europe

Volkswagen aims to boost 2012′s revenue

by on March 12, 2012

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(MENAFN) Volkswagen AG said that in spite of difficult trading conditions in Europe, the automaker aims to boost sales and revenues target for the current year, reported AP. The German company …

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Volkswagen aims to boost 2012′s revenue

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Keeping faith in Germany

by on March 11, 2012

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(MENAFN – Arab News) Rising from its ashes once again, Germany is reclaiming its pride of place in Europe All old European cities look like the same to me. Berlin is no exception. Like any other …

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Keeping faith in Germany

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Germany Brushes Aside Calls For More Aid

January 26, 2012

(MENAFN – Qatar News Agency) The German Chancellor Angela Merkel said Wednesday that as much as the country supports the Europe aid and rescue umbrella, it doesn’t have “unlimited” resources. …

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"Europe needs structural political reforms to resolve its crisis"

January 26, 2012

(MENAFN – Kuwait News Agency (KUNA)) Europe needs to move forward with structural political reforms if it is to resolve its sovereign debt crisis and put to rest doubts about its unity and …

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Major Grocery Chain To Close More Than 100 Stores, Slash Thousands Of Jobs

January 13, 2012

BRUSSELS — A Belgian supermarket chain that owns Food Lion said Thursday it will close more than 100 struggling stores, mostly in Florida, Georgia, South Carolina and Tennessee. The company will also shutter the Bloom brand, a sister grocery chain that had been launched as a higher-end alternative to Food Lion. Pierre-Olivier Beckers, CEO of Delhaize Group, said in a statement the company was dealing with tight consumer spending and increased competition. He said that the store closings, most of which will come in markets where the company has a low penetration, will allow it to focus on better-performing stores where the chain has greater market share. The store closings will result in about 4,900 job cuts in the U.S., the company said. Beckers said the decisions were difficult but “were in keeping with our responsibility to our shareholders to deploy resources where they will achieve the highest return.” Delhaize will close 113 Food Lion stores in Florida, Georgia, Kentucky, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia. It will close seven Bloom stores in Maryland and Virginia, and convert the remaining 42 Bloom stores to Food Lions. It will also close six Bottom Dollar Food stores in North Carolina and Virginia, and convert 22 others into Food Lions. A distribution center located in Tennessee will also be closed. But while Delhaize is retiring the Bloom brand, it says it sees promise for Bottom Dollar Food. It said the chain had enjoyed “considerable success” in the Philadelphia area, and that it planned to open its first stores in the Pittsburgh area early this year. Delhaize also reiterated that it plans to add “hundreds” of Bottom Dollar Food stores in the next five years. Delhaize has about 1,650 stores in the Eastern U.S.

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Food Lion to shed 5,000 jobs, shut stores in US, Europe

January 12, 2012

(MENAFN) Belgium-based Delhaize Group SA, owner of Food Lion supermarkets, unveiled plans to shed around 5,000 jobs, shut stores in US and Europe Bloomberg reported. The food chain operator said …

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Swiss Bankers Charged With Hiding U.S. Taxpayer Accounts From The IRS

January 3, 2012

Three Swiss bankers were charged Tuesday with hiding more than $1.2 billion in U.S. taxpayer accounts from the IRS, by Preet Bharar, the Manhattan U.S. Attorney. Michael Berlinka, Urs Frei And Roger Keller allegedly conspired with some U.S. taxpayers and others to hide Swiss bank accounts and the income generated from them while working as client advisers for a Swiss bank, according to a press release from Bharar’s office. The three worked on dozens of undeclared bank accounts in 2008 and 2009 in an effort to scoop up business lost by UBS and another Swiss bank following reports that UBS was helping U.S. account holders evade taxes, according to the press release. The case has been assigned to Judge Jed Rakoff, according to the release. The three bankers allegedly helped U.S. clients open using sham corporation names in other countries as well as used code names and numbers on undeclared accounts to minimize references to the clients’ actual names, according to the press release. In addition, they allegedly made sure that any mail related to the accounts wasn’t sent to clients at their U.S. addresses and communicated using their personal email accounts to avoid detection, among other allegations, according to the release. The charges come as tensions between Switzerland and the U.S. are rising over Swiss bank secrecy — a result of a Swiss law that prevents Swiss bankers from revealing client information, according to Reuters. S wiss banks hold an estimated $2 trillion in offshore wealth and the U.S. Justice Department is investigating 11 Swiss banks suspected of helping wealthy Americans evade through Swiss accounts.

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Citi Selling Off Another Part Of Its Non-Core Business

December 28, 2011

NEW YORK — Citigroup Inc. is selling its Belgian consumer business to French bank Credit Mutuel Nord Europe as the New York bank continues to sell off operations that it deems are outside its core business. The company didn’t disclose the deal’s terms. Citigroup and other banks hurt by 2008′s financial meltdown and the economic downturn have been selling off “non-core” divisions. For example, Citigroup sold a $1.7 billion private equity portfolio to a French bank in June. Citigroup said it has reduced the assets within Citi Holdings by more than $582 billion since the peak in 2008′s first quarter. The company also is trimming its workforce and recently announced it will cut 4,500 jobs – or about 1.5 percent of its global workforce of 267,000 – over the next few quarters. Citigroup was one of the biggest recipients of taxpayer support during the financial crisis. It received $45 billion in bailouts funds and was partly owned by the government until December 2010. The company said Wednesday that Citibank Belgium SA has 700 workers and 500,000 customers. Citigroup said it will continue to serve corporate and institutional clients in Belgium through its Institutional Banking and Global Transaction Services franchises. The deal is expected to close in the second quarter of 2012. Shares of Citigroup fell 74 cents, or 2.7 percent, to $26.17 by early afternoon, edging near the bottom of the range from $21.40 to $51.50 where they have traded over the past year.

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Japanese Officials: Europe Should Boost Its Rescue Fund

December 26, 2011

TOKYO (Reuters) – Europe should boost the total firepower of its rescue fund and frontload its funding to send a positive signal to investors and international partners that it is determined to solve its debt crisis, Japanese officials said on Monday. Japan has repeatedly expressed its willingness to help Europe contain its debt crisis, but has also stressed it wanted to see a convincing action plan before making any firm commitments. “Japan like other non-euro countries is prepared to do something, but unless European countries take decisive action it is hard to make those steps effective,” a senior Japanese government official said. Lifting the combined size of the current bailout fund (EFSF) and the new permanent European Stability Mechanism (ESM) beyond the current 500 billion euros would be a major step and an encouraging signal. “We expect European countries will review the combined ceiling of 500 billion euro of EFSF (European Financial Stability Fund) and ESM in a very positive manner,” the official told Reuters. European leaders agreed in Brussels earlier this month to accelerate the launch of the ESM by a year to mid-2012 with an effective lending capacity of 500 billion euros ($650 billion), but questions have arisen about the size and timing of contributions. Japanese officials said that while bringing forward the launch of the fund was positive, a more ambitious ceiling might be needed given that Europe had little success in bringing in outside investors to boost the firepower of the EFSF fund. “The leveraging of EFSF money by investors’ money doesn’t look like materializing very well. That’s why they are frontloading the ESM and the review of the ceiling of 500 billion euro is very important,” said the official, who declined to be named. “European countries may think what they’ve already decided is a major step forward, but markets want Europe to act more decisively.” German Finance Minister Wolfgang Schaeuble signaled over the weekend that Europe’s biggest economy and its main paymaster could boost its contribution to the fund and support its swift launch, although any decisions would have to be made in January. Since the beginning of the crisis more than two years ago, European leaders have orchestrated bailouts of Greece, Ireland and Portugal, set up a euro zone rescue fund and earlier this month agreed to boost the International Monetary Fund’s resources by 150 billion euros. Still, throughout the crisis that has also shaken Italy and Spain, investors have repeatedly been left with the impression that whatever was agreed in Brussels was too little, too late. Japan, the United States, Canada and others have voiced their frustration with Europe’s piecemeal progress and repeatedly called for bold steps that would create effective “firewalls” around the euro zone’s weaker, heavily indebted economies. Another Japanese government official reiterated on Monday that Tokyo, which led an international effort to boost the IMF’s coffers after the Lehman crisis, was open to contributing more but that its decision depended on Europe’s actions. Officials in Tokyo said markets needed to see both effective defenses in the form of funds sufficient enough to cover the crisis-hit nations’ financing needs and commitments to fiscal discipline. “Fiscal discipline is very important. Even if we provide firewalls we need fiscal discipline,” the official said. While Tokyo has repeatedly voiced concern about developments in Europe, its plans to buy Chinese government debt did not reflect lack of confidence in the euro or U.S. dollar assets, another official said. He said the plans, discussed during Prime Minister Yoshihiko Noda’s visit to Beijing, aimed at strengthening economic ties between the two nations rather than diversifying Japan’s exchange reserves, mostly made up of dollar and euro assets. “The idea is not to depart from the dollar or U.S. government bonds or the euro, so it should not be interpreted as diversification of our portfolio,” the official said. “I don’t have any doubts about creditworthiness of the dollar or U.S. government bonds. The dollar will remain the most important currency for the foreseeable future.” Copyright 2011 Thomson Reuters. Click for Restrictions .

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In 2012, Global Economy ‘A Tale Of Two Worlds’

December 24, 2011

LONDON (Reuters) – Europe faces another year of dismal economic performance in 2012 that will weigh on global growth, but emerging markets and the United States should at least keep the world economy moving in the right direction. There are several reasons why next year may be nothing to look forward to, according to Reuters polls from the last few months. Many of the world’s biggest developed economies are heading into recession, global stock markets look set to recoup only a fraction of their heavy losses in 2011, oil prices will head lower, and asset managers are unsure where best to invest. And these could be the best-case scenarios. Most economists base their assumptions on the hope that the euro zone’s sovereign debt crisis will not boil over into a new global economic crisis, having already dented growth in major exporters to Europe. Still, most of the major emerging market economies like Brazil and China should pick up speed later next year. All of them have suffered from slowing economies in recent months, caused mainly by tightening monetary policy in the face of high inflation. “It’s important to stress the world economy is still growing. But it’s a tale of two worlds,” said Gerard Lyons, chief economist at Standard Chartered Bank. “The storyline for 2012 is that Europe drags the world down in the first half of the year, and China drags it up in the second half of the year.” Enormous political risks cloud the outlook further, with elections and leadership changes in the most powerful countries and the prospect of continuing turmoil in the Middle East. Still, there are glimmers of hope. The United States’ economy has performed better than most had hoped over the last quarter, and Reuters’ polls of economists show it growing around 2.2 percent in 2012, compared with zero growth in the euro zone. “The big unknown in Europe and the U.S. is that big companies, with balance sheets in good shape, have the ability to invest at home if they want. It’s more likely that will take place in the U.S. rather than Europe,” said Lyons. THE EURO ZONE QUESTION European Union leaders took a historic step towards greater fiscal integration earlier in December, but economists have been clear that this would not ease a debt crisis entering its third year and still hogging the headlines in 2012. Reuters polls show real concern that leaders are doing far too little to stimulate growth, with the likes of Spain and Italy destined for long and painful recessions. The euro zone as a whole, meanwhile, is probably in a moderate recession right now that will last midway into 2012. “The euro area continues to be a source of economic and financial instability for the rest of the world,” said Juan Perez-Campanero, economist at Santander, in a research note. “We could be facing a more permanent and lasting decline in growth capacity in developed economies and, particularly, the euro area.” Whether Spain and Italy will need to seek funding from the euro zone’s bailout facility next year is open to question, with a very slim majority of economists polled this month – 27 out of 56 – saying not. And a November survey of 20 top economists and former policymakers in academia and respected research institutes showed 14 of them do not expect the euro zone to survive in its current form. Even in Japan, where economists have downgraded growth forecasts relentlessly, the economy is expected to pick up in the fiscal year from April and expand 1.8 percent. Japan should narrowly avoid a recession, but polls show little hope it will emerge from deflation any time soon. ASSESSING THE ASSETS The severe uncertainty surrounding 2012 is perhaps best reflected by Reuters’ asset allocation poll of more than 50 leading investment houses in the United States, Europe and Japan. Investors raised their cash balance to the highest in a year in December as they prepared for a jittery 2012, although they also moved back into cheap equities, Reuters polls showed on Monday. The euro zone crisis was the key concern of asset managers polled, hence the increased preference for cash as well as moves into British and Asian shares rather than European ones. Similarly, the last quarterly stock markets poll suggested emerging markets will easily outperform European share indexes in 2012, which will struggle to bounce back to end-2010 levels, never mind end-2011. With Europe heading into a recession, oil prices look set to fall from here. Brent crude will average $105 a barrel next year, not far below this year’s record high average near $111. “We expect a mild recession across the OECD next year to put a damper on demand and consequently prices,” David Wech from Vienna-based consultants JBC Energy said. “Nevertheless, the risk to oil prices is definitely on the upside given a still troubled geopolitical environment.” Economic growth is likely to slow among the Gulf’s wealthy oil exporters next year, but governments will remain able to spend to counter the impact of any global slump, a Reuters poll showed on Wednesday. Respondents cited the euro zone debt crisis and signs of slowing growth in China as reasons for the darkened economic outlook in the Gulf. DELAYED CHINESE CHEERS Whatever the euro zone’s future, the effects of the debt crisis have already been felt across the world. The European Union is China’s biggest export market, and manufacturing data there show dwindling levels of foreign new orders. Indeed, the Chinese economy is now growing at its weakest pace since 2009. In an effort to support it the central bank cut reserve requirements at the end of last month for the first time in three years. Economists polled by Reuters after this move, however, said the People’s Bank of China will refrain from more aggressive stimulative policies unless growth falls sharply to below 8 percent. Similarly, India has been suffering from a pronounced slowdown in growth and Reuters polls suggest its central bank will also slacken monetary policy by mid-2012 to counter this, despite stubbornly high inflation. It could be in for a difficult year. “Looking ahead, the economy faces the lagged effects of monetary tightening,” said Leif Eskesen, economist HSBC in Singapore. “Moreover, administrative hurdles and domestic policy paralysis are holding back investments and hurting sentiment.” Brazil’s central bank on Thursday cut its 2011 growth estimate to 3.0 percent, versus its previous estimate of 3.5 percent, and said 2012 would see growth of 3.5 percent. Compared with previous years where growth averaged near double-digit rates, that would be a disappointment, although still a fair improvement on the anaemic rates of most developed peers. Overall, even the slightly depressed growth rates from these developing economic powers will power world growth next year. “It is positive growth, but the picture does vary considerably – not just in terms of the first and second half of the year, but also depending on which part of the world you look at,” concluded Lyons from Standard Chartered. (Analysis by Sumanta Dey in Bangalore, Additional reporting by Anooja Debnath in Singapore, Zaida Espana and Peter Apps in London; Polling by Reuters Polls Bangalore, Editing by Hugh Lawson) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Buyer For NYSE Gets Justice Dept. Approval For Deal Worth Billions

