U.S. 10-year notes had their first monthly gain since January as concern the Greek debt crisis will spread fueled demand for the safest government securities even as the U.S. economic recovery showed signs of accelerating.
Treasury yields fell yesterday as investors sought to guard against a breakdown in talks between Greece and the European Union and International Monetary Fund on 24 billion euros ($32 billion) in budget cuts. The Labor Department will report on May 7 that the U.S. economy added 190,000 jobs in April, the most since March 2007, according to the median forecast of 58 economists in a Bloomberg News survey.
“The U.S. can post good economic numbers and companies can post good earning numbers, but if this thing spirals out in Europe, then we too will feel it,” said George Goncalves, head of interest-rate strategy in New York at Nomura Holdings Inc., one of the 18 primary dealers that trade with the Federal Reserve. “That’s why you’re having Treasuries rally.”
The 10-year note yield fell 6 basis points, or 0.06 percentage point, to 3.67 percent yesterday in New York, according to BGCantor Market Data. The price of the 3.625 percent security due in February 2020 rose 17/32, or $5.31 per $1,000 face amount, to 99 21/32.
The yield fell 15 basis points in April and reached 3.65 percent yesterday, the lowest level since March 23. The two-year note’s yield dropped 6 basis points last month to 0.96 percent.
Treasuries returned 0.7 percent in April as of April 29 after a loss of 0.9 percent in March, according to indexes compiled by Bank of America Merrill Lynch.
U.S. Growth
Barclays Plc estimated the duration of its U.S. Treasury Index will rise by 0.6 years, the smallest extension this year. The average extensions this year has been 0.9 years. Duration measures price sensitivity to changes in yield, and is partly a function of maturity.
U.S. gross domestic product increased at a 3.2 percent annual pace from January through March, the Commerce Department said yesterday. That was less than the 3.3 percent median estimate of 85 economists surveyed by Bloomberg News.
“Risk assets in general will find this to be encouraging,” said Keith Blackwell, an interest-rate strategist at primary dealer Royal Bank of Canada in New York. “That’s going to put upward pressure on yields.”
The inflation gauge used by the Fed that’s tied to consumer spending and strips out food and fuel costs climbed at a 0.6 percent annual rate in the first quarter, higher than the 0.5 percent median forecast in a separate Bloomberg survey.
Reversing Gains
“A few weeks ago you were pushing against the high end of that range and got rejected pretty firmly,” said Bill Bemis, a portfolio manager who helps oversee $40 billion in U.S. fixed income assets at Aviva Investors in Des Moines, Iowa, a unit of London-based insurer Aviva plc. “Now we believe you’re pushing against the bottom of it, and expect it to hold. We expect rates to be moving higher, and are positioned accordingly.”
The 10-year note yield will rise to 3.82 percent at the end of the quarter, according to a weighted average in a Bloomberg survey of 69 forecasters. The two-year note yield will climb to 1.15 percent by the end of June, according to a separate Bloomberg survey.
Futures on the CME Group Inc. exchange showed a 64 percent chance yesterday that the Fed will raise its target rate for overnight bank lending by at least a quarter-percentage point by December, compared with 63 percent odds a week earlier. The central bank has kept the rate between zero and 0.25 percent since December 2008.
Greek Crisis
Bonds and stocks in Europe’s most indebted nations fell in the past week as Greece’s budget turmoil forced the country to seek a bailout from the European Union and the International Monetary Fund, and Standard & Poor’s downgraded Greece, Portugal and Spain. The euro fell to a one-year low on April 28.
“The big news is what’s going on overseas,” said Theodore Ake, head of Treasury trading at Societe General in New York. “That’s going to be a bigger story, we just have to see what the timing is on it.”
U.S. note sales this week totaled record $129 billion as President Barack Obama borrows unprecedented amounts to sustain economic growth.
The central bank’s pledge to keep borrowing rates near zero for an “extended period” is raising concern the stance will make it harder for the policy-setting Federal Open Market Committee to keep prices in check as the economy expands.
The Fed reiterated the promise after a meeting April 28, and Kansas City Fed President Thomas Hoenig dissented for a third straight time.
Hoenig said “it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates,” according to the FOMC statement.
The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, narrowed to 2.40 percentage points.
Saturday, May 1, 2010
Chrysler May Boost U.S. Car Sales With Biggest Gain Since 2005
U.S. auto sales strengthened a year after bankruptcies began to batter the auto industry, with Chrysler Group LLC forecast to post its biggest monthly gain since 2005.
Industrywide deliveries in April may have risen to an annualized rate of 11.4 million light vehicles, the average of 8 analysts’ estimates compiled by Bloomberg, compared with a year earlier. Chrysler, which entered Chapter 11 on April 30, 2009, before emerging controlled by Turin, Italy-based Fiat SpA, may have climbed 15 percent, 6 projections show.
The yearly rate of domestic sales in April may be less than the 11.8 million seasonally adjusted annualized pace in March, when Toyota Motor Corp. offered its biggest incentives to counter global recalls, spurring competitors to add discounts.
“The automotive industry is in full-blown recovery,” said Jesse Toprak, vice president of industry trends and insight for TrueCar.com in Santa Monica, California. “Toyota’s generous incentives in April continue to bring consumers back into dealerships; however, the impact of its incentive programs in the marketplace appears to have diminished slightly in April.”
General Motors Co., which entered bankruptcy on June 1, and emerged in July, may post a 7.2 percent increase when industry sales are announced on May 3, while Dearborn, Michigan-based Ford Motor Co. may report a jump of 28 percent. Chrysler’s last double-digit increase was 27 percent in July 2005 when the Auburn Hills, Michigan-based carmaker was part of DaimlerChrysler AG.
Zero-Percent Financing
Asia-based automakers also benefited from incentives. Toyota sales may have risen 34 percent, the average of 5 analysts. The Toyota City, Japan-based automaker extended the no-interest loans and discount leases it offered in April, and competitors followed.
Honda Motor Co., Japan’s second-largest automaker after Toyota, may say sales rose 15 percent, the average of 4 analysts, while No. 3 Nissan Motor Co. may have a 57 percent gain. Seoul-based Hyundai Motor Co. may increase 35 percent, according to Santa Monica, California-based Edmunds.com.
“Honda sales in April got a boost from the uncharacteristically large offers it made available to prospective buyers, including zero-percent financing,” said Brian Johnson, a Barclays Capital analyst in Chicago.
Manufacturers, dealers and investors use the annualized rate to account for seasonal buying patterns when comparing monthly totals. The average estimate for an industry sales pace of 11.4 million vehicles would be a 23 percent increase from the 9.3 million of a year earlier, according to Autodata Corp.
Consumer Confidence Climbs
Automakers were buoyed by consumer confidence that rose in April to its highest since September 2008, as measured by the Conference Board’s monthly index.
“U.S. industry sales of light vehicles appear to have slowed down in April from the 11.8 million level achieved last month, as the initial boost from the large incentives offered since March by manufacturers across the board tapered off, and as automakers likely sold fewer cars to fleet customers,” Johnson said in an April 28 note to investors.
Ford fell 56 cents, or 4.1 percent, to close at $13.02 yesterday in New York Stock Exchange composite trading. Toyota’s American depositary receipts, each worth 2 ordinary shares, dropped $1.02, or 1.3 percent, to $77.09. Ford has gained 30 percent in 2010, and Toyota’s ADRs have declined 8.4 percent.
‘Feeling Better’
Toyota began offering incentives on March 2 such as subsidized leases after worldwide recalls of more than 8 million vehicles to fix defects linked to unintended acceleration and to adjust brakes. The company probably spent an average $2,416 on incentives on each vehicle last month, according to forecaster TrueCar.com.
The industry average is about $2,798, TrueCar.com said. Incentives are down 4 percent from March 2009, when Detroit- based GM and Chrysler boosted spending ahead of their bankruptcy filings.
John McEleney, who has a Toyota and a Buick, GMC and Cadillac dealership in Clinton, Iowa, said sales were up 30 percent at his Toyota store and increased about 20 percent among his GM brands.
“Sales were really pretty good, but not quite as good as March,” McEleney said, adding that sales may keep gaining this year. “We’re seeing a lot more showroom traffic and a lot more Internet activity. People are feeling better about their jobs, too.”
The following table shows estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from March 2009. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.
April had 26 selling days, the same as a year earlier.
GM Ford Chrysler SAAR
Rod Lache 4% 25% 22% 11.3
(Deutsche Bank)
Jesse Toprak 3.4% 32.1% 11% 11.5
(TrueCar.com)
Joseph Barker NA NA NA 11.3
(CSM Worldwide)
Jessica Caldwell 4.1% 26% 19% 11.2
(Edmunds.com)
Jeff Schuster NA NA NA 11.5
(J.D. Power)
Christopher Hopson 13% 17% 9% 11.2
(IHS Global Insight)
Himanshu Patel 14% 36% 20% 11.9
(JPMorgan)
Brian Johnson 5% 30% 11% 11.4
(Barclays Capital)
Average 7.2% 28% 15% 11.4
Industrywide deliveries in April may have risen to an annualized rate of 11.4 million light vehicles, the average of 8 analysts’ estimates compiled by Bloomberg, compared with a year earlier. Chrysler, which entered Chapter 11 on April 30, 2009, before emerging controlled by Turin, Italy-based Fiat SpA, may have climbed 15 percent, 6 projections show.
The yearly rate of domestic sales in April may be less than the 11.8 million seasonally adjusted annualized pace in March, when Toyota Motor Corp. offered its biggest incentives to counter global recalls, spurring competitors to add discounts.
“The automotive industry is in full-blown recovery,” said Jesse Toprak, vice president of industry trends and insight for TrueCar.com in Santa Monica, California. “Toyota’s generous incentives in April continue to bring consumers back into dealerships; however, the impact of its incentive programs in the marketplace appears to have diminished slightly in April.”
General Motors Co., which entered bankruptcy on June 1, and emerged in July, may post a 7.2 percent increase when industry sales are announced on May 3, while Dearborn, Michigan-based Ford Motor Co. may report a jump of 28 percent. Chrysler’s last double-digit increase was 27 percent in July 2005 when the Auburn Hills, Michigan-based carmaker was part of DaimlerChrysler AG.
Zero-Percent Financing
Asia-based automakers also benefited from incentives. Toyota sales may have risen 34 percent, the average of 5 analysts. The Toyota City, Japan-based automaker extended the no-interest loans and discount leases it offered in April, and competitors followed.
Honda Motor Co., Japan’s second-largest automaker after Toyota, may say sales rose 15 percent, the average of 4 analysts, while No. 3 Nissan Motor Co. may have a 57 percent gain. Seoul-based Hyundai Motor Co. may increase 35 percent, according to Santa Monica, California-based Edmunds.com.
“Honda sales in April got a boost from the uncharacteristically large offers it made available to prospective buyers, including zero-percent financing,” said Brian Johnson, a Barclays Capital analyst in Chicago.
Manufacturers, dealers and investors use the annualized rate to account for seasonal buying patterns when comparing monthly totals. The average estimate for an industry sales pace of 11.4 million vehicles would be a 23 percent increase from the 9.3 million of a year earlier, according to Autodata Corp.
Consumer Confidence Climbs
Automakers were buoyed by consumer confidence that rose in April to its highest since September 2008, as measured by the Conference Board’s monthly index.
“U.S. industry sales of light vehicles appear to have slowed down in April from the 11.8 million level achieved last month, as the initial boost from the large incentives offered since March by manufacturers across the board tapered off, and as automakers likely sold fewer cars to fleet customers,” Johnson said in an April 28 note to investors.
Ford fell 56 cents, or 4.1 percent, to close at $13.02 yesterday in New York Stock Exchange composite trading. Toyota’s American depositary receipts, each worth 2 ordinary shares, dropped $1.02, or 1.3 percent, to $77.09. Ford has gained 30 percent in 2010, and Toyota’s ADRs have declined 8.4 percent.
‘Feeling Better’
Toyota began offering incentives on March 2 such as subsidized leases after worldwide recalls of more than 8 million vehicles to fix defects linked to unintended acceleration and to adjust brakes. The company probably spent an average $2,416 on incentives on each vehicle last month, according to forecaster TrueCar.com.
The industry average is about $2,798, TrueCar.com said. Incentives are down 4 percent from March 2009, when Detroit- based GM and Chrysler boosted spending ahead of their bankruptcy filings.
John McEleney, who has a Toyota and a Buick, GMC and Cadillac dealership in Clinton, Iowa, said sales were up 30 percent at his Toyota store and increased about 20 percent among his GM brands.
“Sales were really pretty good, but not quite as good as March,” McEleney said, adding that sales may keep gaining this year. “We’re seeing a lot more showroom traffic and a lot more Internet activity. People are feeling better about their jobs, too.”
The following table shows estimates for car and light-truck sales in the U.S. Estimates for companies are a percentage change from March 2009. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.
April had 26 selling days, the same as a year earlier.
GM Ford Chrysler SAAR
Rod Lache 4% 25% 22% 11.3
(Deutsche Bank)
Jesse Toprak 3.4% 32.1% 11% 11.5
(TrueCar.com)
Joseph Barker NA NA NA 11.3
(CSM Worldwide)
Jessica Caldwell 4.1% 26% 19% 11.2
(Edmunds.com)
Jeff Schuster NA NA NA 11.5
(J.D. Power)
Christopher Hopson 13% 17% 9% 11.2
(IHS Global Insight)
Himanshu Patel 14% 36% 20% 11.9
(JPMorgan)
Brian Johnson 5% 30% 11% 11.4
(Barclays Capital)
Average 7.2% 28% 15% 11.4
BP, Transocean Lawsuits Surge as Oil Spill Spreads in Gulf
BP Plc and Transocean Ltd. face at least 36 lawsuits, including group cases with potentially thousands of plaintiffs, over environmental damage and personal injuries caused by the oil spill in the Gulf of Mexico.
At least 31 proposed class-action suits have been filed in courthouses from Texas to Florida. Commercial fishermen, shrimpers, charter-boat operators and beachfront-property owners asked to represent anyone whose livelihood depends on coastal waters imperiled by the drifting oil. At least 24 cases were filed yesterday.
BP has the primary liability for damage caused by the spill, said Keith Hall, an attorney in New Orleans, who isn’t involved in the litigation. He cited a U.S. law passed after the Exxon Valdez oil spill at Alaska in 1989.
“Under the Oil Pollution Act, the fact that it was BP’s oil is enough,” said Hall, of Stone Pigman Walther Wittmann LLC. Plaintiffs “don’t have to show they were negligent or grossly negligent,” he said.
Transocean’s spokesman Guy Cantwell and BP’s Daren Beaudo didn’t respond to requests for comment on the rapid rise in lawsuits. Both men said previously it was against company policy to comment on pending litigation.
Lawsuits also name Cameron International Corp., which provided blowout-prevention equipment, and Halliburton Energy Services Inc., which was involved in cementing the well.
Cameron, Halliburton
Scott Amann, a spokesman for Houston-based Cameron, the second-largest U.S. maker of oilfield equipment behind National Oilwell Varco Inc., said the company doesn’t comment on litigation.
Cathy Mann, a spokeswoman for Houston-based Halliburton, the second-largest oilfield contractor behind Schlumberger Ltd., said the company is cooperating with investigations into the accident. She said “it is premature and irresponsible to speculate on any specific causal issues.”
The suits are multiplying as the companies struggle to cap a damaged undersea well leaking 5,000 barrels of crude oil a day since the Deepwater Horizon drilling rig exploded April 20. The edge of the spill has begun washing ashore in Louisiana and may reach Florida’s coast early next week.
“The litigation is spreading faster than the slick,” said Houston-based plaintiffs’ attorney Tommy Fibich in an interview. “BP may be as endangered as the brown pelican. This litigation will dwarf other corporate catastrophes.”
‘Tremendous Disaster’
“There are big losses already,” Robert Cunningham, a Mobile, Alabama, lawyer representing condominium owners and commercial fishermen, said yesterday in a phone interview. “The condo owners are having cancellations right and left over concerns about fouled beaches. It’s going to be a tremendous disaster if it comes ashore.”
“If you look at a satellite photo of the slick, it already extends from due south of New Orleans to due south of Pensacola, Florida,” said Michael G. Stag, a lawyer for the Louisiana Environmental Action Network, which sued yesterday. The group’s lawsuit asks the federal court in New Orleans to order BP and other defendants to remove oil, test Louisiana waters and re- seed oyster habitats.
Families of 11 of the 28 crew members killed or injured in the Deepwater Horizon explosion have sued companies including London-based BP and Geneva-based Transocean, the world’s largest offshore oil driller. Lawyers for two workers in a state-court lawsuit in Houston acquired a temporary restraining order requiring the companies to preserve evidence related to the explosion.
Combined Lawsuits
The cases probably will be combined in a single court for evidence-gathering and pretrial decisions, according to Stag. They may be returned to their home states for trial or settled.
Jonathan Andry, a lawyer for a Louisiana fisherman who is suing, cited statistics from the state’s wildlife and fisheries agency that the state supplies about 25 percent of the continental U.S.’s seafood.
The area threatened by the spill is especially important for its abundance of shrimp, oysters, red snapper and grouper, according to attorney Brad Bradford, who sued on behalf of fisherman John Harris in federal court in Pensacola, Florida.
Thick, Smelly Air
Stag, whose law office is in downtown New Orleans, said the air was thick with the acrid smell of burning oil, as the U.S. Coast Guard tried to burn off some of the slick before it reached land.
“The economic impact of the spill will extend far beyond marine wildlife and the fishing industry, harming coastal property owners, the tourism industry and a myriad of others who supply them with goods and services,” Bradford said in court papers.
Alabama and Florida beachfront property owners filed at least eight suits claiming the spill will damage rental income. The area’s “sugar sand” beaches regularly appear on rankings of the world’s top white-sand beaches.
The plaintiffs include Peter Burke, an Alabaman who owns rental properties on the Gulf coast.
“Mr. Burke has already seen an impact on his ability to rent his properties because of the anticipated landfall of thousands of gallons of crude oil,” John E. Norris, one of the property owners’ lawyers, said in court papers.
