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British Study Raises Warning on Scottish Banks

May 18, 2013 by Leave a Comment

LONDON — An independent Scotland could find its banks too big to rescue in the event of another crisis, according to a British government report that compares the Scottish financial sector to those of debt-laden Iceland and Cyprus.

The document, to be published Monday, is the latest of three studies by the British government meant to sway opinion in Scotland ahead of next year’s planned referendum there on independence.

Last month the British government suggested that an independent Scotland would not be able to keep the pound sterling and would have to either adopt its own currency or embrace the euro.

The new study, a summary of which was made available ahead of publication, highlights the size of Scotland’s banking sector — much of which had to be rescued by British taxpayers after the financial crash — relative to the rest of the Scottish economy. The sector stands at 1,254 percent of Scotland’s gross domestic product, compared with banking assets in Britain worth 492 percent of G.D.P., the Treasury document says.

“By way of comparison, before the crisis that hit Cyprus in March 2013, its banks had amassed assets equivalent to around 700 percent of its G.D.P. — a major contributor to the cause and impact of the financial crisis in Cyprus and the ability of the Cypriot authorities to prevent the systemic effects when it hit,” the study says.

The document adds that by the end of 2007 Icelandic banks had amassed consolidated assets equivalent to 880 percent of Icelandic G.D.P.

It cites the verdict of the Organization for Economic Cooperation and Development, which said that “the banks grew to be too big for the Iceland government to rescue.

“Banking in these circumstances became very dangerous when the global financial crisis deepened,” it said.

The study says that “a serious banking crisis in an independent Scotland could pose a significant risk to Scottish taxpayers,” with the potential economic fallout amounting to about 65,000 pounds ($98,600) per capita.

The paper concludes that Scottish banks could either have to accept higher risks and costs associated with volatility or restructure and diversify their assets.

John Swinney, finance secretary of the Scottish government, which supports independence, dismissed that document as “a discredited, feeble attempt to undermine confidence in Scotland’s ability to be a successful independent country” adding that “it will not work.”

Mr. Swinney said that he had viewed a leaked draft of the paper and that much of it “seems to be based on a flawed, outdated view of the world which takes no account of the substantial banking reforms which have been ongoing across Europe since 2008.”

The Treasury’s study counted Scottish banks as all those registered in Scotland, including the Royal Bank of Scotland — but excluding NatWest, which is part of the group but is registered in London, and excluding assets of RBS’s foreign subsidiaries.

Bank of Scotland, which is part of the Lloyds Banking Group, is included as a Scottish institution as it is registered in Scotland.

Untangling Scotland’s banks from the broader British financial sector would be a highly complex task were Scots to vote for independence, because both RBS and Lloyds Banking Group were bailed out by British taxpayers after the financial crash.

The British government owns 80 percent of RBS and 40 percent of Lloyds, which are both run from London. That would almost inevitably require some changes in ownership in the event of independence.

Nevertheless the Treasury’s study argues that the total support provided to RBS in 2008 would have been the equivalent of 211 percent of Scotland’s G.D.P. By contrast the total British interventions across the whole banking sector were 76 percent of the country’s G.D.P.

The document also adds that any attempt at shared regulatory arrangements between an independent Scotland and the continuing United Kingdom would be “significantly more complex than those that currently exist” and would be likely to increase the costs for firms of complying with this regulation.

Article source: http://www.nytimes.com/2013/05/20/business/global/british-study-raises-warning-on-scottish-banks.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Loan Sharks Terrorize Chinese Businesses as Economy Cools

October 14, 2011 by Leave a Comment

The owner, Sun Fucai — or Boss Sun, as he’s known — was so insistent that his workers attend that he imposed a $30 fine on any employee who refused the getaway. Nearly everyone went.

Except Boss Sun.

When the employees returned from their holiday, they found that the factory had been stripped of its equipment and that Boss Sun had fled town. “It was entirely empty,” Li Heying, a former Aomi worker, said of the factory. “It was like what happens in wartime.”

The boss, as it turned out, was millions of dollars in debt to loan sharks — underground lenders of the sort that many private businesses in China routinely use because the government-run banks typically lend only to big state-run corporations.