December 22, 2011

WASHINGTON (Reuters) – Deutsche Boerse won U.S. antitrust approval to buy NYSE Euronext on Thursday in a $9 billion deal that has hit serious antitrust headwinds in Europe. The Justice Department said on Thursday that the deal, which was announced in February, won approval on condition that a Deutsche Boerse subsidiary, the International Securities Exchange, divest its 31.5 percent interest in Direct Edge. Direct Edge is the fourth-largest U.S. exchange, the department said. Despite the divestiture, Deutsche Boerse and NYSE must continue to provide some services to Direct Edge, the department said. In Europe, there have been weeks of negotiations during which European Union antitrust staff made clear their reservations about approving a combination of Deutsche Boerse’s Eurex and NYSE Euronext’s Liffe on concerns that the merged entity would have a monopoly over European listed derivatives trading. Both Boerse and NYSE Euronext have said they would not pursue the merger if they were asked to divest either Eurex or Liffe. A formal decision by the European Commission is not expected until January or early February. (Reporting By Diane Bartz; Editing by Gerald E. McCormick) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Olivier Blanchard: 2011 in Review: Four Hard Truths

December 21, 2011

What a difference a year makes … We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation. It was a long agenda, but one that appeared within reach. Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008. I draw four main lessons from what has happened. First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria — self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications. Multiple equilibria are not new. We have known for a long time about self-fulfilling bank runs; this is why deposit insurance was created. Self-fulfilling attacks against pegged exchange rates are the stuff of textbooks. And we learned early on in the crisis that wholesale funding could have the same effects, and that runs could affect banks and non-banks alike. This is what led central banks to provide liquidity to a much larger set of financial institutions. What has become clearer this year is that liquidity problems, and associated runs, can also affect governments. Like banks, government liabilities are much more liquid than their assets — largely future tax receipts. If investors believe they are solvent, they can borrow at a riskless rate; if investors start having doubts, and require a higher rate, the high rate may well lead to default. The higher the level of debt, the smaller the distance between solvency and default, and the smaller the distance between the interest rate associated with solvency and the interest rate associated with default. Italy is the current poster child, but we should be under no illusion: in the post-crisis environment of high government debt and worried investors, many governments are exposed. Without adequate liquidity provision to insure that interest rates remain reasonable, the danger is there. Second, incomplete or partial policy measures can make things worse. We saw how perceptions often got worse after high-level meetings promised a solution, but delivered only half of one. Or when plans announced with fanfare turned out to be insufficient or unfeasible. The reason, I believe, is that these meetings and plans revealed the limits of policy, typically because of disagreements across countries. Before the fact, investors could not be certain, but put some probability on the ability of players to deliver. The high-profile attempts made it clear that delivery simply could not be fully achieved, at least not then. Clearly, the proverb, “Better to have tried and failed, than not to have tried at all,” does not always apply. Third, financial investors are schizophrenic about fiscal consolidation and growth. They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth — which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability. I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here too: “slow and steady wins the race.” Fourth, perception molds reality. Right or wrong, conceptual frames change with events. And once they have changed, there is no going back. For example, nothing much happened in Italy over the summer. But, once Italy was perceived as at risk, this perception did not go away. And perceptions matter: once the “real money” investors have left a market, they do not come back overnight. A further example: not much happened to change the economic situation in the Euro zone in the second half of the year. But once markets and commentators started to mention the possible breakup of Euro, the perception remained and it also will not easily go away. Many financial investors are busy constructing strategies in case it happens. Put these four factors together, and you can explain why the year ends much worse than it started. Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago. It will take credible but realistic fiscal consolidation plans. It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved. I am hopeful it will happen. The alternative is just too unattractive. From iMFdirect blog

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Andrea Sittig-Rolf: When Sleigh Bells Ring, Opportunity Knocks…

December 20, 2011

What’s on your wish list this year? If you’re a small business owner or sales professional, it may be a new client. If you’re a job seeker, you’ve probably added a new job to the list. Luckily, around the holiday season there’s always an uptick in networking, which is one of the best ways to land a new client or a new job. If you’re like most social Americans, you’ll likely have the opportunity to attend a few holiday parties this season, so why not turn the opportunity to party into opportunities for you, your business, and your career? Before attending holiday parties this year, you’ll want to be prepared for the opportunities that may present themselves. First, you already know the importance of having a business card that identifies who you are, but what about having a business card that actually promotes who you are? Here are some suggestions on how to create such a business card: STEP 1: It should be double-sided. On the front, include your name, contact information, expertise (i.e. job title), and headshot. Even if you’re unemployed, your former job title can easily convey your expertise. Your headshot is necessary so that when following up with the people you meet, they can easily put a name with a face and remember who you are. STEP 2: On the back, include your 5-word personal mission statement. To do this, simply complete the statement: “I help companies . . .” The fourth word should be a verb, the fifth word a noun, and you want to sum up the result you create for companies, without revealing how you get to that result. Here are a couple of examples of personal mission statements: “I help companies increase profits.” “I help companies drive sales.” “I help companies cut costs.” “I help companies increase productivity.” “I help companies increase efficiency.” Remember, networking is a little like dating… you want to create a little mystery and leave them wanting more! The party is just the first step to the opportunity. It’s an introduction. You don’t, want to go into your whole life history and spell out the details of your resume; you just want to quickly give people an idea of what you can do for them, give them your card and say, “Maybe we can talk more about this some time.” Remember, it’s a party so you don’t want to be overbearing, but you do want to take advantage of the new contacts you’ll meet during the holiday season. This special type of business card acts as a tool that will promote you when you’re not around. With the short, to-the-point mission statement on the back of the card, you’ll create curiosity that will motivate the people you meet to follow up and schedule face-to-face meetings to learn even more about how you can help them. Try this tip this holiday season and raise your glass to the new opportunities that will come your way in the new year as a result!

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Time Running Out For S&P 500 To End Positively, As Euro Crisis Looms

December 18, 2011

NEW YORK (Reuters) – With two weeks left in the trading year, the euro zone debt crisis will remain the primary impediment to pushing the S&P 500 index into positive territory for 2011. Uncertainty over progress in the region, along with the potential for credit rating downgrades on euro zone countries, have kept investors on edge and market volatility high. Even with a fairly busy U.S. economic calendar, which includes a batch of data on the housing market, the final reading on gross domestic product and durable goods orders, markets will focus on developments from Europe. “What everybody is going to look at is the same thing they’ve been looking at — every time a German official opens their mouth we get crushed,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “I’m keeping my fingers crossed that Santa Claus is out there. But we’ve got to see something.” The benchmark S&P 500 index is down about 3 percent for the year and would need to climb above 1,257.64 in order to end higher for the year. A rally by stocks on Friday fizzled, and the market ended with only modest gains after the latest credit warning about possible downgrades of European nations. For the week, the Dow fell 2.7 percent, the S&P lost 2.9 percent and the Nasdaq was down 3.5 percent. Italy’s prime minister urged European policymakers on Friday to beware of dividing the continent in the effort to contain the debt crisis, warning against a “short-term hunger for rigor” in some countries, in a swipe at Germany. Stocks have been whipsawed as investors weigh the threat from the euro zone crisis against modest improvement in U.S. economic data and stocks that many regard as cheap. “There do appear to be some improving economic indicators domestically, but it’s hard to see how they win the day if Europe continues to be a big concern. It’s not like the valuations are at such bargain-basement prices that it becomes a one-way bet,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco. As volumes begin to dry up and market moves become more exaggerated during the holiday period, the volatility may help lift the stock market into the plus column. CHANCE OF RALLY “Can you see an upside rally? Certainly, because you are going to have some asset managers in the end who are going to try and just push it so the market ends at the very least flat on the year, if not higher,” said Ken Polcari, managing director at ICAP Equities in New York. “If there is going to be a rally at all, it will happen on light volume because there will be fewer and fewer participants. When there is less volume, you do have the ability to have those exaggerated moves, but people will take advantage of that.” Volatility in individual shares could also be affected by corporate earnings preannouncements. There have been 97 negative earnings preannouncements issued by S&P 500 corporations for the fourth quarter, compared to 26 positive preannouncements, resulting in a negative-to-positive ratio of 3.7. That’s the highest in 10 years, according to Thomson Reuters data. Companies that have provided outlooks in recent weeks include DuPont , Intel Corp , United Technologies Corp and Texas Instruments Inc . Unexpected management shakeups could also be on the horizon and increase the tumult in stocks. Both Cablevision Systems Corp and the New York Times Co saw high-level executives suddenly leave their posts. But stock movements next week will ultimately be dictated by actions taken in Europe, with the light volume exacerbating market swings. “The only thing that is going to be of any interest is certainly the continuing headlines on Europe, whether or not they come any closer to what looks like a potential agreement,” said Polcari. “You may get a little bit of a push to the 1,250 to 1,270 range, but much beyond that I don’t see why it would go any higher unless you get some explosive announcement out of Europe.” (Reporting By Chuck Mikolajczak; Editing by Kenneth Barry) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Europe Austerity Ruining Chance Of Recovery

December 14, 2011

(Carmel Crimmins and Gavin Jones) – Europe’s “no pain no gain” attitude to solving its sovereign crisis risks exacerbating the bloc’s problems, choking off the very growth needed to raise the money to pay down the debt. From Athens to Dublin, and almost everywhere in between, administrations are imposing wave after wave of spending cuts and tax increases to persuade investors they are serious about improving their public finances and persuade them to start buying euro zone sovereign debt again. The austerity zeal risks tipping the continent back into recession and a downward spiral of austerity as pitiful growth prospects undermine budgetary targets and ramp up debt burdens, meaning further austerity is required. “The expansionary fiscal contraction story says that you cut, you show you are serious about cutting and then the confidence fairy will come along and she will start pulling in private investment,” said Stephen Kinsella, professor of economics at the University of Limerick. “The expansionary fiscal contraction story is a lie. You don’t cut your way to growth.” With the crisis spreading like wildfire through the currency bloc’s core, pushing up borrowing costs to unsustainable levels, countries are relying more on blunt budget cuts, than time-consuming and difficult structural reforms, to get results. The upshot is ballooning dole queues, shuttered businesses and public services stretched to breaking point. On the streets of Athens and Dublin poverty has visibly increased with more and more homeless people huddling in doorways. In Spain, emergency wards have been shut and in Italy, retailers are struggling to get by. “Consumption has been falling pretty steadily since the winter of 2008. Normally in a crisis, it starts with menswear and goes to womenswear and children. This time, it’s hit them all at once,” said Attilio Lebole, head of Textura, a mid-range clothing wholesaler based in Florence. “Demand is falling, there’s no doubt about that. Only foreigners are still shopping.” Despite having an estimated budget deficit this year of 3.8 percent of GDP, below the European average of four percent, Italy has been piling on austerity since the summer, destroying its already poor growth prospects and then responding with still more austerity to make up for the weaker growth. Italy’s dismal growth prospects and an inability to pass growth-enhancing reforms have been the key reasons given by ratings agencies for downgrading the country, not deficit slippage. “Italy is paying a very high price for lending credibility to Germany’s push for greater fiscal discipline across the eurozone,” said Nicholas Spiro, head of Spiro Sovereign Strategy. TERRIFIED OF SPENDING In the pre-euro days, currency devaluation was the quick-fire route to getting overblown economies back on track. What’s needed now is “internal devaluation” to get wages and domestic prices down. But if everyone is cutting back where will the demand come from? Global growth was meant to be the secret ingredient that kept the Irish economy ticking over while it slashed household income — down by an estimated 16 percent so far and counting — but the spread of austerity measures across the euro zone has shrunk its growth prospects and forced Dublin to cut even harder. Held up as a role model for other indebted nations, the irony is that Ireland’s recovery story looks set to be tripped up as others follow suit. In Spain, the incoming government is hoping that changes to a labor laws, which would untie wages from inflation, as well as measures to aid new businesses would help spur growth despite painful cutbacks. But analysts are unconvinced and say inevitable austerity measures needed to make tough public deficit targets in 2012 will serve to trim growth even further. A Reuters poll on November 24 showed the economy not growing at all in 2012. Others like savings bank foundation FUNCAS predict the economy will contract 0.5 percent next year as a result of the impending austerity measures. “The deficit objectives are so tough that in the short-term it’s not going to allow the government room to stimulate the economy or create jobs. There is no fiscal margin to do so,” said Angel Laborda, head of research at FUNCAS. Across the euro zone, retailers are bracing themselves for yet another drop in Christmas cheer as sales taxes are hiked in Italy, Greece and Ireland. The Greek Commerce Confederation (ESEE) is predicting a 22 to 30 percent fall in retail sales, with per capita spending seen dropping to 288 euros from 410 last year and 550 euros in 2009. And the New Year isn’t looking much better. Last week’s European summit laid out plans for balanced budgets implying austerity budgets for years ahead for many European states. Hilary Behan has already closed three of her six children’s clothes stores in Ireland, cut her staff from 38 to 20 and asked her store managers to take pay cuts of between 10 and 15 percent. Sales are down by over a third since 2008. “It just keeps getting worse and that’s the worrying thing there is no sign of any recovery. Every time the government get a chance they remove any chance of there being any sort of a recovery,” she said. “It’s not even the amount of money that they are taking from people it’s the constant battering. People are terrified to spend.” (Additional reporting by Giulio Piovaccari in Rome, George Georgiopoulos in Athens and Nigel Davies in Madrid. Editing by Jeremy Gaunt.) Copyright 2011 Thomson Reuters. Click for Restrictions .

