liquidity

Dollar Breaches 100 Yen

May 9, 2013 by NewsMaker Leave a Comment

The United States dollar broke through the important 100-yen level on Thursday for the first time in four years, seeming to illustrate progress in the Japanese authorities’ new efforts to lift the economy out of deflation.

After years of Japan’s struggling to turn its faltering economy around, Prime Minister Shinzo Abe has made beating deflation a central point of his economic policy since taking office in late December.

Last month, the Bank of Japan announced a decisive break with its earlier policies. Instead of focusing on keeping overnight interest rates close to zero – which seemed to be having little effect in reviving growth – the central bank aimed to double the amount of money in circulation, seeking to produce annual inflation of about 2 percent.

That policy now seems to be bearing fruit as money pouring into the economy weakens the yen against the dollar and other world currencies. The yen’s move is germinating inflation in an economy that has long been moribund, in the process delivering a competitive boost to the country’s big exporters.

The Japanese government is not overtly targeting a lower yen rate – something that could raise tensions with other exporting nations like the United States. And while the lower yen is good for Japan’s exporters, it may be less good news for United States’ exporting companies.

Nevertheless, the promise to drastically change Japan’s economic policy and end the long, debilitating era of deflation has caused the dollar to rally for much of this year, and on Thursday it finally broke through the 100-yen level.

By midafternoon in New York, the dollar was valued at 100.53 yen.

The efforts by the Bank of Japan to continue to flood the economy with liquidity is likely to keep downward pressure on the yen in the coming months. The central bank is following an asset purchase program to inflate the economy by aggressively buying longer-term bonds and doubling its government bond holdings in two years.

The depreciation of the yen may be a step in the right direction as the authorities try to fuel some growth. However, Japan still faces many stiff challenges until it breaks out of its period of deflation. It has an aging and shrinking population and cumbersome regulations that make the economy inefficient, and it is not clear that monetary policy alone can end stubborn deflation in Japan.

As he has tried to put a new focus on reviving the economy, Mr. Abe fought with the central bank’s former leaders over setting the 2 percent inflation goal. Mr. Abe’s pressure in the end led to the resignation of the bank’s previous governor, the moderate Masaaki Shirakawa. His departure led to the appointment of Haruhiko Kuroda, who shares Mr. Abe’s economic philosophy.

As it pursues its new policy, the Bank of Japan is buying longer-term government bonds, lengthening the average maturity of its holdings to seven years from three years and expanding Japan’s monetary base to 270 trillion yen by March 2015.

In this way, the bank will buy about 7 trillion yen in bonds each month, equivalent to over 1 percent of its gross domestic product. That is almost twice the bond purchases of the United States Federal Reserve Bank.

Article source: http://www.nytimes.com/2013/05/10/business/dollar-breaches-100-yen.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bearing fruit, japanese government, liquidity

Economix Blog: Memo to Europe: What About T-Bills?

February 25, 2013 by NewsMaker Leave a Comment

In my column on Friday, I looked at the proposed European transaction tax from a stock market perspective, and found it to be reasonable.

FLOYD NORRIS

Notions on high and low finance.

A friend who is a tax lawyer says — rightly — that I should have considered bonds, particularly short-term Treasury securities. He has a point.

The proposed tax would be applied to all trades in stocks, bonds and derivatives that were engaged in by European financial institutions, or in European markets. That encompasses about everything. For stocks and bonds that tax would be one-tenth of 1 percent of the value of the bond. There would be no tax when the bond is sold at issuance, but there would be a tax whenever it changes hands after that.

The trouble is that Treasury bills these days yield almost nothing. The current rate on one-month bills is a little under 0.1 percent. A tax of 0.1 percent would wipe out the yield entirely.

Treasury bills are prized for their liquidity, meaning that if you need cash you can sell one at any moment. Who would buy it in the secondary market with this tax? When I asked one European official about that, he pointed out that there would be no tax on borrowings, so you could repo the T-bill without paying the tax.

The tax would not apply if American institutions traded the bills, but would if banks from the European countries planning to levy the tax chose to do so. That list includes France, Germany, Italy and Spain.

The tax would apply to any bank anywhere trading German government securities. Their yields are — believe it or not — a tad bit lower than American yields.

