- EU Said to Consider One-Time 50% Greek Writedown. European officials are considering writedowns of as much as 50 percent on Greek bonds, a backstop for banks and continued central bank bond purchases as key planks in a revamped strategy to combat the debt crisis, people familiar with the discussions said. The Greek bond losses may be accompanied by a pledge to rule out debt restructurings in other countries that received bailouts, such as Portugal, to persuade investors that Europe has mastered the crisis, said the people, who declined to be identified because the negotiations will run for another week. In the works is a five-point plan foreseeing a solution for Greece, bolstering of the European Financial Stability Facility rescue fund, fresh capital for banks, a new push to boost competitiveness and consideration of European treaty amendments to tighten economic management. Political, technical and legal constraints cloud the crisis-resolution strategy, due to be hammered out at an emergency Oct. 23 euro-area summit in Brussels under mounting pressure from markets and politicians around the world. “The current problems of the euro zone have all the elements of a classical tragedy: a brave and exciting hero launches into the world, but is marred by fatal flaws,” David Beim, a professor at Columbia Business School in New York, said in an e-mailed research paper. “Only radical action could save the common currency.”
- Germany Backing Italian Debt Seen Key to Europe Bank Crisis. Italian media reported last month that Prime Minister Silvio Berlusconi had been caught on wiretaps making disparaging sexual comments about German Chancellor Angela Merkel. A diplomatic blunder at any time, the insults were especially inopportune when the question haunting investors these days is whether Germany will get into bed with Italy. European bank stocks have fallen as borrowing costs climbed in recent months amid rising concern that they may have to take greater losses on debt issued by Greece, Italy, Ireland, Portugal and Spain. As policy makers seek to make lenders hold more capital to absorb potential losses, investors and analysts say the banking crisis can’t be solved unless Germany, the region’s richest country, shows it’s willing to stand behind Italy and Spain, Europe’s biggest borrowers. “What needs to happen as part of this package is that the possibility, the discussion or even remote likelihood of haircuts on Spain and Italy needs to be killed and taken out of the market,” Philippe Bodereau, a portfolio manager and global head of financial institutions credit research at Pacific Investment Management Co., said in an Oct. 12 interview with Bloomberg Television. “Bank recapitalizations are necessary but not sufficient.”
- European Banks Face Investor Boycott in Search for Capital. Shareholders in European banks are resisting calls to pump more capital into the industry, pressure that may leave taxpayers as the investors of last resort. European Union leaders are working on a plan that may force banks to raise 100 billion euros ($137 billion) to more than 300 billion euros in additional capital, according to analysts' estimates. That money would come either from existing investors or state funding that may come with strings attached. Schroders Plc and Swisscanto Asset Management say they're reluctant to invest, given a failure to resolve the region's fiscal crisis may send financial stocks even lower. “Banks need to regain investor confidence and show how they can perform before they can raise capital,” said Peter Braendle, who helps manage 52 billion Swiss francs ($58 billion) at Zurich-based Swisscanto, including Deutsche Bank AG shares. “The market is waiting for a good solution to the sovereign- debt problems.”
- Germany, France Disagree on EU Treaty Reform, Handelsblatt Says. Germany and France disagree over a reform of the Lisbon Treaty that would allow the European Union to influence economic policies of debt-strapped countries, the newspaper Handelsblatt reported, citing an unidentified EU official. While French President Nicolas Sarkozy favors an agreement for the 17-nation euro area, German Chancellor Angela Merkel is seeking a deal for all 27 EU states, the newspaper said. Germany wants to include a passage into the declaration following an Oct. 23 summit of leaders that would kick-start negotiations about a treaty reform, Handelsblatt added.
- France Could Restrict Banks Right to Pay Dividends, Figaro Says. France could restrict the right of banks to pay dividends to make sure they keep lending, daily Le Figaro reported, citing an unidentified person close to the country’s finance minister Francois Baroin. The newspaper cited a person described as a financial specialist as saying that French banks wouldn’t be in their current situation had they not paid out so much in dividends over the last three years. The French government isn’t deaf to market demands for bank refinancing, the newspaper cited an unnamed person in the finance ministry as saying. The ministry believes that French banks are solid and that they don’t have problems of liquidity or solvency, Le Figaro added.
