September 20, 2020

Asian Markets Take Heart From U.S. Retail Sales

Although many analysts cautioned that neither development was an immediate cure-all for the problems facing the European and U.S. economies, the news helped stock markets in Asia to solid gains on Monday. European and U.S. stock futures also rose.

The Hang Seng index in Hong Kong and the Straits Times index in Singapore were up 2.1 percent and 1.5 percent by midafternoon.

The S.P./ASX 200 in Australia closed 1.9 percent higher, the Kospi in South Korea rose 2.2 percent and the benchmark index in Taiwan closed up 1.7 percent.

In Japan, the Nikkei 225 index managed a rise of 1.6 percent, finishing the day at 8,287.49 points, despite comments from the central bank governor, Masaaki Shirakawa, that the prospects for the Japanese economy remained poor.

The euro was hovering just under $1.33, up from $1.3233 late on Friday. The European currency has slipped sharply since late October, when one euro was worth $1.42.

Global stock markets have also slumped in recent weeks, as the European debt crisis began to move from small, peripheral economies like Greece and undermined confidence in larger euro zone members, like Italy and even France.

The ratings agency Moody’s on Monday warned that the increasing severity of the euro zone debt crisis was putting the ratings of all E.U. nations under threat.

“While the euro area as a whole possesses tremendous economic and financial strength, institutional weaknesses continue to hinder the resolution of the crisis and weigh on ratings,” Moody’s said in a report
on Monday. “In terms of the policy framework, the euro area is approaching a junction, leading either to closer integration or greater fragmentation.”

Still, despite this grim environment, markets staged a muted rally on Monday, reversing some of the slides seen during the previous weeks.

Encouraging news from both Europe and the United States helped prop up investor sentiment.

In the United States, the Thanksgiving weekend — a key shopping period ahead of the all-important Christmas holiday season — saw unexpectedly strong spending across the nation, fanning hopes that U.S. consumers are once again daring to open their wallets.

The National Retail Federation said Sunday that spending per shopper surged 9.1 percent over last year — the biggest increase since 2006 — to an average of almost $400 a customer. In all, 6.6 percent more shoppers visited stores on the Thanksgiving weekend than last year.

And in Europe, there were reports saying that France, Germany and Italy were prepared to move ahead more quickly to establish firm rules on fiscal issues, including debt limits, and to encourage more coordination of economic and fiscal policy.

Still, the differences on how to approach a larger bailout for euro zone countries remain profound, with Germany firmly opposing both an expanded role for the European Central Bank and bonds issued jointly by the euro zone countries — commonly known as euro bonds — as answers to the sovereign debt crisis.

And analysts cautioned that it was by no means clear that even an agreement on tighter budget rules would convince markets that the European Union, the E.C.B. and euro zone governments stand behind bigger indebted nations like Italy and Spain.

“Calls on the E.C.B. to adopt Fed style pre-emptive and aggressive QE continue to intensify, now also from within the core countries,” said Michala Marcussen, an economist at Société Générale in London, in a research note on Sunday, referring to quantitative easing. “The political hurdle thus seems to be easing.”

Yet a potential legal obstacle remains, she cautioned, in that the E.C.B. is not allowed to finance governments directly. “We have long held that the E.C.B. would, when looking into the abyss, turn more aggressive. However, such action is likely to be reactive rather than pre-emptive.”

Moody’s echoed this cautious sentiment on Monday.

“The political impetus to implement an effective resolution plan may only emerge after a series of shocks, which may lead to more countries losing access to market funding for a sustained period and requiring a support program,” it wrote.

“This would very likely cause those countries’ ratings to be moved into speculative grade in view of the solvency tests that would likely be required and the burden-sharing that might be imposed if (as is likely) support were to be needed for a sustained period.”

Stephanie Clifford contributed from New York.

Article source: http://www.nytimes.com/2011/11/29/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

Criticism of Spain’s Central Bank Grows

Much of the recent criticism from politicians, economists and investors has been aimed directly at the central bank governor, Miguel Ángel Fernández Ordóñez, for not standing up to vested political and banking interests, particularly when they kept the central bank from forcing failing banks to close.

The main opposition Popular Party has recently led the charge against the central bank, ahead of a general election on Nov. 20 that is expected to return the party to power with a parliamentary majority, according to opinion polls.

Earlier this month, Soraya Sáenz de Santamaría, the Popular Party’s parliamentary spokeswoman, said at a press briefing that the next government should impose “a profound reform” of the Bank of Spain, applying stricter “technical criteria” in selecting its top officials. She also said the central bank should bear responsibility for the “unethical” behavior of some managers of the collapsed savings banks, known as cajas.

A few days later, Spanish prosecutors started a corruption investigation into payments, including salaries, made to directors of Caja Mediterráneo, which required a bailout of 2.8 billion euros, or about $3.85 billion.