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ECB’s Stark: More IMF Involvement In Europe ‘Would Be Act Of Desperation’

December 12, 2011

Higher involvement by the International Monetary Fund (IMF) in the euro zone’s efforts to stem its debt crisis would be an act of desperation, outgoing European Central Bank chief economist Juergen Stark said, calling for a quantum leap by the currency bloc. “It would be an act of desperation,” he was quoted as saying by Sueddeutsche Zeitung due for publication on Monday. Stark said he envisaged an informal panel of experts to check on member states’ budgets. “That would be the nucleus for a future European finance ministry,” he said. (Reporting by Annika Breidthardt) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Revenues Of U.S. States Back To Pre-Recession Levels

December 8, 2011

WASHINGTON (Lisa Lambert) – Total tax revenues of U.S. states returned to pre-recession levels in the 2011 third quarter, a public policy institute reported on Thursday, but revenue growth slowed during the period, a worrisome trend for states concerned that economic clouds are gathering as they begin drafting their budgets for next year. Total tax collections in 48 states rose by 7.3 percent in the July-to-September quarter, the Rockefeller Institute of Government reported. “After seven quarters of growth, overall state tax revenues have recovered to pre-recession figures,” said the institute. “Most states have not yet returned to peak levels, however, because those levels came several months into the Great Recession.” The institute’s study did not include data from Hawaii and New Mexico. States had experienced a slight lag from when the economic recession began in 2007 and when the fall in employment, housing prices and consumption hit their coffers. Their revenues reached record highs at the start of the recession, before plummeting in 2008. In much the same way, states are only now beginning to register the recession’s end, which officially was in June 2009, and are eager for revenues to return to the 2008 peaks. Despite the growth in revenues in the July-to-September quarter, a period that is the first fiscal quarter for most states, the rate failed to match growth in the second quarter. “This is a noticeable slowdown from the 10.8 percent year-over-year growth reported in the second quarter of 2011,” said the institute. The European debt crisis, stock market declines, and other economic troubles on the national level have states worried recent revenue improvements will not last. During the recession, their revenues fell sharply for five straight quarters, many to the lowest levels in more than 20 years. Because all states except Vermont have constitutional mandates to balance their budgets, they responded to falling revenues by hiking taxes and slashing spending, often in emergency sessions. After closing more than $500 billion budget gaps over four years, according to the National Conference of State Legislatures, they have few lifelines left. Numerous states instituted temporary tax hikes that are now expiring, and large infusions of funds from the federal government under the economic stimulus plan that helped bridge gaps ended last year. Among the 48 states in Rockefeller’s study, only Delaware, Iowa and Missouri failed to show gains in tax revenues during the third quarter. Moreover, 11 states reported double-digit growth in total tax collections. Personal income taxes, which provide the bulk of revenues for many states, grew 9.2 percent from the same quarter the year before. Sales taxes were up 3.9 percent, in the fourth consecutive quarter of growth. Illinois, Texas and Alaska had the largest rises in tax collections. In Illinois the gain was mostly fueled by legislated tax increases that took effect in January, and Alaska’s strength throughout the recession has rested on oil and mineral prices. Next month, state legislatures and governors will return to work, and to drafting the budgets for the next fiscal year. A slowdown could complicate their abilities to estimate how much money will be available to spend. A recent report by the National Governors Association and the National Association of State Budget Officers found that already 17 states are expecting budget gaps for next fiscal year totaling $40 billion. (Editing by Leslie Adler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Robert Naiman: Could GOP Sanctions on Europe Tank the Economy and Elect Romney?

December 8, 2011

Remember, “It’s the Economy, Stupid?” So how come Democrats in Congress — over the objections of the Obama Administration — are helping Republicans press sanctions on Europeans who buy oil from Iran — sanctions that would increase unemployment in the U.S. during the 2012 campaign? The National Defense Authorization Act now contains a Senate amendment by Republican Senator Mark Kirk — supported by many Democrats in Congress — that would sanction European banks and companies that do business with Iran’s Central Bank, in order to stop Europeans from buying Iranian oil. This is a big deal, because Iran is the world’s fifth-largest oil exporter, and blocking Iranian oil exports to Europe would raise the price of oil, in Europe and in the United States. Kirk’s amendment would hurt the U.S. economy, at a time when economic contraction in Europe could push the U.S. back into recession. Is fear of the economic blowback of the sanctions on Europe that Kirk wants to impose justified? Many Europeans seem to think so. On Tuesday, Reuters reported : The European Union is becoming skeptical about slapping sanctions on imports of Iranian oil, diplomats and traders say, as awareness grows that the embargo could damage its own economy without doing much to undercut to Iran’s oil revenues. “Maybe the aim of sanctions is to help Italy, Spain and Greece to collapse and make the EU a smaller club,” one trader joked. The remark reflects the growing unease that EU sanctions would hit hardest some of the continent’s weakest economies, because Iranian oil provides the highest share of their needs, not to mention the rest of the bloc. “The likely increase in oil prices that would result from a ban would be felt by all (European) oil refiners, not just those that are big customers for Iranian oil,” ratings agency Fitch said last week. An oil industry source in Greece, which mostly relies on Iranian oil, said: “Greece can’t be put with its back to the wall.” The threat to Iran’s oil exports and fears about a possible military strike on its nuclear facilities have helped keep oil prices above $100 a barrel… Raising the price of oil will hurt the U.S. economy directly. In addition, hurting the European economy will also hurt the U.S. economy by causing U.S. exports to Europe to fall. Furthermore, adding to Europe’s economic problems now would undermine attempts to contain the European financial crisis, as the trader’s joke about sanctions helping Italy, Spain and Greece to collapse suggests. And if efforts to contain Europe’s financial crisis fail, we’re going to feel that pain in the U.S., just as Europe felt the 2008 U.S. financial crisis. What’s the Republican response to all this? When a U.S. Treasury Department spokesman said , “it is critically important that the steps we take do not destabilize the U.S. and global economy,” a senior GOP Senate aide responded by saying, “Treasury should go back and model the cost to the U.S. economy and the world economy of an Israeli strike on Iran.” So, according to this Republican argument, we only have two choices: sanctions on Europe that will hurt the U.S. economy, or an Israeli military strike on Iran that will hurt the U.S. economy even more. But that’s a false choice, because 1) a lot of people in Israel, including the former head of the Mossad, think the idea of an Israeli attack on Iran is insane, and 2) the U.S. can keep Israel from attacking Iran if it wants, just as the U.S. did during the Bush Administration. Of course, many Republicans claim that Iran’s nuclear program constitutes a national emergency in the United States, so we should be willing to accept higher unemployment in the United States in order to block Iran’s oil exports to Europe. But the “emergency” claim is extremely dubious, for the following reasons: 1) As Pulitzer Prize-winning journalist Seymour Hersh recently noted in the New Yorker , there is still no definitive evidence that Iran has a nuclear weapons program. 2) As former AIPAC staffer MJ Rosenberg recently noted , leading neoconservatives at the American Enterprise Institute — a key cheerleader for war with Iran, as it was a key cheerleader for war with Iraq — are now publicly conceding that the issue for neoconservatives isn’t really whether Iran has a nuclear weapon — it’s trying to maintain a balance of power in the region in favor of Israeli military ambitions. It’s certainly understandable that some Israeli generals would want to maintain their freedom, as they see it, to invade Lebanon anytime they want, but does supporting this ambition constitute a national emergency for people in the United States? 3) As Defense Secretary Leon Panetta recently affirmed , at best a Western military strike on Iran would set back its nuclear program by two years. Since a military strike can’t stop Iran’s nuclear program — and since such a strike would be extremely costly to the U.S. — it’s an extremely stupid thing to do, if the goal is to stop Iran’s nuclear program. The only way that military force can stop Iran’s nuclear program is if it is used to overthrow the Iranian government and install a Western client government. But few dare call for this openly, since thanks to the Iraq and Afghanistan experience, the public is now quite aware of what this program would cost in blood and treasure, and is also aware that despite that cost, the program of installing a client government could fail anyway. So there is no emergency requiring sanctions that hurt the U.S. economy. There’s just another manufactured crisis, designed to force Americans to submit again to the neoconservative agenda. But the question remains: Why would Democrats support this? Do they want to lose the election?

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IMF Denies Report On $600 Billion Lending Facility

December 7, 2011

The International Monetary Fund on Wednesday denied a report in Japan’s Nikkei newspaper that the Group of 20 nations were planning to assemble a $600 billion IMF lending facility that could be used to bolster euro zone countries. “There has been no such discussion with the IMF,” an IMF spokesman said in response to the Nikkei report. Separately, a G20 official also said the report was untrue. (Reporting by Leslie Wroughton in Washington and David Lawder in Milan, Editing by Chizu Nomiyama) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Richard Barrington: When Banks Compete, Could Savings Account Win?

December 6, 2011

Watching a couple of bankers duke it out wouldn’t make anybody forget the Ali-Frazier fights, though it might draw some interest from the Occupy Wall Street crowd. Still, an escalating fight among banks for commercial loans might be worth the attention of anyone looking for positive signs about the economy . American Banker reports that small banks are seeing more competition from big banks in their commercial lending markets. As a result, large banks are gaining market share in commercial loans at the expense of smaller banks. Here are four reasons this could be significant for the economy — for better or worse: Loan growth could spur economic growth. Even record low mortgage rates have done little to spur loan volume, in part because banks have been reluctant to lend. This new competition could signal that some banks are ready to switch from defense to offense. If lending becomes more profitable, rates on savings accounts could rise. A growing loan business makes banks value savings accounts and other deposits more, because they provide capital for further lending. Over time, this would encourage banks to offer higher interest rates to depositors. Fighting over a limited market has its risks. On the negative side, intense competition over a limited slice of the loan market could encourage undue risk-taking. Commercial and industrial lending, which is the focal point of this competition, represents only 20 percent of the U.S. loan market. Some bankers are concerned that if too many players try to crowd into this segment of the market, they won’t adequately account for risk. Smaller banks could be caught in a squeeze. Small banks have been able to compete for deposits by offering higher interest rates, but that makes them less able to offer competitive loan rates. If this new spirit of competitiveness among banks leads them to expand the loan market, it could stimulate the economy and eventually lead to higher interest rates on savings accounts , CDs, and money market accounts . On the other hand, if banks are simply fighting more intensely over a stagnant market, this competition could lead to more risk-taking without growth. The original article can be found at Money-Rates.com : ” When banks compete, could savings accounts win? ”

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German Chancellor Minimizes Possible S&P Downgrade

December 6, 2011

BERLIN — Chancellor Angela Merkel on Tuesday downplayed Standard & Poor’s warning that it might cut the credit rating of 15 eurozone countries, including Germany’s, because the region’s financial crisis is worsening without any imminent fix. The timing of the warning was noteworthy. It came just hours after Merkel and French President Nicolas Sarkozy urged changes to the European Union treaty that would centralize decision-making on spending and borrowing for the 17 countries that use the euro. Tighter political and economic coordination among euro countries is seen as a precursor to further financial aid from the European Central Bank, the International Monetary Fund, or some combination. The threat to cut Germany’s prized AAA rating was particularly surprising. Its bonds are considered among the safest in the world. A downgrade threatens to complicate the eurozone’s bailout mechanism, since the region’s rescue fund relies on AAA-rated bonds of Germany and France to cheaply raise money. Investors nevertheless seemed to take the S&P warning in stride on Tuesday. European stocks and bonds mostly held onto the gains they made Monday. “What a rating agency does is the responsibility of the rating agency,” Merkel told reporters in Berlin, refusing to elaborate further. She said, however, that she expected a meeting of European leaders later this week in Brussels would help restore markets’ confidence. “We will meet on Thursday and Friday as Europeans and take those decisions that we consider to be correct, and through them stabilize the eurozone and also regain confidence,” she said. She and Sarkozy on Monday outlined sweeping plans to change the EU treaty in an effort to keep tighter checks on overspending nations. The proposal is set to form the basis of discussions at an EU summit in Brussels on Friday. The financial markets of Italy and Spain rallied after Merkel and Sarkozy unveiled their proposals, suggesting investor are more confident Europe can survive the crisis. “I have always said this is a long process and an arduous one and it will continue, but we charted the course yesterday with the French president and we will continue to stay the course,” Merkel said. S&P said there was a 50 percent chance that the countries’ ratings it put on review would be downgraded. Late Monday night the euro fell from $1.3460 to $1.3330, unwinding much of the gains made after Merkel and Sarkozy’s proposals. By Tuesday, however, it was back up to $1.3420 – buoyed in part by a report showing a massive rebound in German industrial orders due to a double-digit increase in demand from eurozone countries. Stock and bond markets largely overlooked S&P’s threat, remaining stable on Tuesday. The bond yields for countries like Italy and Spain remained at the one-month lows they hit on Monday. “Although the S&P warning has not scared the markets as it was pretty much stating the obvious, it did color the market sentiment,” said Anita Paluch, a trader with Gekko Global Markets. Paluch said the warning does raise pressure on policymakers, however, to use the upcoming summit to produce a solution that will “put out the fire in the eurozone.” French Foreign Minister Alain Juppe said it appeared to him that S&P had made its decision before Merkel and Sarkozy released details of the new plan, so hadn’t been able to factor that into its considerations. The leaders’ proposal is “exactly the response to one of the major questions from the ratings agency, which talks about insufficient European economic governance,” Juppe said on RTL radio. Sarkozy and Merkel are proposing several broad changes for the EU treaty, including the introduction of a penalty for any government that allows its deficit to exceed 3 percent of gross domestic product. The penalty would be automatic – unless a majority of nations opposed it, a loophole that drew sharp criticism from analysts. Some analysts also feel the proposal, which demands strict austerity measures, misses the mark and will only worsen much-needed growth in already feeble economies. Investors are hoping that the summit of European leaders on Thursday and Friday will produce concrete measures to prevent a messy breakup of the euro. Markets have been jittery because of fears that the euro might disintegrate, causing a sharp recession in Europe that would spread through the world economy. EU spokesman Amadeu Altafaj Tardio said that the bloc needed to make “important decisions this week” but not because of any worries about the S&P ratings. “The job was already partially done in October” at the last summit, he said. “We now have to complete the job. It is not because we want to please the rating agencies or market forces, it is important because it is the best (way) to ensure the prosperity of our citizens.” The S&P warning left out only two of 17 countries that use the euro: Cyprus, whose bonds have near-junk status, and Greece, whose low ratings already suggest it is likely to default soon anyway. ___ Kirsten Grieshaber in Berlin, David Stringer in London, Raf Casert in Brussels, and Sarah DiLorenzo in Paris contributed to this story.

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99 Percenters Hurt More By Austerity Measures Than The 1 Percent: Study

November 29, 2011

Government belt tightening hurts the budgets of the 99 percent more than those of top earners, a recent study finds. Income inequality rises when countries use spending cuts instead of tax hikes to deal with budget deficits, according to a new paper from researchers Luca Agnello and Ricardo Sousa. The paper analyzes data from 18 countries between 1970 and 2010. The findings come after a 12-member congressional panel failed to agree on measures to reduce the budget deficit in time to avoid triggering $1.2 in spending cuts starting in January 2013. What deadlocked the committee? A stalemate over whether to use spending cuts or tax hikes to reduce the deficit. “During periods of fiscal consolidation, income inequality significantly rises,” the researchers wrote in the study. “Moreover, fiscal adjustments that are led by spending cuts tend to have a more detrimental impact on income distribution than those driven by tax hikes. Similarly, we show that the top 1% income share in total income increases after consolidation.” Spending cuts are a controversial around the globe right now. In Greece, unions are planning a mass strike on December 1 to protest the 2012 austerity budget as lawmakers grapple with a sovereign debt crisis. Greece’s negative reaction to the budget may be because they could face government salary cuts or lose some social services if the budget is passed. The majority of residents of France, Germany and Spain — like their Greek counterparts — say that it’s important to make sure no one else is left in need . But if European leaders implement an austerity budget while the economy is weak, it may have less of an effect on income inequality , the study found. Fiscal austerity that takes place during banking crisis episodes leads to a negligible effect on income inequality, while budget tightening in the absence of crises boosts the income gap. Nations that implement austerity after a banking crisis is resolved experience an “amplified” effect on income inequality. The wealth gap in the U.S. has skyrocketed in the last thirty years . The top one percent of earners saw their incomes grow by 275 percent between 1979 and 2007, according to the Congressional Budget Office, while the bottom fifth of earners saw their incomes rise by 20 percent. Americans’ median income fell for the second year in a row in 2010 to $26,364, while nearly half of households lack access to basic needs . At the same time, the 400 richest Americans control as much wealth as the bottom 50 percent of earners.