As China’s economy has begun to slow slightly, more and more entrepreneurs are finding themselves in Mr. Sun’s straits — unable to meet debt payments on which interest rates often run as high as 70 percent in this nation’s thriving unregulated, underground loan system. Such illegal lending amounts to about $630 billion a year, or the equivalent of about 10 percent of China’s gross domestic product, according to estimates by the investment bank UBS.

In recent months, at least 90 business executives from this coastal city, a one-hour flight south of Shanghai, have disappeared because of mounting debts and impending bankruptcies, according to a local government report.

Whether out of fear of mafia-style loan enforcers — kidnappings and broken kneecaps are common tactics — or the family dishonor that is its own harsh penalty in China, some of the Wenzhou missing have gone into hiding or fled overseas.

And in the last few weeks, at least three have tried to commit suicide by jumping off high-rises in the city, according to the state-run news agency, Xinhua, which reported that two of them died and the other survived with a broken leg.

That tycoons in a city known for its savvy entrepreneurs are running scared has raised concerns that private business, a vibrant part of China’s economy, may be losing steam — while exposing the high-risk, unregulated financial system on which so many of the nation’s small and medium-size businesses have come to depend.

“There have always been people running away because they couldn’t pay their debts,” said Wang Yuecai, general manager at Wenzhou Yinfeng Investment Guarantee, which guarantees state bank loans when small businesses are lucky enough to get them. “But recently, the situation here has gotten much worse.”

Last week, Prime Minister Wen Jiabao and a delegation of top officials, including the head of the nation’s central bank, visited Wenzhou, promising to get official banks to lend more to small companies and to crack down on underground lenders that charge high interest rates.

And on Wednesday, China’s state council, or cabinet, announced a series of measures aimed at helping small businesses with tax breaks and new lines of credit.

Beijing no doubt worries that similar problems could surface in other parts of the country.

“This is not just happening in Wenzhou,” said Chang Chun, who teaches at the Shanghai Advanced Institute of Finance. “Some companies borrow from the state banks and then lend into the underground market. Many are doing this type of arbitrage.”

But caging the loan sharks could prove difficult, not only because the activity is so rampant but because the lending is in some ways a result of the government’s own banking policies.

Here in Wenzhou, known for its pen makers, textile producers and big cigarette lighter factories, business owners complain that they are struggling with inflation and rising prices for raw materials. But they also point to a government-created credit squeeze. As elsewhere in China, most bank loans in Wenzhou go to big corporations or to finance projects backed by the government, making it increasingly difficult for smaller businesses to borrow money.

Gu Huini contributed research.

Article source: http://feeds.nytimes.com/click.phdo?i=f39a51a7402fe07ed2b130d5ae9c54ac

Filed Under: Business News Tagged With: , ,

As China’s Economy Cools, Loan Sharks Come Knocking

October 13, 2011 by Leave a Comment

The owner, Sun Fucai — or Boss Sun, as he’s known — was so insistent that his workers attend that he imposed a $30 fine on any employee who refused the getaway. Nearly everyone went.

Except Boss Sun.

When the employees returned from their holiday, they found that the factory had been stripped of its equipment and that Boss Sun had fled town. “It was entirely empty,” Li Heying, a former Aomi worker, said of the factory. “It was like what happens in war time.”

The boss, as it turned out, was millions of dollars in debt to loan sharks — underground lenders of the sort that many private businesses in China routinely use because the government-run banks typically lend only to big state-run corporations.

He was hardly unique. As China’s economy has begun to slow slightly, more and more entrepreneurs are finding themselves in Mr. Sun’s straits — unable to meet debt payments on which interest rates often run as high as 70 percent in this nation’s thriving unregulated, underground loan system. Such illegal lending amounts to about $630 billion a year, or the equivalent of about 10 percent of China’s gross domestic product, according to estimates by the investment bank UBS.

In recent months, at least 90 business executives from this coastal city, a one-hour flight south of Shanghai, have disappeared because of mounting debts and impending bankruptcies, according to a local government report.

Whether out of fear of mafia-style loan enforcers — kidnappings and broken kneecaps are common tactics — or the family dishonor that is its own harsh penalty in China, some of the Wenzhou missing have gone into hiding. Others have fled overseas.

