Thursday, January 26, 2012

Today's Headlines

  • Banks Hoarding ECB Cash to Double Company Defaults: Euro Credit. Corporate defaults may almost double in Europe as companies struggle to refinance debt and banks hoard cash borrowed from the European Central Bank or use it to buy government bonds. Europe’s default rate may soar to 8.4 percent or more, from 4.8 percent at the end of 2011 as the recession bites and company financing dries up, according to Standard & Poor’s. Petroplus Holdings AG (PPHN) became the latest victim of the tough stance banks are adopting when the region’s biggest independent oil refiner said this week it will file for insolvency after losing access to $2.1 billion of credit lines. “It’s very challenging for anyone to raise money from lenders right now,” said Andrew Cleland-Bogle, a Frankfurt- based director at corporate finance specialist DC Advisory Partners. “Combine that with increased bank capital requirements and you can see that although banks are getting money they’re very selective when it comes to lending it. 2012 is going to be a very, very tough year.” Speculative-grade companies have to refinance about 230 billion euros ($300 billion) through 2015, according to S&P. At the same time, banks and loan funds that provided the initial funding are scrambling for capital or reaching the end of their reinvestment periods and may be unwilling to extend loans. Banks are using the 489 billion euros they borrowed at 1 percent from the ECB under its three-year longer-term refinancing operation to scoop up government bonds yielding more than 2.5 percentage points extra instead of lending the money to companies.
  • EU Delays Bank Bond Writedown Plans Until Fiscal Crisis Abates. Michel Barnier, the European Union's financial services chief, said he'll wait until the region is “past the worst” of its fiscal crisis before unleashing proposals to write down creditors at failing banks. “We have to get past the worst of this crisis to present this proposal at the right moment,” the European Commissioner said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. That may be in “some weeks, or rather some months.”
  • Socialist Hollande Pledges Tax Breaks End, Eased Pension Measure. Francois Hollande, the Socialist candidate seeking to unseat President Nicolas Sarkozy, pledged to ease the government’s pension overhaul and increase taxes to pay for the reversal. Hollande, 57, the frontrunner in the presidential campaign, advocated forcing banks to separate retail and investment operations. He’ll raise levies on the wealthy to finance an expansion of the civil service while respecting budget-cutting commitments. The measures were among 60 in a platform published today. “We must make an effort for more fairness and to rein in the financial industry,” Hollande said in Paris. “We will separate the speculative sector from the credit sector.”
  • China Says Sanctions on Iran Not 'Constructive,' Xinhua Reports. China said sanctions on Iran’s oil exports are not “constructive” and urged relevant parties to settle international disputes through dialogue, the official Xinhua News Agency reported today, citing comments from the Ministry of Foreign Affairs. The ministry made the comment after the European Union decided on Jan. 23 to place an embargo on Iran’s oil exports, and to introduce a number of other financial sanctions, the report said.
  • Crude Oil Surges as Fed Commits to Low Rates. Futures advanced above $100 a barrel as Fed Chairman Ben S. Bernanke said yesterday that policy makers are considering more bond purchases to boost growth after extending the pledge to maintain interest rates. Crude oil for March delivery rose $1.07, or 1.1 percent, to $100.47 a barrel at 12:29 p.m. on the New York Mercantile Exchange. Prices touched $101.39, the highest level since Jan. 19. Futures are up 15 percent in the past year. Brent oil for March settlement climbed $1.17, or 1.1 percent, to $110.98 a barrel on the London-based ICE Futures Europe exchange.
  • IRS Should End Commodity Mutual-Fund Runaround, Levin Says. U.S. tax authorities should stop a private rulemaking process that has encouraged speculation in oil and agricultural markets by letting mutual funds exceed limits on commodity investments, Senator Carl Levin said. The Internal Revenue Service’s so-called private letter rulings, which let funds use foreign corporations and other strategies to escape the tax implications of boosting commodity holdings above 10 percent of assets, are a “runaround” of the law that reflects a “tortured reading,” Levin said at a news conference yesterday.
  • First-Time Jobless Claims in U.S. Increase. Applications (INJCJC) for unemployment insurance payments climbed by 21,000 to 377,000 in the week ended Jan. 21, up from an almost four-year low in the prior period, Labor Department figures showed today in Washington. The median forecast of 47 economists in a Bloomberg News survey projected 370,000. The four-week moving average, a less volatile measure than the weekly figures, fell to 377,500 last week from 380,000. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 2.8 percent from 2.7 percent, today’s report showed.
