March 28, 2024

Lending in China Chills as Borrowing Costs Spike

HONG KONG — China’s financial system is in the throes of a cash crunch, with interbank lending rates spiking Thursday, even as growth in the economy displays signs of slowing further.

The interest rates that Chinese banks must pay to borrow money from each other overnight surged to a record high of 13.44 percent Thursday, according to official daily rates set by the National Interbank Funding Center in Shanghai. That is up from 7.66 percent Wednesday and less than 4 percent last month.

Other comparable rates in China’s interbank and money markets have soared over the past two weeks, meaning banks and other financial institutions are growing afraid of lending to one another. Those in need of short-term cash, or liquidity, must pay dearly; failure to do so raises the possibility of defaults.

In a worst-case scenario, absent intervention by policy makers, defaults at lenders with the most exposure and shakiest balance sheets could lead those institutions to fail. The damage could spread to other banks, setting off runs on deposits by ordinary Chinese. In the near term, markets will probably continue to be rattled, especially shares in financial institutions.

“China’s interbank market is basically frozen — much like credit markets froze in the United States right after Lehman failed,” said Patrick Chovanec, managing director and chief strategist at Silvercrest Asset Management. “Rates are being quoted, but no transactions are taking place.”

China’s policy makers have an arsenal of options at their disposal to inject more money into the financial system, including conducting open market operations — trading in securities to control interest rates or liquidity — or, more drastically, freeing up some of the trillions of renminbi that banks are required to keep on reserve with the central bank, the People’s Bank of China. In the past, when China’s economy has hit a rough patch, the government usually stepped in, forcing state-run banks to pump liquidity into the market, even though there was a risk it could drive up asset prices and lead to overinvestment.

“China’s central bank, by allowing a spike in interbank rates to persist for longer than usual, is sending a message to the market that liquidity needs to tighten and credit growth slow at the margin,” Andrew Batson and Joyce Poon, analysts at GaveKal Dragonomics, wrote Thursday in a research note. “Indeed, the central bank has been using its open-market operations to drain liquidity from the interbank market since January, setting the stage for just this kind of showdown with banks.”

If the central bank’s inaction toward the deepening liquidity squeeze is a form of financial brinkmanship, some analysts see it as aimed at reining in smaller banks that had been tapping the interbank market as a source of low-cost funding for their investment in higher-yielding bonds, or to finance off-balance-sheet activities, or shadow banking.

“The P.B.O.C. and some other regulators could be taking the opportunity of the tight funding conditions to ‘punish’ some small banks which had previously taken advantage of the stable interbank rates,” Ting Lu, China economist at Bank of America Merrill Lynch, said Thursday in a research note.

Mr. Lu said that although the surge in interbank lending rates could have its desired effect on reckless lenders, “it will undoubtedly disrupt both the financial markets and the real economy if the liquidity squeeze lasts too long.”

China’s economy has been showing signs of a slowdown in recent months. On Thursday, a preliminary survey of factory purchasing managers in June suggested that output in China had fallen to its lowest level in nine months, as manufacturers cut production at a faster pace in response to slack demand both at home and overseas.

The preliminary purchasing managers’ index, published by HSBC and compiled by Markit, dropped to 48.3 points in first three weeks of June, its lowest level since September and down from a final figure of 49.2 in May. A reading above 50 indicates growth, and anything below signals contraction.

David Barboza contributed reporting from Shanghai.

Article source: http://www.nytimes.com/2013/06/21/business/global/china-manufacturing-contracts-to-lowest-level-in-9-months.html?partner=rss&emc=rss

Bucks Blog: Be Wary of Debt Settlement Calls

It may sound like a solution: You are mired in debt and a telemarketer calls, offering to help reduce the amount you owe, in exchange for a fee.

But consumers should be very wary of such calls, said Claire Rosenzweig, president and chief executive of the Better Business Bureau of Metropolitan New York. “If someone just willy-nilly calls you and says they can reduce your debt, just don’t do it,” she said. The better choice is to hang up and do your own research about the legitimate resources that are available to help you, she said. Then, you can initiate your own call, once you are comfortable with an agency’s credentials.

Debt settlement firms typically offer to negotiate with creditors in exchange for a fee. But you can often do that yourself at no cost, she said, and in most cases, it makes sense to use the money you would pay to the settlement firm to pay down your debt directly.

Most settlement firms charge a fee, and some hold your money while they negotiate with creditors. But consumers’ credit ratings may suffer in the interim, and they may ultimately may wind up further in debt if the firm doesn’t follow through. In the worst case scenario, firms may take your money and do nothing.

That’s what is alleged to have occurred, in a case announced by the federal government on Tuesday. The government charged a debt settlement company with defrauding more than 1,200 people who were struggling with credit card debt.

The office of Preet Bharara, the United States attorney for the Southern District of New York, announced the unsealing of an indictment against Mission Settlement Agency, its manager and three employees. Officials said the firm, operating for several years in Manhattan and Brooklyn, systematically defrauded consumers across the nation. A message left at the agency’s phone number wasn’t immediately returned.

The action was the first criminal referral from the federal Consumer Financial Protection Bureau. “These wolves in sheep’s clothing take money from consumers who are already struggling to pay their bills, falsely promising them help while really making their problems worse,” the bureau’s director, Richard Cordray, said in prepared remarks.

According to the indictment, the firm contacted consumers by phone as well as by mail and promised to reduce their debts, typically by 45 percent. The firm took thousands of dollars in fees from customers, telling them it had to set aside money in escrow while it negotiated with creditors. But in the majority of cases, the firm did little or no work and “failed to achieve any debt reduction whatsoever.”

“Preying upon the financial desperation of individuals struggling to pay their credit card debts,” the indictment said, “the defendants falsely and fraudulently tricked over a thousand such individuals into becoming Mission’s customer with significant — but false — assurances about Mission’s ability to help.”

Ms. Rosenzweig of the Better Business Bureau said debt settlement firms know consumers are vulnerable to hearing what they want to hear.  But if you want help negotiating your credit card debt, the Justice Department accredits certain organizations to provide debt counseling and maintains a list on its Web site. Most accredited agencies offer their services for a low fee, or sometimes free — but you should ask up front.

Additional information about other options for managing your debt — like help if you are in trouble with your mortgage — is available from the Better Business Bureau and from the Federal Trade Commission.

Have you ever used a debt settlement firm? What happened?

Article source: http://bucks.blogs.nytimes.com/2013/05/07/be-wary-of-debt-settlement-calls/?partner=rss&emc=rss

DealBook: Video: The Lonely I.P.O. of Carbonite

David Friend’s business is built around preparing for the worst-case scenario. Perhaps that’s why his company, Carbonite, was still willing to go public during an especially volatile week for stocks. Mr. Friend talks about Carbonite and its market debut.

Article source: http://feeds.nytimes.com/click.phdo?i=3369c6270091c609d58a9c2381964dbd