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U.S. Budget Gap Rises to Record $221 Billion on Spending to Revive Economy

by on March 10, 2010

By Vincent Del Giudice March 10 (Bloomberg) — The U.S. posted its largest budget deficit on record in February as the government boosted spending to help revive the economy. The excess of spending over revenue increased to $221 billion last month, compared with a deficit of $194 billion in February 2009, according to Treasury Department figures released today in Washington. In fiscal 2009 that ended in September, the shortfall reached a record $1.4 trillion . A deficit that will probably exceed $1 trillion for a second year underscores the challenges facing the Obama administration and Congress as they seek to preserve the recovery, spur job growth and pass health care reform. The loss of 8.4 million jobs the last two years has been limiting tax revenue, while stimulus efforts such as the first-time homebuyers credit have added to expenses. “It’s mostly the recession if you look at the deficit numbers,” said David Wyss , chief economist at Standard & Poor’s in New York. To finance the shortfalls, “we’re borrowing a lot of money from abroad. At some point, foreign investors are going to be unwilling to fund it,” he said. The February deficit was in line with the $222 billion economists anticipated, based on the median of 31 estimates in a Bloomberg News survey. Projections ranged from shortfalls of $180 billion to $225 billion. The non-partisan Congressional Budget Office, in a report issued March 5, projected a deficit of $223 billion for February. Spending for February increased 17 percent from the same month a year ago, to $328.4 billion. Revenue and other income rose 23 percent to $107.5 billion, according to the Treasury. First Five Months The deficit five months into the 2010 fiscal year was $651.6 billion compared with $589.8 billion during the same period in the previous fiscal year. Corporate tax receipts totaled $45.4 billion for the year to date versus $52.8 billion in the same five months in fiscal 2009. Individual income tax collections were down 14 percent so far this fiscal year to $334 billion. In other categories, spending by the Social Security Administration rose to $308.6 billion from $290.1 billion for the fiscal year to date. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, rose to $342 billion from $319.6 billion. Defense Department spending rose to $273.9 billion from $267.4 billion, while spending on the Troubled Asset Relief Program fell to $8.7 billion from $113.3 billion. The government’s $787 billion economic rescue plan contributed to the record deficit in fiscal year 2009. The shortfall will probably exceed $1 trillion this year, according to the White House and congressional budget officials. Debt Limit Mounting monthly deficits prompted President Barack Obama to sign a bill on Feb. 12 that raised the federal debt limit by $1.9 trillion to $14.3 trillion. The increase was required to keep the U.S. from defaulting on its bills. It is more than twice the size of any of the four previous debt increases lawmakers approved in the past two years. The CBO said March 5 that the Obama’s 2011 budget proposal would create bigger annual deficits than projected. The CBO said the budget shortfall will remain above 4 percent of gross domestic product for the foreseeable future while the publicly held debt will reach $20.3 trillion, or 90 percent of GDP, by 2020. Economists generally consider deficits exceeding 3 percent of GDP to be unsustainable because that means government debt is growing faster than the ability to pay back the money. Obama’s budget request projected the government would run $8.5 trillion in deficits over the next 10 years. To contact the reporter on this story: Vincent Del Giudice in Washington at vdelgiudicebloomberg.net

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U.S. Budget Gap Rises to Record $221 Billion on Spending to Revive Economy

