Today's Headlines

Bloomberg:

• Banks Denied Senior Bond Funding as Crisis Deepens: Euro Credit. It's been 2 1/2 months since a bank managed to sell a conventional bond in Europe's public markets, the longest period without a deal ever and another example of the sovereign crisis choking off funding. UniCredit SpA was the last non state-owned bank to issue senior, unsecured benchmark notes in Europe with a 1 billion- euro ($1.3 billion) sale on July 13, according to data compiled by Bloomberg. That compares with deals worth 41.9 billion euros in the third quarter of last year. Banks are the biggest buyers of other lenders' bonds as well as debt sold by euro-region nations, and are being hurt by Greece's flirtation with default and proposed laws that would force their creditors to take losses before taxpayers. That's pushed the cost of selling bonds to within three basis points of the record reached in the aftermath of Lehman Brothers Holdings Inc.'s failure three years ago. "Senior unsecured at these levels is unsustainable," said Ben Bennett, a credit strategist at Legal & General Investment Management in London which oversees about $500 billion. "The real economy is being put under too much pressure. Every day things are getting wound tighter and tighter." The extra yield investors demand to hold banks' senior bonds instead of benchmark government debt has soared to 322 basis points, from 202 at the end of July, according to Barclays Capital's Euro Aggregate Banking Senior Index. The gauge reached an all-time high 325 basis points on Dec. 30, 2008.
• German, French Bond Risk Climb to Records on Slowdown Concern. The cost of insuring sovereign bonds jumped across Europe with credit-default swaps on France and Germany surging to records as the global economy slows. Contracts on Germany rose 13 basis points to 109, swaps on France jumped 16 to 205 basis points and Belgium, Italy and Spain also reached records, according to CMA prices at 5 p.m. in London. The Markit iTraxx SovX Western Europe Index of debt swaps on 15 governments climbed eight basis points to an all- time high of 362 based on closing prices. Credit-default swaps on Germany have almost tripled from 39 basis points in July, while France is up from 80, CMA prices show. Contracts on Belgium surged 26 basis points today to 304, while Italy rose 14 to 536 and contracts on Spain climbed 7 basis points to 437, according to CMA. Swaps on Ireland increased 14 basis points to 817 and Portugal rose 46 to 1,184. The Markit iTraxx Crossover Index of swaps on 50 companies with mostly high-yield credit ratings rose for a fourth day, climbing 41.5 basis points to 846.5, according to JPMorgan Chase & Co. That’s the highest since April 2009 and the biggest daily increase since Sept. 9, when the previous series of the index increased 59 basis points. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 12.5 basis points to 199.5, near the highest since March 2009. Bank bond risk also soared, with the Markit iTraxx Financial Index of swaps on the senior debt of 25 lenders and insurers rising as much as 29 basis points a record 318, before paring the advance to 302. The subordinated-note gauge increased as much as 53 basis points to an all-time high of 555, before trading at 540.
• Euribor-OIS Spread Measure Rises to Highest Since March 2009. A measure of banks’ reluctance to lend to one another in Europe rose to the highest in 2 1/2 years after the Federal Reserve signalled “significant downside risks” to the U.S. economy. The Euribor-OIS spread, the difference between the three- month euro interbank offered rate and overnight index swaps, climbed to 85 basis points as of 3:45 p.m. in London, the highest since March 2009, Bloomberg data show. The gauge was at 82.6 yesterday. European banks have the highest dollar funding costs in almost three years, according to one indicator. The three-month cross-currency basis swap was 106 basis points below the euro interbank offered rate, from 99 basis points yesterday. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, rose to 36 basis points, the highest since July 20, 2010, from 35 basis points.
• Commerzbank Says Greek Default Poses Risk of 'Domino Effect'. European banks face the risk of a “domino effect” on debt markets were Greece to default, a Commerzbank AG executive said today. Institutions would be able to handle a Greek default, regardless of the level of bondholder losses and the bigger concern is how it would affect Spain, Portugal, Ireland or Italy, Markus Beumer, a member of the German lender's board of managing directors, said at a press briefing in Brussels. “We have no concerns to handle and to manage Greece, but what happens afterwards, nobody knows,” Beumer said.
• Indonesia Stocks Drop Most Since October 2008. Indonesia stocks plunged by the most since October 2008 as overseas investors cut holdings, while the rupiah rallied from a one-year low after the central bank said it will intervene to slow the currency’s drop. The Jakarta Composite Index sank 8.9 percent to 3,369.14 at the 4 p.m. local-time close as investors sold riskier assets amid concern global economic growth will slow. The gauge has tumbled 19.7 percent from a record high on Aug. 1.