And in the last few weeks, at least three have attempted suicide by jumping off high-rises in the city, according to the state-run news agency, Xinhua, which reported that two of them died and the other survived with a broken leg.

That tycoons in a city known for its savvy entrepreneurs are running scared has raised concerns that private business, a vibrant part of China’s economy, may be losing steam — while exposing the high-risk, unregulated financial system on which so many of the nation’s small and medium-size businesses have come to depend.

“There have always been people running away because they couldn’t pay their debts,” said Wang Yuecai, general manager at Wenzhou Yinfeng Investment Guarantee, a firm that guarantees state bank loans when small businesses are lucky enough to get them. “But recently, the situation here has gotten much worse.”

Last week, Prime Minister Wen Jiabao and a delegation of high-ranking officials, including the head of the nation’s central bank, visited Wenzhou trying to calm the city. The officials promised to get official banks to lend more to small companies and to crack down on underground lenders that charge high interest rates.

And on Wednesday, China’s state council, or cabinet, announced a series of measures aimed at helping small businesses with tax breaks and new lines of credit.

Beijing no doubt worries that similar problems could surface in other parts of the country.

“This is not just happening in Wenzhou,” said Chang Chun, who teaches at the Shanghai Advanced Institute of Finance. “Some companies borrow from the state banks and then lend into the underground market. Many are doing this type of arbitrage.”

But caging the loan sharks could prove difficult, not only because the activity is so rampant but because the lending is in some ways a result of the government’s own banking policies.

Gu Huini contributed research

Article source: http://www.nytimes.com/2011/10/14/business/global/as-chinas-economy-cools-loan-sharks-come-knocking.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Second-Quarter G.D.P. Revised Down to 1%

August 26, 2011 by Leave a Comment

WASHINGTON — The American economy grew much slower than previously thought in the second quarter, as business inventories and exports were less robust, a government report showed on Friday, although consumer spending was revised up.

Gross domestic product rose at annual rate of 1.0 percent, the Commerce Department said, a downward revision of its prior estimate of 1.3 percent. It also said after-tax corporate profits rose at the fastest pace in a year.

Economists had expected output growth to be revised down to 1.1 percent. In the first quarter, the economy advanced just 0.4 percent. The government’s second G.D.P. estimate for the quarter confirmed growth almost stalled in the first six months of this year.

The United States is on a recession watch after a huge sell-off in the stock market knocked down consumer and business sentiment. The plunge in share prices followed Standard Poor’s decision to strip the nation of its top notch AAA credit rating and a spreading sovereign debt crisis in Europe.

While the outlook has deteriorated, data such as industrial production, retail sales and employment suggest the economy could avoid an outright contraction.

The G.D.P. report comes as central bankers from around the globe gathered for a conference in Jackson Hole, Wyo.

Ben S. Bernanke, the Federal Reserve chairman, was to deliver the keynote address on Friday, which will be watched for any sign that a further easing of American monetary policy is on the way to support the ailing economy.

The downward revisions to second-quarter growth came as businesses accumulated less stock than previously estimated. Business inventories increased $40.6 billion instead of $49.6 billion, cutting 0.23 percentage point from G.D.P. growth during the quarter.

However, the slow build-up of inventories means goods are not piling up on shelves, which should support growth in the third quarter. Excluding inventories, the economy grew at a 1.2 percent rate.

Output was also curbed by exports, which grew at a 3.1 percent pace instead of the previously estimated 6.0 percent. Imports increased at a 1.9 percent rate rather than 1.3 percent. That left a slightly wider trade deficit and trade barely contributed to G.D.P. growth. Trade had previously been estimated to have added 0.58 percentage point to overall output.

The drag from business inventories was offset by consumer spending, which was revised up to a 0.4 percent rate from 0.1 percent. The increase in spending, which accounts for more than two-thirds of American economic activity, was still the smallest since the fourth quarter of 2009.

Business spending was revised to a 9.9 percent rate of increase from 6.3 percent as investment in nonresidential structures and equipment and software was stronger than previously estimated. But there are fears that the recent stock market rout could make businesses a bit hesitant to spend on capital and hiring.