In a e-mail response to questions, the central bank stressed that its role was to supervise the solvency and not salary arrangements at a bank. Mr. Fernández Ordóñez declined to comment.

Beyond its handling of troubled banks, the Bank of Spain has recently been facing the same accusation that has dogged the Socialist government of José Luis Rodríguez Zapatero since the start of the crisis: that, having cheered the fact that Spanish banks kept away from subprime assets in the United States, it then underestimated the damage that could result from their property lending at home.

“The Bank of Spain misunderstood both the economic and the financial crisis,” said Fernando Fernández, a professor at the IE business school in Madrid and former chief economist of Banco Santander.

“They simply didn’t seem to realize that a bursting of the real estate bubble here would have a very serious impact on the banking sector, even though that had been the case in the past,” he said.

“It would be a mistake to press for his resignation,” Mr. Fernández said, “because this would create additional damage to the image of the Spanish economy, despite the fact that I think he has not been a very good governor.”

Last year, when Spain’s troubled public finances and saving banks first drew the ire of investors, the central bank was among the few Spanish institutions to retain the strong confidence of investors and economists.

The central bank had won plaudits for limiting the banks’ reliance on risky, off-the-balance-sheet derivative transactions. It was also praised for imposing buffers against excessive lending. While the extra measures helped, they were not designed to contain the spillover from the euro-zone sovereign debt crisis, which, combined with a property bubble, left its banks exposed to potential losses of 168.8 billion euros, according to the stress tests carried out by the European Banking Authority last July.

“The credibility of the Bank of Spain, which was very high coming into the crisis, has declined significantly,” said Luis Arenzana, a Madrid-based partner of Shelter Island Capital Management, an asset management company.

“The technocrats at the Bank of Spain are top-caliber people,” he said. “But the governor has been too weak, especially when dealing with politicians.”

Mr. Fernández said the central bank should have used its mandate to intervene in cajas as soon its inspectors had unearthed major problems — rather than delay by two years in some cases and try instead to engineer mergers that gave such cajas and their politicians more time to sink into trouble.

Article source: http://www.nytimes.com/2011/10/21/business/global/criticism-of-spains-central-bank-grows-along-with-chance-of-recession.html?partner=rss&emc=rss

Criticism of Spain’s Central Bank Grows Along With Chance of Recession

Much of the recent criticism from politicians, economists and investors has been aimed directly at the central bank governor, Miguel Ángel Fernández Ordóñez, for not standing up to vested political and banking interests, particularly when they kept the central bank from forcing failing banks to close.

The main opposition Popular Party has recently led the charge against the central bank, ahead of a general election on Nov. 20 that is expected to return the party to power with a parliamentary majority, according to opinion polls.

Earlier this month, Soraya Sáenz de Santamaría, the Popular Party’s parliamentary spokeswoman, said at a press briefing that the next government should implement “a profound reform” of the Bank of Spain, notably apply stricter “technical criteria” in selecting its top officials. She also said the central bank should bear responsibility for the “unethical” behavior of some managers of the collapsed savings banks, known as cajas.

A few days later, Spanish prosecutors started a corruption investigation into payments, including salaries, made to directors of Caja Mediterráneo, which required a bailout of €2.8 billion, or $3.85 billion.

In a e-mail response to questions, the central bank stressed that its role was to supervise the solvency and not salary arrangements at a bank. Mr. Fernández Ordóñez declined to comment.

Beyond its handling of troubled banks, however, the Bank of Spain has recently been facing the same accusation that has dogged the Socialist government of José Luis Rodríguez Zapatero since the start of the crisis: that, having cheered the fact that Spanish banks kept away from U.S. subprime assets, it then underestimated the damage that could result from their property lending at home.

“The Bank of Spain misunderstood both the economic and the financial crisis,” said Fernando Fernández, a professor at the IE business school in Madrid and former chief economist of Banco Santander.

“They simply didn’t seem to realize that a bursting of the real estate bubble here would have a very serious impact on the banking sector, even though that had been the case in the past,” he said.

“It would be a mistake to press for his resignation,” Mr. Fernández said, “because this would create additional damage to the image of the Spanish economy despite the fact that I think he has not been a very good governor.”

Early last year, when Spain first found itself in investors’ line of fire because of its troubled public finances and saving banks, the central bank was among the few Spanish institutions to maintain a strong vote of confidence from investors and economists.

The central bank had won plaudits for limiting the banks’ reliance on risky off-balance sheet derivative transactions. It was also praised for imposing buffers against excessive lending.

While the extra measures helped, they were not designed to contain the spillover from the euro-zone sovereign debt crisis, which, combined with a property bubble, left its banks exposed to potential losses of €168.8 billion, according to the stress tests carried out by the European Banking Authority last July.

