November 25, 2024

You are here: Home / Archives for sovereign debt

Moody’s Cuts SocGen and CreditAgricole, BNPP Still on Review

September 14, 2011 by Leave a Comment

The ratings agency said it was extending its review of BNP Paribas (BNPP), but any downgrade was unlikely to be by more than one notch.

Moody’s had put the banks under review for possible downgrade on June 15, citing their exposure to Greece’s debt crisis.

Moody’s at the time had cited French banks’ exposure to Greece’s debt-stricken economy as the reason behind the review. Outside commentators had said the ratings were ripe for a downgrade because of rising borrowing costs in the face of sovereign debt turmoil.

The agency said that during the review, Moody’s concerns about the structural challenges to banks’ funding and liquidity profiles increased, in light of worsening of refinancing conditions.

Moody’s cut SocGen’s debt and deposit ratings by one notch to Aa3 from Aa2. The outlook on the long-term debt ratings was negative. Moody’s anticipated that the impact of its review on the Bank Financial Strength Rating (BFSR) would be limited to a one-notch downgrade.

For Credit Agricole, Moody’s downgraded its BFSR by one notch to C from C+, and cut its long-term debt and deposit ratings by one notch to Aa2 from Aa1.

However, Moody’s said it believed SocGen has a level of capital that can absorb potential losses it is likely to incur on its Greek government bonds and to remain capitalized at a level consistent with its BFSR even if the creditworthiness of Irish and Portuguese government bonds were to deteriorate further.

Moody’s said that BNPP had a sufficient level of profitability and capital that it can absorb potential losses it is likely to incur over time on its Greek, Portuguese and Irish exposures.

BNPP on Wednesday announced a plan to sell 70 billion euros ($95.7 billion) of risk-weighted assets to help ease mounting investor fears about French bank leverage and funding, two days after smaller rival Societe Generale unveiled a similar plan.

France’s lenders — two of which own local banks in Greece — have the highest overall bank exposure to Greece, according to the Bank for International Settlements. They have begun to take writedowns on their Greek sovereign debt holdings as part of a new rescue package but some say not aggressively enough.

Greece vowed on Saturday to stay the course of austerity and avoid bankruptcy as anger at the country’s failure to meet fiscal targets under its EU/IMF bailout reached boiling point.

(Reporting by Wayne Cole; Editing by Ed Davies)

Article source: http://www.nytimes.com/reuters/2011/09/14/business/business-us-frenchbanks-moodys.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Wall Street Recovers After Fresh Worries Shake European Markets

September 13, 2011 by Leave a Comment

Markets have been subject to sharp swings in recent weeks, particularly as concerns over the sovereign debt crisis have grown. The latest slide in the currency and stock markets occurred Monday, set off by the resignation on Friday of Jürgen Stark, a top German official at the European Central Bank. His move highlighted policy discord in the bank.

It also aggravated concerns in the currency markets that Germany was preparing contingency plans for its banks in the event of a Greek default, Eric Viloria, senior market strategist for Forex.com, said.

Greek bonds showed record high yield spreads on Monday, while German bonds were at lows, Mr. Viloria noted.

“There are actually quite a bit of factors that are weighing on the euro today,” he said, adding that investors were avoiding assets they viewed as risky. “You are seeing some dollar strength, and that is highlighted by the yields.”

Analysts attributed the market movements on Monday to concerns from last week over Greece and fresh worries about the possibility of sovereign downgrades.

“This is not a problem resolved in an afternoon,” Peter Tuz, the president and portfolio manager at Chase Investment Counsel, said. “And it looks like things are going to get worse before they get better.”

Stocks on Wall Street veered from mixed to more than 1 percent lower, then made a late push to close higher.

The Standard Poor’s 500-stock index gained 8.04 points, or 0.70 percent, to close at 1,162.27. The Dow Jones industrial average added 68.99 points, or 0.63 percent, to close at 11,061.12, and the Nasdaq composite index rose 27.10 points, or 1.10 percent, to close at 2,495.09.

