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BL: Liquidity Seizure' May Drag World Into Recession, Nomura's Schulte Says
By Jonathan Burgos
June 10 (Bloomberg) -- A “liquidity seizure” arising from Europe’s worsening debt crisis could drag the global economy back into recession, according to Paul Schulte, head of multi- asset strategy in Asia excluding Japan at Nomura Holdings Ltd.
“As Europe’s problems unwind, liquidity is going to seize up. As liquidity seizes up, multiples are going to contract,” Hong Kong-based Schulte told reporters in Singapore today. “Equities are not necessarily cheap.”
Concern that Europe’s sovereign-debt crisis will spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Global investors have little confidence in Europe’s efforts to contain its debt crisis, according to a quarterly poll of investors and analysts who are Bloomberg subscribers.
European Union leaders unveiled an almost $1 trillion loan package last month after Greece’s budget deficit expanded to almost 14 percent of gross domestic product, exceeding the EU’s 3 percent limit.
Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, the most in almost two years, on concern Europe’s sovereign-debt crisis will slow global growth, EPFR Global said on May 21. Global equity funds are slowly putting money back into the market, absorbing $1.5 billion of inflows in the week ended June 2, the Cambridge, Massachusetts-based research firm said this week.
‘Liquidity Seizure’
“What we are having is a sort of liquidity seizure because of the dislocation in the euro,” Schulte said. “If we are not careful, that could tip us back into recession again.”
Schulte’s views contrast with that of the International Monetary Fund, which said yesterday the European debt crisis has been contained and that it still expects global growth of about 4.2 percent this year.
European Union governments this week vowed to police national budgets at an early stage and introduce a wider range of sanctions on excessive deficits to prevent a repeat of the Greece-fueled debt crisis that weakened the euro. They also pledged to press ahead with deficit cuts next year.
Still, Schulte said the euro may continue to slide as “debt restructuring in Europe looks inevitable.”
‘Not a Problem’
The level of the euro, which has fallen 16 percent this year and is trading at about $1.20 today, “is not really a problem,” IMF Managing Director Dominique Strauss-Kahn said in an interview with Bloomberg Television in Istanbul yesterday, while acknowledging that the pace of the depreciation may fuel concern.
Growing uncertainties about the fate of debt-saddled countries in Europe makes it a “little bit premature” to hunt for bargains at this stage, Schulte said.
The MSCI Asia Pacific Excluding Japan Index of stocks has fallen 10 percent this year, dragging valuations to 13 times estimated earnings and 1.8 times book value, according to Bloomberg data. Schulte said valuations of 11 times estimated earnings and 1.5 times book value look more reasonable for Asian equities.
To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.
Last Updated: June 10, 2010 03:14 EDT
BL: Banks Face Short-Sale Fraud as Home ‘Flopping’ Schemes Spread
By John Gittelsohn
June 10 (Bloomberg) -- Two Connecticut real estate agents found a way to profit in the U.S. housing bust: Buy low, sell fast. Their tactic was also illegal.
Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed -- known as a short sale -- without disclosing that there were better offers. They then flipped the houses for a profit.
The Federal Bureau of Investigation, the California Department of Real Estate and mortgage finance company Freddie Mac have warned that such schemes may be spreading after a plunge in values left homeowners owing more than their properties are worth. The scams threaten to deepen losses for lenders that are increasingly agreeing to short sales as an alternative to more costly foreclosures.
“Short sales are an important tool that can help both the bank and the borrower,” said Morgan McCarty, executive vice president for mortgage servicing at Birmingham, Alabama-based Regions Bank, which lost money in the Connecticut case. “It’s just that criminals are always trying to find ways of profiting.”
An Obama administration effort to boost short sales may increase incentives for fraud, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, wrote in an April 20 report to Congress. The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales.
Lacking Protections
“It appears that the program may lack necessary antifraud protections,” Barofsky wrote.
A prevalent scam involves a practice called “flopping,” Barofsky said. In that scheme, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit, as in the Connecticut case.
“Flopping” occurs in more than 1 percent of short sales and may cost lenders $50 million this year, according to estimates from CoreLogic Inc., a real estate data and research company in Santa Ana, California. About 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April, data from the National Association of Realtors show.
Quick Profit
“A majority of the short-selling fraud is related to LLCs and investment companies trying to make a quick profit,” said Tim Grace, vice president of fraud analytics at CoreLogic. LLCs refer to limited liability corporations.
The Treasury has “put reasonable protections in place” to prevent short-sale fraud, requiring that the buyer and seller have no hidden relationship and banning most resales within 90 days, said Laurie Maggiano, policy director of the department’s Homeownership Preservation Office in Washington.
Suspected property-valuation fraud almost doubled from the end of 2007 through the first quarter of this year, according to a June 8 report by Interthinx Inc., an Agoura Hills, California- based company that sells mortgage fraud detection software.
Investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price, Ann Fulmer, vice president of Interthinx, said in a telephone interview. She suggested an Internet search of “How to influence a broker price opinion,” which yielded 74,800 results.
Pot-Bellied Pig
Near the top of the list is a video hosted by Mark Walters of CashFlowInstitute.com in Glendale, Arizona. It shows Walters feeding carrots to a pot-bellied pig while advising how to influence brokers to reduce their valuation. Among his tips: provide prices of comparable short sales to make the broker’s job easier, and be clear you want a low price.
“See if you might be able to sway what they do in your favor,” Walters says on the video.
Walters didn’t respond to e-mails, a fax and phone messages requesting comment. In the video, Walters says he learned about influencing broker price opinions from Dean Edelson, owner of Elysium Investment Group Inc. in Sedona, Arizona.
Edelson said efforts to influence broker price opinions, or BPOs, are needed to counterbalance lender pressure to inflate values. Brokers often form an opinion based on a street view of a home, unaware of hidden flaws, he said. Attempting to influence their opinion is legal as long as there is no pressure or payment to get a desired outcome, according to Edelson, who says he has completed “a few hundred” short sales since 2003.
Not Fraud
“How is influencing a BPO fraud?” Edelson, 53, a former producer of promotional trailers for television shows including “Seinfeld” and “Frasier,” said in a telephone interview. “What’s fair market value? It’s determined by what a buyer is willing to pay for the property.”
By allowing broker price opinions, the Treasury exposes taxpayers to short-sale fraud after $49 billion of government bailouts for housing, Barofsky wrote to Congress.
“As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal,” he wrote. “No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation.”
Requiring a full appraisal instead of a broker opinion doesn’t guarantee getting the accurate value, the Treasury Department’s Maggiano said.
Appraiser Integrity
“It’s all in the integrity of the person doing the valuation,” she said. “Clearly there are poor quality appraisers, licensed or not, and there are poor quality real estate agents, licensed or not.”
Lenders usually lose less from short sales than foreclosures, because there’s less property deterioration and repossession cost, Maggiano said. In April, the average loss in principal for prime loans that went into foreclosure was 42 percent, compared with a 33 percent loss for short sales, according to Amherst Securities Group LP, an Austin, Texas-based company that analyzes home-loan assets.
At Bank of America Corp., the largest U.S. mortgage servicer, completed short sales are on pace to more than double this year from 2009, Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, wrote in an e-mail. She declined to provide more specific data.
Transaction Audits
“We have language in our short sale approval letter that prohibits the flipping of a property and after closing we will audit transactions to identify ‘flips’ or ‘flops,’ ” Bauwens wrote. “It’s not in the best interest of our investors or communities at large to encourage or allow flipping.”
Regions Bank, a unit of Regions Financial Corp., completed 498 short sales with $175 million in unpaid principal balances in 2009, double the value of its 2008 transactions, McCarty said. The lender completed 303 short sales worth $93 million this year through May.
