Monday, December 19, 2011

Today's Headlines

  • Draghi Says There's No 'External Savior' for Countries That Won't Reform. European Central Bank President Mario Draghi said there is no “external savior” for countries that don’t implement structural reforms to restore confidence to debt markets. “There is no external savior for a country that doesn’t want to save itself,” Draghi said in a speech in Berlin today. “I will never tire of saying the first response should come from the countries.” The ECB is buying the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated today that the ECB’s bond program is “neither eternal nor infinite.” He said an “unavoidable” short-term economic contraction in the euro area may be mitigated by a return of confidence if governments implement budget consolidation plans. “In the medium term, sustainable growth can be achieved only by undertaking deep structural reforms that have been procrastinated for too long,” he said.
  • Schaeuble Says 'No Chance' U.S. Will Help in IMF Boost. German Finance Minister Wolfgang Schaeuble said he sees “no chance” that Congress would approve more U.S. money for the International Monetary Fund as a backstop against Europe’s debt crisis. Getting European countries to boost their IMF contributions is “more of a technical matter,” Schaeuble said in an interview on Deutschlandradio today, before a conference call among euro-area finance ministers. Germany’s Bundesbank will contribute if it’s guaranteed that the money will flow as a bilateral credit to the Washington-based fund’s general account, Schaeuble said. “In that case, the Bundesbank is in agreement.”
  • German FDP’s Bruederle Sees Dissent on ESM Vote, Bild Says. Some lawmakers from Chancellor Angela Merkel’s Free Democratic coalition partner will probably vote against approving Europe’s permanent rescue fund when it goes to the German lower house, Rainer Bruederle, the party’s parliamentary leader, was quoted as saying by Bild. A few FDP members dissented in recent votes on euro-area matters and a similar thing is likely to happen when the European Stability Mechanism goes before the Bundestag in Berlin, Bruederle was quoted as saying in an interview in the newspaper today.
  • Spain Bad Loans Rise to Highest Level Since '94 on Property Crash: Economy. Spanish banks reported more bad loans and lower lending and deposits in October, hurt by the fallout of the country’s property crash and the European sovereign debt crisis. The ratio of bad loans as a proportion of total lending climbed to 7.42 percent, the highest level since 1994, from 7.16 percent in September and 5.68 percent a year earlier as the value of borrowings in default rose to 131.9 billion euros ($171.9 billion), the Bank of Spain in Madrid said in a statement today. Lending fell 2.5 percent from a year ago, following a record 2.6 percent drop in September, and deposits slid 2.2 percent to their lowest level since 2008. Rising defaults and declining loans and deposits show how banks are suffering from the fallout of Spain’s property slump and a wider European debt crisis that has shut them out of wholesale debt markets. Spain’s Prime Minister-elect Mariano Rajoy, who is making an inaugural speech to parliament today, said that a “second wave” of restructuring of Spain’s banks is inevitable, including more mergers. “What we have been saying for a while, and I think the banks themselves have been in denial on this, is that the asset quality decline has not bottomed out yet because unemployment is still going up,” said Inigo Lecubarri, who helps manage about $300 million at Abaco Financials Fund in London. “A non- performing loans ratio of 7.4 percent is already very bad. Ten percent would be catastrophic and it’s not impossible we could get there.”
  • Rajoy Vows Leaner Public Sector Amid 'Dark' Spain Outlook. Prime Minister-elect Mariano Rajoy pledged to shrink Spain’s public sector and reduce spending to tackle the euro area’s third-largest budget deficit without saying how he’ll finance higher pensions and tax breaks. “Expectations for the next two quarters are not good at all,” Rajoy said. With the economy “growing by half the rate of the rest of the European Union,” Spain is “being left behind” and “the outlook couldn’t be darker,” he said.
  • U.S. Homebuilder Confidence Rises. Confidence among U.S. homebuilders rose in December for a third consecutive month, a sign of stabilization in the housing market. The National Association of Home Builders/Wells Fargo index of builder confidence climbed to 21, the highest level since May 2010, from a revised 19 in November that was lower than first reported, the Washington-based group said today. Economists projected an index of 20, according to the median forecast in a Bloomberg News survey. Readings below 50 mean more respondents said conditions were poor. Borrowing costs near a record low are attracting some prospective home buyers.
  • Fed's Lacker Predicts U.S. Growt of Up to 2.5% in '12 Amid Inflation Risk. Federal Reserve Bank of Richmond President Jeffrey Lacker predicted the U.S. economy will grow 2 percent to 2.5 percent next year, with inflation likely to meet goals though posing a risk. The recent cooling in prices “is likely to prove as transitory, as did the acceleration we saw earlier in the year,” Lacker said in a speech in Charlotte, North Carolina. “Despite this year’s run-up, I believe the inflation outlook is reasonably good” though “I still view the risks to inflation as tilted to the upside.”
  • Twitter Gets $300 Million Alwaleed Investment Amid Site Revamp. Twitter Inc., the microblogging service with more than 100 million users, won a $300 million investment from Saudi investor Prince Alwaleed bin Talal as it pushes through a redesign of its site to attract advertisers. Alwaleed and his investment company agreed to buy a “strategic stake,” Kingdom Holding said today, without giving details.
  • North Korean Stability May Hinge on Military's Acceptance of Kim Dynasty. The stability of nuclear-armed North Korea may hinge on whether its military and the family of deceased dictator Kim Jong Il agree that his little-known, twenty-something son can extend six decades of dynastic rule. Kim Jong Un was named to high-level military and party posts in September 2010. Kim Jong Il, who died of a heart attack Dec. 17, groomed his son for succession by featuring him prominently at a party congress and having him meet with foreign dignitaries. The younger Kim is slated to take the reins of an economy whose 24 million largely impoverished people -- five percent of whom serve in the military -- have almost no access to outside media and suffer from chronic malnutrition. North Korea shows no signs of abandoning its nuclear weapons program in the face of global sanctions and any sign of concessions from the new leader could undermine his position.
