-based holding company, which owns hotels. “It’s easy for the politician to get the sound bite. What they are doing with those sound bites is putting maids and bellmen out of work.”

- Confidence among U.S. small businesses increased in January for the first time in three months as the outlook for sales improved, according to the National Federation of Independent Business optimism index. The gauge climbed to 89.3, the highest level in 16 months, from 88 in December, the Washington-based organization said today. The advance left the measure close to the 2009 low of 81 reached in March, which was second only to a 1980 reading as the lowest on record.

Wall Street Journal:

- Sen. Robert Menendez of New Jersey urged the Federal Reserve last July to approve an acquisition to save a struggling bank in his state. He didn't mention that the bank's chairman and vice chairman were big contributors to his political campaign. If the acquisition had been approved, it would have prevented the two executives from losing what was left of their investments in the bank. The Fed didn't act on the request from Mr. Menendez, a Democrat, and First BankAmericano, which was closely held, failed July 31.

- Android and iPhone growth in the U.S. shows no signs of abating, according to a new report by comScore on the state of the U.S. mobile market.

- China's government said its water is far more polluted and its industry is producing far more waste than previously realized, in a major study that environmentalists welcomed as a step toward greater transparency. China's first official nationwide census of pollution sources, issued Tuesday, found that the amount of pollution discharged into the water totaled 30.3 million metric tons in 2007—more than double the 13.8 million tons reported for that year in a report two years ago, where the government claimed water pollution had declined 3% from a year earlier.


- Financial markets were largely optimistic that Europe will work out a rescue plan for debt-strapped Greece despite conflicting reports about whether the EU had in fact agreed to provide help. "People are optimistic that something will be worked out since there's the risk of broader contagion if the European Union doesn't do something," said Kate Schapiro, senior vice president at Sentinel Investments in San Francisco.

The Business Insider:

- Europe is in complete financial chaos over the on again, off again bail out of Greece. While one moment one European representative says that the government will do everything to help the country, the next the Germans call in and say no way. RBS has a breakdown of the 9 ways this thing can pan out, including who is going to win and lose in each scenario.

- Here's an interesting chart from RBS which shows something we haven't seen much attention to. It's French CDS spreads (vs. German Bunds), and not surprisingly they're soaring.

- New Invention Using Spent Nuclear Fuel Rods Could Unlock US Oil Reserves Three Times Larger Than Saudi Arabia’s.


- Recall US Interests In Auto Industry. Toyota’s troubles expose potential conflicts of interest.


- Most voters think the country would be better off if the majority of the current Congress wasn’t reelected this November, and their confidence in their own congressman continues to fall. A new Rasmussen Reports national telephone survey finds that 63% of likely voters believe, generally speaking, that it would be better for the country if most incumbents in Congress were defeated this November. Just 19% disagree and say it would be better if most congressional incumbents were reelected.


- A month after the Christmas Day underwear bomber suspect revealed a gravely ineffectual air travel terrorism prevention system, a new report was released giving the federal government an “F” for its failure to prepare for the nation’s most urgent threat: bioterrorism. This was a breathtaking assessment from the bipartisan Commission on the Prevention of Weapons of Mass Destruction, Proliferation and Terrorism. Even more alarming was that the report focused almost exclusively on our ability to protect adults. In other words, a quarter of the population — children — weren’t even on the commission’s radar. In fact, federal agencies have been aware of this gaping hole in our bioterrorism response system but have done little to change it.

- During the 2008 campaign, I strongly endorsed Barack Obama for president. I did so early, when many Democratic leaders — including many prominent African-American politicians — believed the safe bet was to back then-frontrunner Hillary Rodham Clinton. I backed Obama not because of skin color but because he convincingly made the case that he stood for “change” that this country needs. Now, across many fronts — in public policy and politics alike — people have rightly been questioning whether the change has been for the better. Unfortunately, the answer so far is clear: Not yet. I still believe Obama can stand for positive change. But first he must make some hard changes of his own. The need is becoming more obvious by the day: He must overhaul his own team, replacing the admittedly brilliant advisers who helped elect him with others more capable of helping him govern. Getting elected and getting things done for the people are two different jobs.