The company requires a full appraisal before a resale, McCarty said. It also demands short-sale buyers sign statements affirming the transactions are arms length, with no hidden buyer-seller relationships, and that there are no agreements to resell the property.
In the Connecticut case, Regions Bank in April 2008 agreed to a short sale of a Bridgeport house for $102,375, unaware that Natera and McElaney had a bidder willing to pay $132,500, according to the plea agreements. Eight weeks after the bank sold for a loss, the pair resold the house for a $30,125 gain.
Natera’s phone has been disconnected and he couldn’t be reached for comment. Arnold Kriss, his defense attorney in New York, declined to discuss the case before sentencing.
McElaney declined to comment when reached by phone. Her New York-based attorney, Mark Bederow, said he couldn’t discuss specifics of the case.
“The mere act of a buyer in a short sale selling again quickly isn’t per se fraudulent,” he said. “That’s business.”
To contact the reporter on this story: John Gittelsohn in New York at johngitt@bloomberg.net.
Last Updated: June 10, 2010 00:01 EDT
BL: Asia Weathers Europe Crisis as China Exports, Korean Jobs Exceed Forecasts
By Jacob Greber
June 10 (Bloomberg) -- Asia’s economies signaled they are best placed to weather Europe’s debt crisis this week as data from China’s exports to job growth in South Korea and Australia surpassed analysts’ forecasts.
Regional stocks rose after Chinese shipments abroad climbed 48.5 percent in May from a year earlier, the customs bureau said today, and separate figures showed a jump in property prices. Unemployment rates in South Korea and Australia fell last month, according to government figures, and Japan reported its economy expanded more than previously estimated in the first quarter.
The resilience may amplify American calls for Asian nations to reduce reliance on exports and increase their contribution to a world recovery clouded by Europe’s fiscal woes. China has so far resisted letting its yuan rise against the dollar, seeking to shield exporters, while Japan’s central bank has flagged the recovery in refraining from stepping up injections of cash.
“These numbers are very positive,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “Asian countries have pretty strong fiscal positions and they’ve got growing domestic demand which will help insulate against any shocks out of Europe.”
Also, the “sharp pick-up in China’s trade surplus will not go unnoticed in Washington, where there will be more pressure on the U.S. administration out of Congress to take a tougher line with China” on its currency, Jackson said.
Stocks Surge
The economic reports helped stoke a surge in stock markets around Asia. The MSCI Asia Pacific Index rose 0.8 percent to 110.68 as of 1:54 p.m. in Tokyo, and S&P/ASX 200 Index in Sydney advanced 1.1 percent at 3:40 p.m. in Sydney. In contrast the Standard & Poor’s 500 Index lost 0.6 percent to 1,055.69 as of 4 p.m. in New York yesterday.
Asia’s growth contrasts with several European nations that may see their gross domestic product shrink, with the risk of a “double dip” recession, Andrew Burns, lead writer of the World Bank’s Global Economic Prospects 2010 report, said in a telecast from Washington late June 9. Burns didn’t single out European countries by name.
Eastern Europe, Central Asia and Latin America are the developing regions most in danger of an impact from the crisis that started in Greece, he said.
East Asia wouldn’t be unscathed by a return to recession in the advanced economies, Burns said. “That’s going to have important knock-on effects in East Asia, particularly because it is a very heavy trading region.”
The Bank of Korea cited the European situation in keeping its benchmark interest rate at a record-low 2 percent today.
Considerable Uncertainty
“There is a considerable degree of uncertainty over the actual growth path, caused by the fiscal problems of European countries,” Governor Kim Choong Soo and his policy board said in a statement today.
At the same time, Asia will continue to lead the global rebound, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said June 9. That brings its own challenges, with increasing capital inflows and the risk of overheating if policy makers fail to take “appropriate” action, he said in a speech in Singapore.
China’s property prices rose at the second-fastest pace on record in May, jumping 12.4 percent from a year earlier, a sign that the government crackdown on speculation has yet to avert the threat of an asset-price bubble.
“The Chinese property market is still growing at an unsustainable rate,” said David Taylor, a market analyst at CMC Markets in Sydney. “There’s also evidence that the sovereign debt woes of Europe are yet to have a material impact on China’s trade balance.”
Economic Growth
Signs of economic strength in Asia are prompting leaders and policy makers to boost economic forecasts for their economies. Malaysian Prime Minister Najib Razak said today that economic growth will average 4.2 percent in the 2006-2010 period, and Sri Lankan central bank Governor Nivard Cabraal said his nation’s economy may expand faster than earlier forecast in 2010.
Japan’s economy expanded at an annualized 5 percent rate in the three months ended March 31, quicker than the 4.9 percent reported last month, driven by exports and an upward revision to consumer spending.
China’s customs bureau said today the nation posted a trade surplus in May of $19.53 billion.
By contrast, the U.S. trade deficit probably widened to $41 billion in April from $40.4 billion, according to the median estimate of 75 economists surveyed ahead of a report due to be published at 8:30 a.m. in Washington.
‘Too Good’
“Unfortunately for Chinese policymakers the latest trade figures are probably ‘too good’,” said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. “The lift in the trade surplus will again get politicians in Washington rattling sabers about the value of the yuan.”
Some economies in the region are growing fast enough for policy makers to begin raising borrowing costs. New Zealand central bank Governor Alan Bollard today increased the official cash rate to 2.75 percent from a record-low 2.5 percent, the first boost in three years.
India’s central bank has raised rates twice since mid-March by a quarter-percentage point each time, taking the reverse- repurchase rate to 3.75 percent.
In Australia, where central bank Governor Glenn Stevens has led Group of 20 policy makers with the most aggressive round of interest rate increases, a mining investment boom continues to stoke demand for workers.
Australian employers added 26,900 payrolls in May, more than the 20,000 forecast by analysts, pushing down the jobless rate to 5.2 percent from 5.4 percent, almost half the level of the U.S. and Europe.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
Last Updated: June 10, 2010 03:10 EDT
BL: BP 5-Year Default Swaps Soar 208 Basis Points to 594, CMA Says
By Abigail Moses
June 10 (Bloomberg) -- Credit-default swaps insuring BP Plc debt for five years surged 208 basis points to a record 594, according to CMA DataVision.
To contact the reporter on this story: Abigail Moses in London at amoses5@bloomberg.net
Last Updated: June 10, 2010 03:52 EDT
Down 12% in UK: BP shares in meltdown as US crisis deepens
By Adrian Lowery
10 June 2010, 9:10am
This Is Money.uk
BP shares were in meltdown this morning, falling 12% in opening London trade after the British oil giant came under intensifying political attack in the United States.
Overnight, BP saw a drop of over 15% in the price of its US-traded American Depositary Receipts (ADRs) to a 14-year low, after US Interior Secretary Ken Salazar said BP would be told to pay workers laid off due to a drilling moratorium announced in the wake of the oil spill in the Gulf of Mexico.
The shares recovered, however, to stand 6% or 23.4p down at 368.15p, as the firm claimed it was 'not aware of any reason' for the sudden slump on Wall Street.
BP shares have now lost 45% of their value since the Gulf of Mexico disaster struck, wiping around £58bn off the value of one of Britain's biggest companies.
The company has released yet another update on the oil spill, saying that the cost of the clean-up and containment efforts had now hit $1.43bn (£979m). But the group said its latest effort to capture oil spewing out of the leak was now collecting about 15,000 barrels a day.
Yesterday, BP raised the stakes in its desperate political struggle with Capitol Hill as it revealed how crucial the Gulf of Mexico is to America's energy security.
In its annual energy outlook, BP said deepwater fields similar to the Gulf's stricken Macondo prospect last year helped the US enjoy its strongest oil output boost since 1970. Gulf fields saw the most stellar jump in production of any global oil region.
