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>>Spain's Banks Are Freaking Out As The ECB Is About To Take Away Their Liquidity Pump
Gregory White | Jun. 28, 2010, 5:05 PM | 2,890
Read more: http://www.businessinsider.com/spains-banks-ecb-liquidity-2010-6#ixzz0sF5i8k3o
Spain's banks are freaking out right now about the possibility that the ECB might take away its €442 billion funding facility, according to the FT.
The ECB's plan to allow the funding facility to expire have been labeled "absurd" by Spanish banks lobbying for its continuation.
You can see what Spanish banks are worried about. Here's a chart detailing the liquidity drop off if the ECB allows the fund to expire on July 1.
From FT Alphaville:
Read more: http://www.businessinsider.com/a-failed-debt-auction-proves-that-the-ecb-is-being-ridiculously-dumb-2010-6#ixzz0sF5LHvHF
>>Spain's Debt Maturity Wave Hits Next Month And It's Already Obvious They Don't Have Enough Cash
- Spain Gets Worse, As IBEX Now Down Over 3%
- Spain's Banks Are Freaking Out As The ECB Is About To Take Away Their Liquidity Pump
Spain faces a confluence of events in July, whereby it will need to finance 21.7 billion euros within a single month. This combines shortfalls in its budget and a wave of scheduled government debt redemptions.
Even if the Spanish government draws down its cash reserves, Goldman Sachs believes it will still be short 12.6 billion euros.
Goldman:
July: the government needs to finance €21.7bn (a €13.5bn cash deficit and a €8.2bn net redemption), of which only €9.1bn can be covered by cash reserves: the rest, €12.6bn, would then represent a potential shortage.
This money will have to be raised through some sort of debt issuance. Here are Spain's options:
Goldman:
-) First, the cash deficit may be smaller than we have assumed, not least because the government, aware of the funding constraints, will minimise discretionary spending or delay payments to service providers, etc. In addition, the additional spending cuts adopted in May have been applied as of June and may result in lower deficits than we have assumed.
-) In addition, the government may issue bigger amounts of paper than we have assumed, even if it has to pay more for it. In this vein, the government has indicated it will issue a special, syndicated bond in Q3—it issued one such bond in February, for €5bn.
-) More speculatively, the government has large amounts of financial assets (apart from the €18.3bn in cash it had at the end of May). While most of these assets are illiquid—public loans, shares, foreign loans—some may be more easily sold or given as collateral against commercial borrowing.
-) Finally, the Treasury has arranged credit lines with commercial banks, which can be used as a last resort.
It goes without saying that the government’s priority will be smooth and well-bid auctions (see calendar below), with local banks playing a crucial role.
See more about Spain's terrible financial predicament >
(Via Goldman Sachs, European Weekly Analyst, Javier Pérez de Azpillaga, 24 June 2010)
Tags: Economy, Spain, Financial Crisis
Read more: http://www.businessinsider.com/spain-debt-maturity-crunch-july-2010-6#ixzz0sF4wZ600
BI: Why is Trichet Removing Liquidity NOW? Watch out below
A Failed Debt Auction Proves That The ECB Is Being Ridiculously Dumb
Joe Weisenthal | Jun. 29, 2010, 7:42 AM
Sorry, but it's becoming more and more obvious that the crisis in Europe is a major referendum on the ECB.
First, there's this Spanish bank liquidity issue. Basically, the ECB is withdrawing what appears to be a key source of support, at what seems like the worst possible time.
And then there's the fact that while the ECB is buying PIIGS sovereign debt, it's also "sterilizing" the purchases with asset sales,
But why is it doing this?
What possible justification does the ECB have in reducing liquidity, which is exactly what asset sales do by sucking cash out of the market?
Anyway, the market is clearly giving a monster rejection of this strategy.
FT Alphaville reports that an ECB fixed-term deposit auction this morning has gone over horribly, with yields coming in far higher than expected, and with the total amount sold less than the €55bn expected.
As if Europe didn't already have enough problems, it's clear the market is rejecting this form of central bank austerity. When will Trichet wake up?
http://www.businessinsider.com/a-failed-debt-auction-proves-that-the-ecb-is-being-ridiculously-dumb-2010-6
WSJ: Futures Sink Amid Global Selloff
By STEVE GOLDSTEIN
JUNE 29, 2010, 7:26 A.M. ET
U.S. stock futures slumped Tuesday, with worries over Chinese and global economic growth in the spotlight ahead of the release of key indicators later in the week.
More than two hours before the start of trading, Dow Jones Industrial Average futures were 120 points lower at 9968. The S&P 500 futures slid 12.4 points to 1058.5 and Nasdaq 100 futures lost 22.75 points to 1813.25. Changes in futures do not always accurately predict early market moves after the opening bell.
The Dow Jones Industrial Average, the S&P 500 and Nasdaq Composite ended with mild losses Monday, after leaders of the world's 20 top economies pledged to rein in spending to counter mounting debt burdens. The Bank for International Settlements also made the case for austerity.
Worries on Tuesday were focused on China, which has barely any outstanding debt, as the Conference Board sharply revised lower its April leading economic indicator for the country. The Shanghai Composite lost 4.3%, with the move by the Agricultural Bank of China to cut the price range for the local portion of its estimated $23 billion initial public offering also weighing on Chinese equities.
Concerns surrounding the end Thursday of the European Central Bank's 12-month liquidity facility also weighed on sentiment, dragging European markets and the euro sharply lower.
Oil futures skidded $1.53 a barrel, and gold futures dipped $2 an ounce. Bonds rose, with yields on 10-year Treasury bonds falling 5 basis points to 2.97%
Tuesday's economic calendar features the S&P/Case-Shiller April home price index at 9 a.m. The Conference Board's U.S. confidence gauge for June is due for release at 10 a.m., with markets expecting a slight decline.
"We expect consumer confidence to remain at a higher level than in the first quarter and increase further in the coming months as momentum in the labor market recovery builds," said economists from Barclays Capital.
Write to Steve Goldstein at steven.goldstein@dowjones.com
BL: Google May Lose China License in Government Clash on Censorship Avoidance
By Brian Womack and Mark Lee
June 29 (Bloomberg) -- Google Inc. may lose the right to operate a website in China, forcing the search-engine operator to abandon the world’s largest Internet market, after the government objected to its efforts to avoid censorship controls.
Authorities probably won’t renew Google’s Internet license if the company continues to automatically redirect users of the Chinese service to its Hong Kong site, Google said in a blog post today. To keep Google.cn running, users will no longer be taken directly to the unfiltered site, according to statement.
“Google would effectively go dark in China,” Chief Legal Officer David Drummond said in the blog posting. “It’s clear from conversations we have had with Chinese government officials that they find the redirect unacceptable.”
The dispute has cost the company partnerships with China Unicom (Hong Kong) Ltd. and Motorola Inc. in the country. The operator of the world’s most used search engine said in January it would stop self-censorship of the Chinese portal, ending cooperation with the laws of a state that bans references to content deemed politically unacceptable.
“If the Chinese government isn’t happy with them running uncensored search results out of the Hong Kong site -- I don’t see why they’ll be any happier just because it becomes one click away,” said Danny Sullivan, who runs the search-analysis website Search Engine Land.
Compliance With Law
The government will review the Google issue, Foreign Ministry spokesman Qin Gang said at a briefing in Beijing today. Overseas Internet companies should comply with Chinese law, Qin said.
Google, based in Mountain View, California, said it plans to stop redirecting users automatically in the next “few days,” according to the blog posting.
The new arrangement is an “inconvenience” that will probably lead to further loss of business in China for Google, said Eric Wen, head of Internet research at Mirae Asset Securities in Hong Kong. Chinese market leader Baidu Inc. will gain business from Google in the country, Wen said.
Google submitted its application for the Internet license to the Chinese government today ahead of a deadline tomorrow, Jessica Powell, a Tokyo-based spokeswoman for the Internet company, said in an e-mail today. Google expects to hear back from the government soon, she said.
Directing Users
Google in March closed its China search engine and began directing users to the Hong Kong site. The shift led to a drop in market share in China in the first quarter, falling to 30.9 percent from 35.6 percent three months earlier, according to data from research firm Analysys International. Baidu’s share increased to 64 percent from 58.4 percent, according to Analysys.
The latest approach allows Google to “stay true” to a commitment not to self-censor search results in China while adhering to local law, according to Drummond’s posting today.
For Google, a closure of the Chinese site would end four years of clashes over censorship and highlight the challenges global companies face operating in a one-party state that controls the flow of information.
The company in January said it would stop censoring content after its computers were hacked from within China. The company said then its systems were targeted by “highly sophisticated” attacks aimed at obtaining proprietary information, as well as personal data belonging to human-rights activists who use the company’s Gmail e-mail service.
Annual Sales
Google would have generated $600 million in annual sales this year in China, according to estimates by JPMorgan Chase & Co. in January. That’s about 2 percent of the company’s projected total revenue this year, according to the average of 28 analyst estimates compiled by Bloomberg.
Chief Executive Officer Eric Schmidt said last month the situation for Google in China was “stable.” The company was maintaining its business relationships and engineering centers in the country, he said.
China had 384 million Internet users at the end of 2009, the government estimates. That’s more than the total U.S. population. The number may grow to 840 million, or 61 percent of the Chinese population, by 2013, according to EMarketer Inc. in New York.
“If Google wants to continue operating in China, it will have to get used to more vacillations from the authorities,” said Charles Mok, chairman of the Hong Kong branch of the Internet Society, an international industry body. “In this confrontation between Google and the Chinese government, there are quite a few instruments at the disposal of the government that could be brought to bear on Google.”
To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net
Last Updated: June 29, 2010 05:46 EDT
Greece is most likely to leave eurozone in next three years, survey of top investors and bankers shows
News - Funds
Investment International
Written by Ray Clancy
Tuesday, 29 June 2010 10:00
Greece is most likely to leave the eurozone followed by Portugal, Spain and Ireland as debt problems facing these nations raise questions about the monetary union’s future in its current form, according to top investors and bankers.
Almost half of 440 senior executives surveyed by RBC Capital Markets agree that there is a greater than 50% chance of one or more countries leaving the eurozone in the next three years. More than a third see at least a 25% chance of a complete breakup of the eurozone over the same period.
The research found that Germany is regarded as the fifth most likely country to leave the eurozone, possibly reflecting concern that the German government may lose confidence in the monetary union if the current crisis continues.
While the prospect of a G20 economy defaulting on its debt remains relatively low, almost a third of the respondents place the odds of this occurring at 50% or more, indicating a rising concern that the debt problems facing the global economy may spill outside the eurozone.
