global economy

DealBook: ABN Amro to Cut 2,350 Positions

August 26, 2011 by NewsMaker Leave a Comment

Lex Van Lieshout/European Pressphoto AgencyGerrit Zalm, the chief executive of ABN Amro, which has been working to improve its financial picture.

The ax falls again in finance.

ABN Amro, the nationalized Dutch lender, announced on Friday that it would cut 2,350 jobs over the next three to four years, as it continues to cut costs and improve its capital position.

The layoffs are the latest reductions in an industry hampered by weak earnings, regulatory uncertainty and a global economic malaise. HSBC is cutting 30,000 positions. Credit Suisse said it would eliminate 2,000 positions. And Lloyds Banking Group is cutting 15,000 jobs.

The news comes as ABN Amro steadily improves its financial picture. On Friday, the bank announced profit of $1.25 billion for the first half of the year, compared with a loss of $1.4 billion last year. It also cut its cost structure. Expenses now stand at 63 percent of income, down from 75 percent a year ago.

But ABN Amro warned that the rest of the year could be rocky. Gerrit Zalm, the chairman of ABN Amro, pointed to the sovereign debt crisis as a potential drag on future earnings, adding that he expected “impairments to be somewhat higher in the second half and pressure on interest margins to increase.”

“The impact of the government debt concerns on the global economy is still unclear,” Mr. Zalm said in a statement. “Though our resilient businesses and strong capital base put us in a good position, we remain cautious. Our first-half 2011 results should therefore not be extrapolated to the remainder of the year.”

Article source: http://feeds.nytimes.com/click.phdo?i=a1b2d9c8454e50f0c2a6621a979100cd

Filed Under: Business News Tagged With: debt crisis, global economy, layoffs

Stocks Close Down Sharply Over Anxiety on Economy

August 18, 2011 by NewsMaker Leave a Comment

After declines in Asian and European markets, stocks in the United States opened sharply lower and continued to slide. The Standard Poor’s 500-stock index closed 53.24 points, or 4.5 percent, lower at 1,140.65. The Dow Jones industrial average fell 419.63 points, or 3.68 percent, to 10,990.58, and the Nasdaq composite was down more 131.05 points, or 5.2 percent, at 2,380.43.

The yield on the Treasury’s 10-year note fell below 2 percent for much of the day, the lowest level on record, as investors turned to the safety of fixed-income securities. Gold rose. Oil fell as markets lowered their expectations of global economic growth.

Financial stocks were down more than 5 percent as were other crucial sectors like energy stocks, materials and industrials.

Bank of America and Citigroup both closed more than 6 percent lower.

Investors have been anxious in recent weeks over the euro zone sovereign debt crisis and the pace of the global economy. On Tuesday, markets shed some of the gains that they had recovered in previous trading session that had propelled them to recover from steep losses the week before in the wake of the Standard Poor’s Aug. 5 downgrade of America’s long-term credit rating. Wednesday the market ended mostly flat.

But analysts have been under no impression that the underlying problems causing the volatility in the markets have receded, with some renewing the debate on an emerging recession.

And on Thursday the skittishness of investors was evident.

Investors were alarmed when a single bank, out of nearly 8,000 in the euro area, took advantage of a European Central Bank program that ensures institutions have ample access to dollars. The bank, which was not identified, borrowed $500 million on Wednesday from the central bank, a relatively modest sum. But it was the first time any bank had tapped the dollar pipeline since February.

A shortage of dollars for European banks was one of the features of the 2008 financial crisis.

Fears were inflamed further when The Wall Street Journal, citing people it did not name, reported on Thursday that United States regulators were scrutinizing whether European banks would be able to continue financing themselves.

“Currently many banks cannot access term-funding markets at reasonable rates,” analysts at Morgan Stanley said in a note. “As a result, commercial banks continue to tighten their credit conditions, albeit marginally, to both their corporate and retail clients. If these term-funding stresses continue well into the fall, the risks are rising that a lack of credit availability could dent domestic demand growth further.”

Some analysts counseled calm, saying that while there is clearly stress in the market it is still far from 2008 levels. “There is undoubtedly some tension around,” said Jon Peace, a banking analyst at Nomura in London. But he added, “I think the market is still overreacting to this funding issue.”