The report also showed that after-tax corporate profits increased 4.1 percent in the second quarter after edging up 0.1 percent in the first three months of the year. It also showed inflation pressures abating, with the personal consumption expenditures price index rising at a 3.2 percent rate. That compared to 3.9 percent in the first quarter.

Article source: http://www.nytimes.com/2011/08/27/business/economy/second-quarter-gdp-revised-down-to-1.html?partner=rss&emc=rss

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U.S. Jobless Claims Fall Under Key Level

July 28, 2011 by Leave a Comment

WASHINGTON — First-time claims for state unemployment benefits fell more than expected last week, dropping below the important 400,000 level for the first time since April, according to a government report on Thursday.

At the same time, a private trade group said sales of existing homes rose unexpectedly in June, and both statistics gave investors a reason for optimism.

Jobless claims dropped 24,000, to a seasonally adjusted 398,000, the Labor Department said.

The drop below the 400,000 level that is normally associated with stable job growth will be welcome news for the economy after a recent string of weak data. Employment growth stumbled badly in May and June, with the increase in nonfarm payrolls totaling only 43,000.

Economists had forecast that claims would fall to 415,000. The prior week’s figure was revised to 422,000 from 418,000.

The government was expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.

On Wednesday, the Federal Reserve said growth had slowed in much of the country in June and early July.

Pending sales of existing homes unexpectedly rose in June from May and rose sharply from a year ago, data from a real estate trade group showed on Thursday.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in June, was up 2.4 percent to 90.9 from 88.8 in May. The index was up 19.8 percent from a year ago.

Economists polled by Reuters ahead of the report were expecting pending home sales to fall 2.0 percent.

The association’s senior economist, Lawrence Yun, said despite the uptick, the latest monthly reading showed tight credit and economic uncertainty were still constricting the market.

“The best way to ensure a more solid recovery in housing is to simply return to normal, sound credit standards so more creditworthy home buyers can get a mortgage,” he said.

At the Labor Department, an official said there were no special factors in last week’s jobless claims data.

The four-week moving average of claims, considered a better measure of labor market trends, fell 8,500, to 413,750.

A total of 7.65 million people were claiming unemployment benefits in the week ended July 9 under all programs, up 320,152 from the previous week.

Article source: http://feeds.nytimes.com/click.phdo?i=b8d6e0b1c01c566eb0f5e677d615d524

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Fed Officials Divided on Need for More Monetary Stimulus

July 14, 2011 by Leave a Comment

“A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run,” the Federal Open Market Committee said in the minutes of its June 21-22 meeting, released Tuesday in Washington.

“On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the committee taking steps to begin removing policy accommodation sooner than currently anticipated.”

Policy makers cut their forecasts for growth this year before a July 8 government report showed that employers added jobs in June at the slowest rate in nine months. The Fed chairman, Ben S. Bernanke, said at a June 22 news conference that growth would pick up as energy prices subsided and disruptions of parts from Japanese factories eased, while also leaving the door open to additional stimulus. In their meeting, policy makers also agreed on a strategy for withdrawing record monetary stimulus and adopted a new set of communications guidelines.

A divided Federal Open Market Committee means officials are likely to prolong their low interest-rate policy, said Chris Low, chief economist at FTN Financial in New York.

“The majority view is that they can’t ease because inflation is rising, but at the same time they can’t tighten because the unemployment rate is too high, so they’re on hold,” Mr. Low said.

The minutes show some officials have doubts about whether their policy toolkit has anything more to offer. “A few participants expressed uncertainty about the efficacy of monetary policy in current circumstances but disagreed on the implications for future policy,” the minutes said.

Some members of the committee “saw the recent configuration of slower growth and higher inflation as suggesting that there might be less slack in labor and product markets than had been thought,” the minutes said. In that case, “the withdrawal of monetary accommodation may need to begin sooner than currently anticipated in financial markets.”

The Fed’s Washington-based governors and regional presidents agreed to complete their $600 billion bond-buying program, known as QE2 for the second round of quantitative easing, as scheduled at the end of June.

“The Fed will be watching and waiting to learn more about the economy,” said Michael Feroli, chief United States economist at JPMorgan Chase Company in New York. “One camp is worried about what happens if growth slows more than expected. The other camp is worried about what happens if the rise in inflation isn’t transitory.”