  • Egypt's Army Blames Protestors for Violence. Egypt’s military accused protesters of “methodical” attacks and said soldiers showed self- restraint as clashes continued for the fourth day in central Cairo, leaving 12 people dead and hundreds injured. Groups of demonstrators surrounded the bloodstains of a protester they said was killed by a bullet to the head when soldiers charged at dawn into Tahrir square, the focus of the revolt that toppled President Hosni Mubarak. In addition to the deaths, 815 people were injured, the state-run Middle East News Agency said. The violence is the latest confrontation between protesters and the military, which took interim power after Mubarak was ousted in February. The unrest threatens to further undermine the ailing economy, with the benchmark stock index down more than 46 percent this year and the country missing its target for the sale of Treasury bills today. “The ruling supreme military council is becoming more rigid and aggressive and appears incapable of marginalizing protesters without resorting to violence,” Hani Sabra, an analyst on the region for the New York-based Eurasia Group, said today by e-mail. “The military appears incapable of discipline and has failed to capitalize on its popularity.”
Wall Street Journal:
  • EU Loans to IMF Likely to Fall Short of Expected EUR200 Billion: Sources. Euro-zone finance ministers will try Monday to finalize a loan to the International Monetary Fund, but the European Union as a whole is unlikely to meet the EUR200 billion target set by leaders on Dec 9, IMF and euro-zone officials said. "There will be an effort to get an agreement on the EUR150 billion committed by the euro zone, but it's not certain it will happen today and it certainly looks like we'll fall short of the total EUR200 billion by all of the EU," said a senior IMF official.
  • EU Admits Tax Hikes, Spending Cuts Risk For Jobs. A new report released by the European Commission late last week underlines the devastating consequences of the financial crisis on youth employment, and acknowledged the difficulty in implementing policies to alleviate this crisis as the European Union focuses on austerity. “Young people remain the hardest hit by the crisis and its aftermath,” says the report, and the faltering recovery is expected to make things worse. “In short, income shocks may prove permanent and income losses at the bottom of the distribution can be persistent.” The consequences can be long-term scarring for youth, with future employability and earnings at risk. The EU report also concludes that the risks of long-term exclusion from the labor market and society are increasing for the jobless.
  • Foreign Banks Stressed in U.S. as Funds Dry Up: Credit Markets. U.S. branches of foreign banks, struggling to tap American markets for short-term funding amid the European debt crisis, are using up their cash at the fastest pace since at least 2006 and seeking infusions of dollars from their home countries. Non-U.S. banks' cash plunged almost 40 percent, or $420 billion, in the five months ended Nov. 30, leading to an 18 percent decline in assets, according to Federal Reserve data tracked by Barclays Plc. The Fed's swap lines to foreign central banks, used to make dollars available abroad, surged last week after six central banks lowered the cost of obtaining greenbacks on Nov. 30. U.S. commercial paper issued by foreign banks fell to the lowest level since August 2009. "There has been a dramatic melting away since the end of June of non-U.S. banks cash holdings," said Joseph Abate, a strategist at Barclays Capital in New York. "As financing conditions have tightened and come under stress, foreign banks' U.S. branches have switched from exporting dollars back to their headquarters to effectively importing them." Banks are losing access to U.S. funding as European leaders fail to convince investors they can contain a crisis that led to bailouts of Greece, Ireland and Portugal and now threatens Italy and Spain. French banks lost almost 50 percent of their financing from money-market funds in the five-month period ended Nov. 30, Barclays said. The premium lenders pay to convert euro payments into dollars soared to the most since 2008.
  • House Members Received VIP Loans. Oversight Panel Raises Concern of 'Possible Wrongdoing' in Borrowings From Countrywide Financial by Four in Congress. Four current members of the House of Representatives received loans through the controversial VIP program of Countrywide Financial Corp., according to the chairman of a congressional committee, raising new questions about possible efforts to curry political influence by the onetime mortgage giant whose troubles helped spark the 2008 financial meltdown. The disclosure of the congressional loans came in a Friday letter from Rep. Darrell Issa (R., Calif.) to the House ethics committee alerting members of that panel of "possible wrongdoing by Members of Congress."
  • Schnitzer(SCHN) Sees Worse-Than-Expected 1Q On Weakened Demand. Schnitzer Steel Industries Inc. (SCHN) expects to post weaker than expected fiscal first-quarter results as a result of a weaker-than-anticipated global market for recycled metals. Shares were down roughly 6% at $43.01 in recent premarket trading. Through Friday's close, the stock is down 31% this year. The company said heightened concerns about the global economy led to a significant slowdown in buying patterns and a rapid decline in average selling prices during the quarter. For the period ended Nov. 30, Schnitzer forecast per-share earnings of 18 cents to 25 cents. Analysts polled by Thomson Reuters recently projected 55 cents. Schnitzer now expects operating earnings per ferrous ton to fall about 50% from year-earlier levels of $21 a ton in the metals recycling segment -- its largest business. In December, Schnitzer had expected operating earnings would be roughly flat with the year-earlier period. Operating income in the auto-parts segment is expected to decline 30%.
  • Chinese Villagers Vow Protests Will Persist. Residents of this besieged southern village vowed to carry on protests this week and showed signs of settling in for a protracted standoff with Chinese authorities, even amid indications that the government has stepped up security efforts in the region. On Sunday, residents from other villages donated bags of rice and other supplies to Wukan, according to locals. The village's main square was quiet Sunday night, but resident left benches and a stage set up for more rallies planned later this week.
Business Insider:
Zero Hedge:
New York Times:
  • ECB Warns of Dangers Ahead for Euro Zone Economy. The European Central Bank warned Monday of a perilous year ahead as the sovereign debt crisis collides with slower economic growth and a dearth of market funding for banks. But the E.C.B., in its twice-yearly assessment of risks to the euro area financial system, did not mention one risk that clearly weighs on many investors, economists and political leaders: the possibility that the euro zone could break up.