Bank funding rates in the United States have remained contained, but in Europe some stresses are appearing.

Interbank lending rates — a measure of banks’ willingness to lend to one another — have increased, though they are still below levels reached in 2008.

On Thursday, the Vix, a measure of stock market volatility, jumped sharply. It rose to 44.78 by the end of the day. The measure is sometimes called the fear index; Vix values above 30 are associated with high levels of market uncertainty and anxiety. The index rose during the turmoil last week but had eased over the last few days to just above 30 points.

The sharp drop in the equities market comes amid a period of high volatility that has been accentuated by low trading volumes, concerns over the euro zone sovereign debt and its potential impact on the banking sector, and recent data that has economists lowering their outlooks for global economic growth.

Another measure of funding stress, swap rates in foreign exchange markets where banks swap euros for dollars, now stand at around 82 basis points — double where they stood a few months ago, though still less than half of their levels in the depths of the 2008 crisis.

“It is a sign of risk aversion,” said Eric Green, an economist at TD Bank. “There is a lot of stress there.”

David Jolly, Graham Bowley and Jack Ewing contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=52b1689c25ff61f1e425969dfd069496

Filed Under: Business News Tagged With: energy stocks, fixed income, global economy

Another Sharp Swing, This Time Up, for U.S. Markets

August 11, 2011 by NewsMaker Leave a Comment

“It’s just a yo-yo,” said Myles Zyblock, the chief institutional strategist and managing director for Capital Markets Research at RBC Capital Markets. “I think the primary structure is still in place, and that is a structure of concern.”

Even as new economic data was released on Thursday, showing, for example, that weekly jobless claims were lower at 395,000, there was hesitation to read too much into one scrap of information embedded in the bigger economic picture.

Some corporate results bolstered the broader market as well, such as those of Cisco Systems, which helped raise the technology sector more than 3 percent as its share rose more than 15 percent around noon.

But the financial markets this week have been held hostage to concerns about the global economy, financial troubles in Europe and the implications of a ratings agency’s unprecedented downgrade of the United States’s credit rating. Benchmark United States bond yields have hit lows and stocks have ricocheted between steep gains and losses to an extent that has not been seen since March 2009.

They finished sharply lower on Wednesday, but on Thursday the Standard Poor’s 500-stock index and the Dow Jones industrial average were up nearly 3 percent, and the Nasdaq composite topped that mark.

“People are trying to bottom pick today, and it might be the bottom,” said Mr. Zyblock.

“I would like to see the collective message start to stabilize to give me confidence there is a hardened floor underneath this market,” he said.

Financial stocks also rose more than 3 percent.

Investors have been burned by the market volatility in the past few days, and many are bracing for any possible outcome.

“We have seen it go back and forth between risk-on and risk-off very quickly,” said Paul G. Christopher, chief international investment strategist for Wells Fargo Advisors.

Speaking about the early rise in stocks, he said: “It has been risk-off, but we might be getting near the end of that. You can only run emotionally for so long.”

The announcement that the leaders of Germany and France would meet on Thursday might be helping stocks to firm, Mr. Christopher said.

“The markets need to have reassurance from governments that they are going to take care of their budget deficits and going to backstop their banks,” he said.

The yield on the United States 10-year Treasury was at 2.23 percent around noon compared with 2.1 percent on Wednesday.

European indexes had been mixed but rallied after the market opened in the United States.

The FTSE 100 was up 3.22 percent. The CAC 40 in Paris was up 2.89 percent and the Dax in Germany was up 3.42 percent. Earlier in the day, Société Générale shares jumped nearly 8 percent after earlier declines. On Tuesday the stock gave up almost 15 percent of its value amid worries about the debt and economic woes of Europe and the United States.

Frédéric Oudéa, the bank’s chief executive, told Le Figaro in an interview published Thursday that the bank had “suffered a series of attacks in the market,” on the basis of rumors about its financial condition that he denied “most vigorously.”