- Luxembourg's Prime Minister Jean-Claude Juncker said European politicians will have to consider forcing investors to write down their Greek sovereign debt holdings should their contribution be insufficient.
- China's Li 'Gravely Concerned' at U.S. Yuan Bill, Xinhua Says. China is gravely concerned about the potential passage of U.S. legislation letting companies seek duties to compensate for an undervalued yuan, Vice Premier Li Keqiang said, according to Xinhua News Agency. Politicizing economic and trade issues can only harm China- U.S. ties and obstruct the global recovery, Li told visiting former U.S. Secretary of State Condoleezza Rice today, according to the state-run news agency. Li also called on the U.S. to bear in mind the overall interests of bilateral relations, respect China’s core interests and grave concerns and properly handle sensitive issues, Xinhua reported.
- State Revenue Under Plan Means Cuts From New York to California. New York, California and Florida are among states reporting revenue collections trailing forecasts in the fiscal first quarter, prompting preparations for a fresh round of budget reductions. California’s receipts fell more than 3 percent short of estimates for the three months through September, raising concern that school aid may be cut. In fiscal 2013, New York state may face a $2.4 billion deficit because of smaller Wall Street bonuses and job cuts, Comptroller Thomas DiNapoli said Oct. 11. States are projecting combined budget gaps of $31.9 billion in fiscal 2013, according to the National Conference of State Legislatures in Denver. A 14 percent third-quarter drop in the Standard & Poor’s 500 Index, the worst performance since the end of 2008, and concern that Europe’s debt crisis may spread have dented consumer and business confidence, curbing tax receipts.
- China Lending Shrinks as Wen Wrestles With Inflation Over 6%. China’s bank lending last month was the least since 2009 as inflation stayed above the government’s target, highlighting the risk that efforts to tame prices will trigger a slowdown. New loans were 470 billion yuan ($73.7 billion), central bank data showed today. Consumer prices rose 6.1 percent compared with a 4 percent goal, the statistics bureau said. M2, the broadest measure of money supply, rose 13 percent from a year earlier, the least in almost a decade, and data for foreign-exchange reserves pointed to capital outflows.
- Euro-Region Inflation Quickens on Energy Costs. European inflation accelerated to the fastest in almost three years in September on soaring energy costs, complicating the European Central Bank’s task as it combats the region’s sovereign-debt crisis. The euro-area inflation rate jumped to 3 percent last month from 2.5 percent in August, the European Union’s statistics office in Luxembourg said today. That’s the biggest gain since October 2008 and in line with an initial estimate published on Sept. 30. Energy costs jumped 12.4 percent in the period.
- EU May Impose Limits on Commodities Derivatives, High-Frequency Trading. The European Union may impose position limits for commodities derivatives and curbs on high- frequency trading as part of plans to overhaul the region’s financial-market rules. The European Commission, the 27-nation EU’s executive arm, is seeking limits on the number of commodity derivative contracts “any given market members or participants can enter into over a specified period of time, or alternative arrangements” with the same impact, according to copies of proposals set for release on Oct. 20 that were obtained by Bloomberg News. French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices. He has made the issue a priority of France’s presidency this year of the Group of 20 nations.
- IBM(IBM) May Climb Past Record to at Least $200. International Business Machines Corp. (IBM), which rose to an intraday record today, may keep climbing to $200 or more, according to analysts who are boosting their price targets for the stock. Eight of the 19 analysts with price targets surveyed by Bloomberg estimate IBM will rise to at least $200, 7.1 percent above yesterday’s close, according to data compiled by Bloomberg. Three analysts increased their price targets to $200 or more this week, ahead of IBM’s Oct. 17 earnings announcement, and Macquarie Capital began coverage with a $210 target today. “IBM’s high recurring revenue business model has ‘Goldilocks’ characteristics, allowing IBM to perform well in a good or bad macro environment,” said Louis Miscioscia, an analyst for Collins Stewart, who raised his price target to $210 today and has a “buy” rating on the stock.
- Retail Sales in September Rose More Than Forecast. Retail sales rose in September by the most in seven months, showing American consumers are helping the world’s largest economy fend off a slump. Purchases grew 1.1 percent, exceeding the median forecast of economists surveyed by Bloomberg News, Commerce Department data showed today in Washington. Another report called into question whether gains in spending can be sustained as household confidence unexpectedly dropped this month.