“It looks like this will be a major piece of litigation for a lot of years if it hits as predicted,” said attorney Cunningham, whose firm has filed five proposed class-action suits.
Yesterday’s cases include Fishtrap Charters LLC v. Transocean Holdings, 1:10-cv-00202, and Fort Morgan Sales, Rentals & Development v. Transocean Holdings, 1:10-cv-00203, U.S. District Court, Southern District of Alabama (Mobile).
For Related News and Information: Map of Transocean rigs: BMAP 31465 Transocean company news: RIG US CN BN Litigation involving these companies: RIG US LITI BP/ LN LITI Top Stories: TOP Top legal news: TLAW Legal functions: BLAW
At least 31 proposed class-action suits have been filed in courthouses from Texas to Florida. Commercial fishermen, shrimpers, charter-boat operators and beachfront-property owners asked to represent anyone whose livelihood depends on coastal waters imperiled by the drifting oil. At least 24 cases were filed yesterday.
BP has the primary liability for damage caused by the spill, said Keith Hall, an attorney in New Orleans, who isn’t involved in the litigation. He cited a U.S. law passed after the Exxon Valdez oil spill at Alaska in 1989.
“Under the Oil Pollution Act, the fact that it was BP’s oil is enough,” said Hall, of Stone Pigman Walther Wittmann LLC. Plaintiffs “don’t have to show they were negligent or grossly negligent,” he said.
Transocean’s spokesman Guy Cantwell and BP’s Daren Beaudo didn’t respond to requests for comment on the rapid rise in lawsuits. Both men said previously it was against company policy to comment on pending litigation.
Lawsuits also name Cameron International Corp., which provided blowout-prevention equipment, and Halliburton Energy Services Inc., which was involved in cementing the well.
Cameron, Halliburton
Scott Amann, a spokesman for Houston-based Cameron, the second-largest U.S. maker of oilfield equipment behind National Oilwell Varco Inc., said the company doesn’t comment on litigation.
Cathy Mann, a spokeswoman for Houston-based Halliburton, the second-largest oilfield contractor behind Schlumberger Ltd., said the company is cooperating with investigations into the accident. She said “it is premature and irresponsible to speculate on any specific causal issues.”
The suits are multiplying as the companies struggle to cap a damaged undersea well leaking 5,000 barrels of crude oil a day since the Deepwater Horizon drilling rig exploded April 20. The edge of the spill has begun washing ashore in Louisiana and may reach Florida’s coast early next week.
“The litigation is spreading faster than the slick,” said Houston-based plaintiffs’ attorney Tommy Fibich in an interview. “BP may be as endangered as the brown pelican. This litigation will dwarf other corporate catastrophes.”
‘Tremendous Disaster’
“There are big losses already,” Robert Cunningham, a Mobile, Alabama, lawyer representing condominium owners and commercial fishermen, said yesterday in a phone interview. “The condo owners are having cancellations right and left over concerns about fouled beaches. It’s going to be a tremendous disaster if it comes ashore.”
“If you look at a satellite photo of the slick, it already extends from due south of New Orleans to due south of Pensacola, Florida,” said Michael G. Stag, a lawyer for the Louisiana Environmental Action Network, which sued yesterday. The group’s lawsuit asks the federal court in New Orleans to order BP and other defendants to remove oil, test Louisiana waters and re- seed oyster habitats.
Families of 11 of the 28 crew members killed or injured in the Deepwater Horizon explosion have sued companies including London-based BP and Geneva-based Transocean, the world’s largest offshore oil driller. Lawyers for two workers in a state-court lawsuit in Houston acquired a temporary restraining order requiring the companies to preserve evidence related to the explosion.
Combined Lawsuits
The cases probably will be combined in a single court for evidence-gathering and pretrial decisions, according to Stag. They may be returned to their home states for trial or settled.
Jonathan Andry, a lawyer for a Louisiana fisherman who is suing, cited statistics from the state’s wildlife and fisheries agency that the state supplies about 25 percent of the continental U.S.’s seafood.
The area threatened by the spill is especially important for its abundance of shrimp, oysters, red snapper and grouper, according to attorney Brad Bradford, who sued on behalf of fisherman John Harris in federal court in Pensacola, Florida.
Thick, Smelly Air
Stag, whose law office is in downtown New Orleans, said the air was thick with the acrid smell of burning oil, as the U.S. Coast Guard tried to burn off some of the slick before it reached land.
“The economic impact of the spill will extend far beyond marine wildlife and the fishing industry, harming coastal property owners, the tourism industry and a myriad of others who supply them with goods and services,” Bradford said in court papers.
Alabama and Florida beachfront property owners filed at least eight suits claiming the spill will damage rental income. The area’s “sugar sand” beaches regularly appear on rankings of the world’s top white-sand beaches.
The plaintiffs include Peter Burke, an Alabaman who owns rental properties on the Gulf coast.
“Mr. Burke has already seen an impact on his ability to rent his properties because of the anticipated landfall of thousands of gallons of crude oil,” John E. Norris, one of the property owners’ lawyers, said in court papers.
“It looks like this will be a major piece of litigation for a lot of years if it hits as predicted,” said attorney Cunningham, whose firm has filed five proposed class-action suits.
Yesterday’s cases include Fishtrap Charters LLC v. Transocean Holdings, 1:10-cv-00202, and Fort Morgan Sales, Rentals & Development v. Transocean Holdings, 1:10-cv-00203, U.S. District Court, Southern District of Alabama (Mobile).
For Related News and Information: Map of Transocean rigs: BMAP 31465
Obama Orders Review, Says New Oil Leases Must Have Safeguards
President Barack Obama said no new offshore drilling leases will be issued until a “thorough review” of the BP Plc oil-well spill in the Gulf of Mexico determines whether more safety systems are needed.
Obama directed Interior Secretary Ken Salazar to report in 30 days on whether more steps are needed to prevent another leak like the one that began with an April 20 explosion and fire on a drilling rig off the Louisiana coast.
“We’re going to make sure that any leases going forward have those safeguards,” Obama said at the White House yesterday.
The administration also stepped up pressure on BP, with Homeland Security Secretary Janet Napolitano calling for the company, which is responsible under law for the response and the cost, to deploy more resources to fight the spill.
Secretary of the Interior Ken Salazar said the accident will have “huge ramifications” for offshore energy exploration around the world.
Oil has been gushing from the damaged well at a rate of 5,000 barrels a day and it may rival the 1989 Exxon Valdez incident as the worst-ever U.S. oil spill. The leak has complicated Obama’s plans to allow more oil and gas exploration in the Gulf of Mexico and off portions of the East Coast as some Democratic lawmakers call for the administration to reverse course.
Domestic Production
“I continue to believe that the domestic oil production is an important part” of U.S. energy policy, Obama said. “But I’ve always said it must be done responsibly, for the safety of our workers and our environment.”
Existing drilling operations won’t be affected by Obama’s order for the review, and there are no pending lease sales during the period, White House press secretary Robert Gibbs said. Obama’s plan for expanding offshore energy exploration wouldn’t begin issuing leases until 2012.
“There is nothing that comes online in the next 30 days, so nothing is immediately impacted by the president’s announcement,” Gibbs said.
While BP will bear the cost of capping the leak and cleaning up the oil, Obama said the federal government is “fully prepared to meet our responsibilities to any and all affected communities.”
The Air Force and Navy are bringing equipment to help contain the oil as it approaches land.
In Louisiana
Salazar, Napolitano, Environmental Protection Agency Administrator Lisa Jackson and Carol Browner, Obama’s adviser for energy and climate change were in the region yesterday to review operations. Attorney General Eric Holder is sending a team of attorneys to coordinate with the local U.S. attorney to monitor the situation.
Gibbs said Obama may travel to the Gulf Coast “at some point.”
The government has set up five staging areas to protect shorelines, Obama said. Louisiana has closed some coastal areas to shrimping because of the slick. The spill also may threaten shipping. More than half of the grain inspected for export from the U.S., the world’s largest grower of corn and soybeans, is shipped from the mouth of the Mississippi River, according to the Port of New Orleans.
“The local economies and livelihoods of the people of the Gulf Coast, as well as the ecology of the region, are at stake,” Obama said.
Gulf Drilling
The well is in a portion of the gulf, off Louisiana, Mississippi and Alabama, that produces an estimated 1.7 million barrels of oil a day. That is about 30 percent of domestic production, according to Interior Department figures.
Salazar said the administration asked BP to reach out to the global oil and gas industry to find a solution for stemming the leak and cleaning up the oil.
“We have a lot to lose here in America, in terms of an energy resource and in terms of environmental values that we very much cherish,” he said yesterday at a news conference in Robert, Louisiana. “The oil and gas industry has a tremendous amount to lose in terms of their global economic value here.”
Napolitano said BP’s efforts so far haven’t been enough.
“After several unsuccessful attempts to secure the source of the leak, it is time for BP to supplement their current mobilization,” Napolitano said at the news conference.
Senator Bill Nelson, a Florida Democrat, has asked Obama to indefinitely suspend plans to expand offshore drilling and New Jersey’s two senators, Democrats Frank Lautenberg and Robert Menendez, called on the president to reverse course.
“We urge you to go further and reverse your decision on proposed new offshore oil and gas drilling for the outer continental shelf,” Lautenberg and Menendez wrote in a letter to Obama that was endorsed by Democratic Representatives Frank Pallone and Rush Holt.
“The spill potentially makes more difficult the opening of any new areas,” said Michael Glick, senior energy analyst at Height Analytics, a Washington-based investment advisory firm.
Obama directed Interior Secretary Ken Salazar to report in 30 days on whether more steps are needed to prevent another leak like the one that began with an April 20 explosion and fire on a drilling rig off the Louisiana coast.
“We’re going to make sure that any leases going forward have those safeguards,” Obama said at the White House yesterday.
The administration also stepped up pressure on BP, with Homeland Security Secretary Janet Napolitano calling for the company, which is responsible under law for the response and the cost, to deploy more resources to fight the spill.
Secretary of the Interior Ken Salazar said the accident will have “huge ramifications” for offshore energy exploration around the world.
Oil has been gushing from the damaged well at a rate of 5,000 barrels a day and it may rival the 1989 Exxon Valdez incident as the worst-ever U.S. oil spill. The leak has complicated Obama’s plans to allow more oil and gas exploration in the Gulf of Mexico and off portions of the East Coast as some Democratic lawmakers call for the administration to reverse course.
Domestic Production
“I continue to believe that the domestic oil production is an important part” of U.S. energy policy, Obama said. “But I’ve always said it must be done responsibly, for the safety of our workers and our environment.”
Existing drilling operations won’t be affected by Obama’s order for the review, and there are no pending lease sales during the period, White House press secretary Robert Gibbs said. Obama’s plan for expanding offshore energy exploration wouldn’t begin issuing leases until 2012.
“There is nothing that comes online in the next 30 days, so nothing is immediately impacted by the president’s announcement,” Gibbs said.
While BP will bear the cost of capping the leak and cleaning up the oil, Obama said the federal government is “fully prepared to meet our responsibilities to any and all affected communities.”
The Air Force and Navy are bringing equipment to help contain the oil as it approaches land.
In Louisiana
Salazar, Napolitano, Environmental Protection Agency Administrator Lisa Jackson and Carol Browner, Obama’s adviser for energy and climate change were in the region yesterday to review operations. Attorney General Eric Holder is sending a team of attorneys to coordinate with the local U.S. attorney to monitor the situation.
Gibbs said Obama may travel to the Gulf Coast “at some point.”
The government has set up five staging areas to protect shorelines, Obama said. Louisiana has closed some coastal areas to shrimping because of the slick. The spill also may threaten shipping. More than half of the grain inspected for export from the U.S., the world’s largest grower of corn and soybeans, is shipped from the mouth of the Mississippi River, according to the Port of New Orleans.
“The local economies and livelihoods of the people of the Gulf Coast, as well as the ecology of the region, are at stake,” Obama said.
Gulf Drilling
The well is in a portion of the gulf, off Louisiana, Mississippi and Alabama, that produces an estimated 1.7 million barrels of oil a day. That is about 30 percent of domestic production, according to Interior Department figures.
Salazar said the administration asked BP to reach out to the global oil and gas industry to find a solution for stemming the leak and cleaning up the oil.
“We have a lot to lose here in America, in terms of an energy resource and in terms of environmental values that we very much cherish,” he said yesterday at a news conference in Robert, Louisiana. “The oil and gas industry has a tremendous amount to lose in terms of their global economic value here.”
Napolitano said BP’s efforts so far haven’t been enough.
“After several unsuccessful attempts to secure the source of the leak, it is time for BP to supplement their current mobilization,” Napolitano said at the news conference.
Senator Bill Nelson, a Florida Democrat, has asked Obama to indefinitely suspend plans to expand offshore drilling and New Jersey’s two senators, Democrats Frank Lautenberg and Robert Menendez, called on the president to reverse course.
“We urge you to go further and reverse your decision on proposed new offshore oil and gas drilling for the outer continental shelf,” Lautenberg and Menendez wrote in a letter to Obama that was endorsed by Democratic Representatives Frank Pallone and Rush Holt.
“The spill potentially makes more difficult the opening of any new areas,” said Michael Glick, senior energy analyst at Height Analytics, a Washington-based investment advisory firm.
Biggest Banks Would Be Forced to Shrink Under Senators’ Plans
Citigroup Inc., Bank of America Corp. and their biggest rivals could be forced to shrink or divest businesses under proposals emerging as the U.S. Senate weighs a sweeping overhaul of financial-industry regulations.
Senators are preparing amendments that would limit the share of deposits and assets banks could control or force them to separate investment-banking functions from commercial lending. The aim is to keep financial companies from getting so big their collapse could threaten the economy.
“If you’re too big to fail, from my standpoint, you’re too big,” said Senator Byron Dorgan, a North Dakota Democrat who plans to offer the divestiture amendment next week.
The Senate has begun debate on Banking Committee Chairman Christopher Dodd’s proposed rules overhaul, designed to prevent a repeat of the 2008 financial crisis that forced the U.S. to extend $700 billion in taxpayer funds to companies including Citigroup and Bank of America. Lawmakers are drafting rules amid voter anger over Wall Street risk-taking blamed for causing the worst economic collapse since the Great Depression.
Democratic Senators Sherrod Brown of Ohio and Ted Kaufman of Delaware are offering an amendment to cap banks’ non-deposit liabilities at 2 percent of gross domestic product, or about $280 billion. About nine of the largest U.S. bank-holding companies, including Citigroup, Bank of America and JPMorgan Chase & Co., would have to shrink by 40 percent, according to a summary of the proposal released by Kaufman’s office.
The amendment also would impose a 10 percent cap on a bank holding company’s share of U.S. insured deposits.
Dodd Disagrees
Dodd, a Connecticut Democrat, told reporters yesterday he didn’t agree with the focus on size.
“It’s the issue of excessive risk,” Dodd said. “It has to do with capital standards, liquidity, leverage -- those are the things that really pose the threats.”
Staff for Dodd and Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee, will work this weekend to craft an amendment to combine their ideas to prevent future bailouts, a section of the bill Republicans argued contained loopholes that would perpetuate the practice.
Dodd told reporters he wanted to “put that whole issue aside” to allow the Senate to debate proposed changes on a consumer agency, derivatives and other parts of the legislation.
His bill would allow regulators to seize and liquidate failing firms whose collapse would threaten the economy, a power Democrats say could have kept the U.S. from having to prop up financial companies after credit markets froze in 2008.
Not Riskier
Financial industry groups and some Republicans said that large companies aren’t necessarily riskier.
“The reason that our large financial institutions are the size that they are is because we have companies in this country that need large institutions in order to be competitive,” said Senator Bob Corker, a Tennessee Republican who helped draft the liquidation section of Dodd’s bill.
“I know people can score political points and it’s great to take on Wall Street, but what we’ve got to be careful of in this debate is that we’re not cutting our nose off to spite our face,” he said yesterday.
Senator Maria Cantwell, a Washington Democrat, is working with Senator John McCain, an Arizona Republican, and others to craft an amendment to split commercial and investment banking, Cantwell’s spokesman John Diamond said. The amendment is based on a proposal Cantwell and McCain offered in December to reinstate the Depression-era Glass-Steagall Act.
Work With Industry
Financial Services Forum President Rob Nichols, who opposes limits on bank size, said the government should work with the financial industry to improve risk management, internal control, corporate governance and capitalization.
“To be a global financial leader, the United States needs small, medium and large financial institutions, with various business models and areas of expertise,” said Nichols, whose Washington-based trade group represents the chief executive officers of the largest financial firms.
Dorgan said he will propose requiring companies deemed too big to fail to divest certain businesses until they no longer pose a risk. He also plans to offer an amendment that would eliminate so-called naked credit-default swaps, which let investors bet on default of bonds they don’t hold.
“That’s just gambling, that’s betting, not investing,” Dorgan told reporters yesterday.
Senators are preparing amendments that would limit the share of deposits and assets banks could control or force them to separate investment-banking functions from commercial lending. The aim is to keep financial companies from getting so big their collapse could threaten the economy.
“If you’re too big to fail, from my standpoint, you’re too big,” said Senator Byron Dorgan, a North Dakota Democrat who plans to offer the divestiture amendment next week.
The Senate has begun debate on Banking Committee Chairman Christopher Dodd’s proposed rules overhaul, designed to prevent a repeat of the 2008 financial crisis that forced the U.S. to extend $700 billion in taxpayer funds to companies including Citigroup and Bank of America. Lawmakers are drafting rules amid voter anger over Wall Street risk-taking blamed for causing the worst economic collapse since the Great Depression.
Democratic Senators Sherrod Brown of Ohio and Ted Kaufman of Delaware are offering an amendment to cap banks’ non-deposit liabilities at 2 percent of gross domestic product, or about $280 billion. About nine of the largest U.S. bank-holding companies, including Citigroup, Bank of America and JPMorgan Chase & Co., would have to shrink by 40 percent, according to a summary of the proposal released by Kaufman’s office.
The amendment also would impose a 10 percent cap on a bank holding company’s share of U.S. insured deposits.
Dodd Disagrees
Dodd, a Connecticut Democrat, told reporters yesterday he didn’t agree with the focus on size.