In Europe, the FTSE 100 in Britain dropped 1.6 percent and the Euro Stoxx 50 index of euro zone blue chips was off 3.8 percent. The DAX in Germany lost 2.3 percent, and the CAC 40 in France tumbled 4 percent despite fresh efforts by the French government and one of the hardest-hit banks, Société Générale, to calm nerves.

Asian markets slumped. The Nikkei 225 index closed down 2.3 percent, and the Hang Seng in Hong Kong fell 4.2 percent.

The euro finished at $1.36, after declining rapidly to $1.35 against the dollar, from $1.41 just over a week ago.

Interest rates rose slightly. The Treasury’s benchmark 10-year note fell 10/32, to 101 19/32, and the yield rose to 1.95 percent from 1.92 percent late Friday. Gold fell $46.50 to $1,809.90 an ounce.

In equity markets, the technology, financial and consumer discretionary sectors were all up more than 1 percent.

Bank of America and JPMorgan Chase were each up more than 1 percent, at $7.05 and $32.42, respectively. Wells Fargo rose more than 2 percent to $24.10.

But European financial institutions felt the brunt of the uncertainty on Monday. Moody’s Investors Services warned recently about the exposure of those banks to Greek sovereign debt, and the stock price of Société Générale and BNP Paribas fell as much as 12 percent as investors braced for a possible downgrade to their credit ratings.

While any downgrade was expected to be small, it would probably increase turmoil in financial markets.

Liz Alderman and Bettina Wassener contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=ad1c5e6ec2496f55786062b96a02f76d

Filed Under: Business News Tagged With: , ,

Asmussen Nominated to European Central Bank Post

September 10, 2011 by Leave a Comment

FRANKFURT — Germany moved swiftly to install a guardian of its interests in the European Central Bank Saturday, nominating a top technocrat to replace a senior bank official whose unexpected resignation Friday hinted at divisions over the conduct of monetary policy.

The selection of Jörg Asmussen, 44, a deputy finance minister and career bureaucrat, announced at the meeting of Group of 7 countries in Marseille, France, appeared designed to reassure a German public increasingly concerned about the extraordinary lengths that the central bank has gone to support ailing countries like Greece and Spain.

Internal divisions at the European Central Bank spilled into the open Friday after Jürgen Stark, the bank’s de facto chief economist, said he would resign his seat on the six-member executive board, which manages bank operations and plays a leading role in setting monetary policy.

In a measure of the acute doubts about Europe’s ability to contain the sovereign debt crisis, Mr. Stark’s resignation was enough to spark stock declines in Europe and the United States. Mr. Stark’s resignation also threatened to further strain European unity and undermine German support for measures to keep Greece from defaulting.

Mr. Stark is an opponent of the E.C.B.’s purchases of bonds from ailing countries to hold down their borrowing costs, and many Germans share his concerns. His resignation “makes the European bailout scheme more unpopular among German voters which lowers the long-term credibility of the bailout policy among investors,” Jörg Krämer, chief economist at Commerzbank, said in a research note Saturday.

Mr. Asmussen’s background suggests he will carry on the German economics tradition, with its focus on price stability. Mr. Asmussen studied economics at the University of Bonn, where he was a protégé of Axel Weber, who later became president of the Bundesbank before resigning earlier this year — like Mr. Stark, in protest over the E.C.B.’s intervention in bond markets.

Mr. Asmussen is close to Jens Weidmann, who succeeded Mr. Weber as president of the Bundesbank. Mr. Weidmann also studied under Mr. Weber, and is known to be among the minority on the E.C.B.’s policy-making governing council who oppose what critics regard as the bank’s improper interference in government fiscal policy.

Mr. Asmussen and Mr. Weidmann are likely to form a united front on the central bank’s governing council. But, along with two or three other council members who opposed the bond purchases, Mr. Asmussen will represent a minority view.

Mr. Asmussen’s appointment must be ratified by other European leaders, but is a foregone conclusion.

Jack Ewing reported from Frankfurt, and Liz Alderman from Marseille.

Article source: http://feeds.nytimes.com/click.phdo?i=7f9c5db9594f3b2068a03b816280db56

Filed Under: Business News Tagged With: , ,

O.E.C.D. Sees Weak Growth Ahead but No ‘Great Recession’

September 8, 2011 by Leave a Comment

LONDON — Economic growth in much of the advanced world is near stagnation and set to remain limp through the rest of the year, although a downturn on the scale of the last one appears unlikely, an international research group said Thursday.