The intervention comes amid a mounting political firestorm over the drilling disaster in the Gulf's Macondo prospect. President Barack Obama has imposed a moratorium on new deepwater drilling licences as he attempts to quell fury over the spill.
Managing director Iain Conn yesterday maintained it is too soon to say if BP's future in the Gulf of Mexico could be 'curtailed' thanks to the Deepwater Horizon explosion. But he said that as the Gulf's leading operator BP has a 'phenomenal toolkit' at its disposal.
Industry advocates, including BP, are trying to hammer home the critical strategic significance of the Gulf to America's energy supplies, amid fears the backlash over the Macondo disaster could impede long-term efforts to bolster the country's crude production.
The US last year saw a 7% surge in oil output thanks to deepwater Gulf wells, taking output to 7.2m barrels a day, BP figures show. The US also became the world's biggest gas producer, overtaking Russia, thanks to the unlocking of onshore 'shale' reserves with advanced technology.
But BP's efforts to defend its turf in America will remain deeply forlorn as long as it struggles to stem the inky tide escaping from the Macondo well. The US government has now told the firm it needs to put in place tanker capacity to capture 28,000 barrels of oil a day. That would dwarf earlier estimates suggesting only 5,000 barrels were leaking from the well.
BP shares last night closed below 400p for the first time since 2008, taking the total loss in market value to £50bn.
More than 40 lawmakers have written to chief Tony Hayward demanding the company suspends dividends in order to divert the cash to the Gulf relief effort. Questions surround the future of the BP chief executive, who has been turned into a hate figure in America because of repeated gaffes. This week Obama said he would have fired Hayward by now.
Conn declined to comment when asked whether he could succeed Hayward. Instead, he praised him for doing a 'robust' job leading the firm.
He added: 'We have a tremendously strong level of solidarity around the board table.'
Read more: http://www.thisismoney.co.uk/markets/article.html?in_article_id=505981&in_page_id=3&position=moretopstories#ixzz0qRAIaBhl
>>Oil use fell most since 1982: BP
From Herald News Services June 9, 2010 10:00 PM
Demand - World oil consumption fell by 1.2 million barrels per day in 2009, the largest volume drop since 1982, but is likely to rise this year due to robust demand from emerging markets, British oil major BP PLC said Wednesday.
Economic recession cut global oil consumption for the second consecutive year and the world's fossil fuel energy use for the first time since 1982, BP said in its annual Statistical Review of World Energy.
"The strong link between energy and the global economy asserted itself," said Christof Ruehl, BP's chief economist.
© Copyright (c) The Calgary Herald
Read more: http://www.calgaryherald.com/fell+most+since+1982/3135591/story.html#ixzz0qR9fPoce
AFP: U.S. wants updated plan from BP
Agence France-Presse June 9, 2010 10:00 PM
The U.S. tightened pressure Wednesday on BP, setting a 72-hour deadline for the battered British energy titan to update plans for battling the Gulf of Mexico oil spill.
Coast Guard Admiral Thad Allen, who is leading the government response, met with BP officials in Washington and ordered them to produce records of compensation claims filed in four stricken southern states.
"BP, as a responsible party, is accountable for making the communities, individuals and business impacted by this spill whole again," said Allen. "We need more detail and openness from BP to fulfil our oversight responsibilities to the American people and ensure that BP is meeting its commitment to restore the Gulf coast."
The stringent demands for greater transparency betrayed the growing mistrust between BP and President Barack Obama's administration more than seven weeks into the nation's worst environmental catastrophe.
Before meeting with BP, Allen sent a letter to BP CEO Tony Hayward, asking him to explain how compensation packages to devastated local industries were being calculated and why they were taking so long to process.
© Copyright (c) The Calgary Herald
Read more: http://www.calgaryherald.com/wants+updated+plan+from/3135500/story.html#ixzz0qR92IkiV
>>EUR/USD fighting to stay over 1.20, now 1.2025. Intervention?
>>MORE Carnage? BP shares fall sharply in London
By JANE WARDELL (AP) – 22 minutes ago
LONDON — Shares in BP PLC are falling sharply at the start of trading in London after a huge sell-off in New York amid fears about the rising costs facing the company over the Gulf of Mexico oil spill.
The stock is trading down at 9.3 percent at 355 pence ($5.18) in early trade.
Investors are worried about the payment of the company's planned dividends and its ability to pay for the disaster as U.S. political pressure increases for greater compensation.
BP had attempted to reassure investors before the market opened, saying it is in a strong financial position and it saw no reason to justify the sell-off in the U.S., where shares tumbled to their lowest level in a decade on Wednesday.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
LONDON (AP) — BP PLC sought to reassure investors on Thursday after its shares took a dive in U.S. trading, saying it isn't aware of any reason to justify the sell-off.
In a statement released before the London Stock Exchange opened for trading, the company underlined its strong financial position and said it has "significant capacity and flexibility" to deal with the cost of responding to the Gulf of Mexico oil spill.
BP shares tumbled Wednesday to their lowest level in more than a decade in New York trade on fears the company won't pay out its planned dividends and wider speculation about its ability to pay for the disaster. The stock recorded a smaller fall in London.
"BP notes the fall in its share price in U.S. trading last night," the company said in the statement. "The company is not aware of any reason which justifies this share price movement."
"BP faces this situation as a strong company," it said. "Under the current trading environment, we are generating significant additional cash flow."
The company reminded investors that it had indicated in March — before the explosion at the Deepwater Horizon rig — that its cash inflows and outflows were balanced at an oil price of around $60 per barrel.
It said its gearing was currently below the bottom of its targeted range and its asset base was "strong and valuable." The company had more than 18 million barrels of proven reserves and 63 billion barrels of resources at the end of 2009.
BP said those strong financials gave it "significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."
The stock dropped $5.45, or 16 percent, to close at $29.20 in New York on Wednesday — easily its worst day since the rig exploded seven weeks ago. The company has lost half its market value, a stunning $95 billion, in that time. It posted a smaller 4.2 percent fall in London to close at 391.55 pence ($5.71).
BP, which earned more than $16 billion last year, has already spent more than $1 billion dealing with the disaster. CEO Tony Hayward last week wouldn't estimate the total bill, though he told analysts that minority partners like Anadarko would be expected to pay as well.
Political pressure is building on the British company to slash its dividend or suspend it altogether until the well is capped and hundreds of miles (kilometers) of coastline have been cleaned up. Some investors worry the billions of dollars in liabilities could wipe the company out.
Estimates for the total cost of the spill grow with every barrel that BP's failed well belches into the Gulf and with each oil-covered pelican or turtle that washes up on a devastated beach.
U.S. Interior Secretary Ken Salazar upped the ante on Thursday, promising a Congressional hearing into the spill to ask BP to compensate energy companies for losses if they have to lay off workers or suffer economically because of the Obama administration's six-month moratorium on deepwater drilling.
Cutting the dividend would have a big impact in Britain. BP accounts for about an eighth of dividend payments from companies in that country's blue-chip stock index, providing crucial income for retirees. In addition, about 40 percent of BP's shareholders are based in the U.S. BP hasn't said whether it would approve a payout for the second quarter.
BP said it would continue to keep the market updated on the oil spill — its top priority — through regular announcements.
http://www.google.com/hostednews/ap/article/ALeqM5hx2DXj6rc5PnSCj68b8pwPcZxOGAD9G89KI00
LOL...soon nuff...but wow, this is turning into a major international incident
UK vs USA: Will David Cameron Intervene as BP Continues to Plummet?
BP oil spill: shares plummet as US warns it will 'take action' to stop dividend
Shareholders have seen another £5bn wiped off the value of BP, putting pressure on David Cameron to intervene in a row engulfing the oil company.