“It’s the issue of excessive risk,” Dodd said. “It has to do with capital standards, liquidity, leverage -- those are the things that really pose the threats.”
Staff for Dodd and Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee, will work this weekend to craft an amendment to combine their ideas to prevent future bailouts, a section of the bill Republicans argued contained loopholes that would perpetuate the practice.
Dodd told reporters he wanted to “put that whole issue aside” to allow the Senate to debate proposed changes on a consumer agency, derivatives and other parts of the legislation.
His bill would allow regulators to seize and liquidate failing firms whose collapse would threaten the economy, a power Democrats say could have kept the U.S. from having to prop up financial companies after credit markets froze in 2008.
Not Riskier
Financial industry groups and some Republicans said that large companies aren’t necessarily riskier.
“The reason that our large financial institutions are the size that they are is because we have companies in this country that need large institutions in order to be competitive,” said Senator Bob Corker, a Tennessee Republican who helped draft the liquidation section of Dodd’s bill.
“I know people can score political points and it’s great to take on Wall Street, but what we’ve got to be careful of in this debate is that we’re not cutting our nose off to spite our face,” he said yesterday.
Senator Maria Cantwell, a Washington Democrat, is working with Senator John McCain, an Arizona Republican, and others to craft an amendment to split commercial and investment banking, Cantwell’s spokesman John Diamond said. The amendment is based on a proposal Cantwell and McCain offered in December to reinstate the Depression-era Glass-Steagall Act.
Work With Industry
Financial Services Forum President Rob Nichols, who opposes limits on bank size, said the government should work with the financial industry to improve risk management, internal control, corporate governance and capitalization.
“To be a global financial leader, the United States needs small, medium and large financial institutions, with various business models and areas of expertise,” said Nichols, whose Washington-based trade group represents the chief executive officers of the largest financial firms.
Dorgan said he will propose requiring companies deemed too big to fail to divest certain businesses until they no longer pose a risk. He also plans to offer an amendment that would eliminate so-called naked credit-default swaps, which let investors bet on default of bonds they don’t hold.
“That’s just gambling, that’s betting, not investing,” Dorgan told reporters yesterday.
Boost in U.S. Consumer Spending Broadens, Sustains Expansion
Consumer spending grew at the fastest pace in three years during the first quarter, a sign that the largest part of the economy is gaining speed while becoming less dependent on government stimulus.
Household purchases rose at a 3.6 percent pace from January through March, exceeding the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed yesterday. The increase helped the economy expand at a 3.2 percent annual rate, capping the best six-month performance since the second half of 2003.
Americans are taking on a bigger role in the economic rebound that’s so far been driven by a surge in manufacturing. While wealth has been bolstered in part by higher stock prices, sustained job creation is needed for bigger gains in the spending that accounts for 70 percent of the economy.
“Consumers spent a lot more on everything,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “The economy continues to put distance between itself and the recession as activity expanded solidly in the first quarter of the year.”
Stocks dropped yesterday as a federal investigation into Goldman Sachs Group Inc. tempered optimism that rising earnings have justified a 13-month rally. The Standard & Poor’s 500 Index fell 1.7 percent to close at 1,186.69.
Fallen Short
Coming off the worst contraction since the 1930s, the strength of the economic rebound over the past three quarters has fallen short of the 7.5 percent gain on average in the nine months following the 1981-82 recession, the last slump to persist for more than a year.
“The recovery looks muted by historical standards,” said Neal Soss, chief economist at Credit Suisse in New York. Consumer spending is unlikely to be as strong as it was in the 1980s and 1990s, he said.
Spending added 2.55 percentage points to gross domestic product, the most since the last three months of 2006. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
Business activity expanded in April at the fastest pace in five years and consumer confidence declined less than projected, other reports showed yesterday.
Business Barometer
The Institute for Supply Management-Chicago Inc. said its business barometer rose to 63.8 last month, the highest level since April 2005, from 58.8 in March. Figures greater than 50 signal expansion.
The Reuters/University of Michigan final index of consumer sentiment dropped to 72.2, from a reading of 73.6 in March. The gauge was projected to fall to 71 from a month earlier, according to the median forecast in a Bloomberg News survey of 66 economists.
“We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead, chief financial officer of Starbucks Corp., said in a telephone interview after the Seattle-based company announced earnings on April 21. The world’s largest coffee-shop operator raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates.
Household spending has “picked up recently,” Federal Reserve policy makers said in their April 28 statement announcing the benchmark interest rate would remain near zero.
Inflation Measure
The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.6 percent annual pace, the lowest level since records began in 1959 and down from a 1.8 percent increase the prior quarter, yesterday’s GDP report showed.
Business spending on new equipment advanced at a 13 percent pace last quarter after rising at a 19 percent rate the previous three months, the biggest gain since 1998.
Business investment rather than consumer spending will drive the U.S. economic recovery as profits climb, General Electric Co.’s Chief Executive Officer Jeffrey Immelt said this week.
“The clouds are breaking and the forecast ahead of us is promising,” Immelt told shareholders at an April 28 meeting in Houston.
Not all areas of the economy grew last quarter. A 3.8 percent slump in spending by state and local governments, the biggest drop since 1981, restrained growth. Outlays by federal agencies rose 1.4 percent, according to the GDP report.
Home construction dropped for the first time in three quarters, falling at an 11 percent rate.
Household purchases rose at a 3.6 percent pace from January through March, exceeding the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed yesterday. The increase helped the economy expand at a 3.2 percent annual rate, capping the best six-month performance since the second half of 2003.
Americans are taking on a bigger role in the economic rebound that’s so far been driven by a surge in manufacturing. While wealth has been bolstered in part by higher stock prices, sustained job creation is needed for bigger gains in the spending that accounts for 70 percent of the economy.
“Consumers spent a lot more on everything,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “The economy continues to put distance between itself and the recession as activity expanded solidly in the first quarter of the year.”
Stocks dropped yesterday as a federal investigation into Goldman Sachs Group Inc. tempered optimism that rising earnings have justified a 13-month rally. The Standard & Poor’s 500 Index fell 1.7 percent to close at 1,186.69.
Fallen Short
Coming off the worst contraction since the 1930s, the strength of the economic rebound over the past three quarters has fallen short of the 7.5 percent gain on average in the nine months following the 1981-82 recession, the last slump to persist for more than a year.
“The recovery looks muted by historical standards,” said Neal Soss, chief economist at Credit Suisse in New York. Consumer spending is unlikely to be as strong as it was in the 1980s and 1990s, he said.
Spending added 2.55 percentage points to gross domestic product, the most since the last three months of 2006. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
Business activity expanded in April at the fastest pace in five years and consumer confidence declined less than projected, other reports showed yesterday.
Business Barometer
The Institute for Supply Management-Chicago Inc. said its business barometer rose to 63.8 last month, the highest level since April 2005, from 58.8 in March. Figures greater than 50 signal expansion.
The Reuters/University of Michigan final index of consumer sentiment dropped to 72.2, from a reading of 73.6 in March. The gauge was projected to fall to 71 from a month earlier, according to the median forecast in a Bloomberg News survey of 66 economists.
“We’re benefiting from a consumer who’s feeling just a little bit better,” Troy Alstead, chief financial officer of Starbucks Corp., said in a telephone interview after the Seattle-based company announced earnings on April 21. The world’s largest coffee-shop operator raised its annual forecast after reporting second-quarter profit that beat analysts’ estimates.
Household spending has “picked up recently,” Federal Reserve policy makers said in their April 28 statement announcing the benchmark interest rate would remain near zero.
Inflation Measure
The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.6 percent annual pace, the lowest level since records began in 1959 and down from a 1.8 percent increase the prior quarter, yesterday’s GDP report showed.
Business spending on new equipment advanced at a 13 percent pace last quarter after rising at a 19 percent rate the previous three months, the biggest gain since 1998.
Business investment rather than consumer spending will drive the U.S. economic recovery as profits climb, General Electric Co.’s Chief Executive Officer Jeffrey Immelt said this week.
“The clouds are breaking and the forecast ahead of us is promising,” Immelt told shareholders at an April 28 meeting in Houston.
Not all areas of the economy grew last quarter. A 3.8 percent slump in spending by state and local governments, the biggest drop since 1981, restrained growth. Outlays by federal agencies rose 1.4 percent, according to the GDP report.
Home construction dropped for the first time in three quarters, falling at an 11 percent rate.
Senator Brown Says His Push to Limit Bank Size Gaining Support
Senator Sherrod Brown said support is growing for his proposal to reduce the size of U.S. banks as part of broader legislation that would revamp rules governing Wall Street.
The Ohio senator said his amendment, introduced April 29 with fellow Democratic Senator Ted Kaufman of Delaware, would probably force five banks to divest some regional branches or exit a line of business.
“As people hear the debate on this, I think senators of both parties increasingly are going to join Senator Kaufman and me in moving forward on this amendment,” Brown, a member of the Senate Banking Committee, said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.
He also said, “I don’t think we do yet” when asked whether he had the votes to pass the provision. “I think a week ago we weren’t even close,” he said. “Going into this weekend we’re closer.”
The amendment would limit the size of banks by imposing a 10 percent cap on a bank holding company’s share of U.S. insured deposits and set a 6 percent leverage limit for those firms and some nonbank financial firms. It also would limit the size of non-deposit liabilities at banks to 2 percent of U.S. gross domestic product.
“We need to make sure the banks don’t get so big” that they can be “a real threat to the system,” said Brown, 57.
Affected Banks
The banks that may affected by Brown’s plan are Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc.,Bank of America Corp. and Wells Fargo & Co., according to Meghan Dubyak, a spokeswoman for Brown. Those are the five biggest U.S. banks by assets.
Senate lawmakers agreed April 28 to begin debate on the legislation that aims to strengthen oversight of Wall Street in response to the worst financial crisis since the Great Depression, which led to a $700 billion rescue package for banks such as New York-based Citigroup and Charlotte, North Carolina- based Bank of America.
Republicans had been blocking consideration of the bill, arguing it would guarantee future government bailouts of big banks and create new bureaucracies. Alabama Senator Richard Shelby, the top Republican on the banking panel, said he would seek changes to the measure on the Senate floor.
Brown, a former House member elected to his seat in 2006, predicted the legislation wouldn’t be watered down with amendments and will emerge “tougher than it is now.”
“Wall Street is not going to be happy with this legislation,” he said. “If they are too happy, it means we didn’t do our jobs.”
The bill would set up a new regulator to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would create a mechanism to dismantle firms whose failure threatens the financial system, and strengthen oversight of derivatives and hedge funds.
The legislation, if passed by the Senate, would need to be merged with a version approved by the House in December before it could go to President Barack Obama to sign into law.
The Ohio senator said his amendment, introduced April 29 with fellow Democratic Senator Ted Kaufman of Delaware, would probably force five banks to divest some regional branches or exit a line of business.
“As people hear the debate on this, I think senators of both parties increasingly are going to join Senator Kaufman and me in moving forward on this amendment,” Brown, a member of the Senate Banking Committee, said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.
He also said, “I don’t think we do yet” when asked whether he had the votes to pass the provision. “I think a week ago we weren’t even close,” he said. “Going into this weekend we’re closer.”
The amendment would limit the size of banks by imposing a 10 percent cap on a bank holding company’s share of U.S. insured deposits and set a 6 percent leverage limit for those firms and some nonbank financial firms. It also would limit the size of non-deposit liabilities at banks to 2 percent of U.S. gross domestic product.
“We need to make sure the banks don’t get so big” that they can be “a real threat to the system,” said Brown, 57.
Affected Banks
The banks that may affected by Brown’s plan are Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc.,Bank of America Corp. and Wells Fargo & Co., according to Meghan Dubyak, a spokeswoman for Brown. Those are the five biggest U.S. banks by assets.
Senate lawmakers agreed April 28 to begin debate on the legislation that aims to strengthen oversight of Wall Street in response to the worst financial crisis since the Great Depression, which led to a $700 billion rescue package for banks such as New York-based Citigroup and Charlotte, North Carolina- based Bank of America.
Republicans had been blocking consideration of the bill, arguing it would guarantee future government bailouts of big banks and create new bureaucracies. Alabama Senator Richard Shelby, the top Republican on the banking panel, said he would seek changes to the measure on the Senate floor.
Brown, a former House member elected to his seat in 2006, predicted the legislation wouldn’t be watered down with amendments and will emerge “tougher than it is now.”
“Wall Street is not going to be happy with this legislation,” he said. “If they are too happy, it means we didn’t do our jobs.”
The bill would set up a new regulator to guard consumers against abuse and deception in such instruments as mortgages, credit cards or loans. It would create a mechanism to dismantle firms whose failure threatens the financial system, and strengthen oversight of derivatives and hedge funds.
The legislation, if passed by the Senate, would need to be merged with a version approved by the House in December before it could go to President Barack Obama to sign into law.
Puerto Rico Banks Seized as Regulators Waive Deposit Limits
Regulators used emergency powers to stabilize Puerto Rico’s banks, putting almost a third of the U.S. territory’s deposits in Popular Inc. and giving control of another lender to a Canadian firm.
Deposit limits were waived to allow Banco Popular of Puerto Rico to hold $19.5 billion, or 31.4 percent of the island’s total, after its purchase of Westernbank Puerto Rico, the Federal Reserve said yesterday in a statement. Three banks on the island were shut at a cost to the Federal Deposit Insurance Corp. of $5.3 billion, the agency said in statements posted on its website. Combined with four other banks, the closures cost the deposit-insurance fund a total of $7.3 billion.
“The Puerto Rican banking system is somewhat unique” in being concentrated among a small number of lenders, FDIC Chairman Sheila Bair said on a conference call with reporters. “We think this will help the banking system in Puerto Rico and improve its capacity to provide credit support for the economy.”
U.S. banks are collapsing amid losses on residential and commercial real estate loans, and the FDIC’s list of “problem” lenders is the longest since 1992. The FDIC, which insures deposits and acts as receiver for failed banks, had 702 lenders on the list at the end of 2009. Regulators have closed 64 banks this year.
“We are projecting a lower number of failures this year,” Bair said. “We still think it will top the 140 that failed last year, but we are seeing some improvement.”
Bank of Nova Scotia
Bank of Nova Scotia, Canada’s third-largest bank, agreed to buy the $5.92 billion in assets of R-G Premier Bank of Puerto Rico in Hato Rey, the FDIC said. San Juan-based Eurobank was also closed.
Banco Popular acquired the deposits of Mayaguez-based Westernbank to remain the largest insured bank on the island. Deutsche Bank AG advised the FDIC on all three transactions, according to an e-mailed statement from Scott Helfman, a New York-based spokesman for the bank.
The Puerto Rico lenders cost the deposit fund about $500 million less than what the agency reserved and would have cost $3.5 billion more if the assets were sold off separately, Bair said. The agency paid off brokered deposits at the failed lenders and replaced the funds with low-cost financing for up to five years for the acquiring banks, Bair said.
Banks Seized
The FDIC also said Missouri-based lenders BC National Banks, of Butler, and Creve Coeur-based Champion Bank failed. Huntington Bancshares Inc.’s First Michigan Bank bought the operations of Port Huron, Michigan-based CF Bancorp. San Francisco-based Union Bank purchased about $3.5 billion in assets at Frontier Bank, of Everett, Washington, in the final closure of the week.
Bank of Nova Scotia becomes the third Canadian lender to take advantage of U.S. government-assisted acquisitions in as many weeks, following purchases by Toronto-Dominion Bank and Bank of Montreal. The Scotiabank acquisition, predicted by analysts this week, adds to the lender’s 17 branches on the island, according to its website. Bank of Nova Scotia spokeswoman Ann Derabbie confirmed the company’s purchase, declining to comment further.
Scotiabank, under Chief Executive Officer Richard Waugh, has spent about $2 billion on foreign acquisitions since 2007. The lender has operations in 50 countries, including Mexico, Chile and Jamaica. International banking accounted for 37 percent of the bank’s net income in the year ended Oct. 31. The Toronto-based lender has been in Puerto Rico since 1910, according to its website.
Deposit limits were waived to allow Banco Popular of Puerto Rico to hold $19.5 billion, or 31.4 percent of the island’s total, after its purchase of Westernbank Puerto Rico, the Federal Reserve said yesterday in a statement. Three banks on the island were shut at a cost to the Federal Deposit Insurance Corp. of $5.3 billion, the agency said in statements posted on its website. Combined with four other banks, the closures cost the deposit-insurance fund a total of $7.3 billion.
“The Puerto Rican banking system is somewhat unique” in being concentrated among a small number of lenders, FDIC Chairman Sheila Bair said on a conference call with reporters. “We think this will help the banking system in Puerto Rico and improve its capacity to provide credit support for the economy.”
U.S. banks are collapsing amid losses on residential and commercial real estate loans, and the FDIC’s list of “problem” lenders is the longest since 1992. The FDIC, which insures deposits and acts as receiver for failed banks, had 702 lenders on the list at the end of 2009. Regulators have closed 64 banks this year.
“We are projecting a lower number of failures this year,” Bair said. “We still think it will top the 140 that failed last year, but we are seeing some improvement.”
Bank of Nova Scotia
Bank of Nova Scotia, Canada’s third-largest bank, agreed to buy the $5.92 billion in assets of R-G Premier Bank of Puerto Rico in Hato Rey, the FDIC said. San Juan-based Eurobank was also closed.
Banco Popular acquired the deposits of Mayaguez-based Westernbank to remain the largest insured bank on the island. Deutsche Bank AG advised the FDIC on all three transactions, according to an e-mailed statement from Scott Helfman, a New York-based spokesman for the bank.
The Puerto Rico lenders cost the deposit fund about $500 million less than what the agency reserved and would have cost $3.5 billion more if the assets were sold off separately, Bair said. The agency paid off brokered deposits at the failed lenders and replaced the funds with low-cost financing for up to five years for the acquiring banks, Bair said.
Banks Seized
The FDIC also said Missouri-based lenders BC National Banks, of Butler, and Creve Coeur-based Champion Bank failed. Huntington Bancshares Inc.’s First Michigan Bank bought the operations of Port Huron, Michigan-based CF Bancorp. San Francisco-based Union Bank purchased about $3.5 billion in assets at Frontier Bank, of Everett, Washington, in the final closure of the week.