China to Nullify Local Governments’ Loan Guarantees as Credit Risk Grows

by on March 7, 2010

By Bloomberg News March 8 (Bloomberg) — China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt surges. The Ministry of Finance will also ban all future guarantees by local governments and legislatures in rules that may be issued as soon as this month, Yan Qingmin, head of the banking regulator’s Shanghai branch, said in an interview. The ministry held meetings on the rules on Feb. 25 with regulators including the China Banking Regulatory Commission and the People’s Bank of China , Yan said March 5. China’s local governments are raising funds through investment vehicles to circumvent regulations that prevent them from borrowing directly. A crackdown on local- government borrowing, estimated at about 24 trillion yuan ($3.5 trillion) by Northwestern University Professor Victor Shih , could trigger a “gigantic wave” of bad loans as projects are left without funding, Shih said this month. “Beijing’s fiscal situation probably isn’t as good as it looks at first glance,” said Brian Jackson, an emerging markets strategist at Royal Bank of Canada in Hong Kong. “Perhaps at some stage the central government is going to have to bail out the banks or the regional governments and take it on its own balance sheet.” Fiscal Risks Central bank governor Zhou Xiaochuan said March 6 during the National People’s Congress that while “many” local financing vehicles have the ability to repay, two types cause concern. One uses land as collateral, while the other can’t fully repay borrowing, meaning that the local governments may be liable, leading to “fiscal risks.” Premier Wen Jiabao , at the opening of the annual parliamentary meetings last week, said the central government would sell 200 billion yuan of bonds for a second year to help local governments fund infrastructure projects. Wen also warned of “latent risks” in China’s banking system as he pledged to continue a moderately loose monetary policy and a proactive fiscal stance. The parliamentary meetings will end March 14 with Premier Wen’s annual press conference in Beijing. A few cities and counties may face very large repayment pressure in coming years because of debt ratios already exceeding 400 percent, a person with knowledge of the matter said in January. The ratio is of year-end outstanding debt to annual disposable fiscal income. Regional Concerns The financing vehicles of large coastal cities are well-funded as most have publicly traded subsidiaries that can raise capital from the markets and rely less on bank loans. Entities in northern and western China are of particular concern, the banking regulator’s Yan said while attending the parliamentary meetings. The 1998 collapse of Guangdong International Trust & Investment Corp., which borrowed domestically and overseas on behalf of southern China’s Guangdong province , left creditors including Dresdner Bank AG of Germany and Bank One Corp. in the U.S. with $3 billion of unpaid bonds. It marked the first time that Chinese authorities failed to bail out one of the nation’s state-owned trusts. Commercial banks have already been told to assess their exposure to such lending and stop providing further credit if problems are found, Yan said. Commercial Banks Bank of China Ltd. President Li Lihui said in an interview last week that the nation’s third-largest lender has reviewed its exposure to borrowings by local governments and identified some financing vehicles that didn’t have adequate liquidity to make payment. The bank plans to exit projects without proper collateral and reduce new advances to local governments this year, Li said. Industrial & Commercial Bank of China Ltd . Chairman Jiang Jianqing said the lender found some risks in such borrowing arms. These situations aren’t yet widespread, Jiang said. The bank has already inspected its loans extended to local government financing vehicles in 2008 and 2009 and “so far didn’t find many big problems,” ICBC President Yang Kaisheng said yesterday. China’s banks doled out a combined 9.59 trillion yuan in new loans last year, helping the government engineer a turnaround in the world’s third-largest economy . The credit binge sparked concern about more bad loans and asset bubbles. Northwestern’s Shih estimated that borrowing by China’s 8,000 local-government entities may have totaled 11.429 trillion yuan in outstanding debt by the end of last year and they had credit lines with banks for an additional 12.767 trillion yuan. That may result in bad loans of up to 3 trillion yuan. China’s banks had 497 billion yuan of non-performing loans as of Dec. 31, accounting for 1.58 percent the nation’s total advances, according to the banking regulator. — Luo Jun , Kevin Hamlin . With assistance from Zhang Dingmin in Beijing. Editors: John Liu , Richard Dobson. To contact Bloomberg News staff of this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net

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China to Nullify Local Governments’ Loan Guarantees as Credit Risk Grows