The Daily:

  • FBI Launches Probe of Fannie, Freddie. Federal investigators want to know whether executives at mortgage finance giants Fannie Mae and Freddie Mac misled investors and the public about risky mortgages in the lead-up to the 2008 financial crisis. High-ranking sources with the Department of Justice told The Daily that the FBI and other federal authorities have launched investigations into the matter. The development comes as the Securities and Exchange Commission filed suit yesterday against six former top executives at Fannie and Freddie.
  • NYC Takes Anti-Hedge Fund Tax Stance. New York City has long held a reputation as America's financial center. The city is home to major exchanges, banks and some of the world’s largest hedge funds. Indeed, the city's mayor Michael Bloomberg made a name for himself providing services for financial professionals. However, this may be changing as city finance officials have opted to abruptly reassess how they collect taxes from hedge funds. I spoke with Alexis Gelinas, Attorney at New York based law firm Sadis & Goldberg LLP, about the shift and its potential impact.
  • Britain Refuses to Take Part in EU IMF Fund: Sources. British finance minister George Osborne told European Union colleagues on Monday he would not take part in any proposed EU cash boost to the International Monetary Fund specifically aimed at the euro zone debt crisis, Treasury sources said. "We were clear that we would not be making a contribution," one source said. Another said there was "no agreement on the 200 billion" fund.
  • Copper Slips on China Slowdown Fears.
The Economist:
  • Gasping for Breath. Short of authority and direction, India’s rulers flail in the face of growing problems.



  • Greece's government needs to adopt additional measures worth $2.6 billion in the first quarter of next year. A team of officials from the European Commission, ECB and IMF asked Greece to have the additional measures ready when it returns to Athens next month. The troika wants the measures, which are to be implemented in the first three months of next year, to be part of a second international bailout Greece is negotiating which is due to be signed in June.

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