Evening Headlines
Bloomberg:
- European Failure to Solve Region's Banking Crisis Returns to Haunt Markets. Four years to the month since the global credit crisis began, European lenders remain dependent on central bank aid, plaguing markets and economies worldwide. Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and greasing the lending of others, while low interest rates and debt-buying are containing borrowing costs. Such aid is needed as concerns about slowing economic growth and sovereign debt prompt banks to curb lending, stockpile dollars and hoard cash in safe havens. “I’m not sleeping at night,” said Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.” The signs of distress are widespread and mounting: Banks deposited 105.9 billion euros ($152 billion) with the ECB overnight on Aug. 19, almost three times this year’s average, rather than lending the money to other lenders. The premium European banks pay to borrow in dollars through the swaps market increased yesterday for a fourth straight day. European bank stocks have sunk 22 percent this month, led by Royal Bank of Scotland Group Plc (RBS) and Societe Generale (GLE) SA. Edinburgh-based RBS, Britain’s biggest government-controlled lender, has tumbled 45 percent, and Paris-based Societe Generale, France’s second-largest bank, dropped 39 percent. The extra yield investors demand to buy bank bonds instead of benchmark government debt surged to 298 basis points on Aug. 19, or 2.98 percentage points, the highest since July 2009, data compiled by Bank of America Merrill Lynch show. The cost of insuring that debt against default surged to a record yesterday. The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers rose to 250 basis points, compared with 149 when Lehman collapsed. “The debt has been transferred from the banks to the sovereign, but it hasn’t actually been eradicated,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool. “Until the sovereigns get their balance sheets in order, then these concerns are going to remain.” Funding markets have seized up as investors speculate that sovereign debt writedowns are inevitable. Banks in the region hold 98.2 billion euros of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data. The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.67 percentage point on Aug. 22, within 3 basis points of the widest spread since May 2009. “The central bank is the only clearer left to settle funds between banks,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG (CBK) in Frankfurt. “There is a mistrust between banks in general, between regions and with dollar providers overall.”
- European Banks Must Pay Up to Borrow $100 Billion Amid Crisis: Euro Credit. European banks with more than $100 billion of cash to raise by year-end will have to pay up because investors perceive them as the worst credits they’ve ever been. The cost of insuring the senior and junior bonds of 25 banks and insurers doubled since April, according to the Markit iTraxx Financial indexes of credit-default swaps. The Euribor- OIS spread, a gauge of banks’ reluctance to lend to each other, reached the widest since April 2009 this month, while the cost for European banks to fund in dollars matched a 2 1/2-year high. “This return of generalized banking risk marks a new phase in the unfolding European drama,” said Lisa Hintz, an analyst in New York at Capital Markets Research Group, a unit of ratings firm Moody’s Investors Service. “Investors have heightened concerns about sovereign and financial institution risk.” Morgan Stanley’s estimate of the 80 billion euros ($115 billion) banks need until year-end doesn’t include the extra capital that regulators have ordered many to raise to protect against a re-run of the 2007 global financial meltdown. With the bond market shut to all but the strongest banks, weaker lenders, particularly those from the euro region’s so-called peripheral nations, are relying on the European Central Bank for its unlimited six-month loans. “The banks seem to prefer to deposit cash with the ECB rather than lend it out to others that need it,” said John Raymond, an analyst at the financial-research firm in London. “In itself, that’s a sign of stress in the interbank market” and means companies must also pay more to borrow, he said. The extra yield investors demand to hold bank bonds rather than benchmark government debt surged to 298 basis points, or 2.98 percentage points, according to Bank of America Merrill Lynch index data. That’s the widest spread since July 2009 and up from 220 at the end of last month. Average yields jumped to an almost two-year high of 4.46 percent on Aug. 12, before dropping back to 4.38 percent, the data show.
- Merkel Never Holding Hands With Sarkozy Betrays European Leadership Crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy have never held hands like Helmut Kohl and Francois Mitterrand once did at a World War I battlefield. Merkel worries they don’t even talk enough. After no fewer than seven one-on-one meetings the past 18 months -- in addition to parleys at summits -- the leaders of the biggest European economies have yet to hit on an effective solution to the crisis stalking the euro, Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in an interview. “Poor relations between Merkel and Sarkozy are one of the big problems of dealing with the debt crisis because it’s up to European Union leaders to handle this,” Erixon said. “It’s not a personal relationship that can deliver grand things because the trust isn’t there.”