The Organization for Economic Cooperation and Development, or O.E.C.D., said the recovery from the so-called Great Recession almost came to a halt in the second quarter of this year in many of its 34 members, including the United States and the euro area.

In its latest outlook, the Paris-based group said a number of factors had darkened the picture since its last report in May.

These included the recent gridlock over fiscal policy in United States, the euro area sovereign debt crisis, continued bank balance sheet problems, slowing trade flows and concerns about whether the existing economic policy tools can offset any further weakness.

“The risk of more negative growth going forward has become higher in some major O.E.C.D. economies, but a downturn of the magnitude of 2008 and 2009 is not foreseen,” it said.

In Japan, growth was less negative than projected in the immediate aftermath of the March earthquake and subsequent nuclear disaster, it said. But activity in China slowed in the course of the first half and manufacturing production there weakened.

The O.E.C.D. projected that growth in Group of 7 economies excluding Japan would remain less than 1 percent at annualized rates on average in the second half of this year.

It predicted an expansion in the United States of 1.1 percent in the third quarter and 0.4 percent in the fourth. For the three largest euro zone countries — Germany, France and Italy — the forecast was for 1.4 percent in the third quarter and negative 0.4 percent in the subsequent three months.

“The impact of the sovereign debt woes in Europe and the United States and the associated turbulence in stock markets over the summer have not yet fully fed through into the indicators underpinning the projections,” the report said.

Growth in Japan is expected to be buoyed by post-disaster reconstruction, though its effect should fade by year-end. And Germany and Italy are both likely to see contractions during one quarter of the second half.

But the report said that uncertainty surrounding the projections was particularly high.

The main risks in the second half include a possible intensification of Europe’s debt crisis; further balance-sheet problems for banks; additional businesses running down inventories amid weak consumption; and the risk that unemployment rates in some economies could become entrenched.

But it also said that the unwinding of temporary factors that had dampened growth in Germany — like the shutdown of nuclear plants — and in France, such as the effects of phasing-out car scrapping subsidies, “may prompt a sharper than projected rebound in activity in the third quarter.”

In addition, data on the federal budget had been better than expected so far this year in United States, it said.

The report said that official interest rates in most advanced economies should be kept on hold.

If in coming months signs emerge of enduring economic weakness, the O.E.C.D. said rates should be lowered where there is scope. Where there is no scope, other measures could include further central bank intervention in securities markets, even if that brings diminishing returns, it said.

The governance of the euro area must still be improved and the capitalization of banks in the region strengthened to stop contagion and restore confidence, the report said.

Article source: http://feeds.nytimes.com/click.phdo?i=28722875aa4f108e3962873f0132be66

Filed Under: Business News Tagged With: , ,

Asia Stock Rally Fizzles in Europe

September 1, 2011 by Leave a Comment

LONDON (AP) — European stocks failed to keep up with gains in Asia on Thursday as downbeat reports on the manufacturing sector darkened investors’ moods.

Surveys into the state of the industrial sectors — the so-called purchasing managers’ index — showed they had contracted in August, both in the eurozone and the U.K.

Industrial production had been one of the key pillars of growth in the eurozone, particularly in big exporting economies like Germany’s. Coupled with recent statistics showing consumer confidence is waning, the reports suggested growth is likely to slow further in coming months.

“The eurozone is clearly struggling in the face of tighter fiscal policy across the region, heightened sovereign debt tensions and financial market turmoil,” said Howard Archer, economist at IHS Global Insight.

He suggests that the ECB will stop raising interest rates and could eventually start cutting them if the economic indicators keep pointing downwards.

After a largely positive week to end the month of August, European stocks were all down. Britain’s FTSE 100 fell 0.5 percent to 5,370.04 while France’s CAC-40 fell 1.1 percent to 3,220.62. Germany’s DAX fell 1.7 percent to 5,685.43.

U.S. stocks were also poised to fall. Dow futures fell 0.4 percent to 11,561 while the broader SP 500 futures declined 0.5 percent to 1,211.90.