• China Agrees Plan to Alter Resource Tax That May Cut Profit. China will levy a tax on resource producers based on the value and volume of their output, according to a statement on the government’s website, citing a decision from a State Council meeting presided over by Premier Wen Jiabao. The country will adjust tax ratios on crude oil and natural gas exploration, yesterday’s statement said, without giving details. A higher tax will likely cut profits of oil explorers including PetroChina Co. and coal miners including China Shenhua Energy Co. The government has proposed increasing resource taxes nationwide to fund development of the nation’s western regions, which contain oil, gas and coal reserves. f a tax of 5 percent of production by value is implemented, and assuming coal prices are unchanged, Chinese coal producers’ earnings will be cut by 9 percent to 23 percent, according to Lau.
• Real's Plunge Triggers Intervention Reversal: Brazil Credit. The real's biggest five-day plunge since 1999 prompted Brazil to use derivatives to shore up the currency, reversing a 28-month-old strategy aimed at stemming gains. Brazil's currency tumbled as much as 4 percent against the dollar today before the central bank auctioned swaps that are equivalent to selling dollars in the futures market, helping the real erase losses. The real has lost 8.4 percent since Sept. 14, handing investors in real-denominated bonds a loss of 13.5 percent in dollar terms this month through yesterday, the worst performance in emerging markets, according to data compiled by JPMorgan Chase & Co. Speculation is mounting that the real's slide may deepen, pushing up import prices and adding to the highest inflation rate in six years, if the central bank fails to provide dollars or deploy some of its $352 billion in reserves to defend the real. Concern policy makers' surprise rate cut last month signals they are giving up on their goal of slowing inflation is compounding the real's decline as Europe's debt crisis erodes demand for emerging-market assets. "The central bank is signaling it's uncomfortable with the current foreign-exchange rate," said Carlos Thadeu de Freitas Gomes Filho, chief economist with Franklin Templeton Investments in Brazil. "Other measures to defend the real may come."
• Goldman(GS) May Report Q3 Loss: Barclays. Goldman Sachs Group Inc. (GS) will probably report a third-quarter loss as market tumult prevents the bank from generating a profit for only the second time in 12 years as a public company, Barclays Capital analysts estimated. Goldman Sachs may lose 35 cents a share in the three months ended Sept. 30, down from a prior estimate of $2.40 in earnings per share, the analysts, led by Roger Freeman, said in a note to clients today. They cut their earnings-per-share estimate for Morgan Stanley to 12 cents from 43 cents. Declines in asset prices will cause losses on some of Goldman Sachs’s principal investments, which include stakes in companies and real estate, the analysts wrote. Trading revenue and investment banking fees have also been reduced amid falling equity and credit markets and concerns that the European sovereign debt crisis is worsening.
• Europe Services, Manufacturing Industries Shrink for First Time Since 2009. Euro-area services and manufacturing output shrank for the first time in more than two years in September as the region’s worsening debt crisis added to concerns that the economy could slide back into a recession. A composite index based on a survey of purchasing managers in both industries fell below 50, indicating contraction, for the first time since July 2009, London-based Markit Economics said in an initial estimate today. The index fell to 49.2 this month from 50.7 in August, a deeper slide than the drop to 49.8 that economists had forecast, according to the median of 17 estimates in a Bloomberg survey.
• Copper Tumbles Most Since January 2009 on Signs of China, U.S. Slowdown. Copper fell the most since January 2009 in New York and headed into a bear market in London after a China factory index signaling contraction added to speculation of slowing metals demand. A preliminary index of China purchasing managers was 49.4 this month, according to HSBC Holdings Plc and Markit Economics. A reading below 50 indicates contraction. Copper has dropped 22 percent this year as Europe’s debt crisis and the possibility of another U.S. recession hampered metals demand. In the last U.S. recession, copper fell 54 percent in 2008.
• Initial Jobless Claims in U.S. Fell Last Week. More Americans than forecast filed first-time claims for unemployment insurance payments last week as the labor market struggled to improve. Applications for jobless benefits decreased 9,000 in the week ended Sept. 17 to 423,000, Labor Department figures showed today. Economists forecast 420,000 claims, according to the median estimate in a Bloomberg News survey. The four-week moving average, a less-volatile measure, climbed to 421,000 from 420,500. The number of people continuing to collect jobless benefits fell by 28,000 in the week ended Sept. 10 to 3.73 million. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 103,350 to 3.5 million in the week ended Sept. 3.