“The credibility of the Bank of Spain, which was very high coming into the crisis, has declined significantly,” said Luis Arenzana, a Madrid-based partner of Shelter Island Capital Management, an asset management company.

“The technocrats at the Bank of Spain are top-caliber people,” he said. “But the governor has been too weak, especially when dealing with politicians.”

Article source: http://www.nytimes.com/2011/10/21/business/global/criticism-of-spains-central-bank-grows-along-with-chance-of-recession.html?partner=rss&emc=rss

Ireland Considers Using New E.U. Fund Too

DUBLIN — In Ireland’s Finance Ministry, officials are engineering a maneuver that may make the difference between default and financial survival.

The impetus for the plan is the cost of bailing out Anglo Irish Bank and Irish Nationwide Building Society. Ireland paid an initial €31 billion, or $42 billion, to save the two lenders, averting what central bank governor Patrick Honohan called a “European Lehmans” in a nod to the collapse of Lehman Brothers in September 2008.

To cut the final bill of at least €48 billion, including interest, Finance Minister Michael Noonan may seek to exploit the euro region’s debt crisis by tapping the area’s expanding rescue fund. That would deliver money at lower interest rates and over a longer period than selling bonds, reducing what Mr. Noonan has called the “extraordinarily expensive” tab as the state seeks to win back economic sovereignty.

“Ireland is really on the fringe between debt sustainability and unsustainability,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “The cost of funding this every year could play a big part in the difference, ultimately, between the two scenarios.”

Ireland’s 10-year borrowing cost, which reached 14.22 percent in July, dropped below 8 percent on Wednesday for the first time this year, and is currently at a nine-month low of 7.53 percent. The cost of insuring against the nation defaulting for five years has dropped to 677 basis points from 804 during the past two months, according to CMA prices, implying a 44 percent probability of Ireland failing to meet its obligations.

The International Monetary Fund said on Sept. 7 that it expects Ireland’s general government debt to peak at 118 percent of gross domestic product in 2013, equivalent to almost €200 billion. That’s up from 25 percent of G.D.P. in 2007.

Ireland last year was forced to seek €67.5 billion of aid, after its banking woes became too big to handle alone. On Sept. 30, 2008, the then-government guaranteed most of the debts of its biggest banks, with the state agreeing to inject about €62 billion into the financial system to date.

As the bill for the two banks soared last year, then Finance Minister Brian Lenihan decided to hold off injecting all the money into the two banks straight away. Instead, he promised to give them the cash over 10 years, by issuing promissory notes to the lenders for the full amount.

That tactic avoided Ireland having to raise the money in one effort as its own borrowing costs surged. The banks in turn used the notes as collateral to borrow funds from the Irish central bank.

After being rebuffed by the European Central Bank on a plan to impose losses on senior bond holders in the two lenders, Mr. Noonan said he is turning his attention to an “alternative piece of financial engineering to the promissory note arrangement.”

“Rescuing Anglo helped maintain stability across the European banking system, but has put a heavy burden on the Irish state,” said Alan Ahearne, an adviser to Mr. Lenihan who oversaw the promissory note arrangement and negotiated the bailout accord. “Any arrangements to ease that burden would help Ireland to stay ahead of its program targets.”

The government pays an annual 8 percent to the banks on the notes, a rate Prime Minister Enda Kenny described this week as “penal.” The Finance Ministry a day later put the cost at €17 billion over 20 years.

“The goal is to reduce this interest charge,” said Mr. O’Leary at Goodbody. “This could potentially be done by agreeing an additional long-term loan from the E.U. with a lower interest rate.” In addition, the state has to pay interest on the borrowing to fund the bailout. For every €3.1 billion, that amounts to €115 million per annum, the ministry said, based on the rate Ireland’s partners are charging for its rescue fund.

On July 21, European leaders empowered the euro zone’s €440 billion rescue fund, the European Financial Stability Facility, to aid troubled banks by lending to governments to inject into lenders.

By taking a loan from the fund, Ireland could pay off the promissory notes, saving €17 billion instantly. More savings would flow, assuming the state could borrow at a lower rate from the European fund than investors would charge to make good on its capital pledge to the banks.

“The proposal will in effect raise the amount of borrowings from the E.U./I.M.F. by €30 billion which would be repayable at competitive rates most likely beginning in fifteen years,” said Jim Ryan, an analyst at Dublin-based Glas Securities, in a note. “From the government’s perspective, it delivers additional funding and ensures the funding burden for the state is probably manageable until 2016, without introducing private sector involvement.”

Ireland’s willingness to spare senior bank bondholders, in recognition that it could worsen a funding crisis for banks across Europe, may win him support.