Bank of Nova Scotia becomes the third Canadian lender to take advantage of U.S. government-assisted acquisitions in as many weeks, following purchases by Toronto-Dominion Bank and Bank of Montreal. The Scotiabank acquisition, predicted by analysts this week, adds to the lender’s 17 branches on the island, according to its website. Bank of Nova Scotia spokeswoman Ann Derabbie confirmed the company’s purchase, declining to comment further.
Scotiabank, under Chief Executive Officer Richard Waugh, has spent about $2 billion on foreign acquisitions since 2007. The lender has operations in 50 countries, including Mexico, Chile and Jamaica. International banking accounted for 37 percent of the bank’s net income in the year ended Oct. 31. The Toronto-based lender has been in Puerto Rico since 1910, according to its website.
Fed’s Guynn Warned in 2004 Low Rates May Fuel Price Surge
The president of the Federal Reserve Bank of Atlanta told fellow policy makers in 2004 that the central bank’s low interest rates may be contributing to surging home prices, according to transcripts of their meetings.
“The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy,” then Atlanta Fed President Jack Guynn told the Federal Open Market Committee on Dec. 14, 2004, according to transcripts released yesterday.
Economists including John Taylor of Stanford University, a former Treasury undersecretary, have said that low interest rates under former Fed Chairman Alan Greenspan helped fuel the housing boom and bust that precipitated the recession. Ben S. Bernanke, the current chairman and a Fed governor in 2004, has disagreed, saying in a January speech that the central bank’s policy of maintaining a low target rate shouldn’t be blamed for the housing bubble.
“The direct linkages, at least, are weak,” Bernanke said. “House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone.”
Home Prices
While the Fed held interest rates at 1 percent from June 2003 until June 2004, the rise in home prices accelerated, eventually leading to the crash in valuations that preceded the financial crisis. The annual increase in home prices reached a record 20 percent in July 2004, according to the Standard & Poor’s Case-Shiller 10 City Composite Home Price Index. The index hit a peak in June 2006.
Policy makers in June 2004 raised the federal funds target to 1.25 percent from 1 percent, the first of 17 consecutive quarter-point increases over two years, stopping at 5.25 percent.
The Fed releases FOMC transcripts after five years.
Other policy makers also raised concerns about home prices during meetings in 2004. On Sept. 21, then-Boston Fed President Cathy Minehan said consumers are “willing to take saving rates to record lows in the wake of substantial appreciation in housing prices. Clearly, this could turn around and is a potential source of downside risk.”
On Nov. 10, Gary Stern, president of the Minneapolis Fed, reported to the committee on a meeting his bank held partly to look at “a potential bubble in house prices.”
‘Credit Pendulum’
Stern told the FOMC that “a couple of the lenders did say that they thought the credit pendulum had swung too far. They felt that credit conditions had become too easy, and they were anticipating some potential difficulties going forward -- presumably in somebody else’s shop!”
During 2004, the share of subprime originations in the mortgage market more than doubled. In 2004, 18.5 percent of mortgages were subprime, compared to 7.9 percent in 2003, according to Harvard University’s “State of the Nation’s Housing” report, citing data from Inside Mortgage Finance.
Then-Fed Governor Edward Gramlich in May of 2004 said in a speech about “Benefits, Costs and Challenges” of subprime mortgage lending that “while the basic developments in the subprime mortgage market seem positive, the relatively high delinquency rates in the subprime market do raise issues.”
Risks of Collapse
Greenspan in an Oct. 19, 2004, speech raised the risks of a collapse in home prices, saying “these concerns cannot be readily dismissed.”
“Should home prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do not, at least to date, appear overly worrisome,” Greenspan said.
In March 2004, Guynn also warned of speculative excess in housing.
“A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida,” Guynn said.
“Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties -- selling them quickly at higher prices,” he said.
Guynn, who retired as head of the Atlanta Fed in October 2006, didn’t respond to messages seeking comment.
Perplexed by Speculation
In June 2004, central bank officials were perplexed by speculation in housing and rising home prices in the course of discussions that resulted in an increase in borrowing costs, according to the transcripts.
Stephen Oliner, then Fed associate research director, told the FOMC on June 30, 2004, that the ratio between rents and prices deviated from historical trends and wasn’t explained by “fundamentals,” according to the transcripts.
“I don’t want to leave the impression that we think there’s a huge housing bubble,” Oliner said. “We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.”
At the December meeting, Guynn said the home-price boom required a review.
“The risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy,” said Guynn.
“The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy,” then Atlanta Fed President Jack Guynn told the Federal Open Market Committee on Dec. 14, 2004, according to transcripts released yesterday.
Economists including John Taylor of Stanford University, a former Treasury undersecretary, have said that low interest rates under former Fed Chairman Alan Greenspan helped fuel the housing boom and bust that precipitated the recession. Ben S. Bernanke, the current chairman and a Fed governor in 2004, has disagreed, saying in a January speech that the central bank’s policy of maintaining a low target rate shouldn’t be blamed for the housing bubble.
“The direct linkages, at least, are weak,” Bernanke said. “House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone.”
Home Prices
While the Fed held interest rates at 1 percent from June 2003 until June 2004, the rise in home prices accelerated, eventually leading to the crash in valuations that preceded the financial crisis. The annual increase in home prices reached a record 20 percent in July 2004, according to the Standard & Poor’s Case-Shiller 10 City Composite Home Price Index. The index hit a peak in June 2006.
Policy makers in June 2004 raised the federal funds target to 1.25 percent from 1 percent, the first of 17 consecutive quarter-point increases over two years, stopping at 5.25 percent.
The Fed releases FOMC transcripts after five years.
Other policy makers also raised concerns about home prices during meetings in 2004. On Sept. 21, then-Boston Fed President Cathy Minehan said consumers are “willing to take saving rates to record lows in the wake of substantial appreciation in housing prices. Clearly, this could turn around and is a potential source of downside risk.”
On Nov. 10, Gary Stern, president of the Minneapolis Fed, reported to the committee on a meeting his bank held partly to look at “a potential bubble in house prices.”
‘Credit Pendulum’
Stern told the FOMC that “a couple of the lenders did say that they thought the credit pendulum had swung too far. They felt that credit conditions had become too easy, and they were anticipating some potential difficulties going forward -- presumably in somebody else’s shop!”
During 2004, the share of subprime originations in the mortgage market more than doubled. In 2004, 18.5 percent of mortgages were subprime, compared to 7.9 percent in 2003, according to Harvard University’s “State of the Nation’s Housing” report, citing data from Inside Mortgage Finance.
Then-Fed Governor Edward Gramlich in May of 2004 said in a speech about “Benefits, Costs and Challenges” of subprime mortgage lending that “while the basic developments in the subprime mortgage market seem positive, the relatively high delinquency rates in the subprime market do raise issues.”
Risks of Collapse
Greenspan in an Oct. 19, 2004, speech raised the risks of a collapse in home prices, saying “these concerns cannot be readily dismissed.”
“Should home prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do not, at least to date, appear overly worrisome,” Greenspan said.
In March 2004, Guynn also warned of speculative excess in housing.
“A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida,” Guynn said.
“Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties -- selling them quickly at higher prices,” he said.
Guynn, who retired as head of the Atlanta Fed in October 2006, didn’t respond to messages seeking comment.
Perplexed by Speculation
In June 2004, central bank officials were perplexed by speculation in housing and rising home prices in the course of discussions that resulted in an increase in borrowing costs, according to the transcripts.
Stephen Oliner, then Fed associate research director, told the FOMC on June 30, 2004, that the ratio between rents and prices deviated from historical trends and wasn’t explained by “fundamentals,” according to the transcripts.
“I don’t want to leave the impression that we think there’s a huge housing bubble,” Oliner said. “We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.”
At the December meeting, Guynn said the home-price boom required a review.
“The risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy,” said Guynn.
Motorola Ready to Make Acquisitions After Split, Brown Says
Motorola Inc., after three years of declining sales, is set to return to growth and will consider acquisitions once the spinoff of its handset business is complete, Co-Chief Executive Officer Greg Brown said.
“When we are independent in 2011, there will be some opportunities for us to do some non-organic things,” Brown said yesterday in an interview at Bloomberg’s headquarters in New York. Areas for possible acquisitions include security and surveillance, he said.
Motorola is aiming to capitalize on the rebound in spending by carriers and governments, which had put off buying the company’s mobile phones and network equipment amid the recession, Brown said. The company is also preparing to spin off its mobile-phone unit in the first quarter of 2011 amid a wider reorganization.
“The story about Motorola is now more about growth,” Brown said in an interview with Bloomberg Television yesterday. He joined Motorola in 2003 and became CEO in January 2008 before splitting the role with Sanjay Jha in August of that year.
Sales at the enterprise mobility business climbed 6 percent last quarter from a year earlier to $1.69 billion, the company said April 29. The shares rose after Motorola forecast second-quarter profit that was higher than analysts’ projections.
M&A Prospects
“We give him credit for bringing some stability to the organization,” said RBC Capital Markets’ Mark Sue. “We want to see more proof down the road they have the ability to gain market share.” The New York-based analyst has a “sector perform” rating on the stock.
The company said in February the mobile-phone unit will merge with the set-top box division, and the combined entity will be headed by Jha. Brown will oversee the remaining units.
He plans to capitalize on demand for new, higher-capacity wireless equipment. Fourth-generation technology, which allows wireless providers to handle more of the data traffic generated by smartphones such as Apple Inc.’s iPhone, will be in demand from “early mover” carriers like Verizon Wireless, he said.
“4G is going to explode,” Brown said. “I think it will be here sooner than we thought because of the bandwidth demand on existing operators.”
Asked whether a sale of the wireless networks business is a possibility in the future, Brown said, “if there is an alternate equation or partnership that improves that trajectory even further than what we think, we’d consider it.”
Motorola is unlikely to make a bid for Palm Inc., which agreed to be bought by Hewlett-Packard Co. in a $1.2 billion deal announced April 28, he said.
Motorola, based in Schaumburg, Illinois, fell 9 cents to $7.07 yesterday in New York Stock Exchange composite trading. The stock has dropped 8.9 percent this year.
Brown dismissed speculation that the mobile-phone business would move to California, linked to the fact that Jha has a home there and Motorola is rebuilding the handset business around Android software made by Mountain View, California-based Google Inc.
“We are a Chicago company, and we have every expectation to remain that.”
“When we are independent in 2011, there will be some opportunities for us to do some non-organic things,” Brown said yesterday in an interview at Bloomberg’s headquarters in New York. Areas for possible acquisitions include security and surveillance, he said.
Motorola is aiming to capitalize on the rebound in spending by carriers and governments, which had put off buying the company’s mobile phones and network equipment amid the recession, Brown said. The company is also preparing to spin off its mobile-phone unit in the first quarter of 2011 amid a wider reorganization.
“The story about Motorola is now more about growth,” Brown said in an interview with Bloomberg Television yesterday. He joined Motorola in 2003 and became CEO in January 2008 before splitting the role with Sanjay Jha in August of that year.
Sales at the enterprise mobility business climbed 6 percent last quarter from a year earlier to $1.69 billion, the company said April 29. The shares rose after Motorola forecast second-quarter profit that was higher than analysts’ projections.
M&A Prospects
“We give him credit for bringing some stability to the organization,” said RBC Capital Markets’ Mark Sue. “We want to see more proof down the road they have the ability to gain market share.” The New York-based analyst has a “sector perform” rating on the stock.
The company said in February the mobile-phone unit will merge with the set-top box division, and the combined entity will be headed by Jha. Brown will oversee the remaining units.
He plans to capitalize on demand for new, higher-capacity wireless equipment. Fourth-generation technology, which allows wireless providers to handle more of the data traffic generated by smartphones such as Apple Inc.’s iPhone, will be in demand from “early mover” carriers like Verizon Wireless, he said.
“4G is going to explode,” Brown said. “I think it will be here sooner than we thought because of the bandwidth demand on existing operators.”
Asked whether a sale of the wireless networks business is a possibility in the future, Brown said, “if there is an alternate equation or partnership that improves that trajectory even further than what we think, we’d consider it.”
Motorola is unlikely to make a bid for Palm Inc., which agreed to be bought by Hewlett-Packard Co. in a $1.2 billion deal announced April 28, he said.
Motorola, based in Schaumburg, Illinois, fell 9 cents to $7.07 yesterday in New York Stock Exchange composite trading. The stock has dropped 8.9 percent this year.
Brown dismissed speculation that the mobile-phone business would move to California, linked to the fact that Jha has a home there and Motorola is rebuilding the handset business around Android software made by Mountain View, California-based Google Inc.
“We are a Chicago company, and we have every expectation to remain that.”
Housing Won’t Be Derailed by End of U.S. Tax Credit, Agents Say
The expiration of a government tax credit yesterday may slow, rather than derail, a budding rebound in U.S. home sales being fueled by the drop property values, according to real-estate executives.
“The meat and potatoes about the housing recovery and the reason to get out and buy a house now is affordability,” Jeffrey Detwiler, president and chief operating officer of Long & Foster Cos., a private real-estate company based in Chantilly, Virginia, said in an interview. “The tax credit right now is simply the gravy on top of that.”
The National Association of Realtors projects sales of existing homes will rise 6.6 percent this year to 5.49 million as a drop in prices, near record-low mortgage rates and growing incomes sustain demand beyond the recent pickup spurred by a government incentive worth as much as $8,000. Buyers need to have signed a contract by yesterday and close on the deal by the end of June to be eligible for the credit.
The rush to qualify for the credit helped boost home resales, which are tabulated at closing, by 6.8 percent in March and will support these figures through June. Purchases of new houses, tabulated when a contract is signed, surged 27 percent two months ago, the biggest jump since 1963, according to data from the Commerce Department.
The government incentive, originally designed to expire last November, “has done its job,” and the economy has improved enough for the credit to lapse, NAR Chief Economist Lawrence Yun said April 22.
Influence Diminishes
The extension of the tax break and its expansion to include some current owners has failed to drum up as much demand this year as last. Sales of existing homes jumped to a 6.49 million pace in November, the most in more than two years.
“You keep extending it and you lose the credibility that it’s a temporary credit and its power,” said David Crowe, chief economist at the National Association of Home Builders. Crowe said he’s “still pretty confident that all the other ingredients are in the right place” for housing to improve on its own.
Low prices and mortgage rates are also influencing sales. The National Association of Realtors’ affordability index, which takes into account property values, mortgage rates and incomes, stood at 176 in February, eight points off the record-high reached in January 2009. Readings of 100 mean the households earning the median income can afford the median-priced home at current borrowing costs.
Improving Economy
“Our market is going to improve as the economy improves,” Dave Liniger, chairman and co-founder of Re/Max International Inc., a Denver-based owner of real-estate agencies, said in an interview. “It looks like the bottom has been reached.”
Nonetheless, Liniger says it will take two or three years for housing to recover and resemble “a normal market.” “The consumer factors and the unemployment rate are going to be a drag on housing for the next two or three years.”
Unemployment may end this year at a 9.4 percent rate and average 8.9 percent in 2011, according to the median forecast of economists surveyed by Bloomberg News last month. It reached a 26-year high of 10.1 percent in October.
Realtors are trying to maintain sales momentum by promoting other incentives. Parsippany, New Jersey-based Coldwell Banker Real Estate LLC is starting a program today that encourages sellers to offer a credit up to $8,000 to buyers in most states who sign a contract before July 31.
Thirty-four percent of the agents surveyed by Coldwell Banker cited the government’s extension of the tax credit as the main reason their customers were searching for a home. Almost half said they had worked with buyers who would have missed out on the credit had it expired in November.
“No one knows what’s going to happen after April 30, but we’re saying we think the tax credit did work and we are offering this credit over the next three months to keep momentum going,” Chief Executive Officer Jim Gillespie said in an interview this week.
“The meat and potatoes about the housing recovery and the reason to get out and buy a house now is affordability,” Jeffrey Detwiler, president and chief operating officer of Long & Foster Cos., a private real-estate company based in Chantilly, Virginia, said in an interview. “The tax credit right now is simply the gravy on top of that.”
The National Association of Realtors projects sales of existing homes will rise 6.6 percent this year to 5.49 million as a drop in prices, near record-low mortgage rates and growing incomes sustain demand beyond the recent pickup spurred by a government incentive worth as much as $8,000. Buyers need to have signed a contract by yesterday and close on the deal by the end of June to be eligible for the credit.
The rush to qualify for the credit helped boost home resales, which are tabulated at closing, by 6.8 percent in March and will support these figures through June. Purchases of new houses, tabulated when a contract is signed, surged 27 percent two months ago, the biggest jump since 1963, according to data from the Commerce Department.
The government incentive, originally designed to expire last November, “has done its job,” and the economy has improved enough for the credit to lapse, NAR Chief Economist Lawrence Yun said April 22.
Influence Diminishes
The extension of the tax break and its expansion to include some current owners has failed to drum up as much demand this year as last. Sales of existing homes jumped to a 6.49 million pace in November, the most in more than two years.
“You keep extending it and you lose the credibility that it’s a temporary credit and its power,” said David Crowe, chief economist at the National Association of Home Builders. Crowe said he’s “still pretty confident that all the other ingredients are in the right place” for housing to improve on its own.
Low prices and mortgage rates are also influencing sales. The National Association of Realtors’ affordability index, which takes into account property values, mortgage rates and incomes, stood at 176 in February, eight points off the record-high reached in January 2009. Readings of 100 mean the households earning the median income can afford the median-priced home at current borrowing costs.
Improving Economy
“Our market is going to improve as the economy improves,” Dave Liniger, chairman and co-founder of Re/Max International Inc., a Denver-based owner of real-estate agencies, said in an interview. “It looks like the bottom has been reached.”
Nonetheless, Liniger says it will take two or three years for housing to recover and resemble “a normal market.” “The consumer factors and the unemployment rate are going to be a drag on housing for the next two or three years.”
Unemployment may end this year at a 9.4 percent rate and average 8.9 percent in 2011, according to the median forecast of economists surveyed by Bloomberg News last month. It reached a 26-year high of 10.1 percent in October.