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Crisis In Europe Threatens World Economy

November 28, 2011

As a breakup of the eurozone — a once seemingly impossible scenario — becomes increasingly likely, economists are starting to sketch out what a post-euro world would look like. Many are warning that if political leaders don’t change course, a breakup of the eurozone would plunge the United States and the rest of the world into a slowdown and possibly another recession. “If Europe turns out badly, it’s much more likely we’ll go into recession,” said Michael Spence, a Nobel Prize-winning economist at the New York University Stern School of Business. “If you take a big chunk like Europe and turn it down, it would probably bring everybody else down, including us.” If the eurozone dissolves, the European banking system would likely collapse, economists said, plunging the continent into recession, which would keep European consumers from buying. Decreased demand from the continent, which represents about 20 percent of the global economy, would hurt both the United States and emerging countries, who depend on European banks not just for demand, but also for funding. The risk of a eurozone breakup has increased dramatically over the past couple of weeks, as countries have faced increasing difficulty selling their debt. Interest rates on sovereign bonds issued by eurozone countries have spiked. The interest rate on 10-year Italian sovereign bonds rose to 7.28 percent Monday, nearly hitting a Nov. 9 euro-era high that was only eased afterward by limited bond purchases by the European Central Bank. The interest rate on 10-year Spanish sovereign bonds rose to 6.58 percent Monday, near the euro-era high reached on Nov. 17 . Interest rates on the 10-year bonds of more fiscally sound countries, such as France and Belgium, spiked to 3.58 percent and 5.59 percent respectively on Monday, as the contagion of higher borrowing costs spread to across the eurozone, regardless of their economic fundamentals. If European leaders don’t agree to take bold economic measures for more fiscal integration — including allowing the European Central Bank to become the lender of last resort — the eurozone could start to unravel, said Simon Tilford, chief economist of the Center for European Reform in London. The eurozone’s future could be decided next week when leaders meet for a summit on the sovereign debt crisis on December 9. If they leave empty-handed, Tilford said, fearful depositors could pull their money out of European banks en masse, causing European banks to fail. In a “vicious death spiral,” said Tilford, troubled European countries would stop being able to borrow money as borrowing costs reach unsustainable levels. Then a string of European countries could default and leave the eurozone, leading to its collapse, he said. A number of other triggers could force a eurozone break up. In one scenario described by economists, a troubled eurozone country such as Italy could be forced to default if it is not able to roll over all of its debt at its next bond auction, forcing the country to leave the eurozone soon thereafter. In another possibility, interest rates on sovereign debt could reach unsustainable levels, forcing troubled countries to default on their debts. In addition, the Greek people could pressure their political leaders to leave the eurozone in order to regain political sovereignty from European leaders in France and Germany. “Given that Greece is a democracy, at some point I think the Greek people are going to decide this is not the right way to go,” said Christopher Low, chief economist at FTN Financial, who said that there is a 40 percent chance of a complete breakup of the eurozone. “It’s a nasty recession to begin with, and they [political leaders] are talking about making it even worse.” Leaving the euro would give Greece a chance to grow its way out of its current predicament, similar to the way that Argentina’s economy grew after abandoning its currency’s peg to the U.S. dollar in the 1990s, Low said. With cheaper exports under a devalued currency, Greece would be able to sell more of its goods and services abroad, he said. But abandoning the euro would not be without its troubles. If Greece left the euro, its banking sector would likely collapse, and Greek companies that borrowed from other eurozone countries would likely default since the debt — valued in euros — would become too expensive to pay off, said Jurgen Odenius, the chief economist at Prudential Fixed Income. The Greek government would also be forced to slash spending to the point where there would be no more deficit, Odenius said, and would likely have trouble seeking outside loans, pushing Greece into a much deeper recession. “This would make for a nuclear meltdown, as far as Greece is concerned,” Odenius said. But for some countries, leaving the euro may be unavoidable, some economists said. Devaluing their own currencies would boost the competitiveness of their exports, allowing countries to grow and pay down their debts, Tilford said. Since countries such as Greece and Portugal have “very weak economic growth prospects … they need a weaker currency,” Tilford said. If they can no longer borrow money, they effectively would be forced to default on their debts and leave the euro, he said. A breakup of the eurozone would cause several negative repercussions for the U.S. economy and emerging economies in particular, Tilford said. As investors flee for safety in the United States, the value of the U.S. dollar would rise, making U.S. exports more expensive around the world and causing their sales to fall, he said. American banks would be forced to swallow major losses on European investments and would lend less, he said — though the Federal Reserve would likely prevent them from failing by becoming their lender of last resort. American investments in Europe generally would plunge in value, Tilford said. As of the end of 2009, U.S. direct investment in Europe totaled $1.98 trillion , according to the Congressional Research Service. The negative blow to U.S. confidence would generally curtail risk-taking and investments in the U.S., Tilford said. Emerging economies would also experience a sharp slowdown because they are dependent on Europe for both financing and consumer demand for their goods, Tilford said. European banks provide about three-quarters of all loans to emerging markets, according to Tilford, and a breakup of the eurozone would cause many European banks to either fail or slash lending. If the eurozone breaks up, a cloud of uncertainty would likely hang over Europe as long as companies struggle to work out contracts that were done in euros, Tilford said. “How on earth do you untangle all the contracts? Because they are all in a currency that would cease to exist,” he said. “They would need to clarify who owns what and under what currency if capital is going to return to Europe.”

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Battle For ‘Mom And Pop’ Investors Getting Heated

November 28, 2011

The fight for mom and pop’s stock orders is getting testy on Wall Street. The New York Stock Exchange wants to give retail investors fractions of a penny in better prices when they trade securities listed there. The plan, unveiled last month, would effectively set individuals apart from funds, brokers and other professionals – who would still pay the publicly displayed prices. It is an effort to induce retail investors back from trading mostly off-exchange at electronic “wholesalers.” And it means the Big Board is effectively taking on the handful of these wholesale market makers, such as Knight Capital Group Inc and hedge fund Citadel, that have been able to get a first look at retail orders and the opportunity to use that information to aid their own trading strategies. If the NYSE wins regulatory approval for the plan, it could change the way many orders circulate, and it could mean slightly cheaper trading for Main Street investors. But that approval isn’t certain given the plan will resurrect a fierce philosophical debate over preferential treatment for some market participants. The U.S. Securities and Exchange Commission has only weeks to decide what to do. “For the first time in a very broad stroke they could approve the ability of exchanges to discriminate by customer,” said Christopher Nagy, managing director of order strategy at TD Ameritrade Holding Corp, the largest U.S. retail brokerage. In a way, much of the commotion is because mom and pop aren’t the savviest of stock traders. Many casual traders don’t even know that their orders rarely end up at the Big Board or Nasdaq. Instead, TD Ameritrade, E*Trade Financial Corp and other online brokers send the orders – up to 12 percent of all U.S. equity trading, according to Rosenblatt Securities — to the wholesale market makers, who fill the orders and pay the broker a small fee for the privilege. The wholesalers are willing to pay the small fee because mom and pop orders are seen as uninformed – or “dumb”, to use the derogatory industry term. Unlike professional investors with sophisticated short-term strategies and quantitative market analysis, retail investors aren’t usually in a position to keep on top of news, rumors or the flow of orders and liquidity, and may sometimes buy or sell based on a hunch. The diversion of these orders to wholesalers is quite legal, and said to give retail investors about a tenth of a penny in better prices, on average, than they would otherwise get on the exchanges. It is also one of the main reasons more than 30 percent of U.S. equity trading takes place off-exchange in the anonymous “dark”, up from about 20 percent in 2007. The payment-for-order-flow by wholesalers and online brokers has frustrated NYSE Euronext and Nasdaq OMX Group Inc, which have seen their market share dwindle over the past decade. NYSE Euronext now has only 35 percent of trading in NYSE-listed stocks, down from 80 percent in 2005. The SEC, meanwhile, has been increasingly uncomfortable with the growing share of dark trading as it is more difficult to regulate. “The vast majority of retail traders don’t know that when they’re trading NYSE stocks, they’re not actually trading at the NYSE,” said market structure author and expert Larry Harris, a finance professor at University of Southern California’s Marshall School of Business. “The NYSE’s proposal is designed to try to recapture some of that retail order flow.” GAME PLAN The NYSE plan, which is called the Retail Liquidity Program, was proposed last month after consultation with the SEC. It is the latest in a long line of attempts by U.S. exchanges to win back retail investors. If exchanges can attract more “dumb” orders to their market, they’ll also attract more institutions and high-frequency trading firms eager to trade against those orders – which is potentially lucrative trading volume. But getting the green light will take work. There is some tough opposition to NYSE’s plan, interviews with wholesale groups and other industry players shows. Overall, though, there is an expectation the SEC will approve an adjusted version of the plan that would give retail investors some sort of exemption for better exchange pricing. Nasdaq as well as Direct Edge, a private exchange operator that handles 10 percent of U.S. equity trading, are expected to propose similar retail-pricing proposals, according to industry sources familiar with the plans. BATS, another private exchange, is expected to criticize parts of NYSE’s plan, said the sources, who requested anonymity. The three exchanges declined to comment. The SEC declined an interview, citing the ongoing public comment period. A raft of letters reacting to the NYSE is expected from brokerages, exchanges and others before the November 30 public comment deadline. The SEC, under Chairman Mary Schapiro, then has until December 16 to decide whether to back the plan or take more time to mull it over, based on the comments. “I would be quite surprised if the SEC were to approve this as is,” said Jamie Selway, managing director and head of liquidity management at Investment Technology Group Inc. “People have played footsie with this issue of price discrimination … but this would be a big step for the SEC.” In detail, here is what the NYSE wants to do: For a one-year pilot, NYSE would create two new classes of market participants: companies such as E*Trade, Charles Schwab Corp or even wholesale firms that are qualified to send bona fide retail orders to the exchange; the second is market makers that are required to provide “potential price improvement” to the orders in an anonymous, or dark, fashion. Retail investors would get at least a tenth of a penny in better prices than the best displayed bid or offer at that moment. The NYSE has not yet said how much it will rebate brokers that send the orders, nor how much it will charge firms that provide the liquidity. It all adds up to a challenge to Knight, Citadel, UBS AG, Citigroup Inc and E*Trade’s market making arm, which are the dominant U.S. retail wholesalers. It could also hurt “dark pool” venues, some run by banks such as Credit Suisse Group AG, where stocks are traded anonymously. TOUGH OPPOSITION The NYSE proposal effectively gives some people in the market preferential treatment over others. This is not allowed at exchanges, though some argue that wholesalers and those running dark pools already offer it. Exchange rules are “not designed to permit unfair discrimination between customers, issuers, brokers, or dealers…” the U.S. Securities Exchange Act says. “My broader concern,” said one brokerage official, “is that the fair access provisions that the exchanges have to abide by are significantly weakened by this.” Joseph Mecane, NYSE Euronext’s co-head of U.S. listings and cash execution, acknowledged he is challenging fair access provisions, but only to an extent. “What we’re essentially arguing is, by making this program only available to retail customers, we’re not unreasonably discriminating against any class,” he said. The SEC would also have to grant the NYSE an exemption to a rule that limits the pricing of stocks to no finer than penny increments — that is, General Electric Co’s shares can only trade hands at $15.08, not $15.085 or $15.0852. In the end, the regulator will have to decide whether NYSE’s plan will bring enough benefit to individual traders and to the public markets to outweigh all the concerns over fairness, and the complaints that it will only complicate an already complicated marketplace. (Reporting by Jonathan Spicer. Editing by Martin Howell) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Germany, France Push For Power To Reject Eurozone Budgets

November 28, 2011

Germany and France stepped up a drive on Monday for intrusive powers to reject national budgets in the euro zone that breach EU rules, as a market rout of European debt eased temporarily on hopes of outside help for Italy and Spain. The OECD rich nations’ economic think-tank said the European Central Bank should cut interest rates and step up its purchases of government bonds to restore confidence in the euro zone, which it said now posed the main risk to the world economy. In Brussels, finance ministers of the 17-nation currency area meeting on Tuesday are due to approve detailed arrangements for scaling up the European Financial Stability Facility rescue fund to help prevent contagion spreading in bond markets, and to release a vital aid lifeline for Greece. Berlin and Paris aim to outline proposals for a fiscal union before a European Union summit on December 9 increasingly seen by investors as possibly the last chance to avert a breakdown of the single currency area. “We are working intensively for the creation of a Stability Union,” the German Finance Ministry said in a statement. “That is what we want to secure through treaty changes, in which we propose that the budgets of member states must observe debt limits.” It also dismissed a report by the newspaper Die Welt that Germany and the five other euro zone states with top-notch AAA credit ratings could issue joint bonds. Finance Minister Wolfgang Schaeuble acknowledged on Sunday that it may not be possible to get all 27 EU member states to back treaty amendments, saying agreement should be reached among the 17 euro zone members. “That can be done very quickly,” he told ARD television, adding that it only required changing an additional protocol to the EU’s Lisbon Treaty. “END OF THE EURO?” In France, Agriculture Minister Bruno Le Maire said euro zone countries would have to give up some budget sovereignty to save the euro from hostile “speculators.” “We won’t be able to save the euro if we don’t accept that national budgets will have to be a bit more controlled than in the past,” Le Maire told Europe 1 radio. “We are in an economic war with a number of powerful speculators who have decided that the end of the euro is in their interest,” he said. Handing over fiscal sovereignty to the executive European Commission is politically sensitive in France, which has a strong Gaullist, nationalist tradition. President Nicolas Sarkozy’s office sought to quash a weekend newspaper report that Berlin and Paris were planning to confer “supranational powers” on Brussels, suggesting such intrusion would only apply to countries such as Greece that were under EU/IMF bailout programs. But Le Maire, asked whether the Commission would be granted more powers over national budgets in the euro zone, said: “Why not? The French people have to realize what is at stake — the preservation of our common currency and our sovereignty. “We’ll see if it’s the council (of ministers) or some other European institution (that exercises these powers). What matters is that we ensure that budget discipline is respected within the euro zone. Otherwise the euro itself is threatened.” He acknowledged that France and Germany were still at odds over greater ECB intervention to rescue the euro but said: “We will have to find a compromise.” On financial markets, the euro regained ground after slipping below $1.33 in Asia. Italian, Spanish, French and Belgian bond yields fell, as did the cost of insuring those countries’ debt against default. But relief may be short-lived as the rally was partly due to an Italian newspaper report that the International Monetary Fund was in talks to lend Italy up to 600 billion euros — more than its entire available war chest — which the IMF denied. “There are no discussions with the Italian authorities on a program for IMF financing,” a spokesperson for the global lender said. The European Commission also said Italy had not asked for any amount of money and there were no discussions at European level on aid for Rome. IMF inspectors are due in Rome this week to study Italy’s public finances after former Prime Minister Silvio Berlusconi agreed earlier this month to submit to regular monitoring of his promised austerity measures and economic reforms. IMF TO THE RESCUE? EU officials say some sort of IMF program could make sense for both Italy and Spain as part of a multi-pronged response involving the ECB and the euro zone rescue fund to implement reforms and restore market confidence in their debt. A senior EU source confirmed that both Berlusconi and the European authorities had rejected an IMF offer of a 50 billion euro precautionary credit line for Italy in talks on the sidelines of the Cannes G20 summit on Nov 3. The source said the sum would have been insufficient to convince markets. Reuters reported exclusively last week that Spain’s People’s party, due to form a new government by mid-December, is considering applying for IMF aid as one option for shoring up public finances. [ID:nL5E7MP2R0] In its world economic outlook, the Organization for Economic Cooperation and Development forecast growth in the euro area will slow — under a baseline scenario of “muddling through” — to 0.2 percent in 2012 from an estimated 1.6 percent in 2011. The bloc’s economy will then expand by 1.4 percent in 2013. With unemployment set to rise and inflation to fall, the OECD said the choice for the ECB was clear. “This calls for … a substantial relaxation of monetary conditions,” the OECD said. Banks would need to be well capitalized and policies put in place for sovereigns to finance themselves at reasonable rates. “This calls for rapid, credible and substantial increases in the capacity of the EFSF together with, or including, greater use of the ECB balance sheet,” the OECD said. OECD chief economist Pier Carlo Padoan said current plans to leverage the euro zone bailout fund were insufficient. “The numbers we have seen floating around are not enough,” Padoan told a news conference, adding that what was needed was a multiple of what was currently on the table. Euro zone leaders initially planned to leverage the EFSF up to 1 trillion euros, but the fund’s head has said it is now unlikely to achieve that. The fund has had trouble selling its own bonds to raise funds and has yet to attract the pledges it hoped to get from countries with sovereign wealth to invest. (Additional reporting by Leigh Thomas in Paris and Emelia Sithole-Matarise in London; writing by Paul Taylor; editing by Philippa Fletcher) Copyright 2011 Thomson Reuters. Click for Restrictions .

