Today's Headlines

Bloomberg:

• Papandreou Reshuffle Fuels Dissent Among Allies as Financial Markets Slump. Greek Prime Minister George Papandreou’s decision to reshuffle his Cabinet and demand his allies vote confidence in his government fueled dissent within his Socialist ranks and roiled financial markets. The yield on Greece’s 2-year bond topped 30 percent for the first time on concerns Papandreou’s grip on power was slipping, threatening passage of a new austerity plan aimed at securing a second aid package and avoiding the euro-region’s first default. The resignation today of two members of Papandreou’s parliamentary group prompted Socialists lawmakers to demand an emergency meeting with the premier. The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation that a government shakeup would disrupt passage of budget cuts and asset sales sent Greek bonds and the euro plunging. EU Economic and Monetary Affairs Commissioner Olli Rehn said in an interview that Greece would receive its next bailout payment. Papandreou sought to reassert his authority in a televised address last night hours after police used tear gas to break up protests in central Athens and media reported he was in talks to step down in favor of a unity government. He said he would reshuffle his Cabinet and then call a confidence vote in parliament. He has yet to announce the details of the government shakeup.
• Greek 2-Year Yield Surges Past 30% as Default Concerns Mount; Bunds Rise. Greek government bonds slumped, pushing the yield on the two-year note above 30 percent for the first time, as Prime Minister George Papandreou’s failure to win support for more austerity fueled speculation of a default. Portuguese and Irish two-year yields also climbed to the most since the euro’s 1999 debut, while the 10-year Spanish yield jumped to the highest since 2000 as the country’s borrowing costs rose at a debt sale. The cost of insuring against default on Greek, Irish and Portuguese government debt surged to records. Papandreou will reshuffle his Cabinet and seek a confidence vote today. German government bonds gained, pushing the 10-year yield to a five-month low. “The Greek drama is firmly catching everything under its wings and there’s no way around that story,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Implementation risk is highly elevated. It’s completely risk- off mode and for a country like Spain to come to the market in this environment, it’s challenging.” The yield on Greece’s two-year notes jumped 128 basis points to 29.30 percent as of 4:35 p.m. in London, after being as high as 30.32 percent. Ireland’s two-year yield increased 86 basis points to 12.96 percent. The Portuguese two-year yield surged 58 basis points to 13.02 percent. Spanish 10-year bonds yielded 273 basis points more than similar-maturity bunds, the most since Dec. 1. The spread has widened more than 100 basis points since declining to its 2010 low on April 12. The Irish spread over bunds jumped to 864 basis points, after reaching the most since the euro’s debut, while Portugal’s securities yielded 800 points more than their German peers for the first time, before settling at 798 basis points. French bonds also declined relative to bunds, pushing the spread over their German counterparts to 42 basis points, the most since January. The yield spread between Austrian and German 10-year securities widened by four basis points to 51 basis points, also the most in five months. Credit-default swaps on Greece soared 280 basis points to 2,050, while those on Ireland rose 36 to 802 and Portugal climbed 17 to 814, according to CMA prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 14 basis points to a record 239.5.
• Greek Debt Rollover Requires Doubling Aid Fund, Wellink Says. European Central Bank Governing Council member Nout Wellink said the emergency fund for euro- area countries should be doubled to 1.5 trillion euros ($2.1 trillion) if private investors are pressured to contribute additional aid for Greece, Het Financieele Dagblad reported. “If credit-rating agencies see the debt rollover as involuntary and a partial default, then contagion of other peripheral euro-zone countries takes place,” Wellink, who also heads the Dutch central bank, said in an interview published today in the Amsterdam-based newspaper. “If you take these risks, you need to realize you should build a safety net for that,” Wellink said. “It should go to 1,500 billion euros and there should be more flexibility in how the money can be spent. Also, it should be willing to do things the ECB did before,” such as buying government bonds, he said. Wellink’s comments were confirmed by Dutch central bank spokesman Tobias Oudejans. Wellink, who steps down as Dutch central bank president this month, said the ECB strongly opposes an involuntary contribution from investors. “If a contribution isn’t voluntary, it will lead to a chain of reactions disadvantageous for all of us,” Wellink said. “Credit-rating agencies judge whether that is a credit event, and a little pressure already creates such a situation.” Dutch Finance Minister Jan Kees de Jager on June 14 said private-sector investors should contribute at least 30 percent of possible additional refinancing aid for Greece. A voluntary rollover of Greek debt by private investors could be made attractive by using “sweeteners,” such as granting special rights to new debt that old debt lacks, he said. “Then you start to nibble away at the voluntariness,” Wellink said. “Greece’s credit rating isn’t far away from a default, so it only needs a nudge to go wrong. Where the border between voluntary and involuntary lies, no one actually knows. But if you seek the edges, you need to be aware you have the obligation to jump in when there are problems.”
• FX Concepts LLC, the world's largest currency hedge fund, said the euro's slide this week on Greece's debt crisis is the start of a "sustained" drop. "The situation is rapidly deteriorating in Greece," Jonathan Clark, vice chairman at NY-based FX Concepts, wrote in a research note today. "At this point a restructuring of debt termed 'reprofiling' appears inevitable as Greece won't be able to deliver the austerity required or be able to flat debt in the market."
• Basel is Said to Consider 3.5 Percentage Point Fee to Curb Growth of Banks. The Basel Committee on Banking Supervision is considering proposed capital surcharges of as much as 3.5 percentage points that the largest banks may face if they grow any bigger, according to two people familiar with the talks. Draft plans circulated before a meeting next week would subject banks to a sliding scale depending on their size and links to other lenders, said the people, who declined to be identified because the proposals aren’t public. Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said.
• U.S. Puts Ally Bahrain on List of Human Rights Abusers. The U.S. has put Bahrain, a Persian Gulf ally, in the company of Iran, North Korea, Syria and Zimbabwe on its list of human rights violators to be scrutinized by the UN Human Rights Council. “The Bahraini government has arbitrarily detained workers and others perceived as opponents,” U.S. Ambassador Eileen Donahoe said in a statement to the council yesterday in Geneva. Bahrain, home to the U.S. Navy’s Fifth Fleet, has tried to crush protests that have wracked the country since February, as the Shiite majority population has agitated for the Sunni Muslim monarchy to allow greater economic opportunities and freedoms. Bahrain’s crackdown has put the U.S. in the position of speaking out against a country that is both a close ally and which received security assistance from Saudi Arabia in putting down the protests.
• Agriculture Markets Require Global Governance and Regulation, Sarkozy Says. French President Nicolas Sarkozy said world agricultural markets are “the least transparent of all” and require global governance and regulation. France as head of the Group of 20 nations this year proposes to introduce an agricultural market-information system similar to what exists for oil markets, Sarkozy said at a conference of international farm organizations in Paris today.
• Wheat Slumps to One-Month Low on Signals Global Supplies Will Be Adequate.
• India Raises Interest Rates for a 10th Time Since 2010 to Tame Inflation. India’s central bank raised interest rates for the 10th time since the start of 2010, extending the longest streak of monetary tightening in a decade after inflation accelerated. Stocks and rupee fell. The Reserve Bank of India increased the repurchase rate to 7.50 percent from 7.25 percent, according to an e-mailed statement today. India joins nations from China to South Korea in stepping up the fight against surging living costs, with the central bank signaling today it will continue to raise rates. Accelerating inflation has contributed to a 12 percent decline in the benchmark stock index in Mumbai this year, Asia’s worst drop, on concern the policy will hurt economic expansion. “Demand pressures need to be damped to ensure that inflation doesn’t become a structural problem in India,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. “Even though growth is moderating, uncomfortably high inflation won’t give the RBI any respite in the near future.” India’s key wholesale-price inflation quickened to 9.06 percent in May from 8.66 percent in April.
• Consumers' Expectations Decline to Lowest in Two Years in Bloomberg Index. “Consumers’ biggest concerns are about jobs and income,” said Chris Low, chief economist at FTN Financial in New York. “The bottom line is that income is not keeping up with inflation right now. People “are making sacrifices.”
• Goldman Sachs(GS) Sees No Panic in Options as VIX Takes Six Weeks to Exceed 20.
• GE(GE) Pursues $3 Billion of Brazil Deals as Petrobras(PBR) Demand Rises. General Electric Co. (GE), which spent more than $4.1 billion on acquisitions since October to build its oil and gas unit, is bidding for about $3 billion of Brazil energy contracts over three years as the industry expands.
• Euro Recovery Versus Dollar on Greece Aid May Be Limited, Citigroup Says. A rebound in the euro if the European Union and the International Monetary Fund agree to give Greece an installment of aid will be limited and temporary, according to Citigroup Inc. “The uncertainty that has been generated by the process is going to continue to weigh on the euro,” said Steven Englander, head of Group of 10 currency strategy at Citigroup in New York, in a telephone interview. “The process itself and the degree to which this process is unsatisfactory become a part of the determination of asset prices.”

