Monthly Archives: February 2010

Big numbers probably have little effect on you, post crisis. Once a number is beyond a multiple of one’s own salary or house value, it is beyond comprehension. But $3,335bn? That is how much the US will need to refinance in the next six years from syndicated loans.

Regular blog readers will recall that Spain is facing $200bn maturing syndicated loans in the coming six years, dwarfing what is owed by Greece. That is about a fifth of the country’s annual income. But what is owed by the US is approaching a quarterRead more

Traders say the Swiss National Bank was seen in Asian markets selling francs and buying euros. This would fit with Phillip Hildebrand’s stated policy of intervention to prevent excessive appreciation of the franc, which could harm Switzerland’s economic recovery. The SNB declined to comment. (Reuters)

Related posts Read more

Perhaps Japan will take a note out of Israel’s book. There is an ongoing war of words between Japan’s finance ministry and its central bank, in which the government asks the bank to tackle deflation, and the bank asks the government to fix the fiscal deficit. As Robin has pointed out, the ‘pressure’ being applied to the bank is more of a nudge than an ultimatum. But if the government wanted to step up the pressure, it could use the minimum wage to affect monetary dynamics. This is a charge levelled today by Bank of Israel governor Stanley Fischer against the Israeli finance ministry, who told parliament the tactic has been used at least once (Israeli speech from Bloomberg).

Simone Baribeau

That other real estate market came back into the spotlight today as Chris Dodd, chairman of the Senate Banking Committee sent letters to a number of regulators, including the Federal Reserve, asking them to report on their efforts to stabilise the commercial real estate market.

By any realistic estimate, CRE has yet to finish wreaking havoc on the economy. Nearly half of CRE loans are currently “underwater” and the largest loan losses haven’t yet occurred, according to the Congressional Oversight Panel. Read more

Simone Baribeau

Today many of the long awaited credit card consumer protections passed by Congress and interpreted by the Federal Reserve take effect. The Fed has launched a new website to help consumers understand their rights.

There’s no news, per se, but it’s worth remembering what banks said would happen if they were prevented from raising interest rates based on a number of now prohibited factors, including changes in consumers’ credit scores, their behaviour with other companies, approaching credit limits, and making minimum payments.

I believe that not using a cardholder’s behaviour on their other debts as part of your predictive model is like taking the batteries out of a smoke detector – Roger C. Hochschild, president Discover Financial Services

I believe if we drop our ability to monitor credit, we could (be compared to)…the subprime mortgage business – Bruce Hammonds, president, Bank of America Card Services

We’ll see what happens. Meantime, the Fed today released another document Read more

Simone Baribeau

Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, today spoke of an ‘impressive’ turn-around in GDP and said that the tide of dismal economic news ‘appears to have turned.’ But there the upbeat message of the a leading dove ended.

The annual 5.7 per cent growth in fourth quarter GDP was unlikely to be sustained, she argued.

Unfortunately, I’m not at all convinced that a V-shaped recovery is in the cards. That fourth-quarter leap in GDP overstates the underlying momentum of the recovery.

The reason for her scepticism in the sustainability of last quarter’s growth was, of course, the same as everyone else’s: most of it was due to a slowdown Read more

Dubai World is unlikely to pay off developer Nakheel’s $980m Islamic bond, a source familiar with the matter told Reuters on Monday, and all options are open. The issue is due on May 13. “It is very unlikely that the bond will be paid off,” said the source. “Incredibly unlikely.” Dubai World is currently in talks to restructure about $22bn in debt and is due to present a proposal in March.

The Israeli central bank has chosen to keep its benchmark interest rate on hold at 1.25 per cent. The decision was widely expected, though some predicted a small cut in rates. Inflation in the country is falling faster than expected, with CPI down 0.7 per cent in January, versus expectations of 0.3 – 0.5 per cent. Israeli economic activity has risen, although fixed investment has dropped significantly. Internationally, “there remains the risk of another recession, whose probability may even have increased.”

The Greek finance ministry failed to deliver currency swap information to the European Commission by the deadline, last Friday. When asked, EC spokesman Amadeu Altafaj Tardio told MarketNews: “Eurostat has received some information but not all relevant information from the Greek authorities.” He added: “Athens told us that the reason for the delay was partly to do with the 4-day strike at the finance ministry.”