  • U.S. Durable Goods Orders Beat Expectations. Orders for U.S. durable goods climbed more than forecast in December, pointing to a rebound in business investment that will help support the world’s largest economy in early 2012. Bookings (DGNOCHNG) for long-lasting goods advanced 3 percent after rising 4.3 percent the prior month, the biggest back-to-back gains in almost a year, according to Commerce Department data today in Washington.
  • New Home Sales in U.S. Fell in December. Sales of new U.S. homes unexpectedly declined in December for the first time in four months, capping the slowest year on record for builders.
Wall Street Journal:
  • U.S. Money-Market Funds Cut Euro Zone Bank Debt Holdings. U.S. money-market funds held less debt from banks in the euro zone at the end of 2011 than at any point since at least 2006, according to a Fitch Ratings survey. These funds, among the most conservative and largest lenders, now hold $64 billion, or 10% of their total assets—$644 billion at the end of December—in euro-zone bank debt.
  • Watchdog: Treasury's 2008 Financial Rescue Could Last Until 2017. The U.S. government's rescue of the financial system could last for five more years as the Treasury Department unwinds its investments in hundreds of banks and other companies propped up in the aftermath of the 2008 financial crisis, a government watchdog said Thursday. The Bush administration launched the financial rescue plan in the autumn of 2008 at the height of the financial crisis. At its launch, Congress authorized spending $700 billion on the bailout known as the Troubled Asset Relief Program, or TARP.
  • Portugal 5-Yr CDS Wider At Fresh Record High Of 1365 - Markit. The cost of insuring Portuguese debt against default rose to a fresh record high Wednesday, building on records hit this week as investors remain wary due to a lack of clarity on Greece's debt restructuring talks. Portugal's five-year credit default swaps--derivatives that function like a default insurance contract for debt--hit 1365 basis points, 71 basis points wider to Tuesday's close, according to data provider Markit. Portugal was recently downgraded to "junk" by all three major credit rating companies. Portugal is dramatically underperforming the iTraxx SovX Western Europe index--which investors can use to buy or sell credit default swaps on a basket of 15 sovereign borrowers--which at 1238 GMT was eight basis points tighter at 317/322.
  • Monster Worldwide(MWW) to Cut 7% of Jobs. Monster Worldwide Inc. MWW -18.15% reported disappointing fourth-quarter results and gave a downbeat outlook as its chief executive said uncertainty about the economy's direction continues to weigh on hiring. The job-search software maker also said it plans to cut its workforce by 7%. "One thing business doesn't like is indecision," Monster Chief Executive Sal Iannuzzi said in an interview. "We are in a very confused period in terms of whether the economy will stay status-quo or improve or deteriorate further." The results indicated that despite some recent signs of economic stabilization in the U.S., the company's customers remain uneasy.
  • Participants in the World Economic Forum have an attitude to the financial crisis similar to "rearranging the deck chairs ion the Titanic," William Browder, founder of Hermitage Capital Management, said.
  • Is Fed Move a Sign to Buy Defensive Stocks?
Business Insider:
Zero Hedge:
  • Next Xbox to Prevent You From Playing Used Games? Gaming news site Kotaku reported yesterday that the so-called Xbox 720 will incorporate some type of anti-used game technology. Citing a "reliable industry source," Kotaku admitted that it's not clear how such a technology would be set up and if it means the Xbox wouldn't play used games at all.

Denver Post:

  • Hedge Funds Regret Buying Greek Debt. Hedge funds that loaded up on Greek bonds in the past month — betting on a quick gain — are scrambling to sell those holdings, fearful that European policymakers will force them to take a deep and binding haircut on the debt. But walking away from the trade may not be that easy. While the money managers had little problem snapping up the bonds from European banks eager to sell, the pool of potential buyers is drying up.
Bespoke Investment Group:


  • JPMorgan(JPM) CEO Says Foreclosure Deal Threatened. JPMorgan Chase & Co Chief Executive Jamie Dimon said President Barack Obama's decision to expand investigations into home lending and sales of mortgage securities could stop settlement talks with the states over foreclosure practices. "It has a pretty good chance of derailing it," Dimon said in a televised interview with CNBC from Davos, Switzerland on Thursday.


Financial Times Deutschland:

  • India may place sanctions against Deutsche Lufthansa AG, Air France-KLM, and British Airways to protest the EU's emissions trading system for airlines.


  • European Central Bank Governing Council member Jens Weidmjann said any "large scale" bond purchases by the ECB would damage the euro, citing an interview. Weidmann was quoted by the magazine as saying that turning the ECB into a lender of last resort for governments would "endanger the existence of the currency union as a union of stability."

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