China Plans to Sell $29 Billion of Yuan Debt This Year as Part of Stimulus

March 4, 2010

By Bloomberg News March 5 (Bloomberg) — China will sell 200 billion yuan ($29 billion) of bonds for a second year to help local governments fund infrastructure projects, Premier Wen Jiabao told today’s annual meeting of the National People’s Congress . The finance ministry, which will organize the debt auctions, plans to offer three- and five-year securities and channel funds between bondholders and the local authorities issuing the notes, according to a person familiar with the proposal who asked not to be identified. The central government’s role in local debt sales has reduced the cost of building roads and railways as part of a two-year $586 billion spending package that drove expansion of 8.7 percent in the world’s fastest-growing economy last year. Policy makers are seeking to maintain financing for such projects, while curbing record new bank lending that has increased the risk of property and stock-market bubbles. “This alternative source of funding is healthy – Beijing may have realized the risk that local governments borrowed too much from banks last year,” said Mark Williams , an economist at Capital Economics in London who worked at the U.K. Treasury as an adviser on China from 2005 to 2007, in a telephone interview. A spokesman for China’s Consulate General office in New York said he wasn’t aware of the government’s plans. ‘Sensible’ Three-year bonds sold last year on behalf of local governments, 30 provinces and five municipalities, yielded between 1.6 percent and 2.36 percent when they were auctioned, compared with the one-year lending rate in China of 5.31 percent. The sales are part of the government’s economic stimulus plan, announced in November 2008. “It sounds like a perfectly sensible thing to do,” Charles Dumas , research director at Lombard Street Research Ltd. in London, said it an interview. “It undoes some of the monetary consequences of this huge spending surge by taking it out of the money supply. But of course it doesn’t in any way hold back the overheating of the total economy.” China sold 1.42 trillion yuan of treasury debt last year to partly finance a record-high fiscal deficit in addition to the 200 billion yuan in securities it sold for provincial authorities. China’s deficit in 2010 will be similar to last year, when it was less than 3 percent of gross domestic product, Jia Kang , the head of the Finance Ministry’s research institute, said as law makers gathered in the capital this week. Unbalanced Growth The NPC convenes every March, with almost 3,000 lawmakers from China’s 32 provinces, autonomous regions and municipalities congregating at the Great Hall of the People in Beijing. Wen has on at least two occasions said China’s growth was unsustainable and unbalanced; in a Dec. 27 interview with the official Xinhua News Agency and at the 2007 National People’s Congress. China’s law prohibits local governments from incurring debt directly. Even so, the government plans a crackdown on investment companies set up by local governments to circumvent those regulations, the 21st Century Business Herald reported this week. Borrowing by local-government entities, not counted in official estimates of China’s debt ratios, may push up the country’s borrowing to 96 percent of GDP , Professor Victor Shih , a political economist at Northwestern University in Evanston, Illinois, said on March 1. His forecast compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The central bank has also ordered banks to set aside more funds as reserves and to rein in lending . In 2009, new loans rose to a record 9.59 trillion yuan. — Belinda Cao , Michael Forsythe , Kevin Hamlin , Zijing Wu and Michael Patterson . Editors: Sandy Hendry , Laura Zelenko . To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

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Barclays Advances as Net More Than Doubles, Varley, Diamond Forgo Bonuses

February 16, 2010

By Jon Menon and Andrew MacAskill Feb. 16 (Bloomberg) — Barclays Plc, the U.K.’s second- largest bank, rose the most in more than nine months after saying 2009 profit more than doubled, lifted by investment banking and the sale of a fund management unit. Net income rose to 9.39 billion pounds ($14.8 billion) from 4.38 billion pounds a year earlier, the London-based bank said today in a statement. That beat the 8.78 billion-pound estimate of 14 analysts surveyed by Bloomberg. Barclays Chief Executive Officer John Varley and President Robert Diamond have declined to take bonuses for a second year. The bank gained as much as 9.7 percent, the most since April 30. “This is the first time in three years that we have had really positive news from a British bank,” said Ralph Silva , an analyst at London-based Silva Research Network, which specializes in financial-services firms. Most of Barclays ’ profit derived from the sale of its Barclays Global Investors unit to BlackRock Inc. in December for a $9.9 billion gain. The investment bank recorded an 89 percent rise in profit to 2.46 billion pounds, the bank said today. The London-based lender declined British government capital injections in 2008 and taxpayer-funded asset insurance last year. Varley, 53, and Diamond “advised the board that they wish to decline” their annual bonuses, the bank said in the statement. Barclays set aside 38 percent of revenue in remuneration for employees at the investment bank, down from 44 percent of revenue in 2008. ‘Pressure Off’ “It’s a big message, it is a very smart move politically,” said Florian Esterer , who helps manage about $58 billion at Swisscanto Asset Management in Zurich, in an interview with Bloomberg Television. “I think that takes a lot of pressure off Barclays.” Bad loan provisions rose to 8.1 billion pounds from 5.4 billion pounds, the bank said. The lender’s core Tier 1 capital ratio climbed to 10 percent. Barclays Capital absorbed 1.8 billion pounds of credit losses, the bank said. “We have strengthened our capital position, reduced leverage and added to our liquidity buffer,” Varley said in the statement. “We are, by consequence, both well prepared for any future economic weakness and also able to continue to execute on our strategy as opportunities arise.” The bank gained 8.6 percent to 298.15 pence at 8:18 a.m. in London trading for a market value of 33.8 billion pounds. London-based Barclays fell 15 percent in the three months to yesterday, during which time President Barack Obama demanded that banks curb risk-taking and international regulators at the Basel Committee on Banking Supervision proposed that banks be forced to hold better-quality capital. BGI Sale Barclays may have to sell half its stake in BlackRock Inc. to plug a 17 billion-pound gap in capital by the end of 2012, Jonathan Pierce , an analyst at Credit Suisse Group AG, wrote to clients last month. Barclays acquired the North American operations of Lehman Brothers Holdings Inc. in 2008. Barclays has posted the highest profit among European banks for 2009 so far. Banco Santander SA , Europe’s second-largest bank, posted a $12.3 billion profit for 2009 compared with $12.2 billion in 2008. Deutsche Bank AG , Germany’s biggest lender, posted profit of $6.9 billion, from a net loss of $5.4 billion. To contact the reporter on this story: Jon Menon in London at Jmenon1@bloomberg.net