It seems to me that there will need to be some exceptions made.

Article source: http://economix.blogs.nytimes.com/2013/02/25/memo-to-europe-what-about-t-bills/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: financial institutions, liquidity, treasury securities

Euro Crisis Still Poses Threat, Germany’s Central Bank Asserts

November 14, 2012 by NewsMaker Leave a Comment

“The risks to the German financial system are no lower in 2012 than they were in 2011,” the Bundesbank said in its annual report on financial stability in the largest European Union country.

The report came a day before highly anticipated official data on euro zone growth, which could confirm that the region is in recession. The report also provided another example of how the Bundesbank and the E.C.B. have diverged in their views of the state of the crisis and how best to fight it.

Even as countries like Spain suffer a severe credit crunch, money has poured into Germany because it is perceived as a haven from euro zone turmoil. That has pushed down borrowing costs for German businesses and consumers, producing some worrying consequences, including a sharp rise in real estate prices in urban areas, the Bundesbank warned.

Andreas Dombret, a member of the Bundesbank’s executive board, said it was too early to talk of a real estate bubble. But at a news conference, he added: “The experiences of other countries show that precisely such an environment of low interest rates and high liquidity can encourage exaggerations on the real estate markets.”

Real estate bubbles were a key cause of the financial crises in Spain and Ireland, not to mention the United States.

The downbeat Bundesbank report came a week after Mario Draghi, president of the European Central Bank, argued that there were signs, albeit tentative ones, that tensions in the euro zone had eased.

Countries have begun to get their debts under control while their labor costs have fallen, making them more able to compete on world markets, Mr. Draghi said.

These and other improvements will lead to what he described at a news conference last week as a “slow, gradual but also solid” recovery.

The Bundesbank acknowledged those improvements, but warned that there could be a hangover from the measures the E.C.B. has taken to combat the crisis, which include a record-low benchmark interest rate of 0.75 percent.

“The side effects of short-term stabilization measures could leave a difficult legacy for financial stability in the medium to long term,” the bank said.

On Thursday, the E.U. statistics agency is scheduled to release official figures on third-quarter gross domestic product for the euro zone. The data is likely to show that the euro zone suffered a fourth quarter in a row of little or no growth.

Figures released Wednesday reinforced expectations that output might have declined again. Industrial production in the euro zone fell 2.5 percent in September from August, Eurostat, the E.U. statistics office, said. That was worse than expected and the weakest monthly performance since January 2009, according to Reuters.

German factories, which until recently had managed to avoid the worst of the crisis, were largely responsible for the decline.

In addition, Greece sank deeper into depression in the third quarter, as output fell 7.2 percent compared with a year earlier. In Portugal, gross domestic product fell 3.4 percent from a year earlier, the seventh quarterly decline in a row. Unemployment in Portugal rose to 15.8 percent from 15 percent in the second quarter.

The Bundesbank no longer sets monetary policy but remains a strong influence in the euro zone. It is the largest member of the so-called Eurosystem, the network of 17 national central banks overseen by the E.C.B. The Bundesbank handles some important tasks for the euro zone as a whole, like administering a system used to transfer large sums of money.

The Bundesbank, with its emphasis on preserving price stability, also served as the template when European leaders were designing the E.C.B. But as the E.C.B. has effectively become lender of last resort for governments, the Bundesbank has complained that it has exceeded its mandate.

Article source: http://www.nytimes.com/2012/11/15/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: credit crunch, liquidity, mario draghi

CME Curtails Charitable Giving After MF Global Collapse

December 19, 2011 by NewsMaker Leave a Comment

Investigators are still searching for hundreds of millions of dollars of customer money that CME says was improperly siphoned off in the brokerage firm’s final days to meet its escalating liquidity needs.

Last month, the CME Group said it would give former MF Global customers the entire $50 million held by the CME Trust, which was originally intended to help traders caught out by a broker default but which in recent years has been a mainstay of the CME’s charitable giving.

“CME Group will continue to honor some previous trust commitments going forward, even after the $50 million is paid out,” said a CME spokeswoman, Laurie Bischel. “Though the CME Trust will be used to help customers of MF Global, CME Group remains committed to our communities and will continue to provide support to charitable organizations as possible through our other programs and corporate foundations.”