By Louise Armitstead, Myra Butterworth and Alastair Jamieson
Published: 8:58AM BST 10 Jun 2010
Shares in the company plummeted seven per cent in early trading in London after the Obama administration signalled it would take legal action to stop a dividend payment to shareholders amid anger over the Gulf of Mexico oil spill.
It followed a sharp fall of nearly 16 per cent in New York on Wednesday night, with BP shares on Wall Street closing at their lowest level since August 1996.
Boris Johnson, the Mayor of London, this morning became the most senior UK politician to defend BP, saying "anti-British rhetoric" levelled at the company was a matter of "national concern" and that the oil giant was paying "a very, very heavy price" for what had been an accident.
"I would like to see a bit of cool heads rather than endlessly buck-passing and name-calling," he said. "When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves."
The shares slump, which came despite a BP statement saying it was "not aware of any reason" for the share price movement, put renewed pressure on David Cameron to make his position clear as the company comes under intense pressure from the White House over its efforts to clean up the spill.
BP said the cost of the clean-up and containment efforts had now hit US$1.43 billion (£979 million).
On Wednesday, BP's share price fell a further 17.35p to 391.55p – representing a 40 per cent drop on the 655p price of a share two months ago.
Associate Attorney General Thomas Perrelli said the Justice Department was "planning to take action" when asked at a Congressional hearing if an injunction was being considered against BP to stop the payout amid anger over the Gulf of Mexico oil spill.
Ken Salazar, the interior secretary, added that BP would be asked to compensate energy companies for losses if they had to make workers redundant because of a six-month moratorium on deepwater drilling imposed in the wake of the leak.
On Wednesday, BP's share price fell a further 17.35p to 391.55p – representing a 40 per cent drop on the 655p price of a share two months ago.
The warnings came as Barack Obama was accused of holding "his boot on the throat" of British pensioners after his attacks on BP were blamed for wiping billions off the company's value.
City investors said the president was jeopardising the pensions of millions with his "excessive" criticism of the energy company following the spill.
Before the accident on April 20, BP was Britain's biggest company, with a stock market value of £122 billion. Since then, £49 billion has been wiped off its value.
Experts have said that the clean-up costs of the oil spill will run to between £10 billion and £20 billion but the biggest cost to the company is from investors dumping stock for fear of BP being further punished by the US Government.
Those fears have been heightened by Mr Obama's increasingly aggressive rhetoric towards BP, which some investors see as an attempt to deflect criticism of his own handling of the crisis. Last month, a White House spokesman said the President's job was to keep his "boot on the throat" of the company.
In the past week, Mr Obama, who insists on referring to BP by its former name British Petroleum, has suggested that its chief executive, Tony Hayward, would have been sacked if he worked for him.
BP's position at the top of the London Stock Exchange and its previous reliability have made it a bedrock of almost every pension fund in the country, meaning its value is crucial to millions of workers. The firm's dividend payments, which amount to more than £7 billion a year, account for £1 in every £6 paid out in dividends to British pension pots.
BP is so concerned about Mr Obama's power to affect share value that it has urged David Cameron to appeal to the White House on its behalf. Downing Street, however, has refused to get involved. "We need to ensure that BP is not unfairly treated – it is not some bloodless corporation," said one of Britain's top fund managers. "Hit BP and a lot of people get hit. UK pension money becomes a donation to the US government and the lawyers at the expense of Mrs Jones and other pension funds."
Mark Dampier of the financial services company Hargreaves Lansdown said: "[Mr Obama] is playing to the gallery but is not bringing a solution any closer. Obama has his boot on the throat of British pensioners. There is no point in bashing BP all the time, it's not helpful. It is a terrible situation, but having the American president on your back is not going to get it all cleared up any quicker."
Neil Duncan-Jordan, of the National Pensioners Convention, said: "Most ordinary people would not have thought that BP would have an impact on their retirement but if BP's share price goes down then their pension pot goes down.
"Most of those pension funds are invested in the default option, which is stocks and shares, and so if BP goes down the pan then their pension pot goes down the pan."
Although fund managers accept that BP must pay compensation for the oil spill and the damage it is doing to parts of America's coastline, they argue that the cost to the company's market value from the president's criticism is far outweighing the clean-up costs.
One investment manager said: "Experts have said that the clean-up costs could reach a maximum of £20 billion which means the hit to BP is excessive on any scale."
There is particular anger at US interference in the company's dividend policy. Earlier this week, two senators suggested BP should be banned from paying out to shareholders until the full clean-up costs are known. One fund manager said: "Who is Obama to dictate whether UK pension funds are paid a dividend? Others in a similar position have been able to pay dividends."
Jason Kenney, an oil and gas analyst at ING, said: "When you compare how Britain reacted towards the US company Occidental after its Piper Alpha disaster where 167 people died, they are worlds apart.
“The US reaction is getting towards hysterical. Half of them seem to think the US is knee deep in oil. It’s difficult to underestimate the effect 24-hour TV dinner media coverage of the spill is having over there.”
Tom Watson, the former Labour minister, was planning to table a Commons motion today in support of BP and urging MPs to understand the importance of the company to pensioners in this country.
He said last night: “BP is perhaps the most strategically important company for Britain and for UK pensioners. I want to see the UK government defend the company while it is under this attack.”
He added: “Of course the company must clean up the spill but let’s be under no illusion – all oil companies could have been in this situation whether British, American or any other nationality.
“I am sure there are American oil companies that want BP to fail but it is British pensioners that will badly lose out if they do.”
Ken Salazar, the US interior secretary, said yesterday that the Obama administration would require BP to pay the salaries of any workers who were laid off as a result of the government’s moratorium on offshore drilling, imposed while safety reviews take place.
“BP is responsible for all the damages,” Mr Salazar told the Senate’s energy and natural resources committee, in one of five hearings taking place on Capitol Hill.
BP is due to announce its second quarter dividend and results on July 27.
There is a fear that unless the Government intervenes on BP’s behalf, the company will continue to be hit, particularly in the run-up to the midterm elections in America.
Last week Vince Cable, the Business Secretary, described America’s anti-British rhetoric as “extreme and unhelpful”.
On Monday, The Daily Telegraph disclosed that the Foreign Office was concerned that the criticism of BP was harming Anglo-US relations.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7816593/BP-oil-spill-shares-plummet-as-US-warns-it-will-take-action-to-stop-dividend.html
BP: Top tory Tebbit slams 'anti-BP' Obama
By Jason Groves and David Gardner
10 June 2010, 7:24am
Reader comments (3)
Lord Tebbit has hit out at Barack Obama's anti-BP rhetoric, calling it 'despicable' and adding to pressure on David Cameron to intervene.
The Prime Minister is facing growing calls to defend the British-based multinational amid claims it is being made a scapegoat for the US oil spill.
Lord Tebbit, a former trade secretary, suggested the President was attacking BP to distract from his administration's impotence.
Writing on his website, he said Mr Obama's attitude was explicable but 'despicable'.
He went on: 'The whole might of American wealth and technology is displayed as utterly unable to deal with the disastrous spill - so what more natural than a crude, bigoted, xenophobic display of partisan political Presidential petulance against a multinational company?'
Mr Obama came under further attack from financial experts, who accused him of threatening British pension investments in BP.
Echoing the president's own pledge last month to keep his 'boot on the throat' of BP to make sure it met the costs of the spill, Mark Dampier, of financial services company Hargreaves Lansdown, said the President actually had 'his boot on the throat of British pensioners'.
'Obama is obviously trying to show how tough he is but the trouble is he can't really do anything,' said Mr Dampier. What's going on in the Gulf is pretty horrible. But he is playing politics and I don't think it's a very helpful game.