A report on Thursday from Reuters, which did not identify its sources, ratcheted up fears after it said at least one bank in Asia had cuts its credit lines to the major French banks and that others were reviewing their lines because of perceived risks. If confirmed, that would represent a worrying escalation of the crisis, since interbank lending is the lifeblood of the global financial system.

Société Générale called Thursday on French market regulators to “investigate the origin of these rumors that have gravely impacted the interest of its shareholders.”

Christian Noyer, the governor of the Bank of France and a member of the European Central Bank’s governing council, addressed the market concerns in a statement, saying the first-half results of French banks had “confirmed their solidity in a difficult economic environment, thanks to rigorous risk management and a universal banking model based on diversified businesses.”

The banks’ capital levels are adequate, Mr. Noyer said, noting that they had recently passed stress tests.

In Asia, the Hang Seng index in Hong Kong fell almost 1 percent, while the Nikkei 225 in Japan closed down 0.6 percent.

Gold futures briefly topped $1,817.60 an ounce, its highest ever in nominal terms, before receding to about $1,794.20. Adjusted for inflation, the record gold price would be closer to $2,400 an ounce, according to Capital Economics.

Crude oil futures in the United States were down 1 percent at $82.07 a barrel.

The euro rose to $1.4137 from $1.4178 late Tuesday in New York, while the British pound rose to $1.6140 from $1.6134.

German 10-year bunds were trading at 2.18 percent, down 1 basis point, while bonds of Italy were down 6 basis points to 5.01 percent and Spain was down 5 basis points at 4.93 percent.

Article source: http://www.nytimes.com/2011/08/12/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: global economy, lows, weekly jobless claims

Amid Criticism on Downgrade of U.S., S.&P. Fires Back

August 7, 2011 by NewsMaker Leave a Comment

In an unusual Saturday conference call with reporters, senior S. P. officials insisted the ratings firm hadn’t overstepped its bounds by focusing on the political paralysis in Washington as much as fiscal policy in determining the new rating. “The debacle over the debt ceiling continued until almost the midnight hour,” said John B. Chambers, chairman of S. P.’s sovereign ratings committee.

Another S. P. official, David Beers, added that “fiscal policy, like other government policy, is fundamentally a political process.”

But, rather than building consensus on how to best rein in the nation’s staggering debt, the downgrade left political leaders as divided as ever. Politicians on both sides used the decision to bolster their own ideological positions.

Officials at the White House and Treasury criticized S. P.’s action as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.

Gene Sperling, the director of the White House national economic council, called the difference, totaling over $2 trillion, “breathtaking” and said that “the amateurism it displayed” suggested “an institution starting with a conclusion and shaping any arguments to fit it.”

Even as the ratings agency insisted on Saturday that its move shouldn’t have come as a shock, it reverberated around the world. Officials from China to Europe scrambled to assess the downgrade’s impact on the already troubled global economy, and political leaders in the United States sought to frame the issue in their favor.

Republican presidential candidates on Saturday seized on the downgrade as a new line of criticism against President Obama, suggesting that ultimate responsibility rests in the Oval Office.

“It happened on your watch, Mr. President,” Representative Michele Bachmann said, drawing applause at an afternoon rally in Iowa. “You were AWOL. You were missing in action.”

The White House blamed Washington’s polarized political climate for the downgrade. “We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges,” the White House press secretary, Jay Carney, said in a statement.

The ratings agency’s action puts additional pressure on a still-to-be-named Congressional committee to find additional spending cuts, tax increases or both to bring down the inexorably rising national debt.

The debt-limit law agreement set spending caps in the fiscal year that begins Oct. 1 and calls for the bipartisan Congressional “supercommittee” to propose more deficit reduction — for up to $2.5 trillion in combined savings over a decade.

Senate Majority Leader Harry Reid said the downgrade affirmed the need for the Democrats’ approach, balancing spending cuts with higher revenue from the wealthy and corporations.

The decision, he said, “shows why leaders should appoint members who will approach the committee’s work with an open mind — instead of hardliners who have already ruled out the balanced approach that the markets and rating agencies like S. P. are demanding.”

House Speaker John A. Boehner of Ohio, who runs the House with his anti-tax Republican majority, said that, “decades of reckless spending cannot be reversed immediately, especially when the Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.”