- Qaddafi Is a Hunted Man as Rebels Claim Tripoli. Libyan rebels hunted for Muammar Qaddafi and declared his regime over as the dictator’s forces kept up their fight in parts of Tripoli, the capital now mostly in rebel hands. Even as gunfire continued in some areas, particularly around Qaddafi’s former home, rebel and western leaders looked ahead to forming an interim government after the dictator’s 42- year rule. “The era of Qaddafi is over,” Mustafa Abdel Jalil, the head of the rebel National Transitional Council, said yesterday at a news conference in the eastern city of Benghazi. He called on rebel fighters to avoid reprisals, respect human rights and treat prisoners of war humanely. Qaddafi, who in a Aug. 21 audio broadcast vowed “never to give up,” remained at large.
- Goldman(GS) Debt Swaps Jump as U.S. Company Credit Risk Rises to 14-Month High. Investor confidence in U.S. corporate credit deteriorated to the worst level since June 2010 and the cost to protect Goldman Sachs Group Inc. (GS) debt jumped following a report that Chief Executive Officer Lloyd Blankfein hired a defense attorney. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 4 basis points to a mid-price of 126.8 basis points as of 5:35 p.m. in New York, according to index administrator Markit Group Ltd. Credit- default swaps on Goldman Sachs jumped 40 basis points to 255.4 basis points, the highest level since April 2009, according to data provider CMA. Contracts linked to the debt of Bank of America, based in Charlotte, North Carolina, added 38.6 basis points to 380.6, the data show. Investor confidence in high-yield, high-risk debt plunged for a third day to the lowest level in almost two years. The Markit CDX North America High Yield Index, which falls as investor confidence deteriorates, dropped 0.6 percentage point to 91.8 percent of face value, the lowest level since Sept. 10, 2009.
- Gold Tops $1,900 for First Time. Gold extended its rally to a record above $1,900 as mounting concern that the global economy is faltering spurred demand for bullion as a protection of wealth. Goldman Sachs Group Inc. lowered its forecast for U.S. growth in 2011 on signs that the recovery in the largest economy lost momentum. German Chancellor Angela Merkel attempted to shut the door on common euro-area bonds as a means to solve the debt crisis, saying she won’t let financial markets dictate policy. Gold futures for December delivery gained as much as 1.4 percent to $1,917.90 an ounce and traded at $1,911 at 6:34 a.m. Singapore time on the Comex in New York.
- Cerberus Kills Innkeepers Deal in Sign of Strain for Buyouts. Cerberus Capital Management LP and Chatham Lodging Trust terminated their $1.1 billion agreement to buy 64 hotels from Innkeepers USA Trust, a sign that the weakening economy is straining the private-equity market. Prices on leveraged loans, the backbone of the buyout business, have been falling. The move indicates deals may be more expensive to finance. The S&P/LSTA U.S. Leveraged Loan 100 Index rose to 88.59 cents on the dollar on Aug. 19 from 88.2 on Aug. 11, a 13-month low. The debt has lost 3.74 percent this year. Cerberus has abandoned deals before. The firm walked away from its $4 billion agreement to buy Greenwich, Connecticut- based United Rentals Inc. in 2007.
- More Regulations Is The Last Thing Economy Needs: Ramesh Ponnuru. At least one sector of the economy is booming, and President Barack Obama can legitimately take credit for it. Since he took office, employment has surged 13 percent at federal regulatory agencies. The regulators’ budgets are up 16 percent. (These numbers are derived from a May report published by Washington University and George Washington University.) And that’s before some of the major regulatory initiatives of the administration -- the financial-reform bill and the health-care overhaul -- are fully implemented. Obama understands that a reputation for regulatory hyperactivity in the midst of a weak economy wouldn’t help his re-election prospects. In January, he promised “a government- wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive.” That review led to some modest improvements: The Environmental Protection Agency pulled back a rule that would have treated dairy spills on farms as though they were oil spills. Overall, though, the regulatory burden on the economy is still growing.
- Korea Investment Adds $78 Million to Bank of America(BAC) Stake Amid Stock Rout. Korea Investment Corp., the country’s sovereign wealth fund, said it added $78 million worth of Bank of America Corp. (BAC) shares to its existing stake this year as the U.S. bank shed more than half its market value. The fund added shares from January via seven separate purchases using a $145 million dividend it earlier received from Bank of America and called the Charlotte, North Carolina-based bank’s shares “undervalued,” in an e-mailed statement late yesterday.
- Crisis Too Big for Developed World: Ex-IMF Head. The crisis threatening the global financial system exceeds the capabilities of developed nations and requires a new International Monetary Fund “debt facility,” former IMF head H. Johannes Witteveen said. “Unusual problems require unconventional solutions,” Witteveen wrote in an opinion piece in the Financial Times today. “The world’s financial system is threatened by a new crisis that could be even worse than that of 2008.” He was IMF managing director from 1973 to 1978.