Investors will keep an eye out for the U.S. survey of its own manufacturing sector, which is expected to decline as well, and set up their positions ahead of Friday’s important jobs report for August.

The payrolls data are one of the most closely watched economic indicators because they signal the strength and confidence of consumer spending in the world’s largest economy. The U.S. economy is expected to have added 80,000 jobs, too little to bring the unemployment rate down.

Earlier in Asia, traders had built on a strong performance on Wall Street the previous day — driven by hopes that the Federal Reserve may unveil more monetary stimulus — to push indexes mostly higher.

Some investors were betting that the Fed may announce a third round of government bond purchases — known as quantitative easing III or QE3 — to support the economy because of worries the U.S. may slide back into recession. Analysts say a weak U.S. jobs report on Friday could push the Fed to act.

Japan’s benchmark Nikkei 225 advanced 1.2 percent to close at 9,060.80 while Hong Kong’s Hang Seng edged up 0.2 percent to close at 20,585.33.

South Korea’s Kospi was nearly unchanged, ending at 1,880.70 and Australia’s SP/ASX 200 rose 0.3 percent to finish at 4,307.50. Taiwan’s benchmark gained but Singapore’s declined.

Mainland Chinese shares lost ground Thursday, with the benchmark Shanghai Composite Index slipping 0.4 percent, or 11.3 points, to 2,556.04 while the Shenzhen Composite Index fell 0.6 percent, or 6.59 points, to 1,136.75.

In currencies, the euro dropped to $1.4280 from $1.4380 late Wednesday in New York. The dollar rose to 77.09 yen from 76.60 yen.

Benchmark oil for October delivery fell 23 cents to $88.58 in electronic trading on the New York Mercantile Exchange. Crude rose 9 cents to settle at $88.81 on Wednesday.

In London, Brent crude for October delivery fell 91 cents to $113.94 on the ICE Futures exchange.

___

Kelvin Chan in Hong Kong and Fu Ting in Shanghai contributed to this report.

Article source: http://feeds.nytimes.com/click.phdo?i=cdf4a4f839dbdac351031d8cacffb9af

Filed Under: Business News Tagged With: , ,

DealBook: Two of Greece’s Biggest Banks Plan to Merge

August 30, 2011 by Leave a Comment

Greek bank shares climbed on Monday on news of a merger between Eurobank and Alpha Bank.John Kolesidis/ReutersGreek bank shares climbed on Monday on news of a merger between Eurobank and Alpha Bank.

5:11 p.m. | Updated

Two of Greece’s biggest lenders, Alpha Bank and Eurobank, announced plans on Monday to merge, a deal that could help increase confidence in the country’s beleaguered economy.

The combination, which will create the largest lender in Greece, with total assets of 146 billion euros, or $212 billion, comes as the International Monetary Fund completes its latest review of the country’s financial system and the broader economy.

Investors saw the deal as a positive sign for a group hobbled by the sovereign debt crisis. The stocks of Alpha Bank and Eurobank jumped roughly 30 percent on Monday, spurring shares of other financial firms higher.

“I am confident that the new combined entity will act as an important agent for the economic development of the country,” Efthymios N. Christodoulou, chairman of Eurobank, said in a statement. “It is also well placed not only to withstand the current economic turbulence but also to create new opportunities and play a pivotal role in the future growth of the region.”

Greek banks, which own large swaths of the country’s troubled bonds, have been at the center of the sovereign debt crisis. As those securities essentially proved worthless, foreign investors balked at lending to Greek financial firms. Lacking that critical source of funding, banks pulled back and credit tightened, worsening the problems in the economy.

By merging, Alpha Bank and Eurobank are looking to strengthen their capital positions and gain necessary heft to weather the crisis. The deal will help bolster the combined bank’s overall capital position, eventually increasing the buffer to 14 percent. It also signals renewed foreign interest, with the main shareholders including Paramount Services Holding, owned by a prominent family in Qatar.

“This initiative shows that today’s crisis can be an opportunity for structural moves that boost both the financial sector and the real economy,” the Greek finance minister, Evangelos Venizelos, said in a statement on Monday, according to Reuters. “Qatar’s participation sends an international message of confidence in the prospects of the Greek economy.”