'Most British companies hold BP shares in our pension funds, so a dividend cut is not great news.'
The rising anger was also reflected on the other side of the Atlantic. The US Senate has called in beleaguered BP boss Tony Hayward to give evidence before a Senate committee next week.
It follows comments 24 hours earlier from Mr Obama that he would not employ Mr Hayward in light of comments made by the BP boss that he wanted his 'life back'.
BP's share price lost another 4.1% in the UK yesterday, leaving the company's market value at just over £ 73bn. In the U.S., its share price fell to a 14-year low of $29.20.
Lord Tebbit pointed out that US engineering giant Halliburton was also involved in the events leading up to the Gulf disaster. And he added: 'It is time that our American friends were reminded that they sang a different tune when the American company Union Carbide killed many thousands of Indians at Bhopal. Not to mention when the American company Occidental killed 167 people on a North Sea oil rig in 1988.
'At the very least, the President might acknowledge that the company directly responsible for the Gulf disaster was American, not British. He may be holding on to some Democratic Party votes, but he is storing up a great deal of ill will that he might regret at some time.'
The Foreign Office denied reports that BP had formally asked the British Embassy in Washington to intervene with the Obama administration in a bid to tone down its rhetoric.
The row is threatening to cast a shadow on Anglo-American relations and the 'special relationship'.
Asked about Mr Obama's references to the firm as 'British Petroleum' - a name it has not used for years - a spokesman for Mr Cameron said: 'I don't think the PM wants to comment but I think it is a fact that BP is a global company.'
Read more: http://www.thisismoney.co.uk/news/article.html?in_article_id=506005&in_page_id=2#ixzz0qR2udIP1
BP: We are key to US oil needs, says BP
By Sam Fleming
10 June 2010, 8:32am
BP raised the stakes in its desperate political struggle with Capitol Hill as it revealed how crucial the Gulf of Mexico is to America's energy security.
In its annual energy outlook, BP said deepwater fields similar to the Gulf's stricken Macondo prospect last year helped the US enjoy its strongest oil output boost since 1970.
Gulf fields saw the most stellar jump in production of any global oil region.
The intervention comes amid a mounting political firestorm over the drilling disaster in the Gulf's Macondo prospect.
President Barack Obama has imposed a moratorium on new deepwater drilling licences as he attempts to quell fury over the spill.
Managing director Iain Conn yesterday maintained it is too soon to say if BP's future in the Gulf of Mexico could be 'curtailed' thanks to the Deepwater Horizon explosion.
But he said that as the Gulf's leading operator BP has a 'phenomenal toolkit' at its disposal.
Industry advocates, including BP, are trying to hammer home the critical strategic significance of the Gulf to America's energy supplies, amid fears the backlash over the Macondo disaster could impede long-term efforts to bolster the country's crude production.
The US last year saw a 7% surge in oil output thanks to deepwater Gulf wells, taking output to 7.2m barrels a day, BP figures show.
The US also became the world's biggest gas producer, overtaking Russia, thanks to the unlocking of onshore 'shale' reserves with advanced technology.
But BP's efforts to defend its turf in America will remain deeply forlorn as long as it struggles to stem the inky tide escaping from the Macondo well.
The US government has now told the firm it needs to put in place tanker capacity to capture 28,000 barrels of oil a day. That would dwarf earlier estimates suggesting only 5,000 barrels were leaking from the well.
BP shares finished below 400p for the first time since 2008, taking the total loss in market value to £50bn. The stock ended down 17p to 391.90p.
More than 40 lawmakers have written to chief Tony Hayward demanding the company suspends dividends in order to divert the cash to the Gulf relief effort.
Questions surround the future of the BP chief executive, who has been turned into a hate figure in America because of repeated gaffes. This week Obama said he would have fired Hayward by now.
Conn declined to comment when asked whether he could succeed Hayward. Instead, he praised him for doing a 'robust' job leading the firm.
He added: 'We have a tremendously strong level of solidarity around the board table.'
Read more: http://www.thisismoney.co.uk/markets/article.html?in_article_id=506008&in_page_id=3&position=moretopstories#ixzz0qR2GcdJD
UKT: BP Tumbles 11% in London: Billions wiped off value BP as share price plummets
BP shares tumbled 11pc on Thursday morning after US officials signalled they would take legal action to force BP to stop paying a dividend.
By James Quinn in New York and Rowena Mason in London
Published: 8:27AM BST 10 Jun 2010
Associate Attorney General Thomas Perrelli said the Justice Department was "planning to take action" when asked at a Congressional hearing if an injuction was being considered against BP to stop the payout amid anger over the Gulf of Mexico oil spill.
Shares hit a 13-year low of 345.15p in early trading, before rebounding slightly to 360p.
On Wednesday, the company’s American Depositary Receipts (ADRs) fell by $5.48, or 15.8pc, to $29.20. The cost of insuring BP’s debt rose almost half, with credit default swaps on BP rising 126.8 basis points to 387.6 basis points.
More than 40 Congressman and Senators have signed a letter telling Tony Hayward, BP’s chief executive, to suspend dvidend payments.
BP shares have now lost 47pc of their value since the Deepwater Horizon rig exploded and sank on April 20. Before the incident, BP was Britain's biggest company, with a stock market value of £122bn. Since then, more than £50bn has been wiped off its value.
“People are resigning themselves to the fact that there may be a suspension of the dividend,” said Tony Shepard, Charles Stanley’s oil analyst.
BP has repeatedly said it has enough cash to pay the dividend, but it is reviewing its policy.
BP continued to be lambasted on a number of fronts, not least by Ken Salazar, US Interior Secretary, who said the company’s latest containment efforts have increased the flow of oil into the Gulf.
Speaking before the latest Congressional hearing into the spill, he claimed that “the rate of increase may have been somewhere between four and five per cent over what it was before”.
Mr Salazar also said he expected BP to pay the salaries of workers laid off as a result of the US’s moratorium on deepwater drilling in the Gulf.
Tony Hayward, BP’s chief executive who has taken the brunt of the criticism, will appear before Capitol Hill for the first time on June 17, alongside executives from other oil majors. Ladbrokes has cut the odds of the embattled chief executive resigning before the year end from 5-1 to 2-1.
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7816623/BP-oil-spill-Billions-wiped-off-value-BP-as-share-price-plummets.html
BP: The ever-falling BP share price
Jun 9, 2010 14:34 EDT
commodities
With its latest stock-price plunge today, BP has broken three important psychological levels: it’s below book value, it’s trading at less than half of its 52-week high, and it’s worth less than $100 billion. The culprit this time around would seem to be the dividend. The company has been paying out a steady 84 cents per share per quarter, and that payment is now in jeopardy; as recently as last week, it seemed to be safe.
How does the retention of $3.36 in annual dividend payments justify a $4.50 fall in the share price? Well, so long as BP holds on to that money and doesn’t transfer it to shareholders, it can be forced to transfer it elsewhere instead — for instance to workers who were laid off from other oil companies upon the introduction of the moratorium on off-shore drilling. BP’s coffers are not at all a safe place to store shareholders’ cash: they can be raided by all manner of legal and regulatory eventualities.
But there’s another dynamic at work here: BP and Shell between them account for 50% of the dividends paid by UK companies every year. It seems quaint, but there really are a lot of far-from-wealthy people in the UK who live off their dividend income, and those people constitute a surprisingly large part of BP’s shareholder base. If BP suspends its dividend, the only way they can get money from their stock is by selling it.