Realtors are trying to maintain sales momentum by promoting other incentives. Parsippany, New Jersey-based Coldwell Banker Real Estate LLC is starting a program today that encourages sellers to offer a credit up to $8,000 to buyers in most states who sign a contract before July 31.
Thirty-four percent of the agents surveyed by Coldwell Banker cited the government’s extension of the tax credit as the main reason their customers were searching for a home. Almost half said they had worked with buyers who would have missed out on the credit had it expired in November.
“No one knows what’s going to happen after April 30, but we’re saying we think the tax credit did work and we are offering this credit over the next three months to keep momentum going,” Chief Executive Officer Jim Gillespie said in an interview this week.
Asian Stocks Gain for Third Month as Earnings Spur Optimism
Asian stocks rose last week, as better-than-estimated company earnings and forecasts boosted confidence in global economic growth. Concerns over Europe’s debt crisis weighed on gains.
NEC Corp., Japan’s largest maker of personal computers, jumped 5.4 for the week in Tokyo after posting higher-than- forecast net income. Samsung Electronics Co. climbed 2.3 percent in Seoul after reporting record-high profit. Esprit Holdings Ltd., which makes 85 percent of its revenue in Europe, tumbled 5.3 percent in Hong Kong. China Vanke Co., the country’s biggest listed property developer, fell 1.6 percent in the southern city of Shenzhen as China took steps to cool its real-estate market.
“The global economy is picking up and corporate earnings are improving,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $64 billion. “Investors aren’t very, very bullish but cautiously believe the market will remain resilient.”
The MSCI Asia Pacific Index rose 0.4 percent to 125.86 this week, giving the gauge a third straight monthly gain, adding 0.6 percent in April. The measure has climbed 10 percent from its low this year on Feb. 8 as better-than-estimated economic and earnings reports globally offset concern Greece will default on its debt.
Japan’s Topix index rose 0.9 percent this week as a surge in U.S. new home sales boosted the earnings prospects for Japanese exporters. The market was closed on April 29 for a national holiday.
NEC Jumps
Hong Kong’s Hang Seng Index fell 0.6 percent this week, while Australia’s S&P/ASX 200 Index declined 1.5 percent. China’s Shanghai Composite Index sank 3.8 percent on concern the government’s steps to cool its property market will hurt lenders and developers.
NEC jumped 5.4 percent to 312 yen this week in Tokyo after saying in a preliminary earnings statement its full-year net income was 11 billion yen, higher than forecast. Canon Inc., the world’s largest camera maker, gained 2.6 percent to 4,355 yen as it raised its full-year net income forecast by 20 percent. Nissan Motor Co., which counts North America as its biggest market, climbed 3.9 percent to 823 yen.
Samsung, Asia’s biggest maker of semiconductors, flat screens and mobile phones, gained 2.3 percent to 849,000 won this week in Seoul. The company said first-quarter net income rose almost sevenfold to 3.99 trillion won ($3.6 billion). Baoshan Iron & Steel Co. gained 2.7 percent to 6.89 yuan in Shanghai. First-half profit may surge by between sixfold and 10- fold from a year ago as Chinese demand for metal used in cars and appliances rebounds, the company said.
Downgrades in Europe
The MSCI Asia Pacific Index has rebounded from its low this year as corporate earnings and economic data signaled the global recovery is continuing. The gauge slid 2 percent on April 28 after downgrades of credit ratings for Greece and Portugal spurred concern Europe’s debt crisis will spread. Shares in the index trade at 16 times estimated earnings, compared with 14.8 times for the Standard & Poor’s 500 Index in the U.S. and about 12.5 times for the Stoxx Europe 600 Index.
Esprit slid 5.3 percent to HK$56.70 for the week in Hong Kong. HSBC Holdings Plc, Europe’s largest bank, declined 0.2 percent to HK$80.95. Australia & New Zealand Banking Group Ltd. fell 4 percent to A$24.20 in Sydney after its Chief Executive Officer Michael Smith said Europe’s debt problems may worsen.
Standard & Poor’s cut Spain’s credit rating to AA from AA+ on April 28, which followed downgrades the previous day on Greece and Portugal, which the rating company cut to junk status.
China Vanke
“Concern surrounding European sovereign debt is limiting gains,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors are grappling with the sustainability of improved earnings and the impact on long-term stock valuations.”
China Vanke dropped 1.6 percent to 7.8 yuan in Shenzhen this week after first-quarter profit was nearly halved from the previous three months as the government announced measures to cool the property market.
Hang Lung Properties Ltd., a Hong Kong developer which generated 40 percent of its fiscal 2009 revenue in China, sank 1.2 percent to HK$28.50 in Hong Kong this week.
The southern Chinese city of Shenzhen may limit local families to owning two homes, while the eastern city of Qingdao may raise land taxes for luxury homes and non-residential developments to 2 percent from 1 percent, the Shanghai Securities News reported on April 29. Beijing may introduce details for curbing the city’s property market by May 1, the newspaper reported.
“The market is worried China is over-tightening,” said Grace Tam, Hong Kong-based vice president of investment services at JPMorgan Asset Management Ltd., which manages about $102 billion in Asia-Pacific assets. “The concern is that this could result in a worse-than-expected impact on China’s growth.”
NEC Corp., Japan’s largest maker of personal computers, jumped 5.4 for the week in Tokyo after posting higher-than- forecast net income. Samsung Electronics Co. climbed 2.3 percent in Seoul after reporting record-high profit. Esprit Holdings Ltd., which makes 85 percent of its revenue in Europe, tumbled 5.3 percent in Hong Kong. China Vanke Co., the country’s biggest listed property developer, fell 1.6 percent in the southern city of Shenzhen as China took steps to cool its real-estate market.
“The global economy is picking up and corporate earnings are improving,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $64 billion. “Investors aren’t very, very bullish but cautiously believe the market will remain resilient.”
The MSCI Asia Pacific Index rose 0.4 percent to 125.86 this week, giving the gauge a third straight monthly gain, adding 0.6 percent in April. The measure has climbed 10 percent from its low this year on Feb. 8 as better-than-estimated economic and earnings reports globally offset concern Greece will default on its debt.
Japan’s Topix index rose 0.9 percent this week as a surge in U.S. new home sales boosted the earnings prospects for Japanese exporters. The market was closed on April 29 for a national holiday.
NEC Jumps
Hong Kong’s Hang Seng Index fell 0.6 percent this week, while Australia’s S&P/ASX 200 Index declined 1.5 percent. China’s Shanghai Composite Index sank 3.8 percent on concern the government’s steps to cool its property market will hurt lenders and developers.
NEC jumped 5.4 percent to 312 yen this week in Tokyo after saying in a preliminary earnings statement its full-year net income was 11 billion yen, higher than forecast. Canon Inc., the world’s largest camera maker, gained 2.6 percent to 4,355 yen as it raised its full-year net income forecast by 20 percent. Nissan Motor Co., which counts North America as its biggest market, climbed 3.9 percent to 823 yen.
Samsung, Asia’s biggest maker of semiconductors, flat screens and mobile phones, gained 2.3 percent to 849,000 won this week in Seoul. The company said first-quarter net income rose almost sevenfold to 3.99 trillion won ($3.6 billion). Baoshan Iron & Steel Co. gained 2.7 percent to 6.89 yuan in Shanghai. First-half profit may surge by between sixfold and 10- fold from a year ago as Chinese demand for metal used in cars and appliances rebounds, the company said.
Downgrades in Europe
The MSCI Asia Pacific Index has rebounded from its low this year as corporate earnings and economic data signaled the global recovery is continuing. The gauge slid 2 percent on April 28 after downgrades of credit ratings for Greece and Portugal spurred concern Europe’s debt crisis will spread. Shares in the index trade at 16 times estimated earnings, compared with 14.8 times for the Standard & Poor’s 500 Index in the U.S. and about 12.5 times for the Stoxx Europe 600 Index.
Esprit slid 5.3 percent to HK$56.70 for the week in Hong Kong. HSBC Holdings Plc, Europe’s largest bank, declined 0.2 percent to HK$80.95. Australia & New Zealand Banking Group Ltd. fell 4 percent to A$24.20 in Sydney after its Chief Executive Officer Michael Smith said Europe’s debt problems may worsen.
Standard & Poor’s cut Spain’s credit rating to AA from AA+ on April 28, which followed downgrades the previous day on Greece and Portugal, which the rating company cut to junk status.
China Vanke
“Concern surrounding European sovereign debt is limiting gains,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Investors are grappling with the sustainability of improved earnings and the impact on long-term stock valuations.”
China Vanke dropped 1.6 percent to 7.8 yuan in Shenzhen this week after first-quarter profit was nearly halved from the previous three months as the government announced measures to cool the property market.
Hang Lung Properties Ltd., a Hong Kong developer which generated 40 percent of its fiscal 2009 revenue in China, sank 1.2 percent to HK$28.50 in Hong Kong this week.
The southern Chinese city of Shenzhen may limit local families to owning two homes, while the eastern city of Qingdao may raise land taxes for luxury homes and non-residential developments to 2 percent from 1 percent, the Shanghai Securities News reported on April 29. Beijing may introduce details for curbing the city’s property market by May 1, the newspaper reported.
“The market is worried China is over-tightening,” said Grace Tam, Hong Kong-based vice president of investment services at JPMorgan Asset Management Ltd., which manages about $102 billion in Asia-Pacific assets. “The concern is that this could result in a worse-than-expected impact on China’s growth.”
South Korea Exports Increase for Sixth Straight Month (Update3)
South Korea’s exports increased for a sixth consecutive month in April as a recovering global economy boosted demand for semiconductors and cars.
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
Overseas sales to China, the biggest buyer of South Korean goods, rose 50.4 percent in the first 20 days of April, today’s report showed. Shipments to the U.S. climbed 28.5 percent and those to Japan gained 32.4 percent over the same period.
The World Bank forecasts China’s economy will expand 9.5 percent this year, with imports climbing 16.4 percent. The International Monetary Fund this month upgraded its global growth forecast for 2010 to 4.2 percent from 3.9 percent.
Display Panels
Shipments of semiconductors increased 97.9 percent last month and display-panel exports gained 38.4 percent, according to today’s report. Overseas sales of cars advanced 61.8 percent.
South Korea, Asia’s fourth-largest buyer of crude oil, imported 1 percent less of the fuel in April from a year earlier, the ministry said today. Imports declined to 69.6 million barrels last month from 70.3 million barrels a year ago.
Taiwan’s exports climbed in March for a fifth month, soaring 50.1 percent from a year earlier, as a pickup in global growth boosted demand for the island’s electronic goods. Malaysia’s shipments rose 18.4 percent in February from a year earlier after advancing 37 percent in the previous month, the most in more than 11 years.
South Korea’s government forecasts exports will rise 13 percent this year to $410 billion, compared with a 14 percent decline in 2009. The nation’s trade surplus in the second quarter is expected to be bigger than the reading in the first three months of the year which was $3.3 billion, the ministry said today.
Factory Output
Industrial production in South Korea grew for a ninth straight month in March, jumping 22.1 percent from a year earlier, the statistics office said yesterday. That was more than the 19.8 percent median forecast in a Bloomberg News survey of 14 economists.
Asia’s fourth-largest economy accelerated more than estimated last quarter as the global recovery spurred demand for electronics and consumer spending advanced, prompting the government to warn about speculative gains in the currency.
As stronger growth pushed the won close to a 19-month high against the U.S. dollar, the Ministry of Strategy and Finance said on April 27 that investors have bet “excessively” on the currency’s rise. A strong won could hurt exporters.
‘Upward Pressure’
The government’s comments on the won put a brake on the currency’s appreciation. The currency, which has gained 15 percent in the past year, rose 2.1 percent in April. The Kospi stock index yesterday closed 0.8 percent higher at 1,741.56, advancing for the 12th straight week, the longest winning streak since June 2007.
“Strong exports and foreign investors’ purchase of Korean stocks and bonds will likely add upward pressure on the won, which will likely prompt more government intervention,” Kim at Hyundai Securities said.
The Bank of Korea kept the benchmark interest rate at a record-low 2 percent for a 14th straight month on April 9 as the government presses for low borrowing costs to spur the economy ahead of provincial elections in June.
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
Overseas sales to China, the biggest buyer of South Korean goods, rose 50.4 percent in the first 20 days of April, today’s report showed. Shipments to the U.S. climbed 28.5 percent and those to Japan gained 32.4 percent over the same period.
The World Bank forecasts China’s economy will expand 9.5 percent this year, with imports climbing 16.4 percent. The International Monetary Fund this month upgraded its global growth forecast for 2010 to 4.2 percent from 3.9 percent.
Display Panels
Shipments of semiconductors increased 97.9 percent last month and display-panel exports gained 38.4 percent, according to today’s report. Overseas sales of cars advanced 61.8 percent.
South Korea, Asia’s fourth-largest buyer of crude oil, imported 1 percent less of the fuel in April from a year earlier, the ministry said today. Imports declined to 69.6 million barrels last month from 70.3 million barrels a year ago.
Taiwan’s exports climbed in March for a fifth month, soaring 50.1 percent from a year earlier, as a pickup in global growth boosted demand for the island’s electronic goods. Malaysia’s shipments rose 18.4 percent in February from a year earlier after advancing 37 percent in the previous month, the most in more than 11 years.
South Korea’s government forecasts exports will rise 13 percent this year to $410 billion, compared with a 14 percent decline in 2009. The nation’s trade surplus in the second quarter is expected to be bigger than the reading in the first three months of the year which was $3.3 billion, the ministry said today.
Factory Output
Industrial production in South Korea grew for a ninth straight month in March, jumping 22.1 percent from a year earlier, the statistics office said yesterday. That was more than the 19.8 percent median forecast in a Bloomberg News survey of 14 economists.
Asia’s fourth-largest economy accelerated more than estimated last quarter as the global recovery spurred demand for electronics and consumer spending advanced, prompting the government to warn about speculative gains in the currency.
As stronger growth pushed the won close to a 19-month high against the U.S. dollar, the Ministry of Strategy and Finance said on April 27 that investors have bet “excessively” on the currency’s rise. A strong won could hurt exporters.
‘Upward Pressure’
The government’s comments on the won put a brake on the currency’s appreciation. The currency, which has gained 15 percent in the past year, rose 2.1 percent in April. The Kospi stock index yesterday closed 0.8 percent higher at 1,741.56, advancing for the 12th straight week, the longest winning streak since June 2007.
“Strong exports and foreign investors’ purchase of Korean stocks and bonds will likely add upward pressure on the won, which will likely prompt more government intervention,” Kim at Hyundai Securities said.
The Bank of Korea kept the benchmark interest rate at a record-low 2 percent for a 14th straight month on April 9 as the government presses for low borrowing costs to spur the economy ahead of provincial elections in June.
China’s April Manufacturing Expands at Faster Pace (Update2)
Chinese manufacturing expanded at a faster pace in April, highlighting overheating risks in the world’s fastest-growing major economy.
The Purchasing Managers’ Index rose to a seasonally adjusted 55.7 from 55.1 in March, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 55.9 estimate in a Bloomberg News survey of 14 economists. Readings above 50 indicate an expansion.
China is cracking down on property speculation to prevent asset bubbles and restrain inflation after the economy grew 11.9 percent in the first quarter. Europe’s debt crisis makes an immediate interest-rate increase in China less likely and could delay gains in the yuan by signaling weakness in the global economy, according to Bank of America-Merrill Lynch.
“There are signs of overheating pressures although government measures are helping to cool the property market,” Chang Jian, an economist at Barclays Capital Asia Ltd., said in Hong Kong before today’s report. “The government will be monitoring closely developments in Europe when making decisions on policy moves.”
Chang said interest rates could rise later this quarter as inflation pressures grow.
New Orders
An output index rose to 59.1 from 58.4 in March, the new- order index advanced to 59.3 from 58.1 and the export-order index stayed unchanged at 54.5. An input-price index increased to 72.6, the highest in 22 months.
Today’s PMI figure compares with a record-low 38.8 in November 2008, when the credit crisis and recessions in overseas markets sent export orders plunging. The economy rebounded on the 4 trillion yuan ($586 billion) stimulus plan announced that month and record new loans from banks.
Exports are recovering, climbing 29 percent in the first quarter from a year earlier, with their value topping the level of the same period in 2008, before the crisis hit.
Industrial companies’ profits are also up, more than doubling in the first quarter from a year earlier, statistics bureau figures for 24 provinces showed. Baoshan Iron & Steel Co., the nation’s largest publicly traded steelmaker, estimates that its first-half profit may increase as much as 10-fold from a year earlier.
‘Moderately Loose’
Still, the central bank last week reaffirmed a “moderately loose” monetary policy, adding that the world’s recovery remains on a “fragile” foundation. China faces a complex economic environment this year amid weak global recovery and domestic problems including difficulty in managing inflation expectations and risks in local government borrowing and property loans, banking regulator Liu Mingkang said yesterday.
Last month’s acceleration in the PMI was partly seasonal as the index has usually been high in March and April in past years, Zhang Liqun, a researcher at the State Council’s Development and Research Center, said in the statement from the logistics federation.
“There are still uncertainties in the growth of exports and domestic demand, which is still partly relying on government stimulus and lacking sustainability,” Zhang said, highlighting “notable” production cost pressures in the future shown by the surging input price index.
While officials have pared back stimulus by targeting a 22 percent reduction in new loans this year and raising banks’ reserve requirements, the central bank is yet to reverse the cuts in interest rates made to counter the global crisis. It has also left the yuan pegged at about 6.83 per dollar since July 2008 to aid exporters.
Rescue Package
European officials are working on a rescue package for Greece, trying to prevent the nation’s debt woes from spreading in the region. Europe is the largest buyer of merchandise from China, the world’s biggest exporting nation.
Lu Ting, a Hong Kong-based economist at Bank of America- Merrill Lynch, said last week an interest-rate increase this quarter is “less and less likely” because of Greece’s credit- rating downgrade. He predicts a move in the fourth quarter.
China’s economy may expand 10 percent this year and 9.9 percent in 2011, the International Monetary Fund estimated last week in a report. It also said that Asia’s economic recovery is attracting capital inflows that may cause the region to overheat and lead to the formation of asset bubbles.