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The Economic Battlefield Of The NBA Lockout

November 21, 2011

By David Berri of Freakonomics With the NBA away, sports fans are looking for something to satisfy their need to watch teams strive for victory. Well, why not take a look at the teams competing in the lockout? Okay, maybe this is a contest only a sports economist could love. But while it may not appeal to everyone, the labor dispute is still best thought of as a contest between two teams. The first team is the NBA owners. The owners are the dominant buyer in the world market for elite basketball talent, so they have substantial monopsony power. In the other corner are the players, who are currently trying to disband their union. This union gave the players monopoly power in the sale of elite basketball talent (more specifically, in helping to determine the conditions under which individual players would sell their services). When a monopsony meets a monopoly on the economic battlefield, the outcome is determined by bargaining. And in that case, bargaining power â or what we call leverage â means everything. Read the entire post at Freakonomics. Or more here: – Paying People to Quit: What Law Schools Can Learn From Zappos – One More Time: Most Notable Quote of 2011 – Turkey Sex: The Way Itâs Done Now

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Diane Francis: Europe Boots Out its Political Morons

November 21, 2011

The party that calls itself Europe is over. The sovereign debt crisis afflicting its weakest members has ended the eurozone’s political Ponzi scheme — the proclivity to hand out entitlements today and run up a tab due tomorrow. The continent’s La Dolce Vita lifestyle will disappear along with subsidies; cushy civil servant jobs; six-week holidays; 30-hour work weeks, Freedom 50 retirements and its people’s belief that the world owes them a living. This is the Great Markdown in Europe. A more gradual one is underway in North America. Both are due to debts, deficits, demographics and democracy. Europe’s situation is compounded by its badly devised, decentralized and balkanized fiscal regime — one currency for 17 out of 27 countries and a central bank in each nation state. This is like herding cats and unsustainable as last week’s political upheavals revealed. Two democratically-elected leaders in Greece and Italy were unceremoniously pushed aside and replaced by technocrats and the IMF. Greece’s prime minister was replaced by a de facto “bankruptcy trustee” whose job is to take orders from the IMF, in the hopes of turning around the bankrupt country. Then Italy’s playboy prime minister was replaced by a “soft receiver,” Mario Monti. He’s a tough-minded academic, with huge political and moral leverage across the European Union, who will make Margaret Thatcher look like Mother Teresa. By the way, Italy is not a basket case like Greece, Ireland or Portugal. But its bonds are under siege, which could prove ruinous for the region, and this is not due to fundamentals but to trading games that can be halted as described below. Here are some facts about Italy: Total government assets in Italy are slightly less than the total of its public debts. Italy could raise an estimated 45 billion euro by selling its stake in oil giant ENI, utility ENEL, Poste Italiane or aerospace conglomerate Finmeccanica alone and Monti loves privatizations. Offsetting Italy’s high public debt, of 120 per cent of GDP, is its low household debt of 42 per cent. By comparison, the U.S. and Canada have public debts of 90 per cent and 80 per cent respectively, but their household debts are among the highest in the world or above 160 per cent of GDP. By the way, the relatively seamless transition from elected to technocrats is a healthy and necessary way to circumvent short-term democracies which have failed to cope with this crisis. This is no different than a private sector “workout” where the CEO is removed from a failing corporation and is replaced by the bankers’ representatives. Those reforms are now in place and new leaders in Portugal, Ireland and Spain (in this weekend’s election) are kowtowing to the dictates of bondholders and bankers. But financial reform is necessary in order to arrest and cool off the world’s hot money. These are hedge funds and others who have caused the sovereign debt contagion and profited from it by making self-fulfilling short-selling bets. A fascinating set of remedies has been suggested this week by Leonard Waverman, dean of the Haskayne School of Business at the University of Calgary and former professor at London University. He rightly suggests that the Euro crisis is similar to the Asian contagion in 1997 when speculators picked off one currency after another. The difference is that, in this case, there is one currency, the euro, but the similarity is that there are the bonds of 17 eurozone members to pick off. This permits a “classic run” because the bonds are substitutes for currencies that can be pummelled down in value for a profit. “These one-way bets are yielding large profits to some at the expense of hundreds of millions of people,” said Waverman. It is time to put “sand in the wheels” of the “herd” through “capital controls.” These include eurozone members mopping up embattled bonds and paying higher than market prices to destroy short-seller profit-taking; raising margin requirements to 50 per cent or more and imposing a Tobin Tax on trades. It’s interesting that in an imperfect currency union, the bonds of each country behave like separate currencies to market players. Waverman also notes that Malaysia was able to avert a currency run in 1997 by deploying such controls. The European situation is considerably more serious than next week’s “drama.” The U.S. Congressional “super committee” is supposed to come up with $1.5 trillion in cuts and tax hikes by the end of the week, but they are also politically challenged. Investors are assuming nothing will be accomplished. This means that the only big news will be if these American politicians actually agree to make cuts before the football games start on Thanksgiving Day. But don’t count on it. The Europeans stand a better chance of fixing their problems before the 2012 U.S. federal election because they have learned how to unseat the incompetents in between elections. — Financial Post

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IMF Playing Larger Role In Addressing Europe Debt Crisis

November 20, 2011

WASHINGTON (Lesley Wroughton) – The International Monetary Fund is inserting itself more forcefully into Europe’s efforts to resolve its debt crisis, hoping to stem a contagion that is spreading worldwide and threatening global growth. Uncertainty is turning into frustration and near-panic among policymakers outside Europe as larger European economies such as Italy, Spain and France come under attack by financial markets and bank funding stresses worsen. Until now, Europe has tried to navigate its way out of the two-year crisis on its own and the IMF has worked as a partner in a rescue “Troika” alongside the European Commission and European Central Bank in bailing out debt-stricken Greece. But patience, both among officials outside of Europe and in markets, is running thin with what many view as Europe’s painfully slow decision-making process. Three steps taken this week could strengthen the IMF’s role in handling the crisis. The IMF said on Thursday it would not be joined by EU or ECB officials when it conducts an in-depth review in late November of Italy’s economy and the fiscal and structural reforms needed to fend off the crisis there, a fresh step in the global lender’s approach. By going it alone, the IMF would assert its leadership role and potentially instill greater market confidence. This followed a surprise move on Wednesday when the IMF ousted Antonio Borges, its European director. It replaced him with an influential insider, Reza Moghadam, who has worked behind the scenes to reshape the IMF’s lending tools and strengthen the way it monitors economies. Borges cited personal reasons for his decision to step down immediately. Last month, he misstepped in suggesting publicly that the IMF could buy Spanish or Italian bonds alongside the euro zone’s bailout fund. He had to issue a hasty retraction to say the IMF could only lend to member countries and could not intervene in bond markets. European officials also said on Thursday there have been discussions about the European Central Bank possibly lending to the IMF, which would give the global lender enough money to bail out bigger euro zone countries. Emerging market countries such as China, Russia and Brazil have indicated privately to IMF Managing Director Christine Lagarde they stand ready to help Europe, as well as other countries, but only if their funding is done through the IMF. “There is great concern about Europe,” IMF Spokesman David Hawley told a news briefing on Thursday that was dominated by questions on Italy and Greece. “Emerging market countries have expressed readiness to augment the resources of the Fund,” Hawley said. “At this stage we don’t have precise money”. The Federal Reserve, likewise, is extremely worried about Europe and does not see how the U.S. banking system can escape unscathed. U.S. Treasury Secretary Timothy Geithner has warned that inadequate European crisis management raises the risk of “cascading default, bank runs and catastrophic risk that must be taken off the table.” European leaders had hoped they would stem the contagion by setting up a bailout fund, the European Financial Stability Facility. But more than three months later, it has failed to raise the 1 trillion euros it needs, and financial contagion is spreading quickly from the euro zone’s periphery to eastern and central Europe and to other vulnerable emerging countries. If Italy and Spain need rescuing, the 1 trillion euros European leaders are seeking would not be enough. The only lender left with sufficient firepower would be the IMF. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Goldman Sachs Names New Managing Directors, Amid Wall Street Layoffs

November 18, 2011

Goldman Sachs Group Inc (GS.N) promoted 261 employees to managing directors this week, according to an internal memo sent this week, as the bank seeks to retain top talent amid a wave of layoffs across Wall Street. This year’s list represents a 19 percent drop from the 321 employees named managing director in 2010 and the lowest amount since 259 were promoted in 2008. The decline in promotions correlates with layoffs occurring at Goldman and most of its Wall Street competitors during a tough period for trading and investment banking revenue. Goldman’s overall workforce declined by 1,300 employees from June 30 to September 30 as the bank tries to wring out at least $1 billion in cost savings to protect its bottom line. During the quarter, Goldman lost $428 million, only the second quarterly loss in its 12 years as a public company, while revenue declined 60 percent from the year-ago period. Still, the bank is also working to retain talented young professionals, particularly in growth markets such as Asia and Latin America. In a presentation on Tuesday, Chief Executive Lloyd Blankfein said nearly 300,000 people applied to work at Goldman Sachs in 2010 and 2011 and the bank hired less than 4 percent of that pool. “Our commitment to attract talented professionals doesn’t end with recruiting,” said Blankfein. “We commit significant resources to their continued development.” Managing director is a coveted position among more junior Goldman employees and often takes years to achieve. The position is one level below partner managing directors, the most senior position at the firm and a relic from its days as a private Wall Street partnership. Blankfein said the average tenure of a managing director is about 12 years, while partners average 15.5 years at the bank. Goldman declined to comment on the promotion memo, which was sent on Wednesday. (Reporting by Lauren Tara LaCapra in New York; editing by Andre Grenon) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Silvio Berlusconi Resigns

November 12, 2011

ROME — Italy’s presidential palace has confirmed that Premier Silvio Berlusconi has resigned, setting in motion a transition aimed at bringing Italy back from the brink of economic crisis. Cheers broke out in front of the palace by the hundreds of people who gathered to witness Berlusconi’s final act in office, ending a 17-year political era. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. ROME (AP) – An Italian news report says Premier Silvio Berlusconi’s political party will conditionally support a technical government headed by economist Mario Monti. Italy’s president is expected to ask Monti to try to form a new government once Berlusconi’s resignation is confirmed Saturday night. Monti will be tasked with trying to bring Italy back from the brink of a Greek-style economic crisis. The LaPresse news agency quotes a statement issued after Berlusconi chaired a meeting of his People of Liberties Party, saying the party would tell President Giorgio Napolitano that it would back Monti. But it said the party would meet again to ensure that Monti’s Cabinet, legislative agenda and the timeframe of his government meet its requirements.