The deal, which is still subject to approval by regulators, is expected to be completed in mid-December. Citigroup and JPMorgan Chase served as financial advisers to Alpha Bank, while Eurobank worked with Barclays Capital, Goldman Sachs and Rothschild.

Article source: http://feeds.nytimes.com/click.phdo?i=6edd51a102728a5f54f83503a1d9c00e

Filed Under: Business News Tagged With: , ,

Moody’s Cuts Japan’s Rating One Notch, Citing Its Giant Debt

August 24, 2011 by Leave a Comment

TOKYO — Moody’s, the credit ratings agency, lowered Japan’s credit rating by one notch on Wednesday, warning that frequent changes in administration, weak prospects for economic growth and its recent natural and nuclear disasters made it difficult for the government to pare down its huge debt.

Hours after the downgrade, the government announced a $100 billion credit facility to help the Japanese economy ride out a spike in the yen in recent weeks amid the global market turmoil, which has battered Japan’s export-led economy.

“Taking into account that there is a lopsided rise in the yen, I felt that swift measures were needed,” Yoshihiko Noda, the finance minister, told reporters.

Moody’s Investors Service lowered Japan’s grade by one step to Aa3, the fourth-highest rating, the company said in a statement.

The downgrade brings Moody’s rating for Japan in line with Standard Poor’s, which lowered the country’s grade by one notch to AA in January, the fourth highest on its scale. Moody’s had put Japan on review for a downgrade in May.

The action comes after a round of downgrades by major ratings agencies of sovereign debt, and amid concern that the debt crisis in Europe could escalate. On Aug. 5, S. P. cut the sovereign debt rating of the United States for the first time in the country’s history.

Markets in Tokyo largely shrugged off the downgrade, the latest in a line of many.

Trust in Japanese government debt “remains unwavering,” Japan’s finance minister, Yoshihiko Noda, told reporters after the downgrade.

Still, the move, a week before the country’s ruling party is to select a new prime minister, could put additional pressure on the incoming administration to balance budgets. The government financing of the recovery from the March 11 earthquake, tsunami and subsequent nuclear crisis is expected to reach as high as 10 trillion yen ($130 billion).

Even before the disasters, Japan’s debt was expected to soar to almost 220 percent of its gross domestic product next year, according to the Organization for Economic Cooperation and Development, which would rank it as the largest debt-to-G.D.P. ratio in the world. Japan, however, has long been able to borrow at low nominal rates because of unwavering appetite by domestic investors for government debt.

Moody’s said that it was worried by  large budget deficits and the buildup of  government debt. Frequent change in  leadership had prevented the government from pursuing long-term fiscal reform, the agency said, while the recent  disasters had delayed recovery. Meanwhile, weak prospects for economic  growth were also hampering efforts to  curb the country’s debt burden, the  agency said.

Deflation and sluggish growth has  long weighed on Japan’s economy, eroding the country’s tax base and forcing  the government to issue debt to finance  its budget. Meanwhile, spending on  pensions and social welfare has soared  as the country’s population ages.

The global economic crisis further  darkened Japan’s economic outlook, as  has the recent tsunami and nuclear accident. Global market turmoil in recent  weeks has also wreaked havoc with the  Japanese economy, driving up the value  of the yen and hurting its export-led  economy.

The credit facility unveiled on Wednesday aims to spur Japanese spending on corporate acquisitions and resources overseas, according to a statement released by the Finance Ministry.

By spending yen for dollars and other currencies, the ministry hopes that the currency will weaken somewhat. A strong yen hurts Japanese exporters because it makes their goods less competitive and erodes the value of their overseas earnings when repatriated into yen. 

The ministry also said it would step up monitoring of currency markets by asking financial institutions to report on positions held by their currency dealers.

Prime Minister Naoto Kan, meanwhile, is expected to step down by the end of the month amid criticism of his  handling of the response to the disasters, making way for Japan’s fifth  prime minister in six years.

Mr. Noda, the finance minister, is  among a field of candidates to replace  Mr. Kan. He has supported more aggressive steps, including raising taxes,  to tackle the country’s debt. Debate  over Japan’s finances has been sidelined by the country’s recovery and reconstruction needs, however.