The Serbian central bank has held the two-week repo rate at 9.5 per cent for the second month. The dinar has recently been falling, restricting policymakers’ options on rate cuts.

The Hungarian central bank governor has cut the base rate from 6 to 5.75 per cent, effective today. The move was expected, and a further cut is seen as likely before easing stops. Rates were last cut 25bp on January 25.

Sweden’s financial regulator needs a bigger budget to cope with its expanding role. The Financial Supervisory Authority is seeking a 10 per cent budget increase per year for three years, on top of its 300m krona ($41m) budget, director-general Martin Andersson told Bloomberg.

Sweden’s banks, which are expected to lose $3.7bn this year from operations in the Baltic countries, might also be facing a housing bubble at home. Record low interest rates have increased mortgage arrangements in spite of rising unemployment. House prices rose 5 per cent in the last quarter, having already passed pre-crisis peaks. Read more

The Irish government has today received a 15.73 per cent direct stake in Bank of Ireland, in addition to 25 per cent held indirectly through warrants and preference shares. The 200m ordinary shares were given in lieu of a €250m payment that was due by the bank.

Analysts had doubted the stock transfer would take place. It could have been waived by agreement at a special shareholder meeting, but such a meeting could not be organised in time for the payment deadline today. Finance Minister Brian Lenihan said in a statement he welcomed the stake, saying: “This ensures that taxpayers are remunerated in a timely fashion for their investment in the bank.” Read more

“Recovering wage competitiveness in the short-run must depend largely on containing and, indeed, reducing nominal wage rates.”

This from Patrick Honohan, Ireland’s central bank governor, in an advance copy of a speech he will give today to the British-Irish Parliamentary Assembly, seen by Reuters. “Achieving lower nominal wage rates is not easy. But it is undoubtedly an essential component of a pro-employment recovery strategy for Ireland.” Read more

The central bank of Jordan has cut its discount rate to 4.25 per cent and repo rate to 4 per cent. Overnight rates on the dinar will fall to 2 per cent. The cuts were effective yesterday. Jordan’s economic growth halved last year to about 3 per cent, and the cuts are intended to boost demand. (from Reuters)

Growth in Malaysia looks likely to have outperformed expectations in Q4 and the central bank governor has hinted at a rate rise.

Central bank governor Zeti Akhtar Aziz told Reuters: “We are already clearly on the path of economic recovery. We are no longer in extraordinary circumstances. We have come out of that kind of environment.” She underlined that any adjustment would be a normalisation and not a tightening, saying: “Our policy will continue to be accommodative of economic growth.” Read more

Ralph Atkins

The European Central Bank has turned curiously quiet. I have had the impression for a few weeks that Jean-Claude Trichet, president, and other members of the six-man executive board, were appearing in public less often. Now, I have done the sums, and I was right.

Since the beginning of December, and including those scheduled for this week, their speeches have numbered fewer than in any three month period since the global financial crisis first erupted in mid-2007. (I excluded last August, a dead month for policymakers.) Since the beginning of this year, Mr Trichet has made only one full-scale address, according to the list kept on the ECB’s website. That was at the 50th anniversary this month of the Reserve Bank of Australia in Sydney, when his remarks were overshadowed by his decision to return early to join eurozone leaders in talks on the Greek crisis. In the first two months of last year, Mr Trichet gave at least nine speeches.

Such reticence is uncharacteristic. Read more

Ratings agency Standard and Poor’s have increased Turkey’s currency rating to BB and BB+ for foreign and local currencies, respectively. In both cases this is a one-notch increase. The outlook on both is positive, meaning barring any changes, S&P would expect to make a further upgrade within 12-24 months. Read more

The Mexican central bank has held the interbank interest rate at 4.5 per cent, as expected. Inflation is above target and rising, at an annual rate of 4.46 per cent for January. In its press release, the monetary policy board said action may be taken to achieve the target inflation rate of 3 per cent by the end of next year*.

*NB. This was translated using Google translate – no English version is yet available