While American politicians sparred, China, the largest foreign holder of United States debt, said on Saturday that Washington needed to “cure its addiction to debts” and “live within its means,” just hours after the S. P. downgrade.

Europeans had girded for a possible downgrade, but the news was received with a degree of alarm in the corridors of power across the Continent.

Jackie Calmes, Binyamin Appelbaum, Louise Story, Julie Creswell, Liz Alderman, Jack Ewing, James Risen and David Barboza contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=f8b0b6d66cef640562e923bf107c2756

Filed Under: Business News Tagged With: global economy, john b chambers, saturday conference

Media Decoder: Times Company to Repay Carlos Slim Early

July 13, 2011 by NewsMaker Leave a Comment

9:54 a.m. | Updated The New York Times Company said Wednesday that it would pay back the $250 million loan from Carlos Slim Helú, a Mexican telecommunications billionaire, on Aug. 15, freeing itself from one of its larger financial obligations.

Peter Foley/Bloomberg NewsThe New York Times Company will settle its debt with Carlos Slim Helú on Aug. 15.

The repayment will come three and a half years before the loan is due and five months sooner than the company initially planned to settle the debt.

Janet L. Robinson, chief executive of the Times Company, and Arthur Sulzberger Jr., chairman and publisher of The New York Times, said in a message to employees that the company’s strengthened financial position enabled the early payback.

“Our ability to pay down this debt at this time is directly linked to the decisive steps we have taken to improve our financial flexibility over the past two years,” they wrote. “We remain focused as we move to the next phases of our business plans and as the uncertain global economy and the ongoing volatility in our industry continue. But today we take pride in this moment.”

The Times Company ended the first quarter with $352 million in cash and short-term investments on hand. The total cost of the loan, with a 14 percent interest rate, was approximately $279 million.

While the company will incur a $46 million loss on the prepayment in the third quarter, savings on interest over the next three and a half years will exceed $39 million each year.

Mr. Helú and members of his family hold about 7 percent of the Class A shares in the Times Company.

The Times Company has taken other steps recently to firm up its financial position, including a deal last month to sell most of its stake in the Fenway Sports Group, owners of the Boston Red Sox. It sold 390 of its 700 Class B units of the Fenway Sports Group to three separate buyers in a deal for $117 million. It now holds a 7 percent stake in the company.

Article source: http://feeds.nytimes.com/click.phdo?i=e11feb8189d462ee12ce7822e7d56d53

Filed Under: Business News Tagged With: carlos slim, fenway sports group, global economy

Markets Move Ahead as Greece Worries Subside

June 21, 2011 by NewsMaker Leave a Comment

Around midday on Wall Street, the Dow Jones industrial average put on 101.23 points, or 0.8 percent, at 12,181.61. The Standard Poor’s 500-stock index advanced 15.87 points, or 1.2 percent, at 1,294.23. The Nasdaq composite index jumped 48.14 points, or 1.8 percent, at 2,677.80.

Euro zone finance ministers said the Greek government had until July 3 to approve new steps to get the next installment of 110 billion euros in aid from the European Union and International Monetary Fund.

The market expects a vote of confidence in Prime Minister George Papandreou’s new cabinet to pass on Tuesday — the first of three hurdles the Greek government must clear to avert the euro zone’s first sovereign debt default. The vote was due around 5 p.m. E.D.T.

“The impact from the Greece vote will surely be positive on the market, but I believe it will be relatively short. Yes, we will see a follow-through for a couple days, but the fundamental problem is that the global economy is slowing. Everyone is pointing fingers at Greece for every tick up and down, but that’s day-to-day trading. I don’t see this resolving the fundamental issue,” said Jack De Gan, chief investment officer at Harbor Advisory Corp. in Portsmouth, N.H.

In Europe, the CAC 40 stock index in Paris rose 2 percent for the day, adding 77.41 points at 3,877.07. The FTSE 100-stock index in London rose 81.92 points, or 1.4 percent, to 5,775.31, while the DAX in Frankfurt gained 135.30 points, or 1.9 percent, to 7,285.51.