She declined to specify the level of future grants, and it was unclear if other programs could partly or fully make up the loss of the trust’s contributions. The firm’s charitable giving has gone up and down through the years.

The CME Trust was established in 1969 to provide financial assistance to customers if a brokerage became insolvent.

Federal rules requiring brokers to keep client money separate from their own made the prospect of customers actually losing money in a broker default seem so remote that in 2005 the CME’s board voted to turn the trust into a charitable foundation.

In 2008, after giving millions of dollars to local institutions, the trust began the CME Group Foundation with a $16 million grant, and pledged to make annual donations to support grant-making. The foundation has become the CME’s biggest charitable giver, contributing more than $6 million last year alone.

But on Oct. 31, the day MF Global filed for bankruptcy, the firm’s executives made what regulators have since said was a shocking disclosure: that money had been moved from customer accounts to MF Global’s accounts, and was now missing. In mid-November, the CME board voted to turn the CME Trust back to its original purpose.

The CME Group operates the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Mercantile Exchange, and only its own customers will be eligible for reimbursements.

Money is to be paid out only after the bankruptcy trustee determines that client money is really gone. The CME’s executive chairman, Terrence A. Duffy, this month estimated the shortfall at $700 million to $900 million.

Article source: http://feeds.nytimes.com/click.phdo?i=e1688dacc55ffc162c4e543caf46d5b4

Filed Under: Business News Tagged With: brokerage firm, donations, liquidity

Economix Blog: Rating the Credit Raters

December 1, 2011 by NewsMaker Leave a Comment

CATHERINE RAMPELL

Dollars to doughnuts.

My colleagues Julie Creswell and Graham Bowley had an article on the front page of The New York Times on Wednesday about how credit ratings agencies “missed or badly misread signs of trouble” in Greece.

Receiving an unrealistic credit rating is hardly unique to Greece, though.

As we’ve noted before, ratings agencies are tasked with judging how financially sound borrowers are, but they have historically been poor predictors of sovereign debt defaults and (especially) currency crises.

According to a 2002 study by Carmen Reinhart, a leading economic historian, the ratings agencies have frequently focused on the wrong variables when rating a country’s creditworthiness.

“Little weight is attached to indicators of liquidity, currency misalignments, and asset price behavior,” which research has found to be predictive of debt and currency crises, she wrote.

Article source: http://feeds.nytimes.com/click.phdo?i=d76249441fb586458b9f500876600cf5

Filed Under: Economy News Tagged With: asset price, creditworthiness, liquidity

DealBook: MF Global Put Up for Sale, This Weekend Only

October 29, 2011 by NewsMaker Leave a Comment

8:13 p.m. | Updated

MF Global is racing to sell itself before the markets reopen on Monday, with its stock and bond prices nearly in a free fall.

The pressures on MF Global, a commodities and derivatives brokerage firm, and its chief executive, Jon S. Corzine — once the chief of Goldman Sachs and a former New Jersey governor — are enormous. With two major credit ratings agencies having cut their ratings on the firm to junk status, a sale of some kind appears to be MF Global’s only hope for survival.

In the space of only a week, MF Global has shed two-thirds of its market value. Its shares plunged 16 percent on Friday to $1.20, after having briefly dipped below $1 earlier in the day. And its five-year bonds tumbled to 49 cents, according to data from Trace research service.

By Friday afternoon, MF Global executives had become focused on selling the entire firm by Sunday evening, according to a person briefed on the matter who spoke on the condition of anonymity because the discussions were private. Other possibilities, including a sale of just its futures brokerage arm, remained on the table but were becoming less likely.

So far, MF Global has identified fewer than five suitors, a list that includes other brokerage, banking and private equity firms, this person said. Yet while the goal remained to strike a deal before the markets resumed on Monday, it is possible that a deal won’t be reached.

Speculation grew on Friday about who would be interested in buying some or all of MF Global. Several major banks have considered making a bid, especially if they could buy the firm’s well-regarded futures brokerage operations at a low enough price, according to people briefed on the matter. But it was unclear whether any would make a formal offer.