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Software Maker To Lay Off Hundreds As Part Of Restructuring Plan

November 8, 2011

Adobe Systems Inc plans to lay off 750 positions and take a charge of up to $94 million as part of a restructuring to re-focus the company on digital media and marketing. Shares in the design software maker, which is updating its suite of products to keep pace with new trends and moving to support the increasingly popular HTML5 programing language, fell almost 7 percent in after-hours trade. Adobe said in a statement on Tuesday it expects to record pre-tax charges of $87 million to $94 million for consolidation and severance, of which $73 million to $78 million would be booked in the fiscal quarter ending December 2. Adobe said it was sticking with previous estimates for the fourth quarter for both revenue and earnings excluding items. In September, Adobe projected revenue of $1.075 billion to $1.125 billion, and earnings excluding items of 57 cents to 64 cents a share, on a non-GAAP basis. Shares in Adobe slid to $28.30 in extended trading, from a close of $30.42 on the Nasdaq. (Reporting by Edwin Chan; editing by Carol Bishopric) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Fed: Half Of Top U.S. Banks Made Loans To Europe Banks, Heightening Risk

November 7, 2011

WASHINGTON (Reuters) – Around half of top U.S. banks surveyed by the Federal Reserve reported making loans or extending credit to European banks, which are under massive pressure from an ongoing political crisis. The findings from a quarterly lending poll suggest that the U.S. banking system faces significant risks from Europe, despite relatively small direct exposure to the troubled sovereign bonds of southern European states like Greece. “About one-half of domestic banks respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries, and about two-thirds of the foreign respondents indicated the same,” the U.S. central bank said in its Senior Loan Officer Survey, published on Monday. Of the domestic banks, about two-thirds reported having tightened standards on loans to European financial institutions in the third quarter, many considerably. Euro zone governments rushed to placate feverish bond markets on Monday as the currency bloc’s debt crisis threatened to accelerate out of control, with Italy overtaking Greece as the prime threat to stability. Italian government bond yields rose to their highest since 1997 — approaching levels regarded as unsustainable — as political turmoil in Rome threatened to drag the euro zone’s third largest economy deeper into regional debt crisis. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Greece Threatened With Eurozone Expulsion

November 3, 2011

CANNES, France — European leaders drew a line in the sand for Greece on Wednesday, saying its referendum on a hard-won bailout deal will decide whether it stays in the eurozone – and vowing Athens will not get new aid until the result is in. The acknowledgment that the vote – which will likely take place on Dec. 4 – could see Greece leaving the currency union is the first official admission that such an exit is possible and follows almost two years of pledges to the contrary. The move to tie the vote to the fate of the euro is a huge gamble that could endanger the future of the currency union, the centerpiece of Europe’s postwar unity, and potentially push the world economy into another recession. “The referendum … in essence is about nothing else but the question, does Greece want to stay in the eurozone, yes or no?” German Chancellor Angela Merkel said at a news conference together with French President Nicolas Sarkozy. The leaders of the two biggest eurozone economies spoke to the press after emergency talks with Greek Prime Minister George Papandreou in Cannes, France. The discussion also included International Monetary Fund head Christine Lagarde and other top EU and eurozone officials. By turning the referendum into a popular vote on whether Greece wants to remain in the eurozone – the currency union that gave it access to the club of Europe’s richest countries but also allowed it to pile up a massive debt mountain – leaders are taking a risky bet. The exit of the eurozone’s weakest member could trigger a dangerous domino effect that could quickly see Ireland and Portugal, the other two countries that have received bailouts, also leave the currency bloc and cause the financial collapse of Italy and Spain, which are barely hanging on. Papandreou said that he was forced to call a referendum after it became clear that there was no “broad support” from opposition parties for a bailout deal reached with the rest of the eurozone and big banks just a week ago. That deal would supply Greece with an extra euro100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF – on top of the euro110 billion it was granted a year ago – and would see banks forgive Athens 50 percent of the money it still owes them. However, in return Greece had to accept another painful round of austerity measures and privatizations – harboring years of more pain for a people already reeling from two years of deep cuts. “I felt that it was important that the Greek people make a decision on these important developments,” Papandreou said. “It is their democratic right and the Greek people, I believe, are mature and wise to make the decision that is to the benefit of the Greek people and the country.” The alternative to the new rescue deal would be a hard default by Greece within days after the referendum, potentially toppling banks across Europe and further undermining an already slowing economic recovery. Europe’s increasingly shaky condition is the center of attention at a summit of the Group of 20 leading world economies in Cannes on Thursday and Friday. The United States, China and other nations are looking to Europe to get its house in order and avoid harming the global recovery. The United States has an important role to play but it is ultimately Europe’s problem to solve, the White House said Wednesday as President Barack Obama headed for Cannes. Merkel and Sarkozy said that a crucial euro8 billion ($11 billion) loan installment to Greece that was due to be paid out by mid-November won’t be transferred until after the vote. Eurozone finance ministers had already signed off on their part of the payment two weeks ago, but leaders said that without the second bailout assured there was no point in carrying on with the first one. “We want to continue with the Greeks but there are rules and it’s unacceptable that these rules are not followed,” Sarkozy told journalists. Papandreou said that Greece would be able to stay afloat until after the referendum – Greek officials had previously said that Athens would run out of money by mid-November – but acknowledged that the schedule was tight. “If everything goes well – which we hope everything will go well in the referendum – it’s quite a few days before the 6th tranche is needed to pay up salaries and pensions and so on,” he said on his way out of the meeting. While eurozone leaders tried to display a concerted front, with Merkel and Sarkozy briefing the press in their now habitual tandem, the referendum is uncovering growing cracks in the eurozone’s unity. “This did not happen in a coordinated fashion,” she said of Papandreou’s sudden decision to call a vote on the bailout deal. Merkel said that because of the referendum, the rest of the currency union now had to build up its defenses more quickly. To make progress in that direction the finance ministers of France and Germany will meet with the EU’s Monetary Affairs Commissioner Olli Rehn Thursday to work on a plan to boost the firepower of the region’s bailout fund to euro1 trillion ($1.4 trillion). That was one of the commitments of last week’s eurozone summit, but investors remained unconvinced by the promise of a larger rescue fund as many questions on how it will work were left unanswered. In Rome on Wednesday, Italy’s Cabinet proposed legislation to sell off government-owned real estate, encourage investment in infrastructure and privatize local public companies in a bid to avoid becoming the next victim of Europe’s debt crisis. While Merkel and Sarkozy both stressed the democratic right of the Greek people to decide its own destiny, Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the Eurogroup, was more direct. “Greece had 8 billion – Greece has lost 8 billion after having made a decision to put all these questions to a referendum,” he told journalists. “That’s a pity.” ___ Angela Charlton and Jamey Keaten contributed to this report.

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Selling More Insurance On Europe Debt Raises Risks For U.S. Banks

November 2, 2011

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

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After Big Drop, Stock Market Wraps Up Best Month In Nearly A Decade

October 31, 2011

NEW YORK — October is somewhat cursed for the stock market – the Crash of 1929, Black Monday in 1987, a slow-motion meltdown in 2008. This time, the demons made a last gasp, but Wall Street still managed to break the jinx. Stocks had their best month in almost a decade, rising from their low point of the year in an almost uninterrupted four-week rally. The juice mostly came from Europe, which appeared to finally find a strategy for taming its debt crisis. But the finish sure was ugly. The Dow Jones industrial average fell 276 points and finished below 12,000 on the final day of the month. It was as rough an end as it was a beginning: On the first trading day of the month, Oct. 3, the Dow lost 258. Bank stocks were hit hard Monday. MF Global, a securities firm headed by former New Jersey Gov. Jon Corzine, filed for bankruptcy protection. Rating agencies downgraded the company last week, worried that it holds too much European debt. Still, even counting the Halloween scare, October 2011 will be remembered on Wall Street for a comeback that only the St. Louis Cardinals, baseball’s nearly eliminated, newly crowned champions, could match. For the month, the Dow rose more than 1,000 points. It gained 9.5 percent, its best showing since October 2002. The Standard & Poor’s 500 index, the broadest major market average, rose 10.8 percent for the month, the best since December 1991. On Oct. 3, both the Dow and the S&P closed at their lows of the year. The market had been through a brutal summer and was one bad day away from falling into bear market territory, down 20 percent from its most recent peak. Investors were worried that the United States, with an economy growing at the slowest pace since the end of the Great Recession, was on the brink of falling back into recession. And if the U.S. didn’t tip into a new recession by itself, the market was worried that Europe would give it a push. Greece and other European nations face crushing debt, and European banks that loaned them money face big losses. A recession in Europe would be bad news for the United States because Europe buys about 20 percent of American exports. Someone opening a quarterly account statement at about that time might have tossed it in the garbage and been afraid to look again. But that day was to be the turning point. Reports that European leaders were working on a debt plan began trickling out. Investors gained confidence after the leaders of France and Germany pledged to come up with a far-reaching resolution by the end of the month. Added to the encouraging news out of Europe: stronger corporate earnings from the likes of Google and McDonald’s and signs that the U.S. economy was not as bad as feared. Retail sales rose 1.1 percent in September, the biggest gain in seven months. When European leaders finally unveiled the deal Thursday, stocks roared higher. The S&P 500 jumped 3.7 percent and was up for the year for the first time since Aug. 3, just before the U.S. government’s debt lost its AAA credit rating. “It’s a rally off what was a very pessimistic view of the global economy,” says Todd Henry, an emerging-market equity specialist at T. Rowe Price. “Does it have legs? I think that’s yet to be seen.” Under the debt agreement, banks will take a 50 percent loss on their Greek government bonds. Europe will also add money to a financial rescue fund to protect other countries. And banks will increase their capital reserves to protect themselves. With the October books closed, the Dow was at 11,955.01, up about 83 percent from March 2009, its lowest point after the financial meltdown. It would have to rise more than 2,200 points from here to set an all-time high. The S&P 500 finished the month at 1,253.50, down 32 points on Monday, or 2.5 percent. The Nasdaq composite index fell 53 points for the day, or 1.9 percent, and ended October at 2,684. Besides the Depression-heralding collapse in 1929, the crash in 1987 and the meltdown 2008, the stock market suffered through a mini-crash on Friday the 13th in October 1989 and a 554-point drop in the Dow on Oct. 27, 1997. But the month “turned the tide” in 11 bear markets after World War II, according to the Stock Trader’s Almanac. And it turned out to be the best single month for the market from 1993 to 2007, according to the almanac. Strong as it was, this October wasn’t close to ranking as one of the best. After the 1929 crash, the market routinely ran up much bigger percentage gains. In July and August 1932, for example, the market gained more than 36 percent each month. Worries about a second recession have receded somewhat. The government announced last week that the economy in July, August and September grew at an annual rate of 2.5 percent, more than twice the speed of earlier this year. The European debt crisis is still far from fixed. One troubling sign is that borrowing costs for Italy and Spain have increased, a signal that traders remain worried about those countries’ ability to pay their debts. And there are problems closer to home. A congressional “supercommittee” has to find $1.2 trillion in deficit cuts in less than a month, and Republicans and Democrats are fighting about whether to focus on higher taxes or cuts in federal spending. If they can’t agree, investors are worried that Moody’s, the prominent credit rating agency, will follow S&P and strip the United States of its top rating, or that S&P will lower its rating even further.

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Country Want U.S. Help In Solving Europe’s ‘Systemic’ Crisis

October 29, 2011

ASUNCION | Sat Oct 29, 2011 10:31am EDT (Reuters) – Portugal asked Mexico on Saturday to tell fellow G20 members next week that the United States should offer “financial help” to resolve the euro zone sovereign debt crisis, describing it as a “systemic and global” problem, a Portuguese government source said. Portuguese Prime Minister Pedro Passos Coelho asked Mexican President Felipe Calderon to convey the message during the G20 meeting in Cannes next week, the source told reporters after the two leaders met at the Ibero-American summit in Paraguay. “The crisis isn’t in the euro zone. It is a systemic and global crisis and we hope that other big G20 countries intervene,” the source told reporters in the capital Asuncion, speaking on condition of anonymity. The source added that Washington should help resolve the crisis “by boosting trade and also with financial help.” No one from Calderon’s delegation in Asuncion could immediately be reached for comment. Financial markets rallied strongly this week after European leaders hammered out a deal to recapitalize their banks, boost the firepower of a euro zone rescue fund, and impose hefty losses on holders of Greek debt. However, economic analysts quickly warned that details of the rescue could still take weeks or even months to work out. Portugal is suffering a deepening recession as it implements painful austerity measures under a 78-billion-euro ($110.3-billion) EU/IMF bailout. (Reporting by Guido Nejamkis; Writing by Helen Popper; Editing by Paul Simao) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Euro zone crisis set to dominate G20 Paris meeting

October 14, 2011

By Catherine Bremer and Daniel Flynn PARIS (Reuters) – G20 finance chiefs and central bank heads from the world’s biggest economies meet in Paris on Friday needing to find a solution to a deepening euro zone debt crisis that has fanned fears of a global recession. Underlining the challenge for European policymakers, Standard and Poor’s cut Spain’s long-term credit rating, citing the country’s high unemployment, tightening credit and high private sector debt. “This meeting takes place in a context where the absolute priority for the success of the G20 is to find the elements for the stability of the euro zone,” a source at the French finance ministry said. French and German officials are battling to flesh out the bones of a crisis resolution plan in time for a European Union summit on October 23. Fears about the damage a default by Greece — and possibly others — could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 percent from their 2011 high in May. With impatience growing over the crisis, and its implications for the rest of the world, finance chiefs from outside the bloc are expected to speak frankly. “This meeting is an important staging point before (a G20 summit in) Cannes and a valuable opportunity to put pressure on the euro zone,” said a non-euro zone G20 delegate. Canadian Finance Minister Jim Flaherty set the tone late on Thursday, telling reporters before leaving Ottawa that euro zone actions were short of what is needed. Japan would urge its European partners to support the continent’s banks, Finance Minister Jun Azumi said. RISK OF DIVISION Unlike in 2009 when the G20 launched a coordinated stimulus to pull the world out of crisis, the forum is at risk of division as the rest of the world chafes at Europe’s dithering over a debt crisis that started two years ago in Greece, and as Washington and Beijing spar over the yuan currency. Paris and Berlin are taking time to agree on how to recapitalize banks and while Germany favors a second round of losses for Greek bondholders, Paris is reluctant. The two euro heavyweights also differ on the idea of joint bond issuance for the euro zone, with Germany loath to see its debt costs rise. The Franco-German crisis plan is likely to ask banks to accept big losses on their Greek debt and should lay out a system for recapitalizing troubled banks, whose shares have been pounded by fears about Greek exposure. At its core will be an agreement on how to increase the firepower of the EFSF rescue fund, and it should also set out a timeframe for ramping up economic coordination, with closer governance and explicit national laws on balancing budgets. A key concern has been that, whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Spain, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain. The latter two countries, the bloc’s third and fourth biggest economies respectively, have seen their bond yields pushed up by markets worried at high public and private debt levels and weak growth. In Spain, some banks are seen as vulnerable after the bursting of a property bubble, and the country is still struggling with labor market reforms. “Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said. The agency’s downgrade of the nation’s long-term rating to AA- from AA mirrored a similar move last week by rival Fitch. The G20 may refer to the euro crisis in its communique and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in. CHINA MAY OFFER GROWTH, NO YUAN SHIFT This week’s talks may give the green light to regulators for new rules on banks deemed ‘too big to fail’, including capital surcharges, due to be officially approved in Cannes. Yet any concrete progress on bigger goals such as setting parameters to measure global imbalances and reining in commodity market volatility and speculative capital flows is unlikely to come before a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico. The finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses. “We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country which corresponds to what is needed to relaunch global economic activity,” he said. “These must be measures which will have an impact on the real economy.” A separate G20 source said after preparatory talks late on Thursday that China would commit in Paris to boost its consumption through a five-year plan, via households and companies as well as infrastructure, as the G20 seeks tough fiscal commitments from the euro zone and the United States. The G20 countries make up 85 percent of global output. An April G20 meeting placed seven large economies under review — the debt-burdened United States, export-rich China, France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China’s cooperation is essential to the success of the process. France has dangled the prospect of the yuan entering the basket of currencies making up the IMF’s Special Drawing Right (SDR) in a bid to divert the debate away from its value and onto the criteria of free “usability” required for this. But the euro zone crisis has derailed French President Nicolas Sarkozy’s hopes of using his G20 presidency to launch a fundamental rethink of the global financial system and its reliance on the U.S. dollar. China and the United States sparred this week over a U.S. Senate bill to press Beijing to raise the yuan’s value, and the issue is likely to create a sideshow at the G20 talks, even if the euro zone crisis pushes it off center stage. (Additional reporting by Randall Palmer, David Milliken, Francesca Landini, Kevin Yao and Abhijit Neogy; Editing by Louise Ireland and Alex Richardson)