In the United States, the Federal Reserve Open Market Committee was to begin a two-day meeting later Tuesday. Economists expect the Fed to cut its growth forecast for 2011, but the central bank and its chairman, Ben S. Bernanke, will probably continue to argue that the slowdown is temporary and that the economy will pick in the second half of the year.

Adding to the positive sentiment, sales of existing homes fell to a six-month low in May, but the decline was less than expected.

On Monday, stocks erased early losses as the Standard Poor’s 500-stock index dipped toward 1,259.78, its 200-day moving average, which is often viewed as a pivotal point in determining market direction.

Article source: http://www.nytimes.com/2011/06/22/business/22markets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: fundamental issue, global economy, greek government

News Analysis: In Greece, Some See a New Lehman

June 13, 2011 by NewsMaker Leave a Comment

Others, however, have argued that Greece’s debt of 330 billion euros, or $473 billion, while too large for the country to bear, is small enough to allow banks and other institutions to take a loss without bringing the world financial system to its knees.

But the comparisons between Greece and Lehman grew more frequent last week as global markets reeled, spurred in part by the view that Germany’s insistence that private investors participate in a second rescue package for Athens would overcome the objections of the European Central Bank.

“It is a valid concern,” said David Riley, head of sovereign ratings at Fitch. “The Rubicon would be crossed — we would have a sovereign default event and that can be quite a shock, not just for the peripheral countries but for Spain and beyond.”

The thinking goes like this: though banks and other investors have done much to pare their Greek holdings in the last year, if they are forced to take a loss, and the ratings agencies declare Greece in default, investors would start selling in a panic. And they would not sell just the bonds of countries struggling with debt — Portugal, Ireland, Spain and Italy. In a hasty retreat into cash, traders would unload more liquid assets as well, everything from high-grade corporate bonds to American and emerging market equities — as occurred in 2008 after Lehman failed.

To be sure, much has to be wrong for the European debt crisis to approximate what happened after Lehman failed in 2008. Not only did banks, hedge funds and insurance companies immediately seize up, but the effect on the broader global economy was also striking as trade flows nearly ground to a halt.

Analysts point out that the global financial system has survived sovereign defaults in the past, including Russia’s in 1998 and Argentina’s in 2001.

Also, since the prospect of a Greek default has been foreshadowed for so long, financial institutions have had sufficient opportunity to reduce their holdings of Greek debt. But in doing that, the private sector has passed much of the exposure to Greece and other troubled economies in Europe to public sector entities like the European Central Bank and the International Monetary Fund. That means that if a restructuring comes, the taxpayer — more than the private investor — will pay.

Lending weight to the fears of another Lehman crisis, regulators are warning that in such a situation, even super-safe money market funds may not provide the risk-free refuge they proclaim to offer.

According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks. Some of those institutions, like Deutsche Bank and Barclays, do not have dangerous Greek exposure. But some of those funds also hold shares of French banks like Société Générale, Crédit Agricole and BNP Paribas, which do have significant Greek bond holdings — about 8.5 billion euros, or, in the case of BNP and Société Générale, about 10 percent of their Tier 1 capital.

This month, the president of the Federal Reserve Bank of Boston, Eric S. Rosengren, warned that the large share of European banks in American money market fund portfolios posed a Lehman-like risk if, in the wake of a default in Europe, panicky investors took their money out all at once.

“Money market mutual funds have the potential to be impacted should there be unexpected international financial problems emanating from Europe,” he said in a speech at Stanford.

The idea that European banks, not those in the United States, would take a hit if Greece defaulted, has sustained a view that such a crisis might be containable. But according to a recent analysis by The Street Light financial blog, this misses the point. It will be American banks and insurance companies that will have to make the lion’s share of default insurance payments to European institutions if Greece fails.

Citing recent data from the Bank for International Settlements, the blog points out that in the event of a Greek default, direct creditors would be on the hook for 70 percent of the losses, with credit default insurance picking up the rest. Thus, if one includes credit default exposure, American exposure to Greece increases from $7.3 billion to $41.4 billion.

Article source: http://www.nytimes.com/2011/06/13/business/global/13euro.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: global economy, insurance companies, rubicon