Wall Street Journal:

• Ex-Eu Trade Commissioner Mandelson: Greek Debt Writedown, Restructuring Inevitable. Some writing down and hopefully orderly restructuring of Greek debt is "inevitable," former European Commissioner for Trade Peter Mandelson said Thursday.
• Whitman Expected to Get HP(HPQ) CEO Nod After Markets Close.
• Bad Stock Market, Bad News for John Paulson. Right about now, John Paulson is probably hoping this is one of those things-will-get-worse-before-they-get-better moments. The Dow Jones Industrial Average has kept falling since the hedge-fund star reaffirmed his stock-market bullishness earlier this week.

Business Insider:

• It's Official - Pakistan is Behind the Recent Afghan Attacks Against U.S. Troops.
• Dow Briefly Cuts Loss on Headlines About Europeans Recapitalizing 16 Banks.
• The Sad State of Work in America: The Young Sit Idle, The Elderly Work Forever. (graphs)
• Only 45% of Independent Voters Would Even Think About Voting For Obama Again.
  

CNN:

• Libya Military Site Yields Possible Radioactive Material. A military site containing what appears to be radioactive material has been uncovered by revolutionary forces near the southern Libyan city of Sabha. Military forces loyal to the country's National Transitional Council took a CNN crew Thursday to the site, not far from Sabha in the Sahara desert. The crew saw two warehouses there, containing thousands of blue barrels marked with tape saying "radioactive," and two or three plastic bags of yellow powder sealed with the same tape. The material has not been confirmed as being radioactive, but the International Atomic Energy Agency (IAEA), the United Nations' nuclear watchdog agency, confirmed Thursday that the Libyan government had yellowcake stored near Sabha.

Handelsblatt:

• Kenneth Rogoff, a former chief economist at the IMF and now an economics professor at Harvard University, said the biggest risk to the eurozone at present is a run on southern European banks. In an interview with the newspaper, Rogoff said people may move their deposits to banks in safer countries such as Germany. A sovereign debt restructuring in some euro area states shouldn't be "a taboo," Rogoff said.
• The Greek government's additional savings efforts are set to intensify the country's crisis as they will hit the Greek people and probably alienate them, Gustav Horn, the director of Germany's IMK economic institute, said in an interview.
  

Boersen-Zeitung:

• The euro is unlikely to survive debt and economic crises and may not exist in 10 years because it is increasingly being influenced by politicians, investor Jim Rogers said in an interview.

Les Echos:

• BNP Paribas SA and Societe Generale have stopped lending to aircraft purchasers because of difficulties in obtaining dollar refinancing. Airbus SAS may be affected more than Boeing(BA), which has easier access to credit in the U.S.

Capital.gr:

• PIMCO: French Banks Could Tip Europe Back Into Recession. The chief executive of the world's largest bond investment fund, Pimco, warns in the Financial Times Thursday that French banks could tip Europe "into a full-blown banking crisis that aggravates the sovereign debt trap, renders certain another economic recession, and significantly worsens the outlook for the global economy." In an opinion piece, Mohamed El-Erian says Europe must move quickly to stabilize its banks "at its core in ways that go far beyond what the European Central Bank announced on Wednesday."

21st Century Business Herald:

• Chinese Banks Face Crisis as Deposits Plunge. Deposits at the big 4 state-owned banks, including Industrial and Commercial Bank of China Ltd. (ICBC) (601398.SH, 1398.HK), Bank of China Ltd. (601988.SH, 3988.HK), Agricultural Bank of China Ltd. (601288.SH, 1288.HK) and China Construction Bank Corp. (601939.SH, 0939.HK) fell by about RMB 420 billion during the first 15 days of September from end August, reports China Securities Journal. The huge drop in deposits led to a significant decline in new loan growth by the big 4 banks during this period, with only RMB 87 billion of new loans extended. According to industry insiders, net outflows of deposits from banks usually occur during times of bullish stock markets. The current situation of high inflation, stagnant property market and sluggish stock market, could mean that the deposits may have been invested in wealth management products, trusts, art collections, or in the illegal lending sector. According to the report, bank employees in Wenzhou, Dongguan, and Fuzhou, had already withdrawn their deposits and had lent to illegal money lenders in the grey market at interest rates which are 10 times higher than the one-year deposit rate. Insiders said the high rates of return from the illegal lending sector may have led to approximately RMB 3 trillion of bank deposits being diverted to this sector. Due to the rapid fall in deposits, the daily average loan to deposit ratios of some small and medium-sized banks are close to, or have hit the regulatory limit of 75%. These banks are actively reducing the size of their loans in order to meet regulatory requirements for the loan to deposit ratio, and some of the smaller banks had utilized their loan quotas in the first few days of August, added a number of insiders from the banking industry. Large banks too suffered from the drop in deposits, with Bank of China lending only RMB 1 billion in the first half of September, while Agricultural Bank of China lent RMB 10 billion. During the same period, new loans granted by ICBC and China Construction Bank were RMB 50 billion and RMB 30 billion, respectively. In order to meet a deposit shortfall of RMB 100 million, a bank is offering customers rebates on seven-day deposits , said an insider.