Among those who foresee a significant chance of a G20 default, Italy received the most votes, followed by Argentina, Turkey, Mexico and Russia. The UK is perceived to be the Western European country, after Italy, most likely to default on its debt, both within the G8 and the G20.
When it comes to currency, some two thirds of the executives questioned believed the value of the euro will continue to slide over the next 12 months. While 80% believe the dollar will remain the dominant reserve currency in three years’ time, with the consensus dropping to 57% over a five year period.
RBC says this says more about the lack of real alternatives, rather than confidence in the dollar, and is further illustrated by the fact that more respondents, some 15%,see the Chinese renminbi as the reserve currency of choice within five years rather than the euro, 12%, despite the low likelihood of this occurring.
Although the dollar is expected to remain the world’s reserve currency for the near future, 40% believe that over the next three years the currencies of exporting countries, such as the Persian Gulf States, Taiwan and Hong Kong, will stop being pegged or managed closely against the dollar.
The respondents also predicted an increasing growth imbalance between Europe and the rest of the world, even as US economic influence is seen to be waning, with over two thirds, 66%, in agreement. Some 56% believe that emerging markets such as China, Brazil and India will replace the US as a source of demand driving global growth.
‘Rising government debt in the developed world and the re-balancing of power between developed and developing nations poses questions over the outlook for currencies. The downside of growing sovereign debt and pressure on currencies such as the euro is clear,’ said Richard Talbot, co-head of global research at RBC Capital Markets.
‘However, it is the dynamic of the relationship between the world’s creditors and the world’s debtors and their currencies that will ultimately determine the competition for and the cost of capital in the new era,’ he added.
http://www.investmentinternational.com/news/funds/greece-is-most-likely-to-leave-eurozone-in-next-three-years-survey-of-top-investors-and-bankers-shows-3671.html
>>Byrd’s Death Complicates Democrat Strategy, Financial Reform now in doubt
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Byrd’s Death Complicates Democrat Strategy
June 29, 2010, 2:31 AM
The death of Senator Robert C. Byrd of West Virginia threw into doubt the ability of Democrats to win approval this week of a financial regulation bill and underscored how the smallest changes in the size and composition of their Congressional majority have complicated their efforts to pass ambitious legislation over near-unanimous Republican opposition.
Despite his physical struggles in recent years, Mr. Byrd was a reliable Democratic vote at crucial procedural points, and his death early Monday deprived party leaders of a sure supporter of the Wall Street regulatory measure that they hoped to send to President Obama by the end of the week, Carl Hulse and Jeff Zeleny report in The New York Times.
“We are down a vote,” said Senator Richard J. Durbin of Illinois, the No. 2 Democrat. “We have got some work to do.”
It was the second time in recent months that the loss of a longtime colleague threatened the ability of Democrats to advance a top legislative priority. The death last year of Senator Edward M. Kennedy of Massachusetts — who was second only to Mr. Byrd in length of Senate service — and his replacement in January by a Republican, Senator Scott Brown, forced Democrats into procedural gymnastics to enact the health care law.
Democrats now need to reverse some internal opposition and hold on to a trio of Republicans to push through the Wall Street measure that was agreed to by House and Senate negotiators last week. The House is scheduled to press ahead with the legislation this week.
Mr. Byrd appears certain to be succeeded at least temporarily by a Democrat, since Gov. Joe Manchin III of West Virginia, a Democrat, can appoint an interim successor. But whether that eventual senator will support the Wall Street measure — as well as other elements of the Democratic agenda, like an energy bill — is as yet unknown.
On Monday, Natalie E. Tennant, the West Virginia secretary of state, a Democrat, told reporters that her interpretation of state law was that the interim senator would serve until the November 2012 election, allowing Democrats to avoid a special election this year. Republicans were exploring whether they could challenge that position, but said they saw little recourse and appeared to be resigned to a two-year appointment.
Were a contest to be held this November, Republicans could be well positioned to pick up the seat, given the national mood and difficulties of Democrats in West Virginia. Mr. Manchin said he would not appoint himself to fill the vacancy. But state party officials said the governor would be among the leading contenders for the Senate seat in 2012.
The governor has candidates in mind for the interim appointment, aides said, but an announcement was not expected until at least next week or beyond, after the funeral for Mr. Byrd. Senate aides said it was likely that Mr. Byrd would be memorialized in the Capitol this week.
The list of candidates included Larry Puccio, who was elected as the state Democratic Party chairman last week, and Nick Casey, a former party chairman who resigned because he has been nominated for a federal judgeship.
The Senate Democratic majority has been in flux almost since Democrats won control of the Senate in the 2006 elections. In December 2006, Senator Tim Johnson of South Dakota became seriously ill and was absent from the Senate for months, leaving Democrats with a minimal working majority.
Following the 2008 elections, Democrats reached a 60-vote majority after the party switch of Senator Arlen Specter of Pennsylvania and an extended recount in Minnesota that ended with the arrival of Senator Al Franken in July 2009.
But the frequent absences of Mr. Byrd and Mr. Kennedy due to ill health made it difficult for Democrats to muster the 60 votes to break Republican filibusters except for the most urgent circumstances. The election of Mr. Brown of Massachusetts in January reduced that majority to 59, and it will now rest at least temporarily at 58.
In the days leading up to Senate passage of the health care bill, Mr. Byrd weathered votes during the night and in cold and snowy weather despite his fragile condition, offering a thumbs-up to signal both the state of his health and his willingness to vote to overcome Republican opposition. As recently as last week, he was weighing in on Senate procedural issues.
Mr. Byrd’s death could also have implications for a coming fight over energy legislation intended to address climate change. In recent months, he had become more open to a plan to reduce carbon emissions, despite his strong backing for his home-state coal-mining industry, but any successor might be less likely to do so.
With Mr. Byrd’s death, Senator Daniel Inouye, Democrat of Hawaii, was sworn in as the president pro tem of the Senate, a largely ceremonial post that is traditionally held by the senior member of the majority party. As a result, Mr. Inouye, elected in 1962, is now third in line of succession to the presidency in the event of vacancy after the vice president and speaker of the House.
Go to Article from The New York Times »
http://dealbook.blogs.nytimes.com/2010/06/29/byrds-death-complicates-democrat-strategy/
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Guess What: Financial Reform Might Seriously Be DEAD
It's not just Scott Brown. Now Susan Collins (R-ME) is saying she may not be able to vote for The Dodd-Frank Act, as a result of the new bank levies that were announced added in during last Friday's early-morning dealmaking.
Suddenly, this is looking like a situation where nobody wants to be the 60th vote, and beyond that, the GOP is feeling that the President is toxic enough, such that they're willing to "side with Wall Street" and oppose him.
Between Sens. Brown and Collins, and the passing of Robert Byrd, suddenly this goal of having a bill on the President's desk by July 4th feels like a longshot, at least at this moment
Read more: http://www.businessinsider.com/susan-collins-threatens-to-vote-against-dodd-frank-act-2010-6#ixzz0sExZjjfR
FT sees Stampede to safety - 10 year plunges under 3%, Euro crashing, Spain gets worse, China IPO a flop
From the ever colorful Business Insider, we get more color on this morning's bloodbath. Euro/Swiss 1.32, Swiss strength amazing. 10 year treasury yields at 2.98%, 2 year yield under 6%, a record low
As the euro tumbles, we keep an eye on the crucial $1.20 mark, considered "the line in the sand" for the single currency
Rush to safety worldwide is the theme of the morning , FT Alphaville states
STAMPEDE TO THE LIFEBOATS:
http://ftalphaville.ft.com/blog/2010/06/29/273591/stampeding-to-the-lifeboats/
Scroll down for all headlines:
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Shanghai Stocks Plummet Nearly 5% And The Euro Is Crashing
Shanghai stocks were slammed today, with China's CSI 300 down 4.6%. The Conference Board reported today that its leading indicator for Chinese economic activity actually rose by just 0.3% in April, rather than 1.7% as previously reported, due to a calculation error. The new April value is substantially slower than March's 1.2% gain, thus fueling fears that China's economy could slow more than the government intends.
Moreover, the euro is plummeting back towards its lows, with EUR/USD down to $1.2187 as shown in the Finviz graphic below. In contrast, the dollar index (DXY) is up half a percent to 86.10, though still below the recent peak above 88.
Spanish ten-year bond yields are rising, but remain below their recent peak. Yet Greek 10-year bond yields appear to be charging higher again and are now at 10.66% as shown by Bloomberg below.
U.S. futures aren't liking any of this, already pointing to more than 1% declines for major indices.
Read more: http://www.businessinsider.com/asian-market-wrap-june-29-2010-6#ixzz0sEv7EHum
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Spain Gets Worse, As IBEX Now Down Over 3%
Joe Weisenthal | Jun. 29, 2010, 6:35 AM
All eyes are on Spain this morning, following the controversy over the ECB's decision not to continue plying the country's banks with no-strings-attached liquidity.
The IBEX is now down over 3%.
Frankly, this feels like it could be one of those key blunders in this crisis, if the ECB doesn't blink, and the Spanish banks take it on the chin.
Read more: http://www.businessinsider.com/spain-gets-worse-as-ibex-now-down-over-3-2010-6#ixzz0sEs8ViKA
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The Other Big Piece Of Bad News Out Of China: IPO Of Ag Bank Is A Flop
Joe Weisenthal | Jun. 29, 6:52 AM | 17 |
Is the bubble popping? Read »
The reality is the bank may be overexposed to rural China that is likely to see more defaults than cities. AgBank already has a higher NPA ratio, at 2.9%, then any other major Chinese bank. For example, the Chinese Construction Bank has an NPA ratio of 1.6%.
Read more: http://www.businessinsider.com/agricultural-ban-of-china-ipo-2010-6#ixzz0sErfyoQ5
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Hello, We've Got A New High On The 10-Year And Yields Below 3%
Joe Weisenthal | Jun. 29, 5:01 AM | 171 |
Flight to quality in full effect.
Look at the 10-year (and 30-year) breaking out. As FT Alphaville noted, yields have fallen below 3%.
http://www.businessinsider.com/hello-weve-got-a-new-high-on-the-10-year-and-yields-below-3-2010-6
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Here's Why Everyone Freaked Out About China Today
Vincent Fernando, CFA | Jun. 29, 5:42 AM | 708 | 2
Past growth proved to be false. Read »
http://www.businessinsider.com/heres-why-everyone-freaked-out-about-china-today-2010-6
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Spanish Stocks Getting Hammered After ECB Gives Cold Shoulder To Country's Banks
Joe Weisenthal | Jun. 29, 4:57 AM | 340 | 2
A reminder to the world: Europe is still in disorganized disarray.