- China Cracks Down on Informal Lending. China's banking regulator has issued new rules to rein in off-balance-sheet lending by banks that has stoked fears about excessive credit growth and the long-term stability of the country's financial system. In a directive marked "extra urgent," according to people who have seen the document, the China Banking Regulatory Commission banned banks from moving loans off their books by repackaging them into investment products —an increasingly popular practice among banks trying to get around Beijing's lending controls aimed at bringing down inflation.
- ECRI Leading Index Keeps Getting Worse. (graph) This is getting interesting: The Economic Cycle Research Institute’s weekly leading index is rolling over even harder, suggesting a deeper slowdown ahead, even as trailing economic data are coming in better than expected and the stock market rallies. The ECRI’s leading index fell to its lowest level in more than a year this week, as did its rolling growth rate, which fell to nearly -10%. The ECRI has declared that a recession is a done deal, based on super-secret longer leading indicators it only shares with its paying clients.
- US Budget Deficit Hits $1.3 Trillion in Fiscal 2011.
- Consumer Sentiment Falls, Expectations at 30-Year Low. U.S. consumer sentiment unexpectedly slumped in early October as worries about declining incomes drove consumer expectations back down to the lowest level in more than 30 years, a survey released Friday showed. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment sagged to 57.5 from 59.4 the month before. It fell short of the median forecast of 60.2 among economists polled by Reuters. Consumers' outlook also deteriorated with the gauge of consumer expectations falling to its lowest level since May 1980 at 47.0 from 49.4. The index had fallen to this level in early September before being revised up at the end of the month. The component has shed more than 20 points since the beginning of the year. "Overall, the data indicate that a recessionary downturn is likely to occur," survey director Richard Curtin said in a statement.
- Here Are Occupy Wall Street's Plans For A National Convention That Could Change The Face Of America.
- Obama Is Sending 100 American Troops To Central Africa. President Obama has authorized 12 troops for immediate deployment to Uganda to help in the fight against the Lord's resistance Army. The 12 will leave with "appropriate combat equipment" to be followed by 88 other troops, including a second combat team and HQ, a communications team, and logistics personnel.
- WHOA! Apple(AAPL) Could Sell 4 Million Phones This Weekend.
- Short Interest Slides as Market Squeeze Takes Victims. (graph)
- UBS Kills Latest European Bailout Proposal: "Why a 50% Haircut On Greek Debt Will Not Work".
- S&P Downgrades BNP From AA to AA-, Lower Hybrid Capital Instrument Rating On All Top Five French Banks.
- IMF Needs Around $350 Billion More Capital: G20 Source. The International Monetary Fund may need a capital injection of about $350 billion to give it more firepower to fight economic crises, an emerging market G20 source said on Friday. A second source at the G20 finance chiefs' talks in Paris cautioned that there was little chance of an agreement on any capital increase being agreed at their two-day meeting. The IMF is weighing whether it could expand its rescue lending capacity through debt issuance or bilateral borrowing as part of a review of its crisis-fighting resources mandated by the lender's managing director, Christine Lagarde. Should a country the size of Italy or Spain need rescuing, the IMF's funds could be severely strained. But the IMF's dominant shareholders, including the United States, Japan, Germany and China, would likely be wary of a new independent funding source that could dilute their influence. Lagarde and the IMF staff have said the Fund's existing resources could prove woefully inadequate if Europe's crisis gets worse. A staff study obtained by Reuters suggested that the IMF may face demands for $840 billion in a "worst-case" scenario.
- New stress tests for European banks are set to examine all their debt holdings at market price, citing a European Union official.
- More Greek banks will need to use the Hellenic Financial Stability Fund if the loss on their Greek government bond holdings is more than 35%, citing fund officials. A cut in the value of the banks' government bond holdings of 50% would result in almost all Greek lenders resorting to the fund, following the example of Proton Bank, which was restructured on Oct. 10 with the Financial Stability Fund as the sole shareholder.
Beijing Evening News:
- Some banks in Beijing have raised loan rates for individuals buying first homes, citing bank officials. Rates increased 5%-10% more than the benchmark interest rates.