- Fighting Flares in Tense Tripoli.
- Live Blog: The Battle for Tripoli.
- H-P(HPQ) Needed to Evolve, CEO Says. Apotheker Says PC Spin Off, Software Buy Sets 'Transformation' in Motion.
- Germany Expects Growth to Slow. Germany faces an "obvious slowdown" that may last the rest of the year, its finance ministry warned on Monday, days after Europe's largest economy reported an unexpected pause in what had until recently been a strong recovery. Despite weaker growth, Germany's budget deficit should shrink to just 1.5% of its gross domestic product this year, a small fraction of the deficits expected in the U.S., Japan and much of the rest of Europe. Germany's recovery "in early summer 2011 remained below expectations," the finance ministry said, citing a sharper-than-expected slowdown in the U.S. German consumption may continue to stall due to uncertainties surrounding the euro zone's continuing debt crisis. "In the coming third quarter, the current turbulence in the financial markets could lead to further slowdown" in domestic consumption, the ministry said.
- China HSBC Flash PMI Rises to 49.8 in August. HSBC's China Flash PMI showed the Chinese factory sector may have slowed slightly in August from July as new orders and new export orders eased on languid overseas demand. The flash Purchasing Managers' Index (PMI), designed to preview China's factory output before official data, edged up to 49.8 in August, from July's final reading of 49.3. That leaves the index a touch under the 50-point mark that demarcates expansion from contraction in activity. HSBC publishes its final China PMI index for August on Sept 1. The listless outcome attests to China's gently slowing economy, and does little to dispel market worries that global demand is faltering on Europe's persistent debt problems and sluggish U.S. growth.
- Buffett-Backed BYD Shares Fall After Profit Warnings. Shares in BYD, a Chinese auto and battery maker backed by U.S. billionaire Warren Buffett, tumbled more than 5 percent on Tuesday after the company warned it could face a loss in the third quarter due to soft sales. "A weak result was expected but it(Q3) seems to be much worse than expected," said Patrick Yiu, a director at CASH Asset Management. "It may see heavy sell off because of the results."
- S&P President Steps Down Weeks After US Downgrade.
- Iran Has Started Moving Centrifuges To Boost Uranium Enrichment.
- Bank of America(BAC) May Need to Raise $40-$50 Billion of New Capital - Analyst.
Forbes:
NY Times:
- Members of Merkel's Party Emphasize Opposition to Euro Bonds. Chancellor of Germany has faced harsh criticism for being too passive in the face of . But on Monday, members of her own party and the Bundesbank made it clear just how hard it would be for her to pursue any solution that asked German taxpayers to sacrifice for the sake of European unity. With many economists calling for Europe to expand zone’s bailout fund or start issuing bonds guaranteed by all 17 of the countries that share governance of the common currency, German politicians at home struck back. “Euro bonds would push up German interest rates,” Philipp Missfelder, the foreign affairs spokesman for Mrs. Merkel’s Christian Democratic Union, said Monday after a meeting of the center-right party’s board. “The cost of servicing the debt would be enormous.” Meanwhile, the Bundesbank, representing the views of Germany’s monetary authorities within the European Central Bank, complained Monday that liabilities acquired by weaker countries were being offloaded onto the stronger ones. “A major step is being taken toward common assumption of risks from weak national finances and economic missteps,” the Bundesbank said in its monthly bulletin. “This weakens the foundation of fiscal responsibility and self-discipline.”
Seeking Alpha:
Vanity Fair:
- It's the Economy, Dummkopf! by Michael Lewis. With Greece and Ireland in economic shreds, while Portugal, Spain, and perhaps even Italy head south, only one nation can save Europe from financial Armageddon: a highly reluctant Germany. The ironies—like the fact that bankers from Düsseldorf were the ultimate patsies in Wall Street’s con game—pile up quickly as Michael Lewis investigates German attitudes toward money, excrement, and the country’s Nazi past, all of which help explain its peculiar new status.
- Egyptian Protestors Outside Israeli Embassy Bear Signs With Swastikas: 'The Gas Chambers Are Ready'.
- Health Care Law Will Deepen Deficit. The White House sold "Obamacare" as an instrument for lowering health insurance premiums and reducing federal budget deficits. “Altogether,” President Barack Obama said, “our cost-cutting measures would reduce most people’s premiums, and bring down our deficit by more than $1 trillion over the next two decades.” Studies, however, reveal a far different picture.
- AFL-CIO to Form Super PAC. The AFL-CIO is getting ready to pump even more money into elections by forming a super PAC and targeting developments in the states, the Associated Press reported Monday.