Wall Street Journal:

• More 'Silent Raids' Over Immigration. The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records. Businesses across the U.S. that rely on low-skilled labor are working to stave off Immigration and Custom s Enforcement audits, which can lead to the loss of large numbers of employees, reduced productivity and legal expenses. Wednesday's surge in so-called silent raids drew criticism from both the U.S. Chamber of Commerce and immigrant advocates.
• Citigroup(C) Says Hacking Affected 360,000 Cards. Citigroup Inc. said about 360,000 credit cards were affected by last month's hacking attack, or nearly double the number previously indicated by the giant bank.
• Corrupt Chinese Officials Take $123 Billion Overseas. China’s rulers say corrupt cadres are the nation’s worst enemy. Now, according to a report that was given widespread coverage this week in local media, Beijing says that enemy resides overseas, particularly in the U.S. The 67-page report from China’s central bank looks at where corrupt officials go and how they get their money out. A favored method is to squirrel cash away with the help of loved ones emigrating abroad, schemes that often depend on fake documents. News of the study got prominent notice this week in Chinese media. A sample headline from page one of the Shanghai Daily on Thursday: “Destination America For China’s Corrupt Officials.”
• Bankers' Group Urges Private Investor Participation in Greek Package. An influential group of senior bankers said Thursday that holders of Greek bonds should help the country's government meet its funding needs in coming years.
  