A spokeswoman for MF Global, Tiffany Galvin, declined to comment.

By Friday afternoon, MF Global still had sufficient liquidity to finance its operations, having drawn down a $1.3 billion revolving credit facility, this person added. While more clients had moved their money to other brokerage firms, this person said that the amount remained in the low single digits.

That may not matter if the firm cannot reach a sale over the weekend. While major exchanges around the world said on Friday that MF Global remained a member in good standing, clients and trading partners are generally wary of doing business with a junk-rated brokerage firm.

On Friday, analysts and industry executives were gloomy about MF Global’s survival prospects.

“We continue to believe that in this market environment, selling the entire business could be challenging,” Niamh Alexander, an analyst with Keefe, Bruyette Woods, wrote in a research note.

For now, the firm is focused on selling itself rather than preparing for any sort of bankruptcy filing, the person briefed on the matter said.

Lucas Jackson/ReutersJon S. Corzine

One thing is clear: Any outcome would spell the end of Mr. Corzine’s tenure atop MF Global. He became the firm’s chief executive last year, returning to the financial sector for the first time in more than a decade after having been ousted as Goldman Sachs’s chief executive in 1999.

Mr. Corzine’s chief goal was to transform MF Global into a full-fledged investment bank, in large part by taking on riskier trading using the firm’s own capital. The strategy backfired, however. In the year and a half since Mr. Corzine took over, the firm has earned money in only two out of six quarters.

Among the biggest millstones around the firm’s neck is the $6.3 billion worth of bonds issued by Italy, Spain, Belgium, Ireland and Portugal that it holds. Analysts became uneasy with those holdings as Europe’s debt crisis deepened, culminating in the initial credit rating downgrade by Moody’s Investors Service on Monday.

MF Global’s problems were exacerbated with its announcement of a $186 million loss for its second quarter on Tuesday. By Thursday, Moody’s and another agency, Fitch Ratings, had officially cut the firm’s credit rating to junk status.

Article source: http://feeds.nytimes.com/click.phdo?i=2c640b6afa77cfcbe53bc1b9be39a184

Filed Under: Business News Tagged With: goldman sachs, jersey governor, liquidity

Debt Fears Rattle Big Banks in France

September 13, 2011 by NewsMaker Leave a Comment

Even as French officials proclaimed that the country’s banks were sound, shares in BNP Paribas and Société Générale, two globally connected French banks considered “too big to fail” by their home government, slid as much as 12 percent. And their cost of short-term borrowing continued to soar, making it more expensive for them to finance day-to-day operations.

The looming question is whether the French government will have to step in to support its banks, much as the American government did during the financial crisis in September 2008. Then, as now, a retreat by nervous investors threatened the banks’ liquidity. Back then the United States responded by guaranteeing various types of loans to the banks to keep the financial system operating.

French officials on Monday took pains to say they stood behind the banks. Seeking to reassure investors, France’s central bank governor, Christian Noyer, said in a statement, “No matter what the Greek scenario, and whatever measures must be passed, French banks have the means to face up to it.”

But behind the scenes, the French government is preparing for all eventualities. If a recapitalization becomes necessary to restore investor confidence in any French bank — even if the banks do not technically require new capital — then the government will be prepared to take such action, said a senior government finance official involved in managing the situation, who was not authorized to speak publicly.

Given the need for France, along with Germany, to play a central role if the European debt crisis is to be resolved, the perceived stability of the biggest French banks is a crucial issue.

And big American banks, which do extensive business with BNP Paribas and Société Générale, want to know their French counterparts are sound. Over the last month, the French banks have found it increasingly expensive to secure short-term loans in dollars for their United States dealings, while their cost of short-term borrowing in general has soared. And the cost of insuring against default of the banks’ own bonds has spiked to record levels in recent weeks.

Efforts to calm investors was to little avail on Monday, as the French market slumped even more deeply than most other European exchanges. United States stock indexes, after being down for most of the trading session on Monday, ended up for the day.

French officials sought to flood the airwaves on Monday with reassuring statements, the second time in a month they came out swinging to combat the perception of problems. Last month, the government also scrambled to show that the nation’s AAA sovereign rating was intact, after the Standard Poor’s downgrade of United States debt caused nervous investors to question France’s standing.