- Goldman Sachs(GS) CEO Hires High-Profile Defense Attorney. Goldman Sachs Chief Executive Lloyd Blankfein has hired Reid Weingarten, a high-profile Washington defense attorney whose past clients include a former Enron accounting officer, according to a government source familiar with the matter. Blankfein, 56, is in his sixth year at the helm of the largest U.S. investment bank, which has spent two years fending off accusations of conflicts of interest and fraud. The move to retain Weingarten comes as investigations of Goldman and its role in the 2007-2009 financial crisis continue.
- US: Deutsche Bank(DB) Knew Mortgage Co It Bought Lied. Deutsche Bank AG knew in 2006 that a mortgage company it was preparing to buy lied to the U.S. government about its mortgages, yet went ahead with the purchase and should be held financially responsible, the Justice Department said on Monday. According to the department's amended $1 billion complaint filed Monday evening with the U.S. District Court in Manhattan, Deutsche Bank was "on notice of and expressly assumed responsibility" for wrongdoing at MortgageIT Inc, which it bought in 2007.
- Bernanke's No 'Tooth Fairy,' Fed's Fisher Says - FBN. U.S. Federal Reserve Chairman Ben Bernanke is "not the tooth fairy," a top Fed official told Fox Business Network on Monday, suggesting the Fed chief won't use a speech later this week to extend new monetary stimulus. "His job is not to leave presents under the pillow of people who have desires that may not be easily fulfilled," Dallas Federal Reserve Bank President Richard Fisher said, according to a partial transcript provided by the network. "Our job is to put things right in the long term." Asked what Bernanke will say at a highly-anticipated speech on Friday at an annual central bank conference in Jackson Hole, Wyoming, Fisher said "You'll learn when you hear him speak. Ben Bernanke's not the tooth fairy."
- S&P Upgrades Google(GOOG) Stock Days After "Sell" View.
- Bank Shares Dive on Funding Fears. Bank shares dived on Monday despite a widespread rally across Europe's major stock markets as questions were raised about their ability to fund themselves.
- Banks Plug Pensions Holes With Toxic Assets From Financial Crisis. Britain's banks are using toxic assets left over from the financial crisis to plug huge holes in their pension funds. HSBC and Lloyds have both injected assets they have found difficult to sell into their pension schemes, with the effect of reducing their pension deficits, while shifting problem assets off their balance sheets. Banks also gain from capital and tax relief on the transfers. Ros Altmann, director-general of Saga, said the move was a ‘wheeze’ that was ‘deeply worrying’ for bank workers and the taxpayer.
- Teachers, Hedge Fund Target S&P Parent. Ontario Teachers’ Pension Plan, the investment manager that handles the retirement savings of nearly 300,000 teachers in the province, is one of McGraw-Hill’s(MHP) largest shareholders. It is also working with New York hedge fund, Jana Partners LLC, to push for a radical overhaul that would spell the end of the New York-based information giant as investors currently know it. And the pension fund’s chief complaint has to do with, of all things, the company’s education unit.
Nikkei:
- 70% of senior Japanese corporate executives surveyed by the Nikkei newspaper said the current yen-dollar rate hurts their companies' earnings.
- China may as early as the end of this month release a list of additional cities that will impose limits on home purchases, citing an informed person. About 30 second- and third-tier cities may be on the list. Cities that have already imposed limits on the price of homes are also likely to be included on this list for limits on purchases, according to the report.
- China is requiring 22 more cities to obtain approval from the State Council for the usage of land for construction projects, citing a notice from the Ministry of Land and Resources. The government had previously required 84 cities to seek State Council approval for the use of land. Among the newly added 22 cities are Foshan, Jiaxing, Maanshan, Shaoxing, Sanya and Zhuhai, according to the report.
- None of note
- Asian equity indices are -.50% to +1.75% on average.
- Asia Ex-Japan Investment Grade CDS Index 159.0 +5.0 basis points.
- Asia Pacific Sovereign CDS Index 146.50 +1.5 basis points.
- FTSE-100 futures +.49%.
- S&P 500 futures +.70%.
- NASDAQ 100 futures +.72%.
Earnings of Note
Company/Estimate
- (HAIN)/.33
- (COCO)/.12
- (WSM)//.36
- (MDT)/.79
- (HNZ)/.76
10:00 am EST
- New Home Sales for July are estimated to fall to 310K versus 312K in June.
- (RYN) 3-for-2
- The German/French Finance Ministers Meeting, Richmond Fed Manufacturing Index for August, Former Fed Chair Alan Greenspan speaking, 2-year Treasury Notes Auction and the weekly retail sales reports could also impact trading today.
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