Article source: http://www.nytimes.com/2011/08/24/business/global/japans-credit-rating-cut-by-moodys.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Surveys Indicate Slower Growth in China and Germany

August 23, 2011 by Leave a Comment

The data do not yet point to a recession in the fragile euro zone, economists said, and indicate only a moderate cooling of torrid Chinese growth. And several analysts noted that the economic indicators were actually less negative than many had expected. Nonetheless, it has become increasingly clear that Europe cannot expect to grow its way out of the sovereign debt crisis, which has become a weight on the world economy.

“A return to recession is possible,” Marie Diron, an economist who advises the consulting firm Ernst Young, wrote in a note, referring to the European data. “This is bad news for governments’ ability to rein in public deficits.”

Germany has Europe’s most powerful economy, and has been helping the euro zone to grow despite the burden caused by excessive debt in countries like Greece and Italy. China is a crucial market for German machinery and cars, so a slowdown there will also be felt in Europe.

While not expecting a recession, Violante Di Canossa, an analyst at Credit Suisse, wrote in a note that the data “remains consistent with sluggish growth.” She said that the industrial survey for Europe pointed to a slowdown similar to the one in 2003, when there were several quarters of minimal economic improvement, rather than a sharp downturn.

A survey of manufacturers in China showed Tuesday that factory activity had probably contracted slightly in August, as concerns mounted that the country’s exports might decline because of high debts and slowing economies in Europe and the United States. The findings underpin the widely held perception that the giant Chinese economy is growing at a more moderate, yet still robust, pace.

The findings of the poll of Chinese purchasing managers, published by HSBC and with a final figure due next week, showed a reading of 49.8 for August, a touch below the 50 mark that separates expansion from contraction, as Beijing’s efforts to cool down the pace of growth began to bear fruit.

For the past year and a half, Chinese policy makers have been working to rein in booming growth and the sharp price rises that have accompanied it. Formerly free-flowing bank credit has become harder to obtain, for example, as banks have been instructed to lend less.

Despite being below 50 for the second consecutive month, the HSBC index indicated that China’s economy remained on a firm footing. The August reading was an improvement from the 49.3 recorded in July, while a subindex measuring new export orders rose to a three-month high.

The data suggest that China will not suffer a hard landing akin to the sharp slowdown seen in late 2008, Qu Hongbin, a China economist at HSBC, wrote in a note Tuesday.

Meanwhile, a survey of purchasing managers’ expectations for output in the euro zone was unchanged at a nearly two-year low, according to preliminary estimates, but was not as bad as analysts had expected.

A separate poll of economists also showed a sharp deterioration in expectations for the euro zone and Germany.

Official statistics last week showed that growth in the second quarter came nearly to a standstill in the euro zone as well as in Germany and France, the region’s two largest economies.

Fear that Europe is headed for another slowdown, which would compound the sovereign debt crisis, was responsible for driving down stock markets last week. On Tuesday, by contrast, many of Europe’s main stock indexes gained for a second straight day.

A preliminary reading of the euro zone P.M.I. composite output index, compiled by Markit, an information provider in London, was unchanged from July at 51.1. The euro zone manufacturing P.M.I., a gauge of the mood among manufacturers, fell to 49.7 from 50.4 in July, a 23-month low. A reading below 50 suggests that the economy is stalling.

“This drop does not compare with the collapse seen in late 2008 after the failure of Lehman Brothers,” Christoph Weil, an economist at Commerzbank, wrote in a note. “Nevertheless, the purchasing managers’ index does confirm that the euro zone economy is hardly growing now.”

Ms. Diron of Ernst Young said the slowing growth exposed how vulnerable Europe and especially Germany were to foreign markets.

Article source: http://www.nytimes.com/2011/08/24/business/global/surveys-show-growth-in-europe-is-nearly-at-standstill.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Russia Is Better Prepared for a Possible Global Downturn

August 18, 2011 by Leave a Comment

This time is different.

While the Russian economy is still vulnerable to the vicissitudes of global capital and commodity moves, it is in a far better position to weather the effects of a fresh recession in Europe or the United States.