On Monday, the question of whether the French state might need to nationalize its banks in the event of further turmoil was met with an unequivocal “non”— at least for now.

“It is totally premature to discuss” even a partial nationalization of French banks, the French industry minister, Éric Besson, assured the country in an early morning television interview.

Société Générale announced Monday it would raise new cash by selling off assets. Société Générale and BNP Paribas, along with a third bank, Crédit Agricole, are considered integral actors in the French economy. They lend billions of euros to businesses and individuals, and the government has said it will never let any of them fail.

France’s financial watchdogs are monitoring the bank situation closely, officials said, as is President Nicolas Sarkozy, who would be loath to see one of the banks stumble to the point where a merger or takeover might be required before the French presidential election next spring.

Article source: http://feeds.nytimes.com/click.phdo?i=dc0550c59b12e041501dcfceef828ce4

Filed Under: Business News Tagged With: debt crisis, france, liquidity

In Tech We Trust: Within the Industry, an Urge to Cash Out

June 20, 2011 by NewsMaker Leave a Comment

“If you’ve seen the world blow up once, you just don’t know what’s going to happen a year from now,” said one former Facebook employee, referring to the dot-com crash a decade ago.

He joined the company in its early days, and left a few months ago so he could sell some of his shares. A company policy bars current employees from selling stock. “It seemed very risky to stay in a situation where all of your liquidity was tied up in what I consider a high-risk company,” he said, declining to make his name public when discussing a financial decision, and also because he did not want to upset Facebook.

He is hardly the only tech industry insider cashing in to minimize his financial risk in case the value of private companies starts heading south. Employees and investors at dozens of hot start-ups have sold hundreds of millions of dollars’ worth of shares, fueling a booming market in private transactions.

Facebook has been driving the trend; last year, it accounted for nearly 45 percent of all the trades on SecondMarket, a leading marketplace for private company shares. Many of those trades came from Facebook’s first 200 or so employees who joined before the fall of 2007 and own shares or stock options. (Those who joined later received restricted stock, which cannot be sold until Facebook goes public.) According to several former employees, about 100 of the early employees have left the company, a figure Facebook declines to confirm.

And although they have left for many reasons — and Facebook insiders say that starting a new company is the most common one — guarding against a decline in share price has been a consideration for some.

“I was happy to sell 5 or 10 percent, so I could have a cushion in the worst-case scenario,” said another former Facebook employee who left in recent months, and who also would not make his name public.

Perhaps no company has seen its early investors and founders take so much money off the table so quickly as Groupon. The company is still losing money, but some insiders have already become rich on it. Out of $946 million that Groupon raised from investors last winter, $810 million went into the pockets of the chief executive, Andrew Mason; the chairman, Eric Lefkofsky; and others. In April 2010, many of the same insiders pocketed an additional $120 million.

Mr. Mason and Mr. Lefkofsky declined to comment, through a Groupon spokesman. The company, which recently filed to go public, is in a “quiet period” that restricts executives from discussing the business publicly.

Founders and early investors have sold shares in their start-ups for years, usually through brokers and a small network of funds specializing in private-company transactions. But such sales have expanded greatly in recent years, with early rank-and-file employees participating in deals in ever-growing numbers.

Employees have become more interested in selling, in part because companies are taking longer to go public. And workers’ eagerness to see tangible reward has promoted the creation of a number of businesses to serve their needs. These include trading platforms like SecondMarket, specialized brokers like Felix Investments and even a new lender who will help employees turn their paper wealth into hard cash without having to sell their shares.

“In the last two years, a lot of employees in the Valley woke up to this market,” said Hans Swildens, the founder and a managing partner at Industry Ventures, a decade-old company that has bought shares in companies like Facebook, Twitter, Chegg and eBags.

As Facebook’s valuation has soared past $50 billion, making it by far the highest among Silicon Valley’s crop of hot start-ups, many employees who own stock options and have been at the company since the early days after its founding seven years ago have been eager to profit.

Aware of that, Facebook has helped to broker sales for those employees twice — in 2009, when it allowed insiders to sell $100 million to Digital Sky Technologies, a Russian venture capital firm, and again this year, in a deal through T. Rowe Price, the investment firm. Employees were limited to selling up to 20 percent of their vested shares. For some, it wasn’t enough.