Policy makers also renewed their pledge to hold interest rates “exceptionally low” for an “extended period.” The Fed has kept its target rate in a range of zero to 0.25 percent since December 2008. Mr. Bernanke said at the June press conference the Fed would be “prepared to take additional action, obviously, if conditions warranted,” including the purchase of more Treasury securities.

“Most” committee members said the rise in inflation would “prove transitory” and that over the medium term inflation would “be subdued as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable.”

Article source: http://feeds.nytimes.com/click.phdo?i=b443e0864036ca56b4f295882447991b

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Stocks & Bonds: Shares Rise on Report Of Jobs Growth

April 2, 2011 by Leave a Comment

The Labor Department report said 216,000 jobs were added in March, and that the unemployment rate fell to 8.8 percent.

The report beat forecasts and fueled hopes that hiring was on an upward trend. However, some noted that wages were flat.

Dan Greenhaus, chief economic strategist for Miller, Tabak and Company, said an environment of slow job creation and weak wage growth coupled with rising prices for gasoline and food was not good for consumers but “unquestionably a positive for corporate profits and margins.”

“Consumers may be getting the short end of the stick, but companies are certainly not going to complain in an environment in which prices are going up and labor costs are flat,” Mr. Greenhaus said.

Corporate profits, economic statistics and mergers have contributed to market movements in recent weeks, although global events, like the turmoil in Arab oil countries, the earthquake, tsunami and nuclear crisis in Japan, and concerns about sovereign debt in the euro zone have also had an impact.

On Friday, William C. Dudley, the president of the Federal Reserve Bank of New York, said events in Japan and the Middle East could worsen, and he emphasized that the economic recovery was “still tenuous,” even though economic conditions have improved.

Mr. Dudley singled out manufacturing in a speech that included remarks on the jobs report.

“Particularly encouraging is the growth of manufacturing jobs,” he said. “Over the past year we have added factory jobs at the fastest pace since the 1990s.”

The Institute for Supply Management said on Friday that its index for March fell slightly, to 61.2 from 61.4 in February. Any value above 50 indicates growth in manufacturing.

Daniel J. Meckstroth, the chief economist for the Manufacturers Alliance/MAPI, said the government report on jobs on Friday reflected the institute’s trend in the manufacturing sector, which added 17,000 jobs in March.

On Friday, the first day of the second quarter, the Dow Jones industrial average closed up 56.99 points, or 0.46 percent, at 12,376.72. The Standard Poor’s 500-stock index rose 6.58 points, or 0.50 percent, to 1,332.41. The Nasdaq composite index rose 8.53 points, or 0.31 percent, to 2,789.60.

The Dow was up 1.2 percent in the week, while the S. P. was up 1.4 percent and the Nasdaq rose 1.6 percent in that period.

Consumer discretionary, financial and industrial stocks ended the week with gains of less than 1 percent, while energy stocks rose slightly with oil prices.

Benchmark crude oil for May delivery rose to $107.94 a barrel on the New York Mercantile Exchange.

Caterpillar rose more than 1.5 percent to $113.12, and General Electric was up more than 1.45 percent at $20.34. The Nasdaq OMX Group and IntercontinentalExchange on Friday made a hostile bid for NYSE Euronext, offering $42.50 a share in cash and stock in a deal that is valued at $11.3 billion.

NYSE Euronext rose 12.6 percent to $39.60 and Nasdaq OMX was up 9.25 percent at $28.23; Intercontinental fell more than 3 percent to $119.75.

Information technology and telecommunications stocks declined slightly.

Economic data on construction was also released on Friday. In a sign that the housing sector remains under pressure, building slowed in February compared with January, according to the Commerce Department. Construction outlays fell 1.4 percent in February from a revised 1.8 percent in January, it said, led by a 3.7 percent drop in private residential outlays.

Severe weather could have been a factor, an economist said.

“This sector is still fantastically depressed,” Ian C. Shepherdson, the chief United States economist for High Frequency Economics, said.

Interest rates were steady. The Treasury’s benchmark 10-year note rose 5/32, to 101 16/32, and the yield slipped to 3.44 percent from 3.46 percent late Thursday.

Article source: http://feeds.nytimes.com/click.phdo?i=915f2fe940c99120dffccfee7e71b016

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