In China, measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases. The government intensified its campaign against speculation after a record 11.7 percent gain in property prices across 70 cities in March from a year earlier.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics. It started in January 2005.
The Purchasing Managers’ Index rose to a seasonally adjusted 55.7 from 55.1 in March, the Federation of Logistics and Purchasing said in an e-mailed statement today. That was less than the median 55.9 estimate in a Bloomberg News survey of 14 economists. Readings above 50 indicate an expansion.
China is cracking down on property speculation to prevent asset bubbles and restrain inflation after the economy grew 11.9 percent in the first quarter. Europe’s debt crisis makes an immediate interest-rate increase in China less likely and could delay gains in the yuan by signaling weakness in the global economy, according to Bank of America-Merrill Lynch.
“There are signs of overheating pressures although government measures are helping to cool the property market,” Chang Jian, an economist at Barclays Capital Asia Ltd., said in Hong Kong before today’s report. “The government will be monitoring closely developments in Europe when making decisions on policy moves.”
Chang said interest rates could rise later this quarter as inflation pressures grow.
New Orders
An output index rose to 59.1 from 58.4 in March, the new- order index advanced to 59.3 from 58.1 and the export-order index stayed unchanged at 54.5. An input-price index increased to 72.6, the highest in 22 months.
Today’s PMI figure compares with a record-low 38.8 in November 2008, when the credit crisis and recessions in overseas markets sent export orders plunging. The economy rebounded on the 4 trillion yuan ($586 billion) stimulus plan announced that month and record new loans from banks.
Exports are recovering, climbing 29 percent in the first quarter from a year earlier, with their value topping the level of the same period in 2008, before the crisis hit.
Industrial companies’ profits are also up, more than doubling in the first quarter from a year earlier, statistics bureau figures for 24 provinces showed. Baoshan Iron & Steel Co., the nation’s largest publicly traded steelmaker, estimates that its first-half profit may increase as much as 10-fold from a year earlier.
‘Moderately Loose’
Still, the central bank last week reaffirmed a “moderately loose” monetary policy, adding that the world’s recovery remains on a “fragile” foundation. China faces a complex economic environment this year amid weak global recovery and domestic problems including difficulty in managing inflation expectations and risks in local government borrowing and property loans, banking regulator Liu Mingkang said yesterday.
Last month’s acceleration in the PMI was partly seasonal as the index has usually been high in March and April in past years, Zhang Liqun, a researcher at the State Council’s Development and Research Center, said in the statement from the logistics federation.
“There are still uncertainties in the growth of exports and domestic demand, which is still partly relying on government stimulus and lacking sustainability,” Zhang said, highlighting “notable” production cost pressures in the future shown by the surging input price index.
While officials have pared back stimulus by targeting a 22 percent reduction in new loans this year and raising banks’ reserve requirements, the central bank is yet to reverse the cuts in interest rates made to counter the global crisis. It has also left the yuan pegged at about 6.83 per dollar since July 2008 to aid exporters.
Rescue Package
European officials are working on a rescue package for Greece, trying to prevent the nation’s debt woes from spreading in the region. Europe is the largest buyer of merchandise from China, the world’s biggest exporting nation.
Lu Ting, a Hong Kong-based economist at Bank of America- Merrill Lynch, said last week an interest-rate increase this quarter is “less and less likely” because of Greece’s credit- rating downgrade. He predicts a move in the fourth quarter.
China’s economy may expand 10 percent this year and 9.9 percent in 2011, the International Monetary Fund estimated last week in a report. It also said that Asia’s economic recovery is attracting capital inflows that may cause the region to overheat and lead to the formation of asset bubbles.
In China, measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases. The government intensified its campaign against speculation after a record 11.7 percent gain in property prices across 70 cities in March from a year earlier.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, is based on replies to questionnaires sent to purchasing executives at more than 730 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics. It started in January 2005.
South Korea Exports Increase for Sixth Straight Month (Update2)
South Korea’s exports increased for a sixth consecutive month in April as a recovering global economy boosted demand for semiconductors and cars.
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
Overseas sales to China, the biggest buyer of South Korean goods, rose 50.4 percent in the first 20 days of April, today’s report showed. Shipments to the U.S. climbed 28.5 percent and those to Japan gained 32.4 percent over the same period.
The World Bank forecasts China’s economy will expand 9.5 percent this year, with imports climbing 16.4 percent. The International Monetary Fund this month upgraded its global growth forecast for 2010 to 4.2 percent from 3.9 percent.
Display Panels
Shipments of semiconductors increased 97.9 percent last month and display-panel exports gained 38.4 percent, according to today’s report. Overseas sales of cars advanced 61.8 percent.
Taiwan’s exports climbed in March for a fifth month, soaring 50.1 percent from a year earlier, as a pickup in global growth boosted demand for the island’s electronic goods. Malaysia’s shipments rose 18.4 percent in February from a year earlier after advancing 37 percent in the previous month, the most in more than 11 years.
South Korea’s government forecasts exports will rise 13 percent this year to $410 billion, compared with a 14 percent decline in 2009. The nation’s trade surplus in the second quarter is expected to be bigger than in the first three months of the year, the ministry said today.
Factory Output
Industrial production in South Korea grew for a ninth straight month in March, jumping 22.1 percent from a year earlier, the statistics office said yesterday. That was more than the 19.8 percent median forecast in a Bloomberg News survey of 14 economists.
Asia’s fourth-largest economy accelerated more than estimated last quarter as the global recovery spurred demand for electronics and consumer spending advanced, prompting the government to warn about speculative gains in the currency.
As stronger growth pushed the won close to a 19-month high against the U.S. dollar, the Ministry of Strategy and Finance said on April 27 that investors have bet “excessively” on the currency’s rise. A strong won could hurt exporters.
The government’s comments on the won put a brake on the currency’s appreciation. The currency, which has gained 15 percent in the past year, rose 2.1 percent in April. The Kospi stock index yesterday closed 0.8 percent higher at 1,741.56, advancing for the 12th straight week, the longest winning streak since June 2007.
“Strong exports and foreign investors’ purchase of Korean stocks and bonds will likely add upward pressure on the won, which will likely prompt more government intervention,” Kim at Hyundai Securities said.
The Bank of Korea kept the benchmark interest rate at a record-low 2 percent for a 14th straight month on April 9 as the government presses for low borrowing costs to spur the economy ahead of provincial elections in June.
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
Overseas sales to China, the biggest buyer of South Korean goods, rose 50.4 percent in the first 20 days of April, today’s report showed. Shipments to the U.S. climbed 28.5 percent and those to Japan gained 32.4 percent over the same period.
The World Bank forecasts China’s economy will expand 9.5 percent this year, with imports climbing 16.4 percent. The International Monetary Fund this month upgraded its global growth forecast for 2010 to 4.2 percent from 3.9 percent.
Display Panels
Shipments of semiconductors increased 97.9 percent last month and display-panel exports gained 38.4 percent, according to today’s report. Overseas sales of cars advanced 61.8 percent.
Taiwan’s exports climbed in March for a fifth month, soaring 50.1 percent from a year earlier, as a pickup in global growth boosted demand for the island’s electronic goods. Malaysia’s shipments rose 18.4 percent in February from a year earlier after advancing 37 percent in the previous month, the most in more than 11 years.
South Korea’s government forecasts exports will rise 13 percent this year to $410 billion, compared with a 14 percent decline in 2009. The nation’s trade surplus in the second quarter is expected to be bigger than in the first three months of the year, the ministry said today.
Factory Output
Industrial production in South Korea grew for a ninth straight month in March, jumping 22.1 percent from a year earlier, the statistics office said yesterday. That was more than the 19.8 percent median forecast in a Bloomberg News survey of 14 economists.
Asia’s fourth-largest economy accelerated more than estimated last quarter as the global recovery spurred demand for electronics and consumer spending advanced, prompting the government to warn about speculative gains in the currency.
As stronger growth pushed the won close to a 19-month high against the U.S. dollar, the Ministry of Strategy and Finance said on April 27 that investors have bet “excessively” on the currency’s rise. A strong won could hurt exporters.
The government’s comments on the won put a brake on the currency’s appreciation. The currency, which has gained 15 percent in the past year, rose 2.1 percent in April. The Kospi stock index yesterday closed 0.8 percent higher at 1,741.56, advancing for the 12th straight week, the longest winning streak since June 2007.
“Strong exports and foreign investors’ purchase of Korean stocks and bonds will likely add upward pressure on the won, which will likely prompt more government intervention,” Kim at Hyundai Securities said.
The Bank of Korea kept the benchmark interest rate at a record-low 2 percent for a 14th straight month on April 9 as the government presses for low borrowing costs to spur the economy ahead of provincial elections in June.
South Korea Exports Increase for Sixth Straight Month (Update1)
South Korea’s exports increased for a sixth consecutive month in April as a recovering global economy boosted demand.
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
Overseas shipments rose 31.5 percent from a year earlier to $39.88 billion, the Ministry of Knowledge Economy said in Gwacheon today. That compared with the median forecast of a 31.8 percent gain in a Bloomberg News survey of ten economists. Imports climbed 42.6 percent to $35.47 billion, leaving a trade surplus of $4.41 billion.
Economies across Asia are reporting faster growth as the region leads the world out of the worst global recession since World War II. Samsung Electronics Co., Asia’s biggest maker of semiconductors, flat screens and mobile phones, posted a seven- fold increase in profit for the first quarter and Hyundai Motor Co. boosted sales in the U.S. and China this year.
“Both exports and imports will likely grow further as the global economy is gathering pace,” Kim Jae Eun, an economist at Hyundai Securities Co. in Seoul, said before the report. “It will lead to a strong start for the second quarter.”
FTC Staff Said to Urge Challenge to Google’s AdMob Purchase
The U.S. Federal Trade Commission staff has recommended filing an antitrust suit challenging Google Inc.’s $750 million acquisition of AdMob Inc., according to three people familiar with the matter.
The recommendation was submitted to the five-member commission, which will decide whether to follow the staff’s advice or approve the deal. The people familiar with the matter spoke on condition of anonymity. Peter Kaplan, an FTC spokesman, declined to comment.
The FTC staff signaled last month it was leaning toward urging a court challenge when it was disclosed the agency was seeking sworn declarations from Google’s competitors and advertisers.
“We’re continuing to talk with the FTC about our acquisition of AdMob,” said Google spokesman Adam Kovacevich. “We’re confident that they’ll conclude that the rapidly growing mobile advertising space will remain highly competitive after this deal closes.”
The concern is that Mountain View, California-based Google, owner of the world’s most popular web search engine, would reduce competition in the market for advertising on mobile phones. AdMob, based in San Mateo, California, sells ads that appear on web pages and applications on mobile phones.
Advertisers have expressed concern the deal would lead to higher rates. “We want it to be competitive,” said Simon Buckingham, chief executive officer of Appitalism Inc., a New York-based software developer. “I’m not going to have any choices” if the purchase goes through.
Mobile Advertising
Google’s purchase of AdMob would form the largest mobile- advertising company. The companies combined had 21 percent of the U.S. market in 2009, according to Karsten Weide, an analyst with researcher IDC in San Mateo. The market has been doubling or more in size annually, Weide said.
A bipartisan group of House lawmakers today asked for an FTC briefing on the investigation.
“The need for a thorough review is particularly pressing given Google’s dominant position in search advertising” and “its growing influence over other forms of online advertising,” the lawmakers wrote in a letter to House Energy and Commerce Committee Chairman Henry Waxman, a California Democrat.
Democrats John Barrow of Georgia, Frank Pallone of New Jersey and Bruce Braley of Iowa and Republicans Steve Scalise of Louisiana and Mike Rogers of Michigan signed the letter.
On April 12, Google Chief Executive Officer Eric Schmidt said Apple Inc.’s move into mobile advertising shows the market is competitive and that federal regulators should permit the AdMob purchase. Apple is planning to offer iAd, an advertising platform to compete with AdMob.
The recommendation was submitted to the five-member commission, which will decide whether to follow the staff’s advice or approve the deal. The people familiar with the matter spoke on condition of anonymity. Peter Kaplan, an FTC spokesman, declined to comment.
The FTC staff signaled last month it was leaning toward urging a court challenge when it was disclosed the agency was seeking sworn declarations from Google’s competitors and advertisers.
“We’re continuing to talk with the FTC about our acquisition of AdMob,” said Google spokesman Adam Kovacevich. “We’re confident that they’ll conclude that the rapidly growing mobile advertising space will remain highly competitive after this deal closes.”
The concern is that Mountain View, California-based Google, owner of the world’s most popular web search engine, would reduce competition in the market for advertising on mobile phones. AdMob, based in San Mateo, California, sells ads that appear on web pages and applications on mobile phones.
Advertisers have expressed concern the deal would lead to higher rates. “We want it to be competitive,” said Simon Buckingham, chief executive officer of Appitalism Inc., a New York-based software developer. “I’m not going to have any choices” if the purchase goes through.
Mobile Advertising
Google’s purchase of AdMob would form the largest mobile- advertising company. The companies combined had 21 percent of the U.S. market in 2009, according to Karsten Weide, an analyst with researcher IDC in San Mateo. The market has been doubling or more in size annually, Weide said.
A bipartisan group of House lawmakers today asked for an FTC briefing on the investigation.
“The need for a thorough review is particularly pressing given Google’s dominant position in search advertising” and “its growing influence over other forms of online advertising,” the lawmakers wrote in a letter to House Energy and Commerce Committee Chairman Henry Waxman, a California Democrat.
Democrats John Barrow of Georgia, Frank Pallone of New Jersey and Bruce Braley of Iowa and Republicans Steve Scalise of Louisiana and Mike Rogers of Michigan signed the letter.
On April 12, Google Chief Executive Officer Eric Schmidt said Apple Inc.’s move into mobile advertising shows the market is competitive and that federal regulators should permit the AdMob purchase. Apple is planning to offer iAd, an advertising platform to compete with AdMob.
BP, Transocean Suits Surge as Gulf Oil Spill Spreads (Update2)
BP Plc and Transocean Ltd. face at least 36 lawsuits, including group cases with potentially thousands of plaintiffs, over environmental damage and personal injuries caused by the oil spill in the Gulf of Mexico.
At least 31 proposed class-action suits have been filed in courthouses from Texas to Florida. Commercial fishermen, shrimpers, charter-boat operators and beachfront-property owners asked to represent anyone whose livelihood depends on coastal waters imperiled by the drifting oil. At least 24 cases were filed today.
BP has the primary liability for damage caused by the spill, said Keith Hall, an attorney in New Orleans, who isn’t involved in the litigation. He cited a U.S. law passed after the Exxon Valdez oil spill at Alaska in 1989.
“Under the Oil Pollution Act, the fact that it was BP’s oil is enough,” said Hall, of Stone Pigman Walther Wittmann LLC. Plaintiffs “don’t have to show they were negligent or grossly negligent,” he said.
Transocean’s spokesman Guy Cantwell and BP’s Daren Beaudo didn’t respond to requests for comment on the rapid rise in lawsuits. Both men said previously it was against company policy to comment on pending litigation.
Lawsuits also name Cameron International Corp., which provided blowout-prevention equipment, and Halliburton Energy Services Inc., which was involved in cementing the well.
Cameron, Halliburton
Scott Amann, a spokesman for Houston-based Cameron, the second-largest U.S. maker of oilfield equipment behind National Oilwell Varco Inc., said the company doesn’t comment on litigation.
Cathy Mann, a spokeswoman for Houston-based Halliburton, the second-largest oilfield contractor behind Schlumberger Ltd., said the company is cooperating with investigations into the accident. She said “it is premature and irresponsible to speculate on any specific causal issues.”
The suits are multiplying as the companies struggle to cap a damaged undersea well leaking 5,000 barrels of crude oil a day since the Deepwater Horizon drilling rig exploded April 20. The edge of the spill began washing ashore in Louisiana late yesterday and may reach Florida’s coast early next week.
“The litigation is spreading faster than the slick,” said Houston-based plaintiffs’ attorney Tommy Fibich in an interview. “BP may be as endangered as the brown pelican. This litigation will dwarf other corporate catastrophes.”
‘Tremendous Disaster’
“There are big losses already,” Robert Cunningham, a Mobile, Alabama, lawyer representing condominium owners and commercial fishermen, said today in a phone interview. “The condo owners are having cancellations right and left over concerns about fouled beaches. It’s going to be a tremendous disaster if it comes ashore.”
“If you look at a satellite photo of the slick, it already extends from due south of New Orleans to due south of Pensacola, Florida,” said Michael G. Stag, a lawyer for the Louisiana Environmental Action Network, which sued today. The group’s lawsuit asks the federal court in New Orleans to order BP and other defendants to remove oil, test Louisiana waters and re- seed oyster habitats.
Families of 11 of the 28 crew members killed or injured in the Deepwater Horizon explosion have sued companies including London-based BP and Geneva-based Transocean, the world’s largest offshore oil driller. Lawyers for two workers in a state-court lawsuit in Houston acquired a temporary restraining order requiring the companies to preserve evidence related to the explosion.
Combined Lawsuits
The cases probably will be combined in a single court for evidence-gathering and pretrial decisions, according to Stag. They may be returned to their home states for trial or settled.
Jonathan Andry, a lawyer for a Louisiana fisherman who is suing, cited statistics from the state’s wildlife and fisheries agency that the state supplies about 25 percent of the continental U.S.’s seafood.
The area threatened by the spill is especially important for its abundance of shrimp, oysters, red snapper and grouper, according to attorney Brad Bradford, who sued yesterday on behalf of fisherman John Harris in federal court in Pensacola, Florida.
Thick, Smelly Air
Stag, whose law office is in downtown New Orleans, said the air yesterday was thick with the acrid smell of burning oil, as the U.S. Coast Guard tried to burn off some of the slick before it reached land.
“The economic impact of the spill will extend far beyond marine wildlife and the fishing industry, harming coastal property owners, the tourism industry and a myriad of others who supply them with goods and services,” Bradford said in court papers.
Alabama and Florida beachfront property owners filed at least eight suits claiming the spill will damage rental income. The area’s “sugar sand” beaches regularly appear on rankings of the world’s top white-sand beaches.