Article source: http://feeds.nytimes.com/click.phdo?i=98d8b414520e336ba0dd15b529a7e9d9

Filed Under: Business News Tagged With: high risk, liquidity, start ups

Square Feet: Ronald Dickerman

May 22, 2011 by NewsMaker Leave a Comment

Mr. Dickerman, 47, is the founder and president of Madison International Realty, a real estate private equity firm, which through its investment funds holds ownership stakes in buildings around the world, including several in the New York area, among them the Chrysler East Building and 520 Madison Avenue. The company has also had investments in the Seagram Building over the years.

Q Tell me about your business.

A I think we do something very unusual in the world of commercial real estate and investing: we acquire ownership interests in Class A assets from existing investors looking for an early exit strategy. Our objective is not to seek control of the properties — it’s to provide liquidity, which means buy their interest. We’re not a loan-to-own shop.

Q What do you mean by an “early exit strategy”?

A A sale. Usually these are finite holding periods — it may be 5, 10, 15 years — for the overall venture. When you look at all the properties down Park Avenue, for example, even though the name plates in the lobby may say “RFR Realty” or “Brookfield” or “Tishman Speyer,” they don’t own 100 percent of the equity. They have partners. And partners change their minds, have different investment objectives, and they need liquidity at different points of time.

Q What is the liquidity you provide typically used for?

A To redeploy into other investment opportunities, to fund other liabilities within their portfolio.

Q What percentage of your portfolio is in the New York area?

A A large percent — I would say about 35 to 40 percent.

Q How large is your stake, on average?

A I would say 25 to 49 percent.

Q How do you and your investors profit from these arrangements?

A We would be entitled to our pro-rata share of the revenue and cash distributions. But the big payday is selling the buildings sometime in the future.

We have a contractual right to trigger a sale of the portfolio after seven or eight years of joint ownership, or they buy back our interest at appraised value.

Q What kinds of returns are your fund investors seeing?

A Our overall return profile is between 17 and 18 percent gross; that’s an annualized rate of return for realized investments.

Q Do you also help to add value to your holdings?

A We invest in core Class A assets where the building itself is relatively stable and the deal is not distressed. What’s distressed about the transaction is the fatigue of the underlying investor.

We do, however, make value-creation recommendations to our sponsor. For example, we have a building on the East Side in a joint venture with RFR Realty, called Eastbridge Landing. It’s a Class A doorman apartment building, and we made recommendations about new lobby amenities like a concierge service, and new paint and carpet in the elevators and the lobbies.

Q How is business lately?

A I’ve never been busier in terms of our transaction pipeline. Just in the last three to six months we’ve seen a significant increase in the amount of partial stakes that investors are bringing to the market.

Q You recently announced a deal to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.

A They came to us, I think, in September 2010 to fund their go-forward investments. You may know that the Atlantic Yards development is something like $4 billion.

These properties are as core as core can be. They’re 99 percent occupied; the average lease term is over eight years.

Q You recently raised your stake in Chrysler East. Why?

A To about 48 percent from about 35 percent. That’s a joint venture with Tishman Speyer.

We actually invested through a secondary acquisition from existing investors. That property is a joint venture between Tishman Speyer and a German syndication of individual investors. There was a significant number of German investors who wanted to sell their interest.

Q Can you talk about any other deals you might be working on?

A We have a lot of interesting deals going on between the U.S., London and Paris.

Q Your family once owned a business in the Boston area, rehabbing and selling buildings.

A That’s true! I was involved when I was younger in the maintenance crew, cleaning hallways and pools. It was a terrific foundation for the real estate business.

Q So are you still a Red Sox fan?

A I have become a Yankee fan.

It was hard to be a Red Sox fan when I was growing up.

Article source: http://feeds.nytimes.com/click.phdo?i=38691552ef3859a96058d6968ea4f0cf

Filed Under: Business News Tagged With: liquidity, madison international, seagram building

Square Feet | The 30-Minute Interview: Ronald Dickerman

May 21, 2011 by NewsMaker Leave a Comment