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IMF warns U.S., Europe could slip into recession

September 20, 2011

By Lesley Wroughton WASHINGTON (Reuters) – Europe and the United States could slip back into recession next year unless they quickly tackle economic problems that could infect the rest of the world, the International Monetary Fund said on Tuesday. The IMF said financial volatility had increased dramatically as investors worried about an escalating debt crisis in the euro zone and a weakening U.S. recovery. Those two regions present the biggest risks to the global economic outlook, it said, warning that political gridlock could block remedial action. The fund also called for a more ambitious plan to lower Japan’s public debt. “Policy indecision has exacerbated uncertainty and added to financial strains, feeding back into the real economy,” the IMF said in its latest World Economic Outlook report. The IMF cut its forecast for global growth to 4.0 percent for this year and next, shaving projections for almost every region of the world and saying risks remained tilted to the downside. Just three months ago it had projected an expansion of 4.3 percent for 2011 and 4.5 percent for 2012. The IMF’s message to European leaders was they should do whatever it takes to preserve confidence in national policies and the euro, and it urged the European Central Bank to lower interest rates if risks to growth persisted. Investors have questioned Europe’s ability to come up with a convincing solution to its festering sovereign debt crisis, which has rattled confidence and roiled financial markets. On Monday, international lenders told Greece to shrink its public sector and improve tax collection to avoid running out of money within weeks, and Standard and Poor’s downgraded its unsolicited ratings on Italy by one notch and kept its outlook on negative — a move that surprised markets. The fund cut its growth forecast for the 17-nation euro zone by nearly half a percentage point to 1.6 percent in 2011 and even weaker conditions are seen for next year with growth of just 1.1 percent. Currently the single currency region is scarcely growing at a 0.25 percent annual rate. The IMF cautioned that hasty budget cuts in the United States could further weaken growth, and it said the U.S. Federal Reserve should stand ready to ease monetary policy further. The Fed meets on Tuesday and Wednesday. The IMF shaved its forecasts for U.S. growth to 1.5 percent for 2011 and 1.8 percent for 2012, down from June projection of 2.5 percent and 2.7 percent, respectively. WEAK AND BUMPY RECOVERY Japan’s economy was forecast to shrink 0.5 percent this year, not quite as severely as previously thought, but to grow just 2.3 percent in 2012. In June, the IMF said Japan would likely grow 2.9 percent next year. Taken together, advanced economies, including the United States, euro zone and Japan, were forecast to expand 1.6 percent this year and 1.9 percent next year. That marks sharp downward revisions from June’s 2.2 percent and 2.6 percent projections. The outlook, it said, was for a “weak and bumpy expansion” The IMF also said prospects for emerging market economies were growing more uncertain, although growth would likely remain fairly strong at about 6.4 percent this year, slowing to 6.1 percent in 2012. Signs of overheating still warranted close attention in emerging market economies, it cautioned. In some countries, higher commodity prices and social and political unrest loomed large, it added. The fund trimmed its forecasts for China and other emerging Asian economies, in part due to slowing global growth. Asian “growth remains strong, although it is moderating with emerging capacity constraints and weaker external demand,” the IMF said. It said it expects China’s economy to grow 9.5 percent in 2011 and 9.0 percent in 2012. That’s down from its June forecasts of 9.6 percent this year and 9.5 percent in 2012. The IMF said headline and core inflation had been on the rise in many parts of the world until recently. An IMF inflation tracker showed inflation pressures were still relatively elevated in emerging and developing economies. But in major advanced economies, inflation had been losing momentum. (Editing by Neil Stempleman)

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Mohamed A. El-Erian: Market Preview: What to Look for This Week

September 19, 2011

Global markets again find themselves in the uncomfortable back seat of a car driven erratically by policymakers. The hope is that policy responses in both America and Europe will enable them to build on last week’s solid gains and, thereby, improve the outlook for jobs and economic growth. This can happen if most/all of what follows materializes: First, President Obama puts forward on Monday a credible package of fiscal reforms that captures the imagination and confidence of a majority of Americans. Failure would seriously undermine his important September 8th jobs plan and, critically, reduce the likelihood of striking that delicate economic/political balance between immediate job creation and a credible path to medium-term fiscal sustainability. Second, the Fed delivers on widespread expectations that it is able to materially influence economic outcomes for the better. It is not enough for the FOMC to display on Wednesday a relatively united front that underpins a willingness and an ability to do more. It must also show that it possesses effective instruments in what is a rapidly diminishing policy arsenal. Third, and turning to Europe where the ECB has also embarked on a risky path of intense policy experimentation, the central bank continues to offset the persistent shedding of private holdings of Italian and Spanish bonds. ECB purchases must be decisive enough to maintain stable bond yields notwithstanding yet another political scandal in Italy over the weekend, the growing probability of a downgrade in Italy’s sovereign credit rating, and an inconclusive EU meeting. Fourth, the Greek government counters the threat of an October debt default. To do so, it must deliver quickly on three commitments made to the “troika” (ECB, EU and IMF) that is withholding the next bailout tranche: yet another round of fiscal austerity, a realistic privatization program, and sufficient burden sharing by private creditors (or what is known as PSI, private sector involvement) — and all this while maintaining a semblance of peace on the streets of Athens and other Greek cities. (No wonder the country’s Prime Minister cancelled his trip to Washington DC.) Finally, and speaking of Washington, there will be lots of news to follow as policymakers from almost 190 countries gather for the annual meetings of the IMF and World Bank. By Friday, markets will be looking for signals that the key 10-15 players are converging to a common analysis of the risks facing the global economy, appreciate the shared responsibility for addressing them, and are ready and able to pursue coordinated policy responses. This list speaks to how (and why) top-down issues are still important drivers of markets — and will continue to be so. It is not a comfortable place for markets given the recent history of recurrent policy shortfalls and debacles. Yet it is also reality for now. Let us hope that American and European policymakers will finally rise to the occasion. There is a lot more at stake than the health of markets — most importantly, the welfare of millions of un- and under-employed people languishing in a global economy that is slowing rapidly and facing the threat of yet another banking crisis (whose epicenter this time around is on the other side of the Atlantic). If policymakers deliver, they would help unleash the hiring and investing power of a corporate sector that still benefits from cash-laden balance sheets, favorable debt profiles, and healthy income statements. If they fail and, in the process, resume their dithering and bickering, it is just a matter of time until America’s unemployment crisis worsens further, Europe tips into severe recession and greater financial instability and, as a result, millions more suffer around the world. Mohamed El-Erian is chief executive officer and co-chief investment officer of Pacific Investment Management Co. This post originally appeared at CNBC.com .

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Bernanke, Europe hold key to aiding rally

September 17, 2011

By Chuck Mikolajczak NEW YORK (Reuters) – Wall Street hopes for more Fed action and clear signs European leaders will follow through on their new urgency to tackle the euro zone debt crisis if U.S. stocks are to build on their best week since early July. Investors expect the Federal Reserve to take steps to pull down long-term interest rates when policymakers meet on Tuesday and Wednesday to help revive the persistently weak U.S. economy. Fed Chairman Ben Bernanke, speaking in Jackson Hole, Wyoming, on August 26, said the Fed’s Open Market Committee would meet for two days in September instead of the scheduled one day to discuss ways to boost the recovery. But even with expectations of more intervention to boost the economy, investors will keep a close eye on developments in Europe. Any lack of progress or backsliding on efforts to get the currency bloc’s fiscal house in order will renew worries the crisis could seriously damage the world financial system and major economies. “The Fed is really going to dominate next week,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “But the market has been trying to work its way higher here, trying to feel if maybe the European thing won’t cascade out of control.” Treasury Secretary Timothy Geithner, at a meeting of euro zone finance ministers in Poland on Friday, urged them to leverage their bailout fund to better tackle the debt crisis, but there was no agreement on what steps to take. While the Standard & Poor’s 500 has been moving upward over the past week, the benchmark index has been stuck in roughly a 100-point range over the last six weeks. It is likely to run into resistance near the 50-day moving average of about 1,228, with analysts also pointing to the 1,250 level as the next significant hurdle. “This is really a consolidation phase, which is normal after the kind of early August swoon that we had. So far this trading range is developing in a very positive and healthy way,” said Gail Dudack, chief investment strategist at Dudack Research Group in New York. “Longer term, the market is looking better but we are getting very close to that resistance at 1,250 which would be pretty surprising if we can break above that at this early juncture. It could take a little more time, people shouldn’t be disappointed.” The week’s economic calendar includes reports on the beleaguered housing market along with weekly initial jobless benefits claims. Housing “is dead and it will stay dead, and I don’t expect anything out of unemployment either,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “The biggest event is Bernanke.” Companies due to post earnings next week include homebuilder Lennar Corp , Nike Inc , General Mills Inc as well as technology companies Adobe Systems , Red Hat Inc and Oracle Corp . FedEx Corp , the No. 2 U.S. package delivery company, which is seen as a proxy for how the economy is performing, is also scheduled to report quarterly results. Though earnings have managed to hold up in the face of a lackluster recovery, analysts worry this might not last if the financial system suffered the shock of a Greek debt default. But while many feel Bernanke has telegraphed the plans for the Fed meeting, the euro zone debt crisis remains an uncertainty that could knock the market lower. “It’s absolutely the wild card because Europe’s problems may be similar to what we saw in 2008, but they are much more difficult to deal with because country debt is far more difficult to deal with than mortgage debt,” Dudack said. She added that having so many countries that are part of a committee trying to solve the problem only added to the complications. (Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

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The Economics of Oktoberfest

September 16, 2011

By Brian Blackstone of the Wall Street Journal Germany has been in open revolt over the European Central Bankâs policy of buying the government debt of struggling euro-zone economies such as Spain and Italy, arguing that it is destabilizing and potentially inflationary. Now we may know why: Oktoberfest is getting awfully pricey. According to UniCreditâs Munich-based economist Alexander Koch, Oktoberfest inflation â measured by the cost of transportation, two Mass (or liter) of beer and half a grilled chicken â is set to rise 3.3% this year from a year ago. (Read the report here.) Thatâs well above the ECBâs 2% target for euro-zone inflation. The 178th annual Oktoberfest begins in Munich on Saturday at noon with the Munich mayorâs declaration: âOâzapft is,â meaning âit is tapped.â Beer prices have already been set at an average of nine euros per liter, an increase from last year, Koch writes in his research note: âOktoberfest 2011: A Somewhat Different Safe Haven.â It is unclear how much effect the escalating debt crisis in southern Europe and Ireland will have on Oktoberfest this year. Of the three countries in EU-IMF bailouts, only Ireland ranks in the top 10 of foreign visitors to Munich for the festivities, and it only accounts for 2%. But Italy, where austerity measures have been enacted to bring down a large debt load, ranks first. The U.S., which has its own economic woes, is second. Read the entire post here. More from the Wall Street Journal : ‘SpongeBob’ Hurts Gratification-Delay Skills Video: Does America Really Need More Jobs? Housing Crisis Hits Billionaire’s Beach

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Geithner To Float Leveraging Euro Rescue Along Lines Of U.S. Program

September 15, 2011

WROCLAW, Poland (Reuters) – Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said. “Geithner will probably insist on the importance of leverage to have more funds to ringfence the big Europeans, Italy and Spain, and to find a solution for Greece,” one EU official said. “The leveraging of the EFSF — I think this is something that he will put on the table,” the official said. “There could be some openness to the proposal.” TALF — the Term Asset-Backed Securities Loan Facility — was set up by the U.S. Federal Reserve and the U.S. Treasury during the global financial crisis in 2008 to jumpstart the frozen Asset Backed Securities (ABS) market. Under TALF, the New York Fed would lend out up to $200 billion, taking ABS as collateral with a haircut and the Treasury offered $20 billion credit protection for the Fed. In this way, a little bit of public money leveraged a much larger central bank contribution and the same idea could work for the European Financial Stability Facility, which has 440 billion euros at its disposal, to offer credit protection to, for example, the ECB to buy euro zone sovereign bonds. “One of the difficulties is that leverage may be seen as a potential liability,” a second EU official said. “But it deserves to be looked at in detail.” A third euro zone official said that Canada has made the same suggestion for Europe. “It could help those countries where the sovereign bond market is still curable,” the third official said. Such a solution would help ease market concerns that the EFSF does not have enough money to bail out Greece, Ireland Portugal and also help Spain and Italy. “Of course you would have to see if on the basis of the EFSF mandate you can do something similar,” the first official said, adding the solution had not been free of hurdles in the United States either and in Europe they could be even bigger. “From an economic point of view it is a reasonable idea,” the first official said, noting however that the ECB would have to play along with such a scheme. “The issues are more on the institutional and legal side and of course political — you have to find a way for the ECB not to, de facto, finance fiscal policy, but on the other hand you need to have resources that the ECB has and the EFSF has not.” Leveraging the EFSF, however, would not take place before the fund’s new powers of intervention on bond markets, extending precautionary credit lines or lending for bank recapitalization were ratified by the end of September, the official said. “Once the EFSF becomes more flexible, you can see if there are ways similar or different to try to leverage more the EFSF or find other ways to have a critical mass to ringfence Italy Spain and the others,” the official said. “You can also think about leveraging on other actors, not necessarily just the ECB,” the official said. (Additional reporting by Tim Ahmann in Washington) (Reporting by Jan Strupczewski, editing by Patrick Graham) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Euro Officials Warning ‘Systemic’ Crisis Risks New Credit Crunch

September 14, 2011

(John O’Donnell) – The EU’s top finance officials are urging ministers to reinforce banks’ capital while warning that a “systemic” crisis in sovereign debt is hurting banks and risks a new credit crunch, according to EU documents. In a series of bluntly worded reports prepared by officials for a meeting of finance ministers this week, they highlight a “risk of a vicious circle between sovereign debt, bank funding and negative growth” spurring a fresh freeze in lending. “While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic,” officials write in the documents obtained by Reuters. The reports, which raise concerns in unusually emphatic language and make pointed criticism of some countries for failing to help weak banks, highlight a sense of alarm in European capitals about the financial crisis. They also show a growing sense of exacerbation at the failure of Spain, Germany and others to deal with flagging banks even after their weaknesses were exposed by recent stress tests. In the documents, the influential Economic and Financial Committee, which prepares the agenda for discussion among ministers, urges action to bolster the balance sheets of weak banks, especially those with loans in stressed countries. They level harsh criticism at countries including Spain for not doing enough to reinforce its banks following dismal results in stress tests. At stake, they write, is the threat of another credit crunch. One of the reports, dated Sept. 13, cautions that the “spill-over effects” could feed “a dangerous negative loop between the financial and the real sectors (of the economy), whereby funding problems and … risk aversion … may lead to … deleveraging by banks, thereby generating a credit crunch, in some Member States”. Outlining a sovereign debt crisis which they say has “entered a new phase”, officials highlight the difficulties experienced by European banks in borrowing. “Despite the considerable strengthening of capital positions … European banks have recently experienced market funding difficulties resulting … from stress on wholesale liquidity markets, high spreads in secondary markets, and, for some EU banks, growing difficulties in accessing funding from U.S. counterparties.” To counter dwindling confidence in the region’s banks, officials recommend to ministers that “a further reinforcement of bank resources is advisable”. “This is important for banks that have failed the stress test, but also for those that have passed the test but with capital levels close to the relevant threshold,” the report said. They criticise some countries for not taking such measures, which would include state-backed capital injections in flagging lenders, after the recent stress tests. “Albeit having five institutions falling below the … threshold in (stress tests) … the Bank of Spain announced that no Spanish bank needs to further increase its capital,” the report said. Copyright 2011 Thomson Reuters. Click for Restrictions .