If BP doesn’t suspend its dividend, it would seem to be approaching screaming-buy levels right now: a $3.36 dividend on a stock worth $30.42 is a dividend yield of 11%. Plus of course there’s the possibility of an exit via takeover. But the fact is that the government can and will trump all of those considerations; it’s certainly not going to allow BP to declare an enormous special dividend, sell most of its remaining assets to Exxon, and then plead bankruptcy when the cleanup bill arrives. If such a thing were possible, BP stock would surely be worth a lot more than it is right now. But, thankfully, it’s not.
http://blogs.reuters.com/felix-salmon/2010/06/09/the-ever-falling-bp-share-price/
ALERT: TIVO $7 puts, +57%, only .20 x .23, on STRONG vol, nearly 5x 10DAV
Thanks for the alert, stuffie! This could be good for much more
Sizeable short position too
TIVO Short Interest (Shares Short)
12,940,300
Days To Cover (Short Interest Ratio)
1.6
Short Percent of Float
11.88 %
Short Interest - Prior
13,086,400
I must agree with stuffit that all points of view and discussions are always welcome here. I would never want to change that.
Back before 2008, I bashed W plenty, but certainly allowed others to post his support. However name calling of other posters for having a political view never was and never will be accepted here...but I don't think I need to enforce that, because thankfully our readers have generally been intelligent and thoughtful, lol.
I accept the fault is largely mine, for not posting on stocks and economics as actively during the trading day. Let me see what I can do to change that
Agreed that politics aggravate emotions, and emotions are not needed during the trading day.
That being said, political news that has an impact on the direction of stocks has a place, even alerts about polls and election results. With so many industry affecting laws being debated...that kind of news can instantly hit the value of sectors like financials, oil and insurance.
Perhaps personal political opinions and debate is best kept for after hours? I know that I did enough W bashing before 2008, but not sure I did it during trading hours...of course back then, I posted more stock alerts here during the days
Now, I'm 90% only in chat during trading hours
Re alien babies...dunno, haven't seen that due to the "ignore" button, lol.
I must agree with stuffit that all points of view and discussions are open here.
DUMB: Small Firms, S Corps, Face Higher Payroll Tax Under House Plan
(Why do the stupidest ideas seem to come from the House?)
The proposal aims to crack down on "the John Edwards loophole" -- a bit of tax planning that allows S corporations to escape Medicare taxes.
By MARTIN VAUGHAN
WASHINGTON—Small law, architectural and engineering firms could forfeit more of their income to payroll taxes under a proposal the House plans to vote on as early as next week.
House aides say the provision could raise as much as $10 billion to help offset the cost of a $180 billion bill to extend expired tax cuts, jobless benefits and other programs.
The proposal aims to crack down on what some have dubbed "the John Edwards loophole," after the former Democratic presidential candidate -- a bit of tax planning by the owners of closely-held businesses that allows much of their income to escape the 2.9% Medicare tax.
But some business owners and their Washington lobbyists argue that the tax would put a damper on entrepreneurial activity at a time the economy can ill afford it.
Details of the small business tax compliance proposal, along with details of the larger tax bill, have not yet been released and could change by the time the House actually votes on the plan, expected late next week.
In addition to the payroll tax change, House and Senate Democrats are expected to propose raising taxes on the earnings of private equity and hedge fund managers, raising another $20 billion for the package.
Senate Democrats at week's end were still polling their members to find out if they will have 60 votes in the chamber for the package; the impact of the tax changes on small businesses and on fund managers are complicating those prospects.
The House small business tax proposal aims to attack a practice by the owners of S corporations who under-report their wages in order to pay less in FICA taxes. S corporation owners often pay themselves a salary, to which Social Security and Medicare taxes apply. But profits that are paid to the owner as a shareholder are not subject to payroll taxes.
According to a recent estimate from the Government Accountability Office, about 13% of small business S corporations owners mis-reported compensation in 2003-2004, depriving the government of about $3 billion.
Edwards was criticized during the 2004 presidential campaign for using the loophole when he was the sole shareholder of an S corporation law firm. For example, in 1997 Edwards earned $540,000 in salary but took shareholder profits of $5 million, saving tens of thousands in Medicare taxes.
"This really makes no sense. People can structure their businesses in different ways, but we shouldn't have a special loophole for certain types of businesses but not others," said Steve Wamhoff, legislative director at Citizens for Tax Justice, a liberal group.
The House plan would make active shareholder income subject to FICA taxes, not just amounts set aside as salary.
House Democratic aides say the provision will be narrowly targeted, focusing on areas where there is greatest evidence of fudging the rules. It will only apply to S corporations who are service providers -- exempting manufacturers -- and will focus on firms in which there is only one or a handful of shareholders.
Lawyers, consultants, architects and engineers stand to see more of their income taxed. Still unclear is the extent to which the proposal will affect hair stylists, restaurant owners and landscapers.
Critics of the House plan say that it over-reaches by applying payroll taxes to income that is less like wages and more like a return on investment. The proposal is a "direct attack on entrepreneurial activity in the middle of a recession," said Thomas Nichols, an attorney at the firm of Meissner, Tierney, Fisher & Nichols.
"There are still some benefits of being self-employed or owning a business, and this might be one of the few that remains," said Jason Mudd, owner of an S corporation public-relations firm in Jacksonville, Fla.
Write to Martin Vaughan at martin.vaughan@dowjones.com
http://online.wsj.com/article/SB10001424052748703302604575294463267921150.html?mod=WSJ_hps_sections_smallbusiness
BP: Analyst sees BP dividend cut as 50% likely
June 9, 2010, 7:57 a.m. EDT
NEW YORK (MarketWatch) -- Societe Generale analysts Evgeny Solovyov and Aymeric de-Villaret said in a note to clients on Wednesday they see a 50% probability that BP PLC (BP 34.15, -0.53, -1.52%) will skip its upcoming quarterly dividend, which will be the subject of a directors meeting by the embattled oil giant on July 27.
"This is no longer a question of the strength of its balance sheet (which we think is strong enough) but of whether BP will be able to take the situation under sufficient control by the time it has to decide on the dividend...to come up with a story palatable for U.S. politicians and public opinion," the analysts said.
"BP has been recovering an average of 11,000 barrels a day in the past few days and it expects to increase the rate further. There is a reasonable chance therefore the mood will change by late July."
http://www.marketwatch.com/story/analyst-sees-bp-dividend-cut-as-50-likely-2010-06-09
"Ethical Funds" Divesting of BP:
Nordic bank Nordea halts new investments in BP
STOCKHOLM
The Associated Press June 7, 2010, 8:58AM ET
The Nordic region's largest bank Nordea AB says it has suspended investments in BP PLC because of the company's handling of the oil spill in the Gulf of Mexico.
Nordea says none of its funds will buy new shares in the oil giant and that 20 funds in the responsible investment category will sell their current BP holdings.
The bank described the catastrophe in the Mexican Gulf as "extraordinary" because of "the size of the spill (and) weak response from BP," as well as a criminal investigation of the company and the possible risk of other accidents.
It said Monday that BP has not been transparent enough and has failed to comply with its own safety and environmental rules.
http://www.businessweek.com/ap/financialnews/D9G6EPPG0.htm
WSJ: Europe Faces a Glut of Oil Refineries:
JUNE 7, 2010, 3:49 A.M. ET.Europe's Oil Glut: Refineries
By LANANH NGUYEN
LONDON—A glut in global refining capacity is keeping a lid on refiners' profits, particularly in Europe, where firms are resisting much-needed plant closures.
Refining margins—the amount of money a refiner can earn from processing a barrel of crude—in northwest Europe stood at an average $3.55 a barrel so far this quarter, according to BP data. Margins have edged up from 2009, when they averaged $3.26 a barrel, but are down sharply from their 2008 peak of $6.72 a barrel, a period dubbed the Golden Age of refining by industry analysts.