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Michael Vick Can Keep About $16 Million in Bonuses From NFL, Court Rules

November 10, 2009

By Aaron Kuriloff Nov. 10 (Bloomberg) — Michael Vick can keep about $16 million in bonuses paid before the Philadelphia Eagles quarterback was suspended from the National Football League and served jail time for operating a dog fighting ring. The 8th U.S. Circuit Court of Appeals in Minneapolis affirmed a prior ruling that said Vick had already earned the money before his conviction, so the Atlanta Falcons, his former employer, can’t recover it. “The district court did not err in determining that the bonuses were earned” when Vick met provisions in his contract, the ruling said. Vick, who served 18 months in prison, filed for Chapter 11 bankruptcy protection in July 2008. In July, the No. 1 selection in the 2001 draft filed a plan in which he turns over a scaled portion of his future NFL income to creditors for six years. Vick signed a two-year contract with the Eagles in August. The first year is worth $1.6 million with an option for a second year at $5.2 million, according to FoxSports.com. To contact the reporter on this story: Aaron Kuriloff in New York at akuriloff@bloomberg.net .

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Japan Airlines Posts Biggest Loss in Six Years as Overseas Travel Plummets

August 6, 2009

By Chris Cooper Aug. 7 (Bloomberg) — Japan Airlines Corp. , Asia’s largest airline by sales, said its first-quarter loss surged almost 30- fold as companies slashed business trips amid a global recession and an outbreak of swine flu cut travel demand. Japan Air had a loss of 99 billion yen ($1 billion) in the three months ended June 30, compared with a loss of 3.4 billion yen in the same period last business year, the Tokyo-based company said in a statement today. Sales dropped 32 percent to 335 billion yen. The airline, set for a second year of losses, is cutting costs after suffering its biggest drop in overseas passengers since 2003. Rival Singapore Airlines Ltd. last week said it may have its first annual loss in 24 years and Cathay Pacific Airways Ltd. is considering ripping out some premium-class seats as they cope with the deepest recession since World War II. “Japan Air needs more cost cuts,” said Mitsushige Akino , who oversees $615 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It should get rid of money-losing routes.” The airline industry globally may lose $9 billion this year as a swine flu outbreak compounds the effects of the global recession, according to the International Air Transport Association. Japan Air fell 1.2 percent to 166 yen as of the 11 a.m. close of morning trade in Tokyo, before earnings were announced. Overseas Passengers Japan Air is losing international passengers as the economy shrinks. The airline has cut the frequency of eight overseas routes, including Tokyo flights to and from Taipei, Seoul and New Delhi and is ending its Osaka-London service due to shrinking demand. All Nippon Airways Co. , Japan’s second-largest carrier, forecasts a return to a profit this fiscal year helped by 73 billion yen in cost reductions. ANA, as All Nippon is also known, last month said it will post a profit of 3 billion yen for the year ending March 31, compared with a loss of 4.26 billion yen last year. Japan Air reached an agreement with its largest labor union to cut workers’ pay by 5 percent from October last year. The carrier forecast in May its fuel costs will fall by 111 billion yen , or 27 percent, in the year ending March 31 from 413 billion yen last business year. Jet Fuel The price of jet kerosene has tumbled since reaching a record $181.85 a barrel in July 2008. It traded at $82.05 a barrel in Singapore yesterday. President Haruka Nishimatsu has said the company will have a one-time savings of 88 billion yen this year by cutting pensions. The reduction has yet to be approved by the carrier’s retirees. More than 3,000 retirees out of approximately 9,000 intend to vote against the move, according to an unofficial tally on a Web site run by The Committee to Consider the Revision of JAL’s Pension Scheme. That’s enough to block the cuts as the Tokyo- based carrier needs a two-thirds majority to push them through. To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net

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