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Nasdaq CEO says D.Boerse-NYSE deal could be unfair

September 14, 2011

By Jonathan Spicer NEW YORK (Reuters) – Deutsche Boerse AG’s acquisition of NYSE Euronext could be unfair because it would create a “silo” in which a single exchange would dominate all stages of the trading and clearing process, said the head of rival Nasdaq OMX Group. “The only time you can start saying this is not a fair function is when you have a vertical monopoly silo, where you don’t have fungibility between the clearing and trading, and you’re not providing access into the clearinghouse,” Robert Greifeld said on Wednesday at a conference Nasdaq hosted here. “I think the NYSE-Deutsche Boerse deal puts front and center the concept, is a vertical silo good?” he said. Deutsche Boerse agreed to acquire the Big Board parent in February. Worth $9 billion, the deal was the largest in a global wave of planned deals among bourses this year — most of which failed — and it puts pressure on Nasdaq and others. Although the merger is expected to close by year end, the combination of Europe’s main futures venues Eurex and Liffe faces a tough antitrust review at the European Commission because it gives the combined company a virtual stranglehold on exchange-based futures trading and clearing in Europe, known as a “vertical” market. Greifeld dropped a counter offer for NYSE Euronext earlier this year when the U.S. government threatened to block it. His warning on Wednesday steps up opposition from rival exchanges and even some brokers who have lobbied against the deal. European and U.S. cash equities markets are “horizontal” in that securities can trade on any venue — called fungibility — and they are cleared on separate entities such as London-based LCH.Clearnet. “The question is can a horizontal model like LCH or others survive against the onslaught of a very large, vertically integrated silo?” Greifeld said. Deutsche Boerse and NYSE Euronext, which together would be the world’s largest exchange operator, have argued that Liffe and Eurex offer different interest rate futures products and thus do not compete much. The pair also argue that they compete with off-exchange markets. (Reporting by Jonathan Spicer, editing by Gerald E. McCormick and Matthew Lewis)

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Could Europe’s Economic Crisis Sink Us?

September 13, 2011

As Americans fixate on the battle for the Republican presidential nomination and the continuing travails of the U.S. economy, the real story in financial land is what is happening in Europe. The issues arenât new: concerns over the contagion of a default of Greek debt, or Irish or Portuguese or Italian, have been percolating for more than a year and a half. But there is a definite sense of late that these issues are potentially spinning out of control.

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G-7 Vow To Stabilize Financial Markets

September 11, 2011

(MENAFN – Qatar News Agency) Group of Seven finance chiefs vowed to support banks and buoy slowing economic growth as Europe’s debt crisis roiled financial markets and threatened a global recession. …

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Europe On The Verge Of A Political Breakdown?

September 9, 2011

BERKELEY â Europe is again on the precipice. The most recent Greek rescue, put in place barely six weeks ago, is on the brink of collapse. The crisis of confidence has infected the eurozoneâs big countries. The euroâs survival and, indeed, that of the European Union hang in the balance.

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Montag puts his mark on Bank of America

September 9, 2011

By Lauren Tara LaCapra NEW YORK (Reuters) – Tom Montag made an unusually savvy career move when he joined Merrill Lynch in May 2008, shortly before the investment bank came to the brink of failure. Had he stayed at Goldman Sachs Group Inc, where he co-headed its global securities business, his career might have advanced, but it could have only taken so many steps forward given how little turnover the most powerful investment bank has experienced in its upper ranks. By casting his lot with Merrill Lynch, Montag instead ended up heading half of Bank of America — the profitable half. The Charlotte, North Carolina-based bank took over Merrill Lynch in 2009 after a deal forged at the peak of the financial crisis. On Tuesday, Bank of America Chief Executive Brian Moynihan elevated 54-year-old Montag to head the bank’s entire corporate and institutional banking operation, as co-chief operating officer. Some on Wall Street view Montag’s promotion as a prelude to his leading the entire company one day. Montag shares his new title with David Darnell, who oversees retail businesses like wealth management and branch banking. Between the two co-COOs, Montag may have gotten the better deal. He is now in charge of businesses that contributed about 43 percent of the bank’s overall revenue but were far more profitable than the segments Darnell oversees. While BofA has lost $16.6 billion since June 2010, its trading, investment banking and commercial banking businesses have earned $9.8 billion. Those who know Montag from his 22 years at Goldman and his shorter stint at the combined BofA-Merrill describe him as a natural leader with a sharp wit, a keen understanding of the markets and plenty of people skills. “People love to work for him and love to work with him,” said Jon Corzine, MF Global’s chief executive and a former head of Goldman who worked with Montag in the 1980s and 1990s. “He’s a big, friendly guy at a human level. He’s tough as nails as a business person.” Should Moynihan step aside as CEO of Bank of America, Montag could be a prime candidate to step in, multiple analysts and investors have said. “Moving him to this job is a strong vote of confidence in Montag,” said Anton Schutz, president of Mendon Capital, which owns Bank of America shares. Former Goldman colleagues say that Montag can come off as intimidating at first: He is built like a football player, with a square jaw and a husky, 6-foot, two-inch tall frame that has slimmed down considerably since he started at Goldman. He has a quick wit and can be brutally direct, but he was also well-liked and highly respected on the trading floor. “He was a good guy: Tough, very smart, and with excellent commercial instincts,” said Peter Bouyoucos, who worked with Montag from 1986 to 1994 when he sold interest-rate products to financial institutions. “I always felt he was one of the smarter of my colleagues at Goldman.” CRISIS OF CONFIDENCE Bank of America needs all the smart people it can get. Its shares have dropped nearly 50 percent this year, and the bank is groaning under the weight of mortgage losses and ligation . The company needs to generate some $50 billion of capital in the coming years to meet new global requirements. Management has said it can easily overcome that hurdle by selling assets and generating earnings, but some analysts and investors are skeptical. As CEO Moynihan wrestles with the mortgage mess and other problems, one thing he will not likely have to worry about is the institutional side of the business, people familiar with the bank said. “Tom is a powerful guy,” said one person who declined to be named to avoid hurting his relationship with either executive. “I think Brian needs him. He needs a guy who’s forceful, who can manage and lead, who’s got strong leadership skills, and I think Tom has demonstrated that.” Corzine said he’s seen Montag at airports for overnight flights to Europe or Asia three times in the last 15 months. “It speaks of a guy who is putting in the effort to get to the results,” Corzine said. TRADER AT HEART Montag has no professional experience in Bank of America’s bread-and-butter consumer banking business. He is a trader at heart, who spent significant portions of his career in the derivatives market. He headed Goldman’s interest-rate swaps desk in the 1990s, built out its trading business in Japan in the 2000s and came back to New York to oversee its global securities business just as the market for exotic derivatives was peaking. Outside of Wall Street, Montag is probably best known for a profane email regarding a collateralized debt obligation Goldman used to reduce its exposure to subprime mortgages as the home loan market started tanking. The email — in which Montag refers to a CDO Goldman sold its clients as “one shitty deal” — was made infamous by Senator Carl Levin during a tense congressional hearing in April 2010. But a closer look at the email chains released by Levin shows Montag paying close attention to Goldman’s trading book during a time of market crisis, questioning positions, offering blunt critiques to traders whose work he felt was inadequate, and liaising with top executives, including Lloyd Blankfein, who were worried about the company’s subprime exposure. In February 2007, he asked Dan Sparks, then head of Goldman’s mortgage division, “cdo squared — how big and how dangerous(?)” Montag has been paid well for his talent. John Thain, the Merrill Lynch chief executive who wooed Montag to his bank in 2008, made up for the unvested stock Montag was leaving behind by granting him Merrill shares that were then worth $50 million, according to a regulatory filing. Even though the stock is worth much less now, its vesting has pushed Montag’s overall pay package above Moynihan’s the past two years. Regulatory filings indicate Montag took home $29.9 million and $14.3 million in 2009 and 2010, respectively. He also received a $50,000 bump in his base salary for 2011, to $850,000, while Moynihan’s remained the same at $950,000. Montag lives with his wife and three children at a townhouse he bought in 2008 on Manhattan’s Upper East Side neighborhood. The property was listed at $38 million, according to the New York Observer. (Additional reporting by Joe Rauch in Charlotte, North Carolina, and Dan Wilchins in New York; Editing by Steve Orlofsky)

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As Obama Prepares Jobs Speech, Low-Earning Americans Gloomy About Economy

September 8, 2011

With the economy slowing to a near-standstill this year, and the prospect of a turnaround appearing increasingly unlikely, Americans’ spirits — particularly among the country’s lowest earners — seem to be sinking to greater depths all the time. Recent polls show that confidence and happiness are falling, likely as a result of the enervated economy, which has barely grown this year and added no new jobs in the past month. The downturn in public opinion has occurred at about the same time that talk in Washington has increasingly focused on economic growth and job creation, suggesting that many Americans aren’t persuaded their leaders in the public sector have answers. A weekly consumer-sentiment survey from Bloomberg, published Thursday, found that confidence was at its second-lowest point for the year in the week ending September 4. It was especially down amongst Americans who earn less than $15,000 a year — that group reported feeling less confident than at any time since the mid-1990s. Separately, a Gallup poll published Thursday showed that Americans’ overall contentedness — as measured by responses to a survey that asked whether participants felt like they were “thriving,” “struggling” or “suffering” — fell in August to the lowest level since July 2009 , the tail end of the Great Recession. Gallup noted that anxiety brought on by the weak economy may be affecting Americans’ sense of satisfaction with their lives. In particular, an annual poll in August found that a near-record number of people were worried about losing their jobs . In response to the softening economy — which grew at an annualized rate of just 1 percent in the spring , well below what economists say is needed for a robust recovery — President Obama is expected to announce a jobs-creation plan during a special address to a joint session of Congress Thursday evening. The plan, said to be worth at least $300 billion , may include provisions for infrastructure spending, unemployment benefits and payroll tax cut extensions. Meanwhile, Republican presidential candidates Mitt Romney and Jon Huntsman have each publicized jobs-and-growth plans of their own. Huntsman’s plan includes a detailed road map for energy reform , while Romney’s calls for lower taxes, fewer regulations and measures to curtail the powers of labor unions . Federal Reserve Chairman Ben Bernanke, for his part, said that the Fed will “do all it can to help restore high rates of growth and employment” in remarks to the Economic Club of Minnesota on Thursday, though he did not elaborate on what the Fed might do. Still, despite the pledges of proactivity from government officials, Americans appear to recognize the magnitude of the challenges facing the economy. Most analysts predict that the economy will continue to crawl along at a weak rate of growth for at least another several months, which may bode ill for Obama’s re-election prospects.

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Analysis: Europe to prescribe more merger medicine to banks

September 6, 2011

By Douwe Miedema LONDON (Reuters) – Europe’s banks are facing more government-prescribed mergers and further measures to strengthen capital, as the region’s inability to end its debt crisis makes investors wary of shoveling more money into lenders. Politicians may also quietly be urging banks to carve out toxic assets into separate units — known as bad banks — and present the healthy remainder to money managers, investment bankers working in the sector said. “It won’t happen in a prescriptive way. But in a factual way it is happening. It is not like they put a gun to your head. But we’re part of the system, so yes, you pick up the phone,” said one senior investment banker. A European Union official told Reuters on Tuesday that finance ministry officials will discuss how governments can inject capital into struggling banks. The discussion follows a meeting on Monday among euro zone officials that examined progress in involving private investors in Greece’s second international bail-out. There are growing concerns further market turmoil will follow if not enough bondholders participate. European bank shares have lost value at pace this year, as the euro zone struggles to escape the threat of sovereign default, sending risk premia soaring and hurting the value of banks’ massive bond holdings. With no swift solution in sight for the 17-country bloc’s debt crisis, investors are unwilling to bet their money on banks and plug a capital hole left behind by tighter regulation and years of anemic income. “Tell me one reason why a rational investor should put money in a bank rather than a pharma company,” said another investment banker, who advises financial institutions. “Politicians can run around as much as they want telling investors to recapitalize the sector, but unless they get their house in order the only last resort for the banking sector will be the tax payer,” the banker said. European bank shares are trading at levels first reached in 1993. They have lost more than 40 percent from a February peak, and are at their lowest since a 2009 trough hit in the wake of the collapse of Lehman Brothers. Some of Europe’s weaker banks now rely on European Central Bank funding, having been locked out of money markets as their rivals hesitate to lend them short-term unsecured money because of concerns over their ability to repay. DEALS NUDGE Tying up with a stronger rival allows weaker banks to raise market share, making them more attractive for investors because of better access to depositor funding, and lessening the risk that any government would let them go under. The recent merger between Greece’s Alpha Bank and EFG Eurobank — backed by a Qatari capital injection — suggested that governments may now be promoting such deals, which had virtually ground to a halt in the crisis. “I have to assume (the Qataris) have spent time with politicians doing due diligence on the political and macroeconomic context,” the second banker said. “This is not just putting money in a bank, this is putting money in Greece. And therefore I have to believe they are comfortable with that,” the banker added. EFG Eurobank was one of only eight banks to flunk Europe’s “stress tests” — an annual health check — and other banks that failed the test, or just scraped through, could face a similar fate, and be taken over. Greece should also consider separating banks’ non-performing loans from good assets into a bad bank, if its financial sector is not able to attract outside investors, a consultant with experience of bad banks said. “What is likely to happen … is a repeat of the Irish model. It’s a process that should happen hand in hand with the stress tests, and which could help attract investment,” said the consultant, who now advises banks. Ireland’s state-run bad bank, the National Asset Management Agency, is one of the world’s largest property groups after bailing out banks of assets they were stuck with. Germany and the UK have set up bad banks on a smaller scale. Such measures stop short of the 200 billion euros ($284 billion) mandatory recapitalization that International Monetary Fund head Christine Lagarde said Europe’s banks needed last month, higher than official estimates. Banks scorned the idea, with Deutsche Bank chief executive Josef Ackermann saying on Monday the idea would “threaten to send the signal that politics has lost faith in the ability of existing measures to succeed. (Additional reporting by Sarah White and Kylie MacLellan; editing by Sophie Walker)

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