The plaintiffs include Peter Burke, an Alabaman who owns rental properties on the Gulf coast.
“Mr. Burke has already seen an impact on his ability to rent his properties because of the anticipated landfall of thousands of gallons of crude oil,” John E. Norris, one of the property owners’ lawyers, said in court papers.
“It looks like this will be a major piece of litigation for a lot of years if it hits as predicted,” said attorney Cunningham, whose firm has filed five proposed class-action suits.
Today’s cases include Fishtrap Charters LLC v. Transocean Holdings, 1:10-cv-00202, and Fort Morgan Sales, Rentals & Development v. Transocean Holdings, 1:10-cv-00203, U.S. District Court, Southern District of Alabama (Mobile).
For Related News and Information: Map of Transocean rigs: BMAP 31465 Transocean company news: RIG US CN BN Litigation involving these companies: RIG US LITI BP/ LN LITI Top Stories: TOP Top legal news: TLAW Legal functions: BLAW
At least 31 proposed class-action suits have been filed in courthouses from Texas to Florida. Commercial fishermen, shrimpers, charter-boat operators and beachfront-property owners asked to represent anyone whose livelihood depends on coastal waters imperiled by the drifting oil. At least 24 cases were filed today.
BP has the primary liability for damage caused by the spill, said Keith Hall, an attorney in New Orleans, who isn’t involved in the litigation. He cited a U.S. law passed after the Exxon Valdez oil spill at Alaska in 1989.
“Under the Oil Pollution Act, the fact that it was BP’s oil is enough,” said Hall, of Stone Pigman Walther Wittmann LLC. Plaintiffs “don’t have to show they were negligent or grossly negligent,” he said.
Transocean’s spokesman Guy Cantwell and BP’s Daren Beaudo didn’t respond to requests for comment on the rapid rise in lawsuits. Both men said previously it was against company policy to comment on pending litigation.
Lawsuits also name Cameron International Corp., which provided blowout-prevention equipment, and Halliburton Energy Services Inc., which was involved in cementing the well.
Cameron, Halliburton
Scott Amann, a spokesman for Houston-based Cameron, the second-largest U.S. maker of oilfield equipment behind National Oilwell Varco Inc., said the company doesn’t comment on litigation.
Cathy Mann, a spokeswoman for Houston-based Halliburton, the second-largest oilfield contractor behind Schlumberger Ltd., said the company is cooperating with investigations into the accident. She said “it is premature and irresponsible to speculate on any specific causal issues.”
The suits are multiplying as the companies struggle to cap a damaged undersea well leaking 5,000 barrels of crude oil a day since the Deepwater Horizon drilling rig exploded April 20. The edge of the spill began washing ashore in Louisiana late yesterday and may reach Florida’s coast early next week.
“The litigation is spreading faster than the slick,” said Houston-based plaintiffs’ attorney Tommy Fibich in an interview. “BP may be as endangered as the brown pelican. This litigation will dwarf other corporate catastrophes.”
‘Tremendous Disaster’
“There are big losses already,” Robert Cunningham, a Mobile, Alabama, lawyer representing condominium owners and commercial fishermen, said today in a phone interview. “The condo owners are having cancellations right and left over concerns about fouled beaches. It’s going to be a tremendous disaster if it comes ashore.”
“If you look at a satellite photo of the slick, it already extends from due south of New Orleans to due south of Pensacola, Florida,” said Michael G. Stag, a lawyer for the Louisiana Environmental Action Network, which sued today. The group’s lawsuit asks the federal court in New Orleans to order BP and other defendants to remove oil, test Louisiana waters and re- seed oyster habitats.
Families of 11 of the 28 crew members killed or injured in the Deepwater Horizon explosion have sued companies including London-based BP and Geneva-based Transocean, the world’s largest offshore oil driller. Lawyers for two workers in a state-court lawsuit in Houston acquired a temporary restraining order requiring the companies to preserve evidence related to the explosion.
Combined Lawsuits
The cases probably will be combined in a single court for evidence-gathering and pretrial decisions, according to Stag. They may be returned to their home states for trial or settled.
Jonathan Andry, a lawyer for a Louisiana fisherman who is suing, cited statistics from the state’s wildlife and fisheries agency that the state supplies about 25 percent of the continental U.S.’s seafood.
The area threatened by the spill is especially important for its abundance of shrimp, oysters, red snapper and grouper, according to attorney Brad Bradford, who sued yesterday on behalf of fisherman John Harris in federal court in Pensacola, Florida.
Thick, Smelly Air
Stag, whose law office is in downtown New Orleans, said the air yesterday was thick with the acrid smell of burning oil, as the U.S. Coast Guard tried to burn off some of the slick before it reached land.
“The economic impact of the spill will extend far beyond marine wildlife and the fishing industry, harming coastal property owners, the tourism industry and a myriad of others who supply them with goods and services,” Bradford said in court papers.
Alabama and Florida beachfront property owners filed at least eight suits claiming the spill will damage rental income. The area’s “sugar sand” beaches regularly appear on rankings of the world’s top white-sand beaches.
The plaintiffs include Peter Burke, an Alabaman who owns rental properties on the Gulf coast.
“Mr. Burke has already seen an impact on his ability to rent his properties because of the anticipated landfall of thousands of gallons of crude oil,” John E. Norris, one of the property owners’ lawyers, said in court papers.
“It looks like this will be a major piece of litigation for a lot of years if it hits as predicted,” said attorney Cunningham, whose firm has filed five proposed class-action suits.
Today’s cases include Fishtrap Charters LLC v. Transocean Holdings, 1:10-cv-00202, and Fort Morgan Sales, Rentals & Development v. Transocean Holdings, 1:10-cv-00203, U.S. District Court, Southern District of Alabama (Mobile).
For Related News and Information: Map of Transocean rigs: BMAP 31465
Greece Faces ‘Unprecedented’ Cuts as $159 Billion Rescue Nears
Greek Finance Minister George Papaconstantinou said Greece faces “unprecedented” budget cuts as the euro region and International Monetary Fund near approval of a 120 billion-euro ($159 billion) bailout for the debt- stricken nation.
Greece must brace itself for “very demanding tasks,” Papaconstantinou said yesterday in Athens, where the government is wrapping up talks with the IMF and EU on conditions for the three-year loans. “We are at a critical point in the history of our country.”
European finance ministers plan to meet tomorrow to approve their share of the bailout meant to stop the biggest crisis in the euro’s 11-year history. While Greek stocks and bonds rebounded after German Chancellor Angela Merkel said April 28 the EU must speed up its response, the crisis rippled through the euro area. Standard & Poor’s downgraded Greece to junk this week and followed with cuts to Portugal and Spain.
The Greek government may agree in the face of public protests to budget cuts worth 24 billion euros, or around 10 percent of gross domestic product, as a condition for the aid package, Greece’s NET Radio said. Measures may include a three- year wage freeze for public workers and the elimination of two of their 14 annual salary payments, the ADEDY union said.
Mounting Discontent
“Huge doubts remain about the ability of the Greek government to implement these policy changes amid mounting signs of discontent within the population,” Michael Saunders and other economists at Citigroup Inc. said in an e-mailed note. “Even in the event of a successful implementation of the measures, risks remain of a vicious spiral between tighter fiscal policy and collapsing real growth.”
Details of the loan conditions will emerge when the Athens talks conclude. Expectations the negotiations would end today prompted Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, to convene the meeting to ratify the agreement at 4 p.m. in Brussels tomorrow.
The euro area aims to contribute two-thirds of the total aid for Greece and disbursing that share, including as much as 30 billion euros for 2010, requires the unanimous approval of the region’s national governments. Finance ministers will ratify at least the first year at contributions tomorrow.
The pending Greek wage cuts will overshadow today’s annual Labor Day celebrations in Athens, usually marked by rallies and picnics, which unions called on Greeks to join before the “coming storm.” The slogan is: “The Croesus-es should pay for the crisis,” a reference to the ancient king renowned for his wealth.
Risk Rises
Stocks and bonds fell this week after Merkel’s initial reluctance to approve disbursing funds to Greece stoked concerns about a default. The extra yield that investors demand to hold Greek debt over bunds exceeded 800 basis points on April 28. The spreads on Portuguese, Spanish and Irish debt also jumped, with the premium on Portugal’s 10-year bonds rising as high as 299 basis points on April 28.
Signs of a renewed drive to tackle Greece’s troubles then helped spark a recovery. European Central Bank President Jean- Claude Trichet on April 29 said policy makers must create a “sense of direction” to help overcome the fiscal crisis.
Greece’s ASE benchmark general index rose 2.2 percent yesterday, extending a 7 percent gain the previous day. The yield on Greek 10-year government bonds, which surged to 11.406 percent on April 28, was at 9.45 percent.
Papandreou is caught between investors, who want faster deficit cuts, and voters and unions, who are already chafing at existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and increase taxes to reduce a deficit that was more than four times the EU limit last year.
Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper reported, without saying where it got the information.
Greece must brace itself for “very demanding tasks,” Papaconstantinou said yesterday in Athens, where the government is wrapping up talks with the IMF and EU on conditions for the three-year loans. “We are at a critical point in the history of our country.”
European finance ministers plan to meet tomorrow to approve their share of the bailout meant to stop the biggest crisis in the euro’s 11-year history. While Greek stocks and bonds rebounded after German Chancellor Angela Merkel said April 28 the EU must speed up its response, the crisis rippled through the euro area. Standard & Poor’s downgraded Greece to junk this week and followed with cuts to Portugal and Spain.
The Greek government may agree in the face of public protests to budget cuts worth 24 billion euros, or around 10 percent of gross domestic product, as a condition for the aid package, Greece’s NET Radio said. Measures may include a three- year wage freeze for public workers and the elimination of two of their 14 annual salary payments, the ADEDY union said.
Mounting Discontent
“Huge doubts remain about the ability of the Greek government to implement these policy changes amid mounting signs of discontent within the population,” Michael Saunders and other economists at Citigroup Inc. said in an e-mailed note. “Even in the event of a successful implementation of the measures, risks remain of a vicious spiral between tighter fiscal policy and collapsing real growth.”
Details of the loan conditions will emerge when the Athens talks conclude. Expectations the negotiations would end today prompted Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, to convene the meeting to ratify the agreement at 4 p.m. in Brussels tomorrow.
The euro area aims to contribute two-thirds of the total aid for Greece and disbursing that share, including as much as 30 billion euros for 2010, requires the unanimous approval of the region’s national governments. Finance ministers will ratify at least the first year at contributions tomorrow.
The pending Greek wage cuts will overshadow today’s annual Labor Day celebrations in Athens, usually marked by rallies and picnics, which unions called on Greeks to join before the “coming storm.” The slogan is: “The Croesus-es should pay for the crisis,” a reference to the ancient king renowned for his wealth.
Risk Rises
Stocks and bonds fell this week after Merkel’s initial reluctance to approve disbursing funds to Greece stoked concerns about a default. The extra yield that investors demand to hold Greek debt over bunds exceeded 800 basis points on April 28. The spreads on Portuguese, Spanish and Irish debt also jumped, with the premium on Portugal’s 10-year bonds rising as high as 299 basis points on April 28.
Signs of a renewed drive to tackle Greece’s troubles then helped spark a recovery. European Central Bank President Jean- Claude Trichet on April 29 said policy makers must create a “sense of direction” to help overcome the fiscal crisis.
Greece’s ASE benchmark general index rose 2.2 percent yesterday, extending a 7 percent gain the previous day. The yield on Greek 10-year government bonds, which surged to 11.406 percent on April 28, was at 9.45 percent.
Papandreou is caught between investors, who want faster deficit cuts, and voters and unions, who are already chafing at existing austerity measures. Elected in October on pledges to raise wages for public workers, Papandreou has been forced to cut salaries, curb spending and increase taxes to reduce a deficit that was more than four times the EU limit last year.
Other deficit-cutting steps include increasing sales tax and raising the cap on the number of workers who can be fired to 4 percent from 2 percent, Kathimerini newspaper reported, without saying where it got the information.
Analysts Boost European Earnings Estimates to Highest This Year
Analysts are more optimistic about the prospects for European earnings than at any time since the start of the year as the region’s sovereign debt crisis fails to dent the outlook for profits.
Companies in the Stoxx Europe 600 Index will earn 20.78 euros per share in the fiscal full year, up from 19.57 euros at the start of January and the highest projection in 2010, according to analysts’ estimates compiled by Bloomberg.
Concern that Greece’s debt crisis will infect other European countries roiled markets in the past week, driving the yield on two-year Greek bonds soaring to a record 26 percent and the euro to near a one-year low against the dollar. Meanwhile about 73 percent of companies in the Stoxx 600 that reported quarterly earnings since April 12 topped analysts’ predictions, according to Bloomberg data. Earnings are headed for the most positive surprises since at least 1997, research from ING Groep NV shows.
“Companies are selling products like hot cakes,” said Dietmar Schmitt at SAM Capital Partners Ltd. in London, who’s changed his equity portfolio after this week’s declines to have more positive than negative bets. Markets may recover losses and go “even higher because corporate earnings are there and stocks are cheap,” he said.
Euro Zone
The Stoxx 600 has fallen 2.8 percent since April 23, the biggest weekly loss since February, taking the benchmark gauge to a price of 12.51 times its members’ projected full-year earnings, estimates compiled by Bloomberg show. That compares with a ratio of 13.17 at the start of the year and 15.8 at the end of 2010.
While European companies make about a third of sales outside the region, Greece only accounts for 2.6 percent of the euro zone’s gross domestic product and Portugal accounts for 1.8 percent, according to the European Union’s statistics office.
“We’re being quite pragmatic and there a lot of stocks that have been priced down where we are looking to increase our holdings in,” George Godber, co-fund manager of the S&W Matterley Undervalued Returns Fund in London, said in an interview. “The underlying corporate fundamentals, which are separate from the public sector, have been very impressive.”
Godber’s fund has gained 10 percent in 2010.
Shell, Siemens
Royal Dutch Shell Plc, Europe’s biggest oil company, posted earnings that topped estimates on April 28, sending the stock up 2.3 percent. Siemens AG, Europe’s largest engineering company, has risen 2.1 in the past two days after the Munich-based company boosted its earnings target. Rotterdam-based Unilever Plc gained 3.3 percent yesterday after saying profit increased 33 percent, beating analysts’ projections.
Estimates for this year’s profits are still a third less than the peak of 31.8 euros reported in October 2007, before the credit crisis set off the first global recession since World War II. Current forecasts indicate companies won’t return to the 2007 earnings peak until after 2012.
Sales are also beating estimates, albeit at a slower pace. Of the 169 companies on the Stoxx 600 that reported, 110 beat projections, with overall revenue coming through 5 percent higher than estimated. Sales are growing 16 percent from the previous quarter, the data show.
“Europe is starting to deliver sales momentum as well,” said Gareth Williams, European equity strategist at ING Groep NV in London. “While Europe is on track for another good season in terms of earnings, evidence of positive sales momentum has been the crucial missing bull factor until now.”
Companies in the Stoxx Europe 600 Index will earn 20.78 euros per share in the fiscal full year, up from 19.57 euros at the start of January and the highest projection in 2010, according to analysts’ estimates compiled by Bloomberg.
Concern that Greece’s debt crisis will infect other European countries roiled markets in the past week, driving the yield on two-year Greek bonds soaring to a record 26 percent and the euro to near a one-year low against the dollar. Meanwhile about 73 percent of companies in the Stoxx 600 that reported quarterly earnings since April 12 topped analysts’ predictions, according to Bloomberg data. Earnings are headed for the most positive surprises since at least 1997, research from ING Groep NV shows.
“Companies are selling products like hot cakes,” said Dietmar Schmitt at SAM Capital Partners Ltd. in London, who’s changed his equity portfolio after this week’s declines to have more positive than negative bets. Markets may recover losses and go “even higher because corporate earnings are there and stocks are cheap,” he said.
Euro Zone
The Stoxx 600 has fallen 2.8 percent since April 23, the biggest weekly loss since February, taking the benchmark gauge to a price of 12.51 times its members’ projected full-year earnings, estimates compiled by Bloomberg show. That compares with a ratio of 13.17 at the start of the year and 15.8 at the end of 2010.
While European companies make about a third of sales outside the region, Greece only accounts for 2.6 percent of the euro zone’s gross domestic product and Portugal accounts for 1.8 percent, according to the European Union’s statistics office.
“We’re being quite pragmatic and there a lot of stocks that have been priced down where we are looking to increase our holdings in,” George Godber, co-fund manager of the S&W Matterley Undervalued Returns Fund in London, said in an interview. “The underlying corporate fundamentals, which are separate from the public sector, have been very impressive.”
Godber’s fund has gained 10 percent in 2010.
Shell, Siemens
Royal Dutch Shell Plc, Europe’s biggest oil company, posted earnings that topped estimates on April 28, sending the stock up 2.3 percent. Siemens AG, Europe’s largest engineering company, has risen 2.1 in the past two days after the Munich-based company boosted its earnings target. Rotterdam-based Unilever Plc gained 3.3 percent yesterday after saying profit increased 33 percent, beating analysts’ projections.
Estimates for this year’s profits are still a third less than the peak of 31.8 euros reported in October 2007, before the credit crisis set off the first global recession since World War II. Current forecasts indicate companies won’t return to the 2007 earnings peak until after 2012.
Sales are also beating estimates, albeit at a slower pace. Of the 169 companies on the Stoxx 600 that reported, 110 beat projections, with overall revenue coming through 5 percent higher than estimated. Sales are growing 16 percent from the previous quarter, the data show.
“Europe is starting to deliver sales momentum as well,” said Gareth Williams, European equity strategist at ING Groep NV in London. “While Europe is on track for another good season in terms of earnings, evidence of positive sales momentum has been the crucial missing bull factor until now.”
European Stocks Post Weekly Decline on Debt Concern; Banks Drop
European stocks posted the biggest weekly drop since February on concern that Greece’s debt crisis will spread across the region.
Credit Agricole SA paced declines in bank shares. Rio Tinto Group led mining shares lower as copper prices retreated. Nobel Biocare Holding AG, the world’s largest maker of tooth implants, fell after first-quarter sales missed analyst estimates. BP Plc dropped on concern about the costs of containing a worsening oil spill in the Gulf of Mexico.