Vienna-based consultancy JBC Energy forecasts that refineries handling 3.4 million barrels a day, or 19% of Europe's total refining capacity, are under threat of closure by 2020 because they are unprofitable. But companies are reluctant to shut plants, given environmental cleanup costs and the opposition from both governments and labor unions, industry executives and analysts say.
About one-third of the European refining plants that are vulnerable to shutdown should close in the next two years, says David Wech, head of research at JBC Energy. "Unions are relatively strong in Europe, so it looks to be more difficult to take the decision and bring it through," he adds.
But if that doesn't happen, it could weigh down refiners globally by prolonging the squeeze on profitability
"The center of gravity [for refining and demand] is moving to the Far East. We [in Europe] are going to be secondary players in this market," says Iñigo Diaz de Espada, vice president of supply, trading, bunkering and aviation at Spanish refiner Cepsa, which is expanding a refinery in Spain. "Only the good refineries will survive."
Global refiners have struggled to maintain profitability in the last two years, hit by a sharp contraction in global oil demand and massive expansions in refining capacity in Asia and the Middle East.
The global surplus of crude-distillation capacity could grow to as much as 3.4 million barrels a day by the fourth quarter, or the equivalent of 3.9% of global capacity in the first quarter of 2008, before many new plants came online, assuming refinery throughput stays at a typical 84%, according to the Paris-based International Energy Agency. In Asia and the Middle East, where most of the new plants are located, a further 630,000 barrels a day of crude distillation capacity is expected to come onstream this year, on top of the 1.6 million barrels a day added last year, the IEA says.
The capacity glut has already forced some companies to close or convert plants to stem their losses. Last year, Europe's largest independent refiner, Petroplus Holdings AG, idled its Teesside refinery in the U.K., while French oil major Total SA halted refining operations at its Dunkirk plant in response to the slump in Europe's demand for oil. More than 25% of refineries in the Atlantic Basin, or Europe and North America, lost money in 2009, according to Wood Mackenzie estimates.
"The biggest problem for [refiners in] Europe right now is that demand has collapsed; it's imploded," says Stephen George, senior refining analyst at U.K.-based consultancy KBC Energy Economics.
But Mr. George expects ailing European refineries, rather than shut down entirely, to limp along with narrow, and in some cases, negative margins in the coming years.
Alan Gelder, head of downstream consulting at Wood Mackenzie, says, "Europeans do not obey strict commercial logic" when deciding whether to shut down refineries.
One reason is that governments are reluctant to see large numbers of industrial jobs disappear.
For example, Total's decision to close the Dunkirk plant, which employed 620 staffers and full-time contractors, was criticized by the French government and met with a wave of strikes across Total's French refineries in February. The uproar prompted Total to repurpose the Dunkirk facility, possibly into a storage facility, and keep all jobs there. The group also pledged to keep its other five refineries up and running for the next five years.
"The pain to shut down in Europe is quite large," said Willem Kuijl, a special advisor to BP PLC, said at a recent industry conference in Rotterdam. "There is a lot of clinging onto the belief that it's all going to be good sometime in the future" as global demand recovers.
High site cleanup bills also make closure unpalatable.
"The bottom line is it's better to keep the refinery as a terminal and run the heat and the lights" than pay the cost of site remediation, says Mr. George of KBC. He doesn't foresee a deep restructuring of the European industry, and expects refined product demand to start picking up around 2013 on a stronger global economy.
—Susan Daker in Houston and Geraldine Amiel in Paris contributed to this report.
http://online.wsj.com/article/SB10001424052748703561604575282431741413848.html?mod=googlenews_wsj
BL: Greek Default Seen by Almost 75% in Poll Doubtful About Trichet
By Rich Miller - Jun 8, 2010
Global investors have little confidence in Europe’s efforts to contain its debt crisis or in European Central Bank President Jean-Claude Trichet, with 73 percent calling a default by Greece likely.
Only 23 percent say they expect the region’s almost $1 trillion rescue package to both keep the European monetary union together and prevent a debt default by a government, according to a quarterly poll of investors and analysts who are Bloomberg subscribers. More than 40 percent say Greece is likely to abandon the euro.
“There is clearly a risk of a breakup of the euro,” says Geoff Marson, managing director at a Guernsey subsidiary of London-based Odey Asset Management, which oversees about $6 billion.
Trichet, whose ECB supported the rescue package by buying bonds of Greece and other European governments, saw his approval rating tumble from a January Bloomberg poll.
A plurality -- 48 percent -- give the 67-year-old central banker an unfavorable rating in the latest poll, while 41 percent view him favorably. In January, Trichet received a 60 percent approval rating, with 27 percent regarding him negatively.
“Trichet has sacrificed the ECB’s independence by helping to rescue Greece,” says Cyril Boudin, a participant in the poll and a derivatives trader at Unicredit Group in London.
Market Slump
Stock markets worldwide have slumped and the euro has plunged as Europe has struggled to defuse its debt crisis. The Stoxx Europe 600 Index has fallen 12 percent from its 2010 high on April 15, while the euro has lost about 17 percent against the dollar since the start of the year.
More than 60 percent of those surveyed say they expect the euro to fall further against the dollar over the next three months. While the European currency may be due for a “corrective bounce” in the short run, “longer term, the market has parity in its sights,” says Marson, who took part in the poll. The euro traded at $1.1973 at 5 p.m. yesterday in New York.
European investors are more optimistic about the ability of their region to resolve its problems than were their counterparts elsewhere. Thirty percent of those polled in Europe say they expect the rescue package to succeed.
U.S. investors are the most pessimistic, with only 14 percent expecting Europe’s efforts to work. A quarter of investors in Asia are also in that camp.
Overall, 40 percent of investors worldwide say European defaults were possible even with the package, while another 35 percent see some countries dropping out of the euro zone.
Lacking Fortitude
Investors in all three regions agree that Greece is the most likely country to default on its debt.
“The Greek government will not have the long-term fortitude to control spending,” says Robert Knox, a poll participant and chief executive officer of Park City, Utah- based broker-dealer RG Knox Co.
Thirty-five percent of those surveyed say a default by Portugal was likely, while more than a quarter say the same about Spain. Outside of Europe, the country seen as most likely to miss a debt payment was Argentina, with 31 percent.
“I see a lot of similarities between Spain’s situation now and emerging markets in the past 20 years,” says Alvaro Teixeira, the head of Latin American equities at Prebon Canada Ltd. in Toronto. They include “high debt, high unemployment, growing social distress,” and a currency that’s too strong for the Spanish economy.
Dumping the Euro
Fifteen percent of those polled say it’s likely Spain would be forced to dump the euro as its currency to help ease the pain on its economy. One in five see Portugal making that move.
“This crisis could be a significant step that leads to an eventual breakup of the euro zone,” says William Aston-Reese, vice president of money-market sales at New York-based broker Tradition Asiel Securities Inc. and a poll participant.
Investors in Europe are about evenly split on Trichet’s performance at the central bank. Forty-eight percent give him an unfavorable rating, while 46 percent see him in a positive light. The rest have no opinion.
American investors are the most down on Trichet, with 56 percent seeing him in an unfavorable light. In Asia, 34 percent of poll participants agree with that view.
In contrast, more than two-thirds of investors worldwide approve of the job being done by U.S. Federal Reserve Chairman Ben S. Bernanke.
U.S. Vulnerable
Still, the sovereign debt problems in Europe will hurt the U.S. economy, according to more than 85 percent of global investors surveyed. About two-thirds say the turmoil won’t be enough to send the U.S. back into recession.
The quarterly Bloomberg Global Poll of investors, traders and analysts in six continents was conducted June 2-3 by Selzer & Co., a Des Moines, Iowa-based firm. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision-makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points.
To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story.