MarketWatch:

• Greece Poses $41 Billion Risk to U.S. Banks.

CNBC.com:

• Why Your Money-Market Fund Could Be Hit by Greek Default.

Business Insider:

• Brand New Satellite Images of Chinese Ghost Cities. (pics)
• Anthony Weiner Resigns: Gets Heckled at His Own Press Conference. (video)
• China Sends Its Largest Patrol Ship Into Disputed Territory to Face Down Vietnam.
• 5 Ugly Details From This Morning's Philly Fed Report.
  

Zero Hedge:

• FRA-OIS Spread Jumps to 2011 Wides. (graph)

New York Times:

• Family Offices Look to Add More Hedge Funds. Ever since the financial crisis hit, small hedge funds have been under a cloud. They’ve struggled to raise money more than their bigger brethren, who appeal to investors looking for the safety of size. Big funds also benefit because big institutions like pensions and endowments with lots of assets — who represent the lion’s share of new investments — require larger funds with scale. Now, it appears there’s some good news for the little guy: family offices are looking to increase their investments in hedge funds, according to a new report from Rothstein Kass, an accounting firm.

NBC:

• Possible Al-Qaeda Hit List Targets Specific Americans. An al-Qaida-linked website has posted a potential hit list of targets that include names and photos of several U.S. officials and business leaders, calling for terrorists to target these Americans in their own homes, NBC New York has learned. The FBI has sent out a new intelligence bulletin to law enforcement agencies, warning that this new web-based threat, while not a specific plot, is very detailed. The bulletin said the list includes leaders "in government, industry and media." The FBI has notified those individuals who are named.

Institutional Investor:

• Ackman Considers $3 Billion Fund IPO in Quest for Permanent Capital.

Forbes:

• Who's The AIG(AIG) In This Financial Greek Tragedy?
• How Obamacare Will Further Explode the Deficit.
  

CNN Money:

• Small Business Lending Plummets. (graph) Bank lending to small businesses fell $15 billion in the first quarter of this year, according to a report released this week from the U.S. Small Business Administration's Office of Advocacy.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Germany Seeks Sept. Deadline for New Greek Package. Germany wants the deadline for for a second Greek rescue package to be pushed back to September, reflecting the problems Europe is having hammering out the details, EU and banking sources said on Thursday. One EU source told Reuters that German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble favoured a delay. "The argument goes: We don't know what to do, let's buy more time," the source said, adding that Berlin had its customary backing from the likes of the Netherlands, Finland and Slovakia.
• Dollar Funding Costs Soar on Greek Bailout Fears.
  

Financial Times:

• Petrol Price Steers US Towards Tapping into Reserves.

Telegraph:

• Corporate Bond Markets Hit by Greek Default Fears. Corporate bond markets have come to a standstill as investor fears over the likelihood of a Greek default intensify.

Financial Times Deutschland:

• German insurers are negotiating with the country's financial regulator BaFin about easing their treatment of Greek sovereign debt following the recent downgrades by rating firms, citing an internal letter from the German GDV insurer association.Otherwise insurers may need to reclassify or sell Greek government debt as a result of the rating downgrades.
  

Bilanz:

• Harvard University Professor Kenneth Rogoff said he expects Greece, Ireland and Portugal along with some other countries to restructure their debt, according to an interview. "Over the next couple of years, we'll see a lot of sovereign defaults in Europe," Rogoff said. He also said that if officials are waiting "too long" with a solution for Ireland, Greece and Portugal, "then perhaps Spain and Italy can't be rescued anymore."

Irish Times:

• Noonan Will Impose Big Losses on Bondholders if ECB Agrees. MINISTER FOR Finance Michael Noonan says the Government has a plan to impose “substantial” losses on senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society in a significant policy reversal. He says he has won support for the move from top officials at the International Monetary Fund in Washington, but the difficulty was “what attitude the European Central Bank may take”. He will ask EU authorities to let the Government impose losses on the senior bondholders. A European Commission spokesman said last night it would examine any proposal by the Government on the restructuring of the banks with the European Central Bank and IMF. There was no comment from the bank, which opposed so-called burden-sharing with senior bondholders at the Irish banks in the bailout talks last year. Mr Noonan also asked US treasury secretary Timothy Geithner to use his influence with France and Germany to obtain lower interest rates on bailout packages for Ireland, Portugal and Greece.

National Business Daily:

• A 25 basis point increase in China's lending rates would raise interest costs for local government financial vehicles by about $46 billion, according to the Shanghai-based newspaper's Ye Tan.