The Stoxx Europe 600 lost 2.8 percent to 259.91 for a third weekly decline. The benchmark gauge slipped 1.4 percent in April. Stocks fell as Standard & Poor’s downgraded the credit ratings of Greece, Portugal and Spain and investors speculated Greece’s credit troubles would spread further. The declines have trimmed this year’s gain to 2.4 percent.
“What’s weighed on the market is the downgrade of Greece, renewing uncertainty,” said Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which oversees about $4.5 billion. “Greece is in an urgent situation. The downgrades of peripheral countries also weighed on stocks. The market is asking who will be next.”
S&P on April 27 lowered its ratings on Greek debt three steps to junk, while Portugal’s was cut two steps. A day later, S&P cut Spain’s rating by one step to AA.
Overcome Crisis
Almost $1 trillion of worldwide equity value was erased April 27, prompting German Chancellor Angela Merkel and the International Monetary Fund to step up efforts to overcome the Greek fiscal crisis.
Greece’s benchmark index erased declines as European Commission President Jose Barroso on April 30 said he is confident a rescue package for Greece will be completed “in days,” easing investor concern that the nation may default.
Greek officials aim to reach an agreement with the European Union and the IMF in coming days on budget cuts that may be worth 24 billion euros ($32 billion).
Greece’s ASE rose 0.7 percent as National Bank of Greece SA and EFG Eurobank Ergasias rebounded. The banks climbed 7.2 percent and 8.4 percent, respectively.
National benchmark indexes fell in 15 out of the 18 western European markets. Germany’s DAX slid 2 percent and France’s CAC 40 tumbled 3.4 percent, while the U.K.’s FTSE 100 retreated 3 percent.
Banks Retreat
All nineteen industry groups in the Stoxx 600 declined.
Credit Agricole, France’s biggest bank by branches, lost 12 percent. Banca Popolare di Milano Scrl slid 7.2 percent.
Barclays Plc, the U.K.’s third-largest lender by assets, fell 6.6 percent as it reported a larger-than-forecast 26 percent slump in investment banking revenue.
Rio Tinto, the world’s third-largest mining company, sank 9.7 percent. Vedanta Resources Plc, India’s largest copper producer, slipped 6.9 percent. Xstrata Plc, the world’s fourth- largest copper producer, retreated 6.9 percent.
Copper slid 4.2 percent this week and fell 5.5 percent this month.
Nobel Biocare tumbled 20 percent. The company reported first-quarter sales and operating profit missed analyst estimates, signaling it is losing share to competitors.
Revenue fell 7.1 percent to 136.7 million euros ($180 million), the company said on April 28. Analysts predicted sales of 145.9 million euros, according to the average of 14 estimates in a Bloomberg survey. Operating profit slid 11 percent.
BP, which vies with Royal Dutch Shell Plc for the title of Europe’s biggest oil company, sank 10 percent. The U.S. Coast Guard said on April 29 a damaged BP well in the Gulf of Mexico is leaking about 5,000 barrels a day, five times more than previously estimated. At that rate the spill will exceed the Alaska’s Exxon Valdez disaster in 1989 by the third week of June.
Meda AB slumped 11 percent. Sweden’s second-largest health- care company on April 27 was downgraded to “reduce” from “buy” at Svenska Handelsbanken AB.
Swedbank AB jumped 10 percent for the biggest gain in the Stoxx 600. The largest lender in the Baltic countries on April 27 reported its first quarterly profit in more than a year and said earnings are likely to improve as loan impairments decline in Estonia, Latvia and Lithuania.
Credit Agricole SA paced declines in bank shares. Rio Tinto Group led mining shares lower as copper prices retreated. Nobel Biocare Holding AG, the world’s largest maker of tooth implants, fell after first-quarter sales missed analyst estimates. BP Plc dropped on concern about the costs of containing a worsening oil spill in the Gulf of Mexico.
The Stoxx Europe 600 lost 2.8 percent to 259.91 for a third weekly decline. The benchmark gauge slipped 1.4 percent in April. Stocks fell as Standard & Poor’s downgraded the credit ratings of Greece, Portugal and Spain and investors speculated Greece’s credit troubles would spread further. The declines have trimmed this year’s gain to 2.4 percent.
“What’s weighed on the market is the downgrade of Greece, renewing uncertainty,” said Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which oversees about $4.5 billion. “Greece is in an urgent situation. The downgrades of peripheral countries also weighed on stocks. The market is asking who will be next.”
S&P on April 27 lowered its ratings on Greek debt three steps to junk, while Portugal’s was cut two steps. A day later, S&P cut Spain’s rating by one step to AA.
Overcome Crisis
Almost $1 trillion of worldwide equity value was erased April 27, prompting German Chancellor Angela Merkel and the International Monetary Fund to step up efforts to overcome the Greek fiscal crisis.
Greece’s benchmark index erased declines as European Commission President Jose Barroso on April 30 said he is confident a rescue package for Greece will be completed “in days,” easing investor concern that the nation may default.
Greek officials aim to reach an agreement with the European Union and the IMF in coming days on budget cuts that may be worth 24 billion euros ($32 billion).
Greece’s ASE rose 0.7 percent as National Bank of Greece SA and EFG Eurobank Ergasias rebounded. The banks climbed 7.2 percent and 8.4 percent, respectively.
National benchmark indexes fell in 15 out of the 18 western European markets. Germany’s DAX slid 2 percent and France’s CAC 40 tumbled 3.4 percent, while the U.K.’s FTSE 100 retreated 3 percent.
Banks Retreat
All nineteen industry groups in the Stoxx 600 declined.
Credit Agricole, France’s biggest bank by branches, lost 12 percent. Banca Popolare di Milano Scrl slid 7.2 percent.
Barclays Plc, the U.K.’s third-largest lender by assets, fell 6.6 percent as it reported a larger-than-forecast 26 percent slump in investment banking revenue.
Rio Tinto, the world’s third-largest mining company, sank 9.7 percent. Vedanta Resources Plc, India’s largest copper producer, slipped 6.9 percent. Xstrata Plc, the world’s fourth- largest copper producer, retreated 6.9 percent.
Copper slid 4.2 percent this week and fell 5.5 percent this month.
Nobel Biocare tumbled 20 percent. The company reported first-quarter sales and operating profit missed analyst estimates, signaling it is losing share to competitors.
Revenue fell 7.1 percent to 136.7 million euros ($180 million), the company said on April 28. Analysts predicted sales of 145.9 million euros, according to the average of 14 estimates in a Bloomberg survey. Operating profit slid 11 percent.
BP, which vies with Royal Dutch Shell Plc for the title of Europe’s biggest oil company, sank 10 percent. The U.S. Coast Guard said on April 29 a damaged BP well in the Gulf of Mexico is leaking about 5,000 barrels a day, five times more than previously estimated. At that rate the spill will exceed the Alaska’s Exxon Valdez disaster in 1989 by the third week of June.
Meda AB slumped 11 percent. Sweden’s second-largest health- care company on April 27 was downgraded to “reduce” from “buy” at Svenska Handelsbanken AB.
Swedbank AB jumped 10 percent for the biggest gain in the Stoxx 600. The largest lender in the Baltic countries on April 27 reported its first quarterly profit in more than a year and said earnings are likely to improve as loan impairments decline in Estonia, Latvia and Lithuania.
Guynn Warned in 2004 Low Rates May Fuel Price Surge (Update1)
The president of the Federal Reserve Bank of Atlanta told fellow policy makers in 2004 that the central bank’s low interest rates may be contributing to surging home prices, according to transcripts of their meetings.
“The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy,” then Atlanta Fed President Jack Guynn told the Federal Open Market Committee on Dec. 14, 2004, according to transcripts released today.
Economists including John Taylor of Stanford University, a former Treasury undersecretary, have said that low interest rates under former Fed Chairman Alan Greenspan helped fuel the housing boom and bust that precipitated the recession. Ben S. Bernanke, the current chairman and a Fed governor in 2004, has disagreed, saying in a January speech that the central bank’s policy of maintaining a low target rate shouldn’t be blamed for the housing bubble.
“The direct linkages, at least, are weak,” Bernanke said. “House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone.”
Home Prices
While the Fed held interest rates at 1 percent from June 2003 until June 2004, the rise in home prices accelerated, eventually leading to the crash in valuations that preceded the financial crisis. The annual increase in home prices reached a record 20 percent in July 2004, according to the Standard & Poor’s Case-Shiller 10 City Composite Home Price Index. The index hit a peak in June 2006.
Policy makers in June 2004 raised the federal funds target to 1.25 percent from 1 percent, the first of 17 consecutive quarter-point increases over two years, stopping at 5.25 percent.
The Fed releases FOMC transcripts after five years.
Other policy makers also raised concerns about home prices during meetings in 2004. On Sept. 21, then-Boston Fed President Cathy Minehan said consumers are “willing to take saving rates to record lows in the wake of substantial appreciation in housing prices. Clearly, this could turn around and is a potential source of downside risk.”
On Nov. 10, Gary Stern, president of the Minneapolis Fed, reported to the committee on a meeting his bank held partly to look at “a potential bubble in house prices.”
‘Credit Pendulum’
Stern told the FOMC that “a couple of the lenders did say that they thought the credit pendulum had swung too far. They felt that credit conditions had become too easy, and they were anticipating some potential difficulties going forward -- presumably in somebody else’s shop!”
During 2004, the share of subprime originations in the mortgage market more than doubled. In 2004, 18.5 percent of mortgages were subprime, compared to 7.9 percent in 2003, according to Harvard University’s “State of the Nation’s Housing” report, citing data from Inside Mortgage Finance.
Then-Fed Governor Edward Gramlich in May of 2004 said in a speech about “Benefits, Costs and Challenges” of subprime mortgage lending that “while the basic developments in the subprime mortgage market seem positive, the relatively high delinquency rates in the subprime market do raise issues.”
Risks of Collapse
Greenspan in an Oct. 19, 2004, speech raised the risks of a collapse in home prices, saying “these concerns cannot be readily dismissed.”
“Should home prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do not, at least to date, appear overly worrisome,” Greenspan said.
In March 2004, Guynn also warned of speculative excess in housing.
“A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida,” Guynn said.
“Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties -- selling them quickly at higher prices,” he said.
Guynn, who retired as head of the Atlanta Fed in October 2006, didn’t respond to messages seeking comment.
Perplexed by Speculation
In June 2004, central bank officials were perplexed by speculation in housing and rising home prices in the course of discussions that resulted in an increase in borrowing costs, according to the transcripts.
Stephen Oliner, then Fed associate research director, told the FOMC on June 30, 2004, that the ratio between rents and prices deviated from historical trends and wasn’t explained by “fundamentals,” according to the transcripts.
“I don’t want to leave the impression that we think there’s a huge housing bubble,” Oliner said. “We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.”
At the December meeting, Guynn said the home-price boom required a review.
“The risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy,” said Guynn.
“The substantial run-up in house prices, which we have followed in Florida and also see in the populous Northeast and West Coast of the United States, may be at least partially attributable to unusually low mortgage rates influenced by our very accommodative policy,” then Atlanta Fed President Jack Guynn told the Federal Open Market Committee on Dec. 14, 2004, according to transcripts released today.
Economists including John Taylor of Stanford University, a former Treasury undersecretary, have said that low interest rates under former Fed Chairman Alan Greenspan helped fuel the housing boom and bust that precipitated the recession. Ben S. Bernanke, the current chairman and a Fed governor in 2004, has disagreed, saying in a January speech that the central bank’s policy of maintaining a low target rate shouldn’t be blamed for the housing bubble.
“The direct linkages, at least, are weak,” Bernanke said. “House prices began to rise in the late 1990s, and although the most rapid price increases occurred when short-term interest rates were at their lowest levels, the magnitude of house price gains seems too large to be readily explainable by the stance of monetary policy alone.”
Home Prices
While the Fed held interest rates at 1 percent from June 2003 until June 2004, the rise in home prices accelerated, eventually leading to the crash in valuations that preceded the financial crisis. The annual increase in home prices reached a record 20 percent in July 2004, according to the Standard & Poor’s Case-Shiller 10 City Composite Home Price Index. The index hit a peak in June 2006.
Policy makers in June 2004 raised the federal funds target to 1.25 percent from 1 percent, the first of 17 consecutive quarter-point increases over two years, stopping at 5.25 percent.
The Fed releases FOMC transcripts after five years.
Other policy makers also raised concerns about home prices during meetings in 2004. On Sept. 21, then-Boston Fed President Cathy Minehan said consumers are “willing to take saving rates to record lows in the wake of substantial appreciation in housing prices. Clearly, this could turn around and is a potential source of downside risk.”
On Nov. 10, Gary Stern, president of the Minneapolis Fed, reported to the committee on a meeting his bank held partly to look at “a potential bubble in house prices.”
‘Credit Pendulum’
Stern told the FOMC that “a couple of the lenders did say that they thought the credit pendulum had swung too far. They felt that credit conditions had become too easy, and they were anticipating some potential difficulties going forward -- presumably in somebody else’s shop!”
During 2004, the share of subprime originations in the mortgage market more than doubled. In 2004, 18.5 percent of mortgages were subprime, compared to 7.9 percent in 2003, according to Harvard University’s “State of the Nation’s Housing” report, citing data from Inside Mortgage Finance.
Then-Fed Governor Edward Gramlich in May of 2004 said in a speech about “Benefits, Costs and Challenges” of subprime mortgage lending that “while the basic developments in the subprime mortgage market seem positive, the relatively high delinquency rates in the subprime market do raise issues.”
Risks of Collapse
Greenspan in an Oct. 19, 2004, speech raised the risks of a collapse in home prices, saying “these concerns cannot be readily dismissed.”
“Should home prices fall, we would have reason to be concerned about mortgage debt; but measures of household financial stress do not, at least to date, appear overly worrisome,” Greenspan said.
In March 2004, Guynn also warned of speculative excess in housing.
“A number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida,” Guynn said.
“Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on ‘flipping’ the properties -- selling them quickly at higher prices,” he said.
Guynn, who retired as head of the Atlanta Fed in October 2006, didn’t respond to messages seeking comment.
Perplexed by Speculation
In June 2004, central bank officials were perplexed by speculation in housing and rising home prices in the course of discussions that resulted in an increase in borrowing costs, according to the transcripts.
Stephen Oliner, then Fed associate research director, told the FOMC on June 30, 2004, that the ratio between rents and prices deviated from historical trends and wasn’t explained by “fundamentals,” according to the transcripts.
“I don’t want to leave the impression that we think there’s a huge housing bubble,” Oliner said. “We believe a lot of the rise in house prices is rooted in fundamentals. But even after you account for the fundamentals, there’s a part of the increase that is hard to explain.”
At the December meeting, Guynn said the home-price boom required a review.
“The risks associated with the run-up in house prices probably deserve further study and thought as we decide how to posture policy,” said Guynn.
Colleges Profit by Selling Tax-Exempt Debt, CBO Says (Update1)
U.S. colleges profit by selling tax-exempt bonds for capital projects, instead of spending money collected from donors, according to a Congressional Budget Office study.
Colleges earn money on the donations they collect for capital projects by investing them through their endowments while using tax-exempt bonds to finance construction, according to the report, released today. This is a form of “indirect tax arbitrage” because the schools are earning more on investments than they are paying in annual interest rates on their bonds, the study said.
“A borrower could sell those assets to finance the capital expenditure instead of borrowing with tax-exempt debt,” according to the report, which was written by Kristy Piccinini. “Holding those assets while borrowing on a tax-exempt basis is, in effect, equivalent to using tax-exempt proceeds to invest in those higher-yielding securities.”
The study identified 251 schools that sold $5.7 billion in tax-exempt debt in 2003, the most recent year for which it said data were available. Almost all of the obligations “would be classified as earning profits from tax arbitrage,” according to the report.
$22 Billion
“CBO found that in 2003 close to 100 percent of the $22 billion in previously issued tax-exempt debt would be classified as earning returns from arbitrage under the broader definition,” according to the study. “Almost all of the outstanding debt was issued by schools that held higher-yielding investment assets.”
Allowing colleges to sell tax-exempt debt will cost the U.S. government about $5.5 billion in 2010, the study said, quoting the staff of the congressional Joint Committee on Taxation.
“These schools are using their tax exemption to amass investments, receive tax-deductible donations, and float tax- exempt bonds,” Charles Grassley, a Republican of Iowa and ranking minority member of the U.S. Senate Finance Committee, said in an e-mailed statement. He said he requested the CBO study three years ago.
Melissa Merson, a CBO spokeswoman, didn’t immediately return calls seeking comment.
Colleges earn money on the donations they collect for capital projects by investing them through their endowments while using tax-exempt bonds to finance construction, according to the report, released today. This is a form of “indirect tax arbitrage” because the schools are earning more on investments than they are paying in annual interest rates on their bonds, the study said.
“A borrower could sell those assets to finance the capital expenditure instead of borrowing with tax-exempt debt,” according to the report, which was written by Kristy Piccinini. “Holding those assets while borrowing on a tax-exempt basis is, in effect, equivalent to using tax-exempt proceeds to invest in those higher-yielding securities.”
The study identified 251 schools that sold $5.7 billion in tax-exempt debt in 2003, the most recent year for which it said data were available. Almost all of the obligations “would be classified as earning profits from tax arbitrage,” according to the report.
$22 Billion
“CBO found that in 2003 close to 100 percent of the $22 billion in previously issued tax-exempt debt would be classified as earning returns from arbitrage under the broader definition,” according to the study. “Almost all of the outstanding debt was issued by schools that held higher-yielding investment assets.”
Allowing colleges to sell tax-exempt debt will cost the U.S. government about $5.5 billion in 2010, the study said, quoting the staff of the congressional Joint Committee on Taxation.
“These schools are using their tax exemption to amass investments, receive tax-deductible donations, and float tax- exempt bonds,” Charles Grassley, a Republican of Iowa and ranking minority member of the U.S. Senate Finance Committee, said in an e-mailed statement. He said he requested the CBO study three years ago.
Melissa Merson, a CBO spokeswoman, didn’t immediately return calls seeking comment.
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