To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net
Florida Charter Boats Gird for Losses as BP Leak Ruins Fishing
By Kim Chipman and Mary Jane Credeur - Jun 9, 2010
Gary Jarvis, a charter-boat captain from Destin, Florida, says he planned to make at least $60,000 this month taking anglers out in the Gulf of Mexico to catch red snapper. Instead he’s living on $5,000 he got from BP Plc to help cover income lost to the worst oil spill in U.S. history.
“This is crushing,” said Jarvis, 58, who says he has $20,000 a month in bills and normally grosses about $350,000 a year as a charter and commercial fisherman. “I’m already calling creditors and saying, ‘Look, this may go really south.’”
Florida’s fishing industry is reeling as oil spreads through the Gulf and shuts down the waters that typically draw millions of tourists and fishing enthusiasts to the state. Recreational saltwater fishing in the state generates $8 billion in revenue a year and commercial fishing produces an additional $4 billion, according to Robert Zales II, president of the National Association of Charter Boat Operators in Orange Beach, Alabama, on the Florida border.
“We aren’t fishing anymore,” said Zales, 57, who runs a family charter-fishing business in Panama City, Florida, and has been in the industry for 45 years. “Everybody is scared as hell because no one knows what our future is.”
The BP spill hit just as fishermen were beginning to recover from devastating hurricanes, particularly Hurricane Ivan in 2004, and from the U.S. recession.
Bad Timing
“It could not be worse timing,” said Ben Fairey, 58, a charter captain from Pensacola who says his 62-foot boat “Necessity” normally produces about $300,000 in revenue from June to August. “We were hoping 2010 was going to be the bottom and we’d start to crawl our way out. In at least two weeks the only calls I’ve had are cancellations.”
BP as of last week had received about 1,000 “large loss” claims, those exceeding $5,000, from fishermen and others, and about half of those were from Florida, according to Darryl Willis, a BP vice president who is overseeing the company’s claims process throughout the Gulf coast.
While Florida fishing waters remain open for now, U.S.- controlled areas where charter boats go for their deep-sea catches have been shut down.
“It’s inevitable they will close,” Patricia Hubbard, whose family owns a deep-sea charter fishing business in Madeira Beach, near St. Petersburg, said of Florida’s ocean fishing grounds.
She said she noticed a slowing in business immediately after the spill. “We were already living on a wing and a prayer,” she said. “Now BP has clipped our wings and we are just living on prayer.”
No Rig Access
Along with the toxic danger of the gushing crude and potential harm from chemical dispersants BP is spraying to break up the oil, charter-fishing businesses are hurt by not having access to waters around Gulf oil rigs such as the Deepwater Horizon, which exploded on April 20, killing 11 people and triggering the spill. The rig was leased by London-based BP from Switzerland-based Transocean Ltd.
Fishing near big oil rigs such as the Deepwater Horizon, which attract prized fish such as dolphin, yellowfin tuna and blue marlin, normally makes up about 40 percent of the charter- fishing business for large boats, according to Fairey.
“The rigs are like a floating artificial reef,” he said.
Some charter-boat operators are turning to BP for employment. Tony Davis, 56, a fifth-generation Destin, Florida, fisherman who is captain of a 65-foot boat called “The Anastasia,” said he has been helping BP in its cleanup efforts for $200 a day since May 5. He has yet to be paid, he said.
Working for BP
BP is working to process paychecks for fishermen and other workers as quickly as possible, BP spokeswoman Lucia Bustamante said at a June 5 briefing in Escambia County in northwest Florida. Sometimes that process is slowed by incomplete bank account routing information or efforts to verify Social Security numbers and other data, she said.
As part of the agreement with BP, Davis said he’s not allowed to do charter fishing trips. He isn’t worried about missing much business, he said.
Captain Brent “Hollywood” Shaver is trying to get on BP’s list for local cleanup and observation work so he will still have income coming in later this year. In the meantime, he’s been taking fishing groups out on his 24-footer, “Captain Bligh,” while Florida-controlled waters are still open.
“It’s fixing to go away, that much is clear,” Shaver, 59, said of his Orange Beach-based charters. He charges as much as $1,000 a day depending on the group size and the trip’s duration.
“We might be wiped out for two years, or five, or ten,” he said. “This might be the last fishing I ever do in my lifetime.”
To contact the reporters on this story: Kim Chipman in Pensacola Beach, Florida at KChipman@bloomberg.net; Mary Jane Credeur in Pensacola Beach, Florida at mcredeur@bloomberg.net.
BL: IMF Says Risks to Global Economy Have Risen `Significantly'
By Shamim Adam - Jun 9, 2010
Risks to the global economic outlook have “risen significantly” and policy makers have limited room to provide support to growth, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said.
Most advanced economies are experiencing a “subdued” recovery, Shinohara said in a speech in Singapore today. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.”
Stocks have tumbled in the past two months on concern that the global recovery will be derailed by the European debt crisis. Policy makers are diverging on prescriptions for sustaining the global recovery, with U.S. Treasury Secretary Timothy F. Geithner calling on Japan and European countries with trade surpluses to boost domestic demand, while Europe’s representatives have said reining in budget deficits was the top priority.
As advanced economies suffer stunted recoveries, Asia will continue to lead the world economic rebound, according to Shinohara, the former top currency official at Japan’s Ministry of Finance. That brings its own challenges, with increasing capital inflows and the risk of overheating if policy makers fail to take “appropriate” action, he said.
Asia’s rebound is outpacing the rest of the world as companies from Nissan Motor Co. to Taiwan Semiconductor Manufacturing Co. increase exports and domestic spending strengthens. While the outlook for exports has become “challenging,” the region may avoid a major slowdown in growth should Western economies slump, according to HSBC Holdings Plc.
Stimulus Room
“The growth risk for Asia has certainly increased with fiscal consolidation on the agenda in Europe and the labor market not recovering as quickly as expected in the U.S.,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong. “However, Asia has plenty of room to add extra stimulus, most notably in China.”
Some of the region’s central banks have started to withdraw monetary stimulus to stem inflation and asset bubbles while others are reluctant to increase borrowing costs on concern the European debt crisis may thwart the global economic recovery.
Macroeconomic policies have “appropriately” begun to normalize and the “strong” fiscal position in most Asian economies provides them with the “space” to respond flexibly, Shinohara said.
Shockwaves, Upheaval
“After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Shinohara said. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
The escalation of Europe’s debt crisis forced the European Union and the International Monetary Fund to offer as much as 750 billion euros ($897 billion) to countries in danger of financial instability. Asian governments said last month public debt risks and “destabilizing” capital flows are among threats to the region’s recovery.
“Should the recovery continue as expected, Asia’s bright growth prospects, together with low interest rates in major economies, would likely attract more capital,” Shinohara said. “This could lead to risks of overheating in some economies if appropriate policy action is not taken. On the other hand, further increases in global risk aversion could see capital flows change direction quickly.”
Europe Effects
Group of 20 finance officials who gathered earlier this month signaled deeper concern about the economic and fiscal outlooks than when they last met in April. In a statement after their June 5 meeting, the finance chiefs promised to “safeguard” the recovery, yet replaced an endorsement of budget stimulus with a pledge to pursue “credible, growth- friendly measures to deliver fiscal sustainability.”
“Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,” Shinohara said today. “In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus.”
Asian policy makers have a range of tools to manage capital flows, Shinohara said.
“Most countries in Asia also have room to address the impact of capital flows through more exchange-rate flexibility,” he said. “In some exceptional circumstances, controls on capital flows may be useful and can provide temporary breathing space during periods of large swings in capital flows.”
Yuan Flexibility
The Chinese yuan is still undervalued and more flexibility in the exchange rate would help the world’s fastest-growing major economy, Shinohara said.
“We have been saying that the flexibility of the yuan is to the benefit of China,” he told