“There is an argument that Ireland has taken one for the team in bailing out Anglo,” said Mr. O’Leary. “The country’s taxpayers are the fall guys as the bank’s senior creditors are spared.”

Article source: http://www.nytimes.com/2011/10/01/business/global/01iht-ireland01.html?partner=rss&emc=rss

French Court Delays Ruling on Lagarde Investigation

The Court of Justice, which oversees ministers’ actions in office, said it would delay a decision on whether to look into her handling in 2007 of a court case involving a French tycoon until July 8. That means that there will be no legal clarity on the issue until after the I.M.F. has chosen its next managing director on June 30.

Ms. Lagarde and Agustín Carstens, Mexico’s central bank governor, both declared officially Friday that they were running for I.M.F. managing director, beating a deadline of midnight Friday in Washington set by the fund.

Also Friday, Russia nominated Grigori Martchenko, Kazakhstan’s central bank president. Mr. Martchenko has acknowledged that Ms. Lagarde, who is backed by European leaders, is the favorite in the race.

South Africa’s finance minister, Trevor Manuel, said Friday that he would not run.

Ms. Lagarde traveled to Lisbon on Friday to gather support from African leaders at a meeting of the African Development Bank, the latest in a series of campaign stops she has made to persuade leaders of emerging countries that she should get the job.

These countries have expressed alarm that Europe is aggressively pushing to keep the I.M.F.’s top spot in European hands. But they also appear to be concluding that Ms. Lagarde would have more clout than Mr. Carstens to eventually elevate their own influence at the fund at a time when their economies’ growth is outpacing those in the West.

By all accounts, these dynamics make Ms. Lagarde the front-runner for one of the most powerful positions in global finance. But future court action may cast a cloud over those ambitions.

At issue is whether Ms. Lagarde abused her authority as finance minister in one of France’s longest-running legal soap operas.

Ms. Lagarde ordered in 2007 that a dispute that had raged in French courts for 14 years between Bernard Tapie, a flamboyant French businessman and friend of President Nicolas Sarkozy, and Crédit Lyonnais, a state-owned bank, be referred to a three-person arbitration panel.

Mr. Tapie, a former chief of the Adidas sports empire and a former minister in the Socialist Party who defected to support Mr. Sarkozy’s 2007 presidential campaign, accused Crédit Lyonnais in 1993 of cheating him when it oversaw the sale of his stake in Adidas.

It was Mr. Sarkozy who suggested that the finance ministry, which was overseeing the case because Crédit Lyonnais was a ward of the French state, move the case to arbitration.

The arbitration panel ultimately awarded Mr. Tapie a settlement of about $580 million, including interest.

Ms. Lagarde defended her decision to remove the case from the French court system, saying it would keep more taxpayer money from being spent to fight the case. The ultimate award to Mr. Tapie came from the state’s coffers.

She has also denied accusations that her decision not to appeal the award was a reward for Mr. Tapie’s political support of Mr. Sarkozy.

“I have a clear conscience,” she said two weeks ago when she announced her candidacy for the I.M.F. post. Ms. Lagarde said she would not withdraw her candidacy even if an investigation were opened.

If the court decides on July 8 not to investigate, all legal proceedings against Ms. Lagarde in the matter would stop.

If it rules otherwise, Ms. Lagarde would have to gird for a possibly lengthy legal process, although she would not necessarily be required to be present in France for the proceedings, said Christopher Mesnooh, a partner specializing in international business law at Field Fisher Waterhouse in Paris.

More important, “if they take things forward, it means they believe that there is a prima facie case,” Mr. Mesnooh said. So if Ms. Lagarde does get the I.M.F. post, “there’s still going to be a legal investigation at a very high level that will be taking place in France,” he said. “That is not ideal, given what has happened with the last managing director of the I.M.F.”

Dominique Strauss-Kahn, the previous managing director, resigned last month after he was charged with the attempted rape of a hotel maid in New York.

Although Mr. Sarkozy refrained from backing Ms. Lagarde publicly until nearly every other leader in Europe, including Chancellor Angela Merkel of Germany, had done so, he defended her recently at the Group of Eight meeting in Deauville, France.

“The legal risks weighing on the candidacy of Christine Lagarde for the I.M.F. are manageable,” he said.

Ms. Lagarde, who traveled this past week to Brazil, India and China, is to go to Saudi Arabia on Saturday and Egypt on Sunday. Mr. Carstens, who has said that 12 Latin American countries have endorsed him, plans stops in India and China.

The United States has not backed a candidate, although the Treasury secretary, Timothy F. Geithner, has said that Ms. Lagarde and Mr. Carstens are qualified.

Article source: http://feeds.nytimes.com/click.phdo?i=2e7bf24309ed33fedabefb8fb9b3644f