Read »
http://www.businessinsider.com/spanish-stocks-getting-hammered-after-ecb-gives-cold-shoulder-to-spanish-banks-2010-6
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Spain's Banks Are Freaking Out As The ECB Is About To Take Away Their Liquidity Pump
Gregory White | Jun. 28, 5:05 PM | 2,820 | 9
July will not be good for Spain. Read »
Read more: http://www.businessinsider.com/clusterstock#ixzz0sEuBDKaz
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The Market Goes Under Full Anesthesia: Here's What You Need To Know
Joe Weisenthal | Jun. 28, 3:58 PM | 1,872 | 10
Either that or everyone's watching The World Cup. Read »
http://www.businessinsider.com/closing-bell-june-28-2010-6
>>Shanghai Stocks Plummet Nearly 5% And The Euro Is Crashing
Shanghai stocks were slammed today, with China's CSI 300 down 4.6%. The Conference Board reported today that its leading indicator for Chinese economic activity actually rose by just 0.3% in April, rather than 1.7% as previously reported, due to a calculation error. The new April value is substantially slower than March's 1.2% gain, thus fueling fears that China's economy could slow more than the government intends.
Shanghai drove Asia-regional weakness, with the MSCI Asia Apex 50 down 2.3%. Australia showed decent relative strength vs. China, given it was down just 0.9%. Perhaps news of a more mining-friendly government is helping buoy stocks down under.
MSCI Asia Apex 50 -2.3%
Japan's Nikkei 225 -1.3%
Hong Kong's Hang Seng -2.3%
China's CSI 300 -4.6%
Australia's ASX 200 -0.9%
Europe took it on the chin as well, with major markets down 2% or more.
Britain's FTSE 100 -2.0%
France's CAC 40 -2.5%
Germany's DAX -2.4%
Moreover, the euro is plummeting back towards its lows, with EUR/USD down to $1.2187 as shown in the Finviz graphic below. In contrast, the dollar index (DXY) is up half a percent to 86.10, though still below the recent peak above 88.
Spanish ten-year bond yields are rising, but remain below their recent peak. Yet Greek 10-year bond yields appear to be charging higher again and are now at 10.66% as shown by Bloomberg below.
U.S. futures aren't liking any of this, already pointing to more than 1% declines for major indices.
All those inconsistencies I've been watching seem about to resolve themselves
Brace for impact!
BI: Here's Why Everyone Freaked Out About China Today
Vincent Fernando, CFA | Jun. 29, 2010, 5:42 AM | 818 | 3
Chinese stocks were absolutely hammered overnight, with the CSI 300 down nearly 5%. One explanation for the sudden change of heart is that the Conference Board massively downgraded their previous estimate of April's China Leading Indicator today.
They originally reported, on June 15th, that their leading indicator index for China rose 1.7% in April.... yet today they slashed that figure down to merely 0.3%, which is well below March's 1.2% gain. It's also massively lower than the 3.3% growth rate recorded for the six-month period form October 2009 to April 2010.
Conference Board:
Good Morning! REDRUM REDRUM!
YIKES: States of Crisis: 46 US States Facing Greek-Style Deficits
By Edward Robinson
June 25 (Bloomberg) -- Californians don’t see much evidence that the worst economic contraction since the Great Depression is coming to an end.
Unemployment was 12.4 percent in May, 2.7 percentage points higher than the national rate. Lawmakers gridlocked over how to close a $19 billion budget gap are weighing the termination of the main welfare program for 1.3 million poor families or borrowing more than $9 billion in the bond market. California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.
Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.
Even as the U.S. appears to be on the mend -- gross domestic product has climbed three straight quarters -- finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP.
“States are going to have to cut back spending and raise taxes the same way Greece and Spain are,” says Dean Baker, co- director of the Center for Economic and Policy Research in Washington. “That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”
Stimulus Dries Up
State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.
State leaders won’t be able to ride out this cycle the way they have in the past. The budget holes are too large. For the first time since 1962, sales and income tax revenue fell for five straight quarters, through December 2009, according to the Nelson A. Rockefeller Institute of Government at the State University of New York at Albany.
Lawmakers need to overhaul tax policy, underfunded public pensions and entitlement spending programs such as Medicaid if they want to establish long-term plans that will foster growth, says former New Jersey Governor Christine Todd Whitman.
If they fail to act, state fiscal positions will steadily erode and hurt the U.S. economy through 2060, according to a March 2010 report prepared for Congress by the U.S. Government Accountability Office.
‘Major Surgery’
“States don’t have a choice anymore,” Whitman says. “These problems are going to require major surgery.”
Reform may get short shrift as Republicans and Democrats intensify their age-old fight over taxes and spending in this election year. On May 20, New Jersey Governor Chris Christie vetoed a Democratic bill that would have raised income taxes for residents earning at least $1 million a year to help close an $11 billion deficit. Christie, a Republican, wants to cut spending for school districts and cap property tax increases.
“At some point, the people’s ability to pay runs out,” Christie said in a speech in New York on May 25.
The widening deficits have led to some unorthodox moves. In California, the state grabbed $1.7 billion in redevelopment money from local governments in May. Riverside County, a Los Angeles suburb where the housing bust has left unemployment at more than 15 percent, lost $28 million that had been set aside to build fire stations, senior centers and other public works.
Jobs or Education
The projects would have created 3,000 jobs, says Tom Freeman, spokesman for the county’s Economic Development Agency. The government needed the county cash for schools, says Aaron McLear, spokesman for Governor Arnold Schwarzenegger.
The episode demonstrates how the fiscal mess pits job creation against education in a zero-sum game, says Robert Hertzberg, the Democratic speaker of the State Assembly from 2000 to 2002. California is locked in a rigid system in which legislators need a two-thirds majority to raise taxes and yet must comply with voter-approved initiatives that mandate prison construction and other spending.
There’s little chance of any sweeping changes this year ahead of a gubernatorial race between Republican Meg Whitman, former chief executive officer of EBay Inc., and Attorney General Jerry Brown, a Democrat who was governor from 1975 to 1983.
‘So Dysfunctional’
The winner will have to muster the political courage to take on core constituencies, whether anti-tax conservatives who support Whitman or labor unions that back Brown, says Steve Westly, California’s Democratic treasurer from 2003 to 2007.
The risk is that California ends up like Greece, with no one trusting that it can get its financial house in order, says Westly, now a venture capitalist in Menlo Park. “It has to be a combination of cuts and revenue increases,” he says.
Still, California isn’t Greece. It’s home to Silicon Valley, Hollywood and a $27 billion agriculture industry. “It’s unbelievable,” says Bob Nichols, CEO of Windward Capital Management Co. in Los Angeles. “How do you screw up a place with the growth capability of California? It’s so dysfunctional.”
To contact the reporter on this story: Edward Robinson in San Francisco at edrobinson@bloomberg.net
Last Updated: June 25, 2010 00:00 EDT
LOL, had heard that on ZH yesterday...what will the US sell, when it's our turn?
$27.17 Premarket: BP Plunges to 14-Year Low on Spill Costs, Hurricane Threat to Gulf Cleanup
By Eduard Gismatullin
June 25 (Bloomberg) -- BP Plc slumped to a 14-year low in London trading on mounting costs to clean up the Gulf of Mexico oil spill amid concerns the first tropical storm of the Atlantic hurricane season may hamper efforts to halt the leak.
BP fell as much as 24.50 pence, or 7.5 percent, to 300.75 pence, the lowest since Aug. 7, 1996. The company has lost 54 percent of its market value since the April 20 explosion on the Deepwater Horizon rig, which killed 11 crew members and triggered the spill.
“It’s obviously not good news for BP,” said Colin Morton, who helps manage about $1.7 billion at Rensburg Fund Management in Leeds, England. “Who is going to buy the stock ahead of the potential hurricane?”
BP should sell shares to counter concerns that cleanup and liability costs will make it unable to pay creditors, according to Alastair Syme, an analyst at Nomura Holdings Inc. in London. The cost to protect BP bonds against default has climbed even after it agreed to set aside funds over several years to cover spill expenses. While BP can access about $15 billion in cash, the Atlantic hurricane season is unsettling for investors, Syme said.
Disrupt Cleanup
The first tropical storm of the Atlantic hurricane season, which started June 1, has a 60 percent chance of forming this weekend, and may head into the Gulf, possibly disrupting clean up, which involves 4,500 vessels and 37,000 people.
A collection of thunderstorms was intensifying in the Caribbean off Honduras and Nicaragua, the U.S. National Hurricane Center said at 2 a.m. Miami time today.
The cost of BP’s response to the spill has reached $2.35 billion, the company said today in a statement.
BP has been collecting oil and gas from the leaking well through two systems pumping to vessels on the surface. About 7,215 barrels of oil were recovered in the first 12 hours of June 24 in the Gulf, the company said on its website.
The recovery vessels may need to begin preparing to evacuate should a hurricane approach. Government forecasters say the hurricane season may be the worst since 2005, when storms including Katrina devastated New Orleans and damaged platforms and pipelines in the area.
Detect Leak
The company is drilling two relief wells to stop the leaking Macondo well, which is gushing as many as 60,000 barrels of oil a day. The first well, started on May 2, has reached 16,275 feet (5,050 meters) and has detected the bottom of the well after ranging tests. The plugging with drilling mud will start in a few weeks, BP said.
“Subsequent ranging runs will be needed to more precisely locate the well,” the London-based company said today in a statement. “Drilling and ranging operations will continue over the next few weeks towards the target intercept depth of approximately 18,000 feet, when ‘kill’ operations are expected to begin.”
BP, while being investigated by U.S. authorities, agreed with President Barack Obama to deposit $20 billion in an independently managed account to cover cleanup costs and compensation claims. Raymond James & Associates Inc. has estimated that the spill may cost BP about $62.9 billion.
To contact the reporter on this story: Eduard Gismatullin in London ategismatullin@bloomberg.net
Last Updated: June 25, 2010 05:35 EDT
>>Gulf Oil Spill Ticking Time Bomb for Bluefin Tuna (Update1)
By Bruce Einhorn and Stuart Biggs
June 25 (Bloomberg) -- BP Plc’s oil leak has polluted 140 miles (225 kilometers) of shoreline from Louisiana to Florida. Below the surface, the crude threatens a staple of sushi restaurants from New York to Tokyo: bluefin tuna.
Petroleum gushing from a seabed well in the Gulf of Mexico has caused slicks that overlap one of two spawning grounds for Atlantic bluefin. The adult fish lay eggs in the Gulf in April and May before heading to the North Atlantic to feed.