- First Greece, Now Spain: Moore Capital, Brevan Howard, Paulson As Well As JPMorgan(JPM) and Goldman Implicated in Spanish CDS Rout. Yesterday we reported on "concerted hedge fund attacks" rumors involving Greece. Today, via Alphaville, it appears that the mysterious hedge fund cabal strikes again, this time in Spain, and, more relevantly, this time there are names associated. If indeed these are the actors set on setting the world ablaze, they are more than likely the same ones who are involved in Greece, Portugal, Dubai, and elsewhere. Presenting: Moore Capital, Brevan Howard and Paulson & Co... Oh and JP Morgan and, ahem, Goldman Sachs.


- Ghana's Jubilee oil field has recoverable reserves of 800 million barrels, the West African country's Energy Minister Jospeh Oteng-Adjei told a conference in Accra on Tuesday. Jubilee was discovered in 2007 by a partership of the Ghanaian government and international firms, and is expected to begin producing in the last quarter of this year.

Financial Times:

- Last year markets feared that west European banks – including several from Greece – could suffer from their heavy exposure to central and eastern Europe. That has been turned on its head. Now there are concerns that Greece’s difficulties could, via its banks, cause contagion that might halt the recovery in south-east Europe.

- European Central Bank (ECB) governing council member, Ewald Nowotny, sat down with FT Alphaville to talk Greece, exit strategies, speculation and contagion in the eurozone. In addition to being an ECB member, Nowotny is also the head of Austria’s central bank, where he experienced some of the problems of European contagion first-hand last year. Nowotny said the bank cannot step in to help Greece fix its record budget deficit, citing an interview. Under the status of the ECB “we have a clear no-bailout clause,” the FT’s Alphaville blog quoted Nowotny as saying. Nowotny said the “prime responsibility now clearly rests with the Greek authorities” and that the ECB has to look at the euro area as a whole. The ECB “cannot take into account specific problems of specific countries,” he said. Nowotny said while concern that Greece’s woes will spread to other countries like Spain and Portugal “has to be taken seriously,” it is also “not founded in economic reality,” according to the FT.


- Greece’s government my announce a 40% tax on incomes of $82,374 and above when it presents its new taxation law.

- China, the world’s biggest emitter of greenhouse gases, may levy a pollution tax as part of the nation’s efforts to curb emissions.

The National:

- UAE banks’ debt woes to grow. Non-performing loans are expected to swell almost 50 per cent to nearly Dh65 billion (US$17.69bn) this year as the global economic downturn and sagging property prices take a further toll on the country’s lenders. Non-performing loans were expected to rise to 6.5 per cent of bank lending this year from 4.4 per cent last year, he said. The total value of loans and advances in the UAE is Dh1 trillion, according to Central Bank statistics. Banks’ loan books have been adversely affected by exposure to a severe correction in the country’s property sector, with estimated price declines of up to 50 per cent in Dubai and 40 per cent in Abu Dhabi. Uncertainty remains about corporate loans extended to companies operating in the sector, in addition to mortgages and personal loans invested in property. Adding further stress to loan books are plans by Dubai World, the government-controlled conglomerate, to reschedule $22bn of debt. Depending on how the restructuring is resolved, banks may be forced to book a loss on loans to the group, analysts warn. Mr al Suwaidi’s estimate for non-performing loans could even be on the low side, said Deepak Tolani, a banking analyst at Al Mal Capital in Dubai. He estimated that banks had exposure to property in the range of 35 to 45 per cent of their loan books. “It’s a slightly conservative figure, given that the property sector was so overleveraged.” Several local banks have revealed large exposures to Dubai World. While the group’s debt is not considered non-performing, because it continues to make payments, many analysts see it as a risk for an increase in non-performing loans. Abu Dhabi Commercial Bank, the emirate’s third-largest bank, said last month it had about Dh9bn in outstanding loans to the company, the largest exposure among local lenders.

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