Russia is not immune, of course. The European sovereign debt crisis, exacerbated by Standard Poor’s downgrade of the debt of the United States, caused a sell-off in the Russian stock market, but it hardly went into its typical free fall. The Micex index fell 17 percent from Aug. 1 until Aug. 10.

While drastic, it was about the same as the peak-to-trough decline of the Standard Poor’s 500-stock index over the last month, and Russian stocks have recovered somewhat over the last few trading sessions.

The ruble declined 7.5 percent against the dollar in 11 trading days, but then rebounded Monday, the most it has climbed in any single day in more than a year and a half.

One reason for the new resilience is that Russian private sector debt is only a fraction of what it was in 2008, after the oligarchs had quietly bulked up on Western loans collateralized against their companies’ shares.

This buildup of debt set off a cascade of margin-call selling in Russia, accelerating the collapse of the market. These debt levels are no longer widespread here.

Also, Russian banks have gone from being net debtors to net creditors.

“The situation with debt has changed dramatically,” Vladimir Tikhomirov, chief economist at Otkritie, one of Russia’s largest financial firms, said in a telephone interview.

In the fourth quarter of 2008, $80 billion in corporate and bank debt came due to foreign lenders, he said. Since then companies have paid down and extended the maturities of debt. In the fourth quarter of this year, only $35 billion will come due, giving companies a good deal more leeway to handle a downturn.

One sign of this change came from Oleg V. Deripaska, the metals and automobile tycoon whose hugely leveraged business came to symbolize the oligarchs’ debt binge and its aftermath in the recession. He announced without fanfare on Tuesday that he had restructured a $4.5 billion loan from the Russian bank Sberbank, extending its repayment period.

To be sure, Russia is hardly a haven, and never will be, as long as it continues its reliance on volatile commodity exports.

In the 20 years since the breakup of the Soviet Union, the Russian stock market has been either in the top five performing markets in the world or the bottom five in every year except one, according to estimates by Renaissance, an investment bank in Moscow.

“Russia has always been a big cyclical market,” Kingsmill Bond, the chief Russia strategist for Citigroup, said in a telephone interview from London. And despite its stronger starting position now, it is still vulnerable to a drop in the price of oil.

“If the situation in Europe worsens, and we get major recessions materializing, that would impact the oil price, and Russia would be damaged,” he said.

Mr. Bond has estimated that for each $10 drop in the average annual price of a barrel of oil, Russia loses 1 percent of its gross domestic product.

Russia can ill afford a sharp decline in the price of oil because, though the oligarchs and their businesses are carrying less debt, government spending has increased well beyond current tax receipts from oil export tariffs and mineral extraction fees.

In 2008, the Russian budget was intended to run a surplus at oil prices above $60 a barrel. But now, the Russian government estimates it will need to collect taxes on oil at prices above $120 a barrel to balance the budget. As they are already below that level, the finance ministry is borrowing from domestic and foreign investors.

Article source: http://www.nytimes.com/2011/08/18/business/global/this-time-russia-is-prepared-for-a-global-downturn.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Room For Debate: Why Aren’t Germans Protesting?

August 12, 2011 by Leave a Comment

Introduction

spanking kidsYoray Liberman for The New York Times, Kirsten Neumann/Reuters A café in Athens. Miners in Bottrop, Germany.

Market confidence worldwide took a hit this week. And in Europe, while fears over sovereign debt were temporarily eased by the European Central Bank’s decision to buy Italian and Spanish bonds, there is growing concern not only of more bailouts but also of possible bank failures. Who will pay for all of this?

As the situation in Greece shows, a huge part of the cost of more bailouts will fall on the wealthier European countries, especially Germany. But paying for the mistakes of profligate countries — and their early retirement policies — can’t possibly sit well with the hard-working Germans. And yet, the German taxpayers haven’t risen in protest.

How much will the Germans have to pay? What effect might the bailouts have on their lives?

 Read the Discussion »

<!–

Topics: Europe, Germany, Greece, demonstrations and protests

–>

Article source: http://feeds.nytimes.com/click.phdo?i=738651233f89a19ef3f34ed7e40bff3a

Filed Under: Business News Tagged With: , ,
« Previous Page
Next Page »