Tuna, which need clean surface water to spawn, may have been covered in oil while chemicals used to break up the oil may damage their eggs, limiting reproduction, Bloomberg BusinessWeek reports in its June 28 issue. Atlantic bluefin are on the World Conservation Union’s endangered list after years of overfishing.
“This is a real blow,” said Bill Fox, managing director for fisheries at WWF, formerly the World Wildlife Fund, which investigates overfishing and illegal catches in the Atlantic and Mediterranean Sea, the bluefin’s other spawning ground. “The oil plus the dispersants are likely to have a huge effect.”
BP is using a drilling ship to try to collect oil from the damaged well, which is leaking as much as 60,000 barrels of oil a day 40 miles off Louisiana’s coast since the Deepwater Horizon drilling rig exploded on April 20.
The London-based company said today it has spent about $2.35 billion responding to the oil spill. BP is drilling to intercept the leaking well permanently and conducting “ranging” tests to guide the drill to its target.
Fenced Off
This so-called relief well reached a depth of 16,275 feet on June 23 and BP expects to plug the damaged well at 18,000 feet, the company said today. About 27,090 barrels of oil were collected on June 22, the company said.
The U.S. has closed 36 percent of federal waters in the Gulf to fishing, equivalent to 86,985 square miles (225,290 square kilometers). Fishing for bluefin tuna in the Gulf was already banned to protect the spawning area, according to the U.S. National Oceanic and Atmospheric Administration.
Scientists from the NOAA and other institutions are investigating how much damage the oil will do to bluefin stocks. The fish, which have been shown to travel as far as 45,000 miles in 16 months, according to Tagging of Pacific Predators, take eight years to fully mature and can live for up to 40 years.
The extent of any damage won’t be known until bluefin tuna born this year become large enough to catch, according to a trader who declined to be named at Umino Co., a tuna wholesaler at Tsukiji fish market in Tokyo.
Pricey Plate
Japan last year consumed about 80 percent of the world’s bluefin catch, or 52,000 tons, according to the Japanese Ministry of Agriculture, Forestry and Fisheries. Bluefin is a staple at Tokyo sushi restaurants and sells for about 1,200 yen ($13.43) for an 80-gram (2.8-ounce) sashimi portion.
They’re the most expensive tuna auctioned in Tsukiji, the world’s largest fish market, where 1,700 tons of fish are sold daily. One caught off Japan’s northern coast by rod-and-line fetched $177,000 in January in the first sale of the year.
Sushi lovers prize the bluefin for its richer taste and softer, melt-in-the-mouth texture compared with lesser grades of tuna. The most expensive part is the belly, known as “toro,” or fatty tuna, where the meat is the most marbled with fat.
In addition to sushi, which uses rice, bluefin is also popular on its own as sashimi.
The fish is rarely canned because of its value. Instead, canneries typically use cheaper yellowfin tuna or the smaller skipjack tuna, which grows faster and reproduces in greater numbers.
Overfishing Damage
Any reduction in bluefin supplies would be bad for business, the Umino trader said. Still, traders at Tsukiji are more worried about the eastern Atlantic and Mediterranean after fishing quotas were cut there this year, he said.
Bluefin stocks in the Eastern Atlantic and Mediterranean have been the most damaged by overfishing. Bluefin populations may be about 18 percent of 1970s levels, according to The International Commission for the Conservation of Atlantic Tunas, a body composed of nations including France, Spain, Italy and Japan that controls the Atlantic region.
For the western Atlantic stock, which spawns in the Gulf, populations are between 18 percent and 27 percent of 1975 levels, ICCAT says. A total of 2,015 tons of bluefin were caught in the western Atlantic in 2008, ICCAT says.
Reducing Quotas
For the eastern Atlantic and Mediterranean, ICCAT lowered the 2010 annual quota to 13,500 tons from 22,000 tons last year, following a decade in which fishermen caught up to 60,000 tons a year, according to ICCAT data.
Earlier this year, Japan successfully fought a fishing ban in the eastern Atlantic and Mediterranean proposed by the U.S. and the European Union.
Reduced supplies have contributed to a 26 percent increase in prices at Tsukiji since 2005, according to official data.
Officials in Australia see an opening for their bluefin, long considered an inferior cousin by Japanese consumers. The Australian bluefin industry, centered around Port Lincoln, South Australia, last year launched a rebranding campaign in Japan, changing the name from indo maguro, or Indian bluefin, to minami sodachi maguro, or southern “wave bred” bluefin.
“The basic aim was to get more Japanese to taste southern bluefin and recognize that there is no real difference,” says Brian Jeffriess, chief executive officer of the Australian Southern Bluefin Tuna Industry Association. The price per kilo of Australian-caught bluefin has gone up to $19, a 40 percent increase since March, Jeffriess said.
Hardy Creatures
The BP spill “will inevitably have a big effect at a time when there’s already uncertainty about the sustainability of the stock” in the Atlantic, he said.
Still, the bluefin are hardy creatures, and may still withstand the latest setbacks, the WWF’s Fox said.
“Once they get to full size, there’s nothing that can catch them other than humans,” he said. “But every year we move into more uncharted territory.”
To contact the reporters on this story: Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.netStuart Biggs in Tokyo at sbiggs3@bloomberg.net.
Last Updated: June 25, 2010 03:48 EDT
FXE - FTSE Completes ‘Death Cross’ Bearish Signal: Technical Analysis
By Adam Haigh
http://noir.bloomberg.com/apps/news?pid=20601110&sid=atscFIO0gafE
June 25 (Bloomberg) -- The FTSE 100 Index completed a so- called death cross, a bearish signal that may foreshadow a further drop in the benchmark gauge for U.K. stocks, according to the head of technical analysis at Mint Equities Ltd.
This week’s decline has pulled the index’s 50-day moving average down to 5,315.4, below the 200-day moving average of 5,328.61. The last time the FTSE 100 formed a death cross pattern, where the 50-day average drops below the 200-day average, was in December 2007, as U.K. stocks began a 45 percent slump through March 2009.
“The short-term trend is clearly down,” Mint’s London- based analyst Geoff Wilkinson said in a phone interview. “We are drifting into quite tricky waters. The door could close quite quickly if people decide to take money off the table.”
The FTSE 100 rose 0.2 percent to 5,112.34 at 9:08 a.m. in London, trimming this week’s retreat to 2.6 percent. The measure has dropped 12 percent from this year’s high on April 15 on concern that Europe’s debt crisis will curb economic growth and as BP Plc lost more than a third of its value following an oil spill in the Gulf of Mexico. The gauge still remains 46 percent higher than in March 2009 amid signs the global economy is rebounding.
Technical analysts observe charts of trading patterns and prices to predict changes in a security, commodity, currency or index.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
Last Updated: June 25, 2010 04:11 EDT
Ha! 4 hrs! heh heh GM!
>>>BL: Lawmakers Agree on Wall Street’s Biggest Overhaul Since 1930s
June 25, 2010, 5:58 AM EDT
June 25 (Bloomberg) -- Congressional negotiators today approved the most sweeping overhaul of U.S. financial regulation since the Great Depression, reshaping oversight of Wall Street and some of its most opaque concoctions.
Lawmakers from the House and Senate worked through the night in a 20-hour session to reach deals on two of their most far-reaching and contentious proposals -- a ban on proprietary trading by banks and new oversight of the derivatives market. This month, they’ve also agreed on measures to wind down big firms whose collapse might shake markets, to keep tabs on hedge funds and to make it easier for investors to sue credit raters.
“This is going to be a very strong bill, and stronger than almost everybody predicted that it could be and that I, frankly, thought it would be,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, told reporters June 23 as lawmakers prepared for the final round of talks.
A committee of lawmakers from the House and Senate spent two weeks reconciling the bills passed by each chamber. The legislation still needs to be approved by the full House and Senate.
Congressional leaders aim to hold those votes next week and present it for President Barack Obama’s signature by July 4.
The bill seeks to protect consumers, curb risks, boost surveillance of emerging threats to markets and give regulators more emergency powers to avoid future taxpayer-funded bailouts of too-big-to-fail firms.
“They are huge accomplishments,” Senate Banking Committee Chairman Christopher Dodd told reporters June 23.
Whether the legislation -- now named the Dodd-Frank bill -- takes the right steps, or goes far enough, is still a matter of debate.
“It doesn’t reform anything, not anything that needs to be reformed,” said William Isaac, the former chairman of the Federal Deposit Insurance Corp. and now chairman of Fifth Third Bancorp, in a June 23 interview. “We haven’t done anything to repair this 100-year-old regulatory structure.”
What follows are the scope, impacts and impetus for some the major provisions, based on the language lawmakers agreed to as of early this morning in Washington:
‘Volcker Rule’
The Obama administration’s proposal to ban banks from proprietary trading, nicknamed the Volcker rule after former Federal Reserve Chairman Paul Volcker, was softened by Senate negotiators.
Banks will be allowed to invest in private-equity and hedge funds, though they will be limited to providing no more than 3 percent of the fund’s capital. Banks also can’t invest more than 3 percent of their Tier 1 capital.
The change, offered by Dodd, alters language in a bill the Senate approved in May, which would have barred banks from sponsoring or investing in private-equity and hedge funds. Lawmakers offered the modification to appease Senator Scott Brown, a Massachusetts Republican who was concerned the ban would harm Boston-based State Street Corp. He was one of four Republicans to break party ranks and vote for the Senate bill.
Senate negotiators also agreed to give regulators less say than previously proposed to define a ban on proprietary trading. Dodd backed a change offered by Democratic Senators Jeff Merkley of Oregon and Carl Levin of Michigan that “more clearly defines the limits on proprietary trading” by writing the ban into the legislation. The earlier Senate bill would have let regulators write it.
The ban on propriety trading, in which a company bets its own money, may reduce profits. Goldman Sachs Group Inc., the most profitable firm in Wall Street history, has said proprietary trading generates about 10 percent of its annual revenue. The firm made $1.17 billion in 2009 from “principal investments,” which include stakes in companies and real estate, according to a company filing.
Dodd backed a Merkley-Levin plan to prevent firms that underwrite an asset-backed security from transactions that would result in a conflict of interest.
The conflict-of-interest provision seeks to address fraudulent conduct alleged in a Securities and Exchange Commission lawsuit against Goldman Sachs. The SEC claims the bank created and sold collateralized debt obligations linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles. Goldman Sachs has denied wrongdoing. --Alison Vekshin
Derivatives
After spending months crafting legislation, lawmakers pushed through a last-minute deal on what they termed the most challenging part of their task -- establishing for the first time a regulatory structure for the $615 trillion over-the- counter derivatives market.
The most contentious part of the derivatives rules is a provision that will force banks to push some of their swaps- trading into subsidiaries, on the theory it would reduce taxpayers’ risk if the trades are walled off from depositary institutions that enjoy federal benefits such as access to the Federal Reserve’s discount lending window.
The original proposal by Senator Blanche Lincoln, an Arkansas Democrat who is chairman of the Senate Agriculture Committee, would have banned all swaps-trading by commercial banks. It touched off intense lobbying from opponents including the banking industry, banking regulators, the Obama administration and lawmakers of both parties who said the proposal could drive up costs for businesses and send business to foreign lenders.
In the final hours of negotiations, President Barack Obama’s financial overhaul specialists -- Deputy Treasury Secretary Neal Wolin; Michael Barr, Treasury’s assistant secretary for financial institutions; and Diana Farrell, the deputy director of the White House’s National Economic Council - - gathered at the Dirksen Senate Office Building while House and Senate members of the conference committee waited downstairs for a deal.
In the end all parties agreed that banks will be able to maintain their trading operations so long as they are used to hedge risk or trade interest rate or foreign exchange swaps, a victory for banks that were on the verge of losing the desks entirely. The proposal will force a fundamental shift in the industry, giving federally insured banks up to two years to send instruments such as un-cleared credit default swaps off to a separately capitalized subsidiary.
“We target the riskiest players and ask more of them, as we should,” Lincoln said today.
Derivatives took a central role in the debate over Wall Street regulation after losing bets on swaps tied to mortgage- backed securities pushed New York-based insurer American International Group Inc. to the brink of bankruptcy in 2008. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.
Beyond the swaps-desk provision, the Senate legislation will push most over-the-counter derivatives through third-party clearinghouses and onto regulated exchanges or similar electronic systems, a measure that will make it easier for the market and regulators to track the trades. It will mean higher margin costs on some transactions.
Regulators also will be required to impose heightened capital requirements on companies with large swaps positions, and would be given the authority to limit the number of contracts a single trader can hold.
Businesses that use derivatives to hedge risk from producing or consuming commodities, deemed “end users,” will be exempt from the clearing requirements if the activities were being undertaken as a way to hedge legitimate business risk.
“There are some that want more restrictive language than I do and there are those who want to open up the barn door,” Lincoln said. “I think we have reached a good compromise here.”
Selling over-the-counter derivatives is among the most lucrative businesses for the largest financial companies. U.S. commercial banks held derivatives with a notional value of $212.8 trillion in the fourth quarter, according to the Office of the Comptroller of the Currency. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley hold 97 percent of that total.
While JPMorgan and Citigroup might have to spend billions to re-capitalize their trading desks, the three others might have much smaller costs. Morgan Stanley and Goldman Sachs each entered the commercial banking business in 2008 in the midst of the financial crisis, will be less affected. Morgan Stanley kept just over 1 percent of its $86 billion in derivatives holdings in its bank in the first quarter, and Goldman Sachs Group’s held 32 percent of its $104 billion. Bank of America, which absorbed broker-dealer Merrill Lynch in 2009, had 33 percent of its $115 billion in its bank. --Phil Mattingly
Consumer Financial Protection
A consumer financial-protection bureau will be created at the Federal Reserve to police banks and financial-services businesses for credit-card and mortgage-lending abuses. The plan was approved over the objections of Republicans and the financial industry.
Obama originally proposed a stand-alone consumer agency, saying it would play a central role in reorganizing regulation to prevent future financial crises.
“It’s an agency with considerable authority to protect consumers from abusive financial practices, which is a landmark achievement,” Travis Plunkett, legislative director at the Consumer Federation of America, said in an interview.
While the bureau will be housed at the Fed, it will have independent authority. Led by a director appointed by the president and confirmed by the Senate, the bureau will write consumer-protection rules for banks and other firms that offer financial services or products. It will enforce those rules for banks and credit unions with more than $10 billion in assets. Bank regulators will continue examining consumer practices at smaller financial institutions.
The bureau could require credit-card lenders, including JPMorgan Chase & Co. and Citigroup Inc., to reduce interest rates and fees. Mortgage lenders, including Bank of America Corp., may be subject to tougher rules including more upfront disclosures to borrowers about loan terms.
Automobile dealers won an exemption from oversight by the bureau after lobbying from the industry. Dealers said the rules would place unnecessary restrictions on their financing business. The Obama administration had opposed the exemption.
The idea for a new agency grew out of criticism from lawmakers and consumer groups that bank regulators, including the Fed, failed to properly exercise their consumer-protection authority during the housing boom. The consumer bureau will assume much of that oversight. The bureau’s rules could be overridden by the new Financial Stability Oversight Council if the panel decided that they threatened the safety, soundness or stability of the U.S. financial system.
The financial-services industry lobbied against the new bureau, saying it would raise costs, limit choice, and improperly separate oversight of consumer issues and safety and soundness. --Alison Vekshin
Credit and Debit Cards
The Federal Reserve will get authority to limit interchange, or “swipe” fees, that merchants pay for each debit-card transaction. The measure, pushed by Senator Richard Durbin, lets retailers refuse credit cards for purchases under $10 and offer discounts based on the form of payment.
The measure also directs the Fed to issue rules that let merchants route debit-card transactions on more than one network. That “provides additional competition to a previously non-competitive part of the market,” Durbin, an Illinois Democrat, said in a statement June 21.
Visa Inc. and MasterCard Inc., the world’s biggest payments networks, set interchange rates and pass that money to card- issuers including Bank of America and JPMorgan. Interchange is the largest component of the fees U.S. merchants pay to accept Visa and MasterCard debit cards. The fees totaled $19.7 billion and averaged 1.63 percent of each sale last year, according to the Nilson Report, an industry newsletter.
The industry fought off earlier efforts to regulate interchange fees, including a Durbin-sponsored bill that remains in committee, by saying the income is needed to offset the risk of lending money. That argument doesn’t apply to interchange on debit cards, which tap funds in consumer checking accounts. Shifting the focus to debit cards may have helped win support from some Republicans, with Senator Susan Collins of Maine calling the scaled-down version a “reasonable approach.”
The amendment directs the Fed to ensure that debit-swipe fees are “reasonable and proportional” to the cost of processing transactions. The provision will take effect a year after enactment.
Durbin altered his proposal to exempt lenders with assets of less than $10 billion, or 99 percent of U.S. banks. That failed to win the support of trade groups representing community banks and credit unions, who said the measure will make their cards more expensive than those issued by bigger lenders. -- Peter Eichenbaum
Financial Stability Oversight Council
The bill will establish the Financial Stability Oversight Council, a super-regulator that will monitor Wall Street’s largest firms and other market participants to spot and respond to emerging systemic risks. The Treasury Department will lead the panel, which includes regulators from other agencies.
“The idea of the council is to look at the interconnection of highly leveraged financial firms,” said Jim Hamilton, a senior law analyst at Riverwoods, Illinois-based CCH Inc., which provides information to businesses about regulatory changes. “No one was able to do that before the financial crisis.”
With a two-thirds vote, the council can impose higher capital requirements on lenders or place broker-dealers and hedge funds under the authority of the Fed. The council also will have authority to force companies to divest holdings if their structure poses a “grave threat” to U.S. financial stability.
The nine-member council will include regulators from the Fed, Securities and Exchange Commission, Federal Housing Finance Agency, Commodity Futures Trading Commission and other agencies. State securities, insurance and banking regulators and credit unions lobbied for and won non-voting seats.
The Federal Home Loan Banks system, a financing co- operative for mortgage lenders, also won an exemption from council oversight after saying limits on credit concentration could cut its lending capacity in half.
Trade groups including the American Bankers Association supported the measure. Consumer groups including the Center for Responsible Lending objected to the council’s power to overrule the consumer financial-protection bureau at the Fed. --Lorraine Woellert
Bank Capital Rules
The bill may force some banks to shore up capital. An amendment introduced by Senator Susan Collins, the Maine Republican who joined Democrats in voting for the broader bill, will bar bank holding companies from keeping less capital than their bank subsidiaries. That will have an impact on the use of trust preferred securities, known as TruPS. Lawmakers bowed to pressure from banks, agreeing to a transition period for large firms and grandfathering of the securities for smaller lenders.
Banks with assets of at least $15 billion will get five years to replace TruPS with common stock or other securities that count as capital. Community banks that have raised cash through TruPS since 2000 will, in effect, get 20 years to make the switch because most of the securities have 30-year maturities. Smaller lenders sold roughly $45 billion of the $150 billion in TruPS issued by U.S. banks, which packaged them into collateralized debt obligations.
TruPS now count toward equity when calculating capital ratios -- a bank’s cushion against losses -- while being treated like bonds for tax purposes.
Regional banks such as McLean, Virginia-based Capital One Financial Corp. and Buffalo, New York-based M&T Bank Corp., which rely heavily on TruPS, will be hurt most, according to Richard Bove, an analyst for Rochdale Securities. Banks unable to replace the TruPS will have to shrink their balance sheets to stay within the minimum capital rules dictated by regulators.
“It will disadvantage not just U.S. banks, but U.S. businesses and consumers as well,” Barclays Plc President Robert Diamond said in Washington before the rule was completed. Removing the TruPS held as capital could restrict lending by as much as $1.5 trillion, Diamond said, echoing a point made by bank lobbying groups.
The Collins language also will require the U.S. holding companies of overseas banks, such as Barclays, to comply with the same capital rules as domestic lenders. For now, they’re exempt as long as their foreign parents are regulated by an entity recognized by the U.S.
The FDIC backed the Collins amendment, saying TruPS don’t provide the cushion they were meant to. Banks couldn’t use them as capital during the financial crisis because deferring dividends would have been seen as a sign of weakness, the FDIC said.
The rule will have “minimal, if any” impact on banks’ ratings because TruPS are already being disqualified as capital by analysts, Moody’s Investors Service said this week. --Yalman Onaran
Federal Reserve
The Federal Reserve will have a broadened supervisory scope and be subject to the most transparency in its 96-year history after negotiators rejected threats to its political autonomy and bank-oversight powers.
Chairman Ben S. Bernanke will have a seat on a newly created Financial Stability Oversight Council. That board will deputize the Fed to set tougher standards for disclosure, capital and liquidity. The rules will apply to banks as well as non-bank financial companies, such as insurers, that pose risks to the financial system.
Earlier drafts of Senate legislation would have curtailed the Fed’s bank supervision. Lawmakers approved an amendment by senators Kay Bailey Hutchison, a Texas Republican, and Amy Klobuchar, a Minnesota Democrat, maintaining the powers. That avoided a clash with House members over the issue. Under the bill, the Fed will keep supervising larger banks including Bank of America and Goldman Sachs and smaller firms such as Central Virginia Bankshares Inc., with assets of $471 million.
U.S. central bankers face a one-time audit of emergency loans and other actions taken to combat the financial crisis since 2007.
Under another change, the central bank, after a two- year delay, will have to identify firms that borrow through its discount window and participate in the Fed’s purchases or sales of assets, such as mortgage-backed securities.
Senators and House members voted down a tougher audit measure, which would have removed the Fed’s 1978 shield from examinations of interest-rate decisions. That plan, previously approved by the House, was opposed by Bernanke and other Fed officials, who said it risked politicizing monetary policy.
Fed governance will also change. Commercial banks will be ineligible to participate in selecting all 12 regional Fed chiefs, leaving the task to non-bankers chosen by lenders and the Fed’s Board of Governors. One of the seven Fed governors will be a second vice chairman in charge of supervision. Conferees rejected a Senate plan to make the New York Fed president a political appointee. --Scott Lanman
Credit Raters
Ratings companies, including Moody’s Corp. and McGraw-Hill Cos.’ Standard & Poor’s unit, may avoid a plan to have regulators help pick which firms grade asset-backed securities. Congress also softened a proposed liability provision, making it harder for investors to sue credit-raters than under language approved by the House in December.
The overhaul legislation requires the SEC to conduct a two- year study on whether to create a board to decide who rates asset-backed securities. That curbed a Senate proposal to establish the board with SEC oversight. After the study, the board would be established only if regulators can’t come up with a better alternative.
Profits grew at Moody’s and S&P, both based in New York, during the U.S. housing boom because Wall Street paid them to assess the creditworthiness of mortgages packaged into bonds. After the housing market collapsed in 2007, pension funds and banks that lost money on the securities blamed credit-rating companies for assigning the assets their highest AAA rankings.
Lawmakers also adopted language that redefines what investors must show to prevent a judge from dismissing a lawsuit against a credit rater. Litigation may proceed if investors demonstrate a company “knowingly or recklessly” failed to conduct a “reasonable” investigation before issuing a rating. The ratings firm could also avoid being sued by hiring an independent company to do the investigation.
Legislation approved by the House in December would have required investors meet a lower threshold of evidence, showing that a ratings company was “grossly negligent” in issuing a grade. Current law requires investors to demonstrate they were intentionally misled.
The purpose of the Senate bill was to give credit-rating companies an incentive to conduct “adequate due diligence,” without subjecting them to lawsuits that could “easily bankrupt” them, John Coffee, a securities law professor at Columbia University in New York, wrote in a June 16 paper.
Credit-rating companies will respond to the Senate language by adjusting their business practices, Peter Appert, an analyst with Piper Jaffray & Co., wrote in a June 21 note to clients.
The resolution of regulatory uncertainty that has driven down Moody’s and McGraw Hill shares presents an “appealing” buying opportunity, he wrote. Moody’s has plunged about 68 percent over the past three years in New York Stock Exchange trading. McGraw-Hill has fallen 56 percent in three years. -- Jesse Westbrook
Private Equity and Hedge Funds
Large hedge and private equity funds will be forced to register with the SEC, subjecting them to mandatory federal oversight for the first time. Venture capital funds were exempted from the registration rule.
Hedge funds, in particular, pushed for the registration requirement, which is less burdensome than the regulations being imposed on banks. In lobbying Congress, the private pools of capital argued that they shouldn’t be heavily regulated because they didn’t cause the financial crisis. Nor were they bailed out by taxpayers.
Registration subjects funds to periodic inspections by SEC examiners. Any firm with $150 million or more in assets, such as ESL Investments Inc. and Soros Fund Management, will be covered by the law. Funds also must hire a chief compliance officer and set up policies to avoid conflicts of interest.
Hedge and private equity funds will be required to report information to the SEC about their trades and portfolios that is “necessary for the purpose of assessing systemic risk posed by a private fund.” The data, kept confidential, could be shared with the Financial Stability Oversight Council that the legislation sets up to monitor potential shocks to the economic system.
Complying with registration rules may cost hedge funds as much as $500 million in the first year, said Judith Gross, founder of JG Advisory Services LLC, a New York-based consulting firm to the hedge-fund industry. The estimate is based on 2,000 new registrants and reflects the cost of implementing necessary compliance procedures.
Should the government determine a fund has grown too large or is too risky, it would be placed under Fed supervision.
Restrictions on banks’ ability to own hedge and private equity funds and trade for their own accounts may benefit the funds that are subject to less regulation. The bill could push new investment and trading talent toward the industry. Limits on leverage and stiffer capital requirements for banks may also give hedge and private equity funds an edge landing investors chasing bigger returns. --Robert Schmidt
Unwinding Failed Firms
The bill gives the FDIC, which already has authority to liquidate failed commercial banks, power to unwind large failing financial firms whose collapse would roil the economy.
Regulators will have clout they lacked during the financial crisis when, instead of seizing flailing companies such as American International Group Inc., the government kept them afloat with a $700 billion taxpayer-funded bailout. Had such authority existed in September 2008, it might have been applied to Lehman Brothers Holdings Inc., whose bankruptcy that month froze credit markets and helped spur Congress to approve the Troubled Asset Relief Program.
The House approved a version of the bill in December that proposed a $150 billion fund, to be paid for by the financial industry, to cover the government’s cost of unwinding failing firms. Dodd proposed a similar fund of $50 billion in a Senate version of the bill, which was assailed by Republicans as a perpetual bailout of Wall Street firms. The protests stalled consideration of the legislation on the Senate floor.
Dodd agreed to drop the fund to allow debate on the bill to begin. Under the revised measure, the costs of unwinding failing firms will be borne by the financial industry through fees imposed after a firm collapses. The bill explicitly bars the use of taxpayer funds to rescue failing financial companies. -- Alison Vekshin
Risk Retention
The legislation will force lenders, with the exception of some mortgage providers, to hold at least a 5 percent stake in debt they package or sell. The provision is designed to rein in the trade of easy credit blamed for fueling the financial crisis.
The rule will affect credit-card debt, auto loans, mortgages and other securitized debt. Issuers of asset-backed debt and the originators who supply them with pools of loans, including credit-card companies such as Riverwoods-based Discover Financial Services, will be forced to retain some of the credit risk. The goal is to align the issuers’ interests with those of the investors who buy their financial products.
The provision will curtail lending and raise consumer costs, said Tom Deutsch, executive director of the American Securitization Forum, a New York trade group that represents issuers, investors and other participants in the market.
“These risk-retention provisions will curtail overall lending to an extent across all types of credit products,” Deutsch said in an interview. “The result may improve some lending standards, but it will also have the consequence of reducing the overall availability of credit.”
Lawmakers exempted many mortgage lenders from the rules after lobbying by brokers and community banks, who said forcing lenders such as Bank of America to keep loans on the books would tie up capital and lead to higher interest rates. The exemption wouldn’t apply to mortgages with features that increase risk, such as negative amortization, interest-only payments and balloon payments.
The exception is “tremendously important,” said Glen Corso, managing director of the Community Mortgage Banking Project, a coalition of lenders. “The exemption will ensure the continued availability of stable, affordable, low-risk mortgages.”
Loans guaranteed by the Federal Housing Administration, U.S. Department of Agriculture, and U.S. Department of Veterans Affairs also will be exempt from retaining risk. The three agencies last year guaranteed more than 30 percent of new mortgages as private capital fled the market after the collapse of the housing bubble.
Sellers of commercial mortgage-backed securities won language giving regulators flexibility to tailor risk-retention rules to specific products. For example, regulators could set underwriting standards as a form of risk retention. --Lorraine Woellert
Fiduciary Duty
Lawmakers scrapped a proposal that would have made securities firms more accountable to individual investors. Instead, the SEC is required to study whether changes are necessary.
The debate focused on whether stock brokers who offer clients investment advice should have a fiduciary duty that requires disclosure of all conflicts and restricts marketing to products that are in customers’ best interests. Currently, brokers must only ensure that a stock or bond is suitable before selling it to a client.
Consumer advocates have said the fiduciary obligation is needed because investors are sold products they don’t understand or can be confused by titles used by financial advisers. Banks and insurance companies lobbied against the change, saying people selling securities shouldn’t be regulated the same way as professionals who invest money for clients.
The House-Senate panel agreed to let the SEC impose a fiduciary duty on brokers once the regulator completes a six- month study. House lawmakers had earlier proposed implementing stiffer rules without an SEC review, prompting opposition led by Senator Tim Johnson, a South Dakota Democrat. --Jesse Westbrook
Insurance Industry
The bill creates a new Federal Insurance Office within the Treasury to monitor insurers, and requires a study that will recommend ways to further overhaul regulation of the industry. Industry groups say a new layer of oversight may complicate compliance and increase costs.
The measures were prompted by the near-collapse of New York-based AIG in 2008. The insurer, then the world’s largest, got a $182.3 billion taxpayer bailout after failing to set aside enough money to cover obligations on credit-default swaps linked to subprime mortgages.
Insurers, which are mainly regulated by states, will now have to deal with a national watchdog. State insurance commissioners are concerned federal oversight will interfere with rules already in place. Insurers are concerned that they will have to devote more resources to answer to multiple officials.
“Half of our companies are farm- and county-mutual companies,” said Dylan Jones, federal affairs director of the National Association of Mutual Insurance Companies, which represents policyholder-owned carriers. “They certainly don’t have the resources to respond to federal regulatory calls.”
A national regulator may coordinate agreements with counterparts in other countries. “It will create a single voice in the U.S. for insurance issues,” Lloyd’s of London Chief Executive Officer Richard Ward said in a June 22 interview. -- Sarah Frier
--With assistance from Alison Vekshin, Phil Mattingly, Lorraine Woellert, Scott Lanman, Jesse Westbrook and Robert Schmidt in Washington; and Peter Eichenbaum, Sarah Frier and Dawn Kopecki in New York. Editors: David Scheer, Lawrence Roberts, Gregory Mott, Dan Reichl.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net
That is a good list to research, but after hours...I got no rest last night focused on what's happening in europe
Talk later
GLD is my favorite, because it tracks bullion. GDX will crash if the market corrects.
Been in GDX going red, while gold was going green, and GLD was going green
fyi
That thing is being propped up, be careful there
Coming right up, trader on BL says we are one headline away from a market crash
We were just saying that: LVS and WYNN...next up on the block
PE pig, that WYNN, lol
You saw ZH article? The Media Campaign Begins: BP Is Now Too Big To Fail
Submitted by Tyler Durden on 06/24/2010 00:09 -0500
As prospects before BP get darker by the day, and the likelihood of bankruptcy grows, the TBTF propaganda begins. Evidence A - Bloomberg headline: "BP Demise Would Threaten U.S. Energy Security, Industry." Just as the failure of bankrupt banks was supposed to lead to the destruction of capitalism, so the bankruptcy of BP plc is now supposed to lead to the degeneration of US energy independence. And who in their mind would force the Chapter 11 of a systemically important company? Once again, free market capitalism is about to walk out through the back door...
From Bloomberg:
>>We're in AAPL $230, $250 puts, FCX $60, $65 puts, SNDK 42 puts
>>>The drum beat begins: BP too big to fail, meanwhile the BP price is supported with wash trades. Anything to keep the smoke and mirrors up
BL: European Stocks Drop, Led by Greece; U.S. Futures Slip as Yen Strengthens
By Stephen Kirkland
June 24 (Bloomberg) -- European stocks fell, led by Greece, and U.S. index futures dropped on concern slowing economic growth will hurt the most indebted countries. The yen strengthened and two-year Treasuries gained.
The Stoxx Europe 600 Index lost 0.7 percent at 12:18 p.m. in London as Greece’s ASE Index tumbled 2.3 percent. Futures on the Standard & Poor’s 500 Index slipped 0.5 percent. The yen appreciated against all of the 16 most-traded currencies, and the U.S. Treasury note rose, sending the yield to the lowest since November. Greek bonds dropped, driving the premium to German bunds to the widest since May 7.
The Federal Reserve, pledging to keep its benchmark interest rate at a record low for an “extended period,” signaled that Europe’s debt crisis may harm American growth, according to a statement yesterday. A report on jobless claims today may underscore the Fed’s view that the expansion is being restrained as joblessness limits consumer purchases.
“The world is going to have more economic problems,” Jim Rogers, chairman of Rogers Holdings, said by phone from Hong Kong. “We have a problem with too much debt and too much consumption and that’s going to continue. I’m short stocks and long commodities and long some currencies.”
Five stocks fell for every one that gained on the Stoxx 600 index, as all 19 industry groups retreated except for telecommunications stocks. Banks and basic-resources shares led declines, with lenders BNP Paribas SA sinking 2.4 percent and Credit Suisse Group AG sliding 2.7 percent.
Mining companies Anglo American Plc and Rio Tinto Group lost more than 1 percent in London. The shares gained earlier after Australia’s Kevin Rudd was ousted as prime minister by his deputy Julia Gillard, prompting speculation about whether a proposed super-tax on the mining industry will be watered down.
Asian Stocks
Most Asian stocks fell, while the MSCI Asia Pacific Index was little changed. The MSCI Emerging Markets Index slid 0.4 percent, declining for a third day. Cnooc Ltd., China’s biggest offshore oil explorer, lost 1.9 percent in Hong Kong.
The decline in U.S. futures indicated the S&P 500 may fall for a fourth day. Caterpillar Inc., the world’s largest maker of construction equipment, slipped 1.4 percent in Swiss trading. Nike Inc., the largest maker of athletic shoes, sank 1.9 percent in Germany after revenue missed analysts’ estimates.
A report from the Commerce Department due at 8:30 a.m. in Washington may show orders for durable goods excluding transportation equipment rose 1 percent in May, according to economists surveyed by Bloomberg. Total orders may fall 1.4 percent, depressed by a plunge in volatile demand for commercial aircraft, economists said. A separate report due at the same time from the Labor Department may show jobless claims fell to 463,000 during the week, from 472,000, economists said.
Yen Strengthens
The yen strengthened to 89.36 per dollar from 89.82 yesterday. The euro slipped to $1.2286 from $1.2311 and fell to 109.82 yen from 110.57.
Bonds rallied as stocks fell, with the yield on the 10-year German bund reaching the lowest in more than a week. U.K. gilts rose for a fourth day, pushing the 10-year yield to an eight- month low, on speculation that this week’s British budget cuts will help preserve the nation’s top credit rating.
The extra yield, or spread, investors demand to hold 10- year Greek debt instead of its German counterpart widened 10 basis points to 782 basis points today, or 7.82 percent.
The cost of credit-default swaps insuring Greek government bonds rose 38 basis points to a record 970, according to CMA DataVision. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 8.5 basis points to 556, the highest level in a week, according to JPMorgan Chase & Co.
Copper for delivery in three months rose 1.4 percent to $6,606 a metric ton on the London Metal Exchange, paring an earlier gain of 2.6 percent. Gold added 0.1 percent to $1,236.30 an ounce, erasing an earlier decline. Crude oil for August delivery lost 0.2 percent to $76.21 a barrel on the New York Mercantile Exchange.
----With assistance from Maria Kolesnikova in Moscow and Keith Campbell, Claudia Carpenter, David Merritt, Abigail Moses and Andrew Reierson in London. Editors: Stephen Kirkland, Paul Sillitoe
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;
Last Updated: June 24, 2010 07:32 EDT
GM! I'm so tired...Greek spreads at record, kaboom?
Reuters: China state-owned banks buying dollars heavily: traders
SHANGHAI
Mon Jun 21, 2010 11:35pm EDT
SHANGHAI (Reuters) - Chinese state-owned banks are aggressively buying dollars for the yuan on Tuesday, traders said, but it was not clear if the buying was due to Chinese central bank intervention to keep the yuan stable.
Several traders said Chinese state-owned banks were buying dollars at various levels, suggesting they were not trying to defend the yuan at a certain level.
However, Tuesday's aggressive buying of dollars could cut the supply of the U.S. currency in the spot market in coming days, which may in turn influence the yuan's value.
(Reporting by Lu Jianxin, Karen Yeung and Koh Gui Qing; Editing by Edmund Klamann)
BP: Conservationists Hit BP With $19 Billion Clean Water Act Lawsuit
NEW ORLEANS, Louisiana, June 21, 2010 (ENS) - In the largest citizen enforcement action ever taken under the Clean Water Act, the Center for Biological Diversity is suing BP and Transocean Ltd., for illegally spilling more than 100 million gallons of oil and other pollutants into the Gulf of Mexico. The suit was filed Friday in U.S. District Court for the Eastern District of Louisiana.
The Center is seeking the maximum possible penalty against BP for the spill that began April 20 when the oil rig Deepwater Horizon, owned by Transocean and leased by BP, exploded and caught fire off the coast of Louisiana about 50 miles southeast of the Mississippi Delta, killing 11 men.
The rig burned for 36 hours before it sank, leaving the damaged wellhead spilling oil and gas into the water at the latest flow rate estimate of 35,000 to 60,000 barrels per day, released last week by the National Incident Command's Flow Rate Task Force.
While, BP is now containing approximately 28,000 barrels of oil per day, the remainder continues to gush into the gulf.
"It is undisputed that responsibility for the oil spill rests primarily on BP and that efforts to stop the leak have failed. The oil and toxic pollutants flowing into the Gulf of Mexico are a plain violation of the Clean Water Act," the Center claims in its complaint, which states that BP does not have a permit to discharge the oil.
Investigations to determine the causes of the incident are ongoing in Congress and at several federal agencies. In addition, President Barack Obama has established a Presidential Commission to get to the bottom of the situation.
If BP's violations are found to have been the result of gross negligence or willful misconduct, the maximum fine is $4,300 per barrel spilled. At this rate, the company is already liable for approximately $11 billion in Clean Water Act penalties.
At the direction of the Unified Command, BP contractors burn off surface oil from the spill to keep it from reaching shore, sending clouds of pollution into the atmosphere. June 13, 2010. (Photo courtesy U.S. Coast Guard)
If the spill continues through August 1, 2010, BP's liability will be approximately $19 billion. The penalties will be paid to the U.S. Treasury and will be available for Gulf coast restoration efforts.
Under an agreement between BP officials and President Obama reached last week, the company has set aside $20 billion in an independently administered escrow fund to cover spill-related claims.
Accompanied by Mississippi Governor Haley Barbour, fund administrator, attorney Kenneth Feinberg told a news conference in Jackson on Friday, "The goal is to help the people of Mississippi and the Gulf and I intend to do that and to be prompt."
"I would hope we will pay claims within 30 to 60 days," Feinberg said.
The Center's lawsuit seeks a full accounting from BP of how much oil is gushing into the Gulf of Mexico each day and what pollutants are mixed in with the oil.
"The government has yet to take any criminal or civil actions against BP," said Kieran Suckling, executive director of the Center for Biological Diversity.
"We filed this suit to ensure BP is held accountable for every drop of oil and pollution it has released into the Gulf of Mexico," he said. "We can't bring back dead sea turtles, dolphins and whales, but we can ensure BP is penalized to the full extent of the law for causing the worst environmental disaster in American history."
In addition to the oil," alleged Sucking, "the spill is also leaking hazardous chemicals including benzene, arsenic and naphthalene."
"Gulf residents, cleanup crews, wildlife officials and the American public have a right to know to the magnitude and danger of this spill," said Suckling. "The company hasn't been forthright even in the face of public outrage. A judge's order will change all that. Until then, we're flying blind when it comes to protecting human health and the environment."
The Center has taken other legal actions in connection with the BP oil disaster.
On May 27, the Center filed a lawsuit against Interior Secretary Ken Salazar and the Minerals Management Service to strike down the agency's exemption of 49 Gulf of Mexico drilling projects from all environmental review. That suit was filed in the Fifth Circuit Court of Appeals in New Orleans.
On June 3, the Center filed an official notice of its intent to sue the Environmental Protection Agency for authorizing the use of toxic dispersants without ensuring that these chemicals would not harm endangered species and their habitats. The letter of notice requests that the agency, along with the U.S. Coast Guard, immediately study the effects of dispersants on species such as sea turtles, sperm whales, piping plovers, and corals and incorporate this knowledge into oil-spill response efforts.
A federal judge has ruled that there is no reason to delay an oil spill lawsuit against BP Plc while the U.S. Judicial Panel on Multidistrict Litigation decides whether or not to consolidate the more than 130 lawsuits arising from the Deepwater Horizon rig explosion.
On May 27 Chief Judge William Steele of the U.S. District Court for the Southern District of Alabama denied BP's motion to stay the litigation Tuesday, ruling that preliminary motions might proceed.
BP says it has now spent roughly $2 billion since April 20 trying to stop the oil spill and to pay initial claims for damages.
The spill has now fouled shores in four states - Louisiana, Alabama, Mississippi and Florida.
Today, the National Oceanic and Atmospheric Administration, NOAA, expanded the closed fishing area in the Gulf of Mexico to include areas where the oil slick is moving beyond the current boundaries off of the Florida panhandle and due south of Mississippi.
The closed area now covers 86,985 square miles, which is about 36 percent of Gulf of Mexico federal waters. This federal closure does not apply to any state waters.
Closing fishing in the designated areas is a precautionary measure to ensure that seafood from the Gulf will remain safe for consumers.
Copyright
http://www.ens-newswire.com/ens/jun2010/2010-06-21-091.html
BP: Chinese oil rivals smell blood in BP disaster, BP leaves US?
Opportunistic oil companies are circling over BP assets as oil-spill costs mount
June 21, 2010, 7:35 p.m. EDT ·
By Chen Zhu , Caixin Online
BEIJING (Caixin Online ) -- While a blowout well continues spewing crude oil into the Gulf of Mexico, BP's global rivals are circling like vultures, ready to devour any assets that the disaster-strained company might reluctantly shake off.
Among them are China's cash-rich, Big Three oil companies. They are particularly interested in BP's upstream assets in Central Asia and Africa, and are certain to join a list of potential buyers if BP is forced to sell the family silver.
BP's costs connected to the runaway oil spill -- America's worst environmental disaster -- could include compensation for at least the estimated 30,000 plaintiffs currently suing the company for damage inflicted on fisheries, tourism and marine transport along the Gulf Coast. More individuals and companies were expected to sue in the future.
Between the explosion and sinking of the $365 million Deepwater Horizon rig on April 20 and a report June 8, the company had spent an estimated $1.25 billion on damage claims and to drill relief wells that may eventually stop the leak.
Officials say the company's expenses will continue soaring for some time. A Credit Suisse report estimated BP would ultimately incur $37 billion in spill-related costs, including $23 billion for pollution clean-ups and $14 billion for plaintiff compensation and environmental rehabilitation once the well is capped.
The ratings services Fitch and Moody's lowered their credit ratings for BP, predicting the disaster would significantly impact cash flow and limit the company's capacities in key business areas for mid- to long-term periods.
Domestic and international industry sources interviewed by Caixin said BP has enough money to cover these huge costs. But while the company may survive financially, they said, its fate may be sealed by the U.S. government and an angry public.
Even Credit Suisse's estimate of the disaster costs -- among the most pessimistic of all analyses so far -- may not kill BP: Its worst-case scenario payout would amount to only about two years of company profits.
The company reported after-tax profits of $21.2 billion in 2008 on sales of $352.4 billion, and $20.6 billion in 2007 on sales of $323.5 billion.
What's more worrisome than the monetary cost is the political pressure aimed at BP by the administration of President Barack Obama and Congress.
The British newspaper The Sunday Times said the U.S. House and Senate are considering punishing BP with legislative measures that would strip the company of its rights to upstream exploration and U.S. government contracts.
In a blog post, business editor Robert Preston of the British broadcaster BBC said BP's management is aware that the company's reputation is foundering in America. He said the board is considering an orderly sale of U.S. assets along with a gradual withdrawal from American soil and waters.
After the fallout
BP shares lost half their value between April and early June, erasing $82 billion from investor portfolios. The company's share price on the New York Stock Exchange plummeted nearly 16% June 9 to a 14-year low.
And as the fallout continued, a list of critical questions grew longer. Might BP be acquired? Or face bankruptcy? Will the company sell off assets? And might it spin off American operations and completely exit the United States?
Norges Bank analyst Gudmund Halle Isfeldt said the sharp decline in market value may generate takeover interest among potential buyers; Isfeldt says the probability of a BP takeover had risen to between 10% and 20%.
Even more eye-catching was a June 10 report by Standard Chartered Bank on the possibility and feasibility of a China National Petroleum Corp. (CNPC) acquisition of BP, which would give BP shareholders an exit opportunity.
The report said BP and CNPC have no overlapping businesses, and that such an acquisition would allow CNPC to buy 18 billion barrels of oil reserves at $7 per barrel -- a bargain in the current business environment marked by rising prices.
In one swoop, CNPC would be transformed from a low-growth company to a highly profitable giant in the global oil industry.
But the bank report also pointed to various risks, including a BP buyer's potential responsibility for Gulf leak damages and possible rejection of any proposed deal by government regulators.
It may be more likely that BP would sell some of its most valuable assets to cover disaster compensation expenses. And that's why the vultures are hovering.
In addition to U.S. oil companies, a source said the European concern Shell started a forecast analysis in May on the possibility of BP spinoffs. British Gas, Saudi Aramco and others are paying close attention as well.
And in addition to CNPC, the Chinese giants Sinopec (SNP 82.42, -0.26, -0.31%) and China National Offshore Oil Corp. (Cnooc) are closely watching developments in the Gulf.
Cnooc has a special reason for interest in BP's Gulf assets. As early as 1997, the Chinese company began low-key cooperation with the U.S. oil company Kerr-McGee (APC 43.68, +0.23, +0.53%) to explore in the Gulf. And in 2005, Cnooc tried but failed to buy America's Unocal (CVX 75.70, -0.02, -0.03%) .
Last November, Cnooc found a new way into the Gulf by acquiring, through a subsidiary, partial interest in four exploration blocks in U.S. waters owned by Norway's Statoil.
But Cnooc is not as advanced in deep-sea technologies as other companies. And a proposed acquisition could be blocked by the U.S. Foreign Investment Review Board.
Moreover, sources close to CNPC and Sinopec officials say these companies are more interested in BP assets in parts of the world where they already do business, such as Central Asia, Africa and Latin America. See this report on Caixin Online.
http://www.marketwatch.com/story/chinese-oil-rivals-smell-blood-in-bp-disaster-2010-06-21?pagenumber=2
>>Fitch Solutions: Oil & Gas CDS Liquidity Spikes Significantly
June 21, 2010 11:30 AM Eastern Daylight Time
LONDON--(BUSINESS WIRE)--Link to Fitch Solutions' Report: Fitch Solutions' Global Liquidity Scores Commentary - Issue 35
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=535485
The Gulf of Mexico oil spill is leading to a notable spike in credit default swap (CDS) liquidity among U.S. oil & gas companies, according to Fitch Solutions in its latest Global Liquidity Scores commentary.
While global CDS liquidity has rebounded after a brief holiday-related decline earlier this month, oil & gas companies in the Americas are undergoing pressure. Notable month to month movers include Kerr-McGee Corporation, which climbed up 29 global percentile rankings while CDS spreads widened 745% over the same time period.
'Oil rig companies are facing stricter regulations by the U.S. government and are being been forced to abate oil excavations in the Gulf of Mexico for six months in light of the ongoing oil spill,' said Author and Managing Director Jonathan Di Giambattista. 'Smaller oil riggers like Kerr-McGee will be hit especially hard by the drilling moratorium, likely resulting in losses.'
Elsewhere, credit protection on emerging market sovereign debt remains more liquid than CDS for developed market sovereigns. However, CDS liquidity for developed markets has tapered off considerably since the initial market panic over European sovereign fiscal problems earlier this year. While CDS referencing Brazil are trading with more liquidity than for any other sovereign, CDS liquidity for Portugal rose more than for any other sovereign over the past month, moving up 11 rankings to trade in the 26th global percentile.
The full Fitch Solutions' Global CDS liquidity scores commentary, which covers the top five most liquid CDS corporate names in Europe, North America and Asia, as well as the top five most liquid global sovereigns, is available on the agency's website: www.fitchratings.com under - 'Fitch Solutions' Global Liquidity Scores Commentary Issue 35'
In general, the liquidity of a credit derivative asset increases when it is showing signs of financial stress in combination with a significant amount of debt outstanding and/or changes in its capital structure, including new issuance. The liquidity scores of assets have historically traded between 4 at the most liquid end, through to 29 at the least liquid end. Entities also tend to be more liquid when there is agreement about present value but disagreement about future value due to heightened uncertainty surrounding the entity.
Fitch Solutions, a division of the Fitch Group, focuses on the development of fixed-income products and services, bringing to market a wide range of data, analytical tools and related services. The division is also the distribution channel for Fitch Ratings content.
The Fitch Group also includes Fitch Ratings and Algorithmics, and is a majority-owned subsidiary of Fimalac, S.A. For additional information, please visit 'www.fitchsolutions.com'; 'www.fitchratings.com'; 'www.algorithmics.com'; and 'www.fimalac.com'.
http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20100621006316&newsLang=en
PM watch list: AAPL +1.20%, BHP +4.45%. BP -3.84%, CAT +1.97%, CHK +1.30%. CREE +3.08%. CRUS +4.94%, CSX +0.62%, DIG +2.54%, EWZ +2.66^, FCX +3.89%, FSLR +2.16%, GLD +0.24%, GS +0.92%, HAL +2.26%, ICE +1.50%, JPM +1.05%, NEM +0.43%, OAS +2.13%, PAAS +1.59%, POT +1.30%, RIG +2.55%, SLV +1.39%, SLW +1.33%, SMOD +1.19%, TSO +2.85%, X +3.32%
GAP DOWN 3.42%: BP Falls as Cost of Response to Oil Spill Reaches $2 Billion
http://finance.yahoo.com/q?s=bp.l
By Brian Swint
June 21 (Bloomberg) -- BP Plc fell as much as 4.2 percent in London trading as the company said the cost of its response to the Gulf of Mexico oil spill, the worst in U.S. history, has accelerated to reach $2 billion.
That’s about $33 million a day, compared with about $30 million reported June 14. BP has two pipes collecting oil and gas from the ocean floor to bring to the surface, and its plan to upgrade the system with the first floating riser is on schedule for completion at the end of this month, BP said in a statement in London today.
BP declined 3.9 percent to 343.40 pence as of 8:13 a.m. in London. The stock has slumped 48 percent since the Deepwater Horizon rig exploded on April 20.
The Obama administration “forced” BP to take more aggressive steps to deal with the spill, White House Chief of Staff Rahm Emanuel said yesterday. After BP last week agreed to set up a $20 billion fund to compensate victims, Anadarko Petroleum Corp., a minority partner in the leaking well, said it will seek to avoid paying claims because BP was “reckless.”
BP’s expenses so far include “the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid, and federal costs,” BP said. “It is too early to quantify other potential costs and liabilities associated with the incident.”
The company says it will be able to stop the flow of oil from the damaged well with two relief wells it started drilling in May. The first has reached about 16,000 feet, and the second has reached 10,000 feet, BP said today. Both are still on track to be completed three months after their start date, it said.
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.
Last Updated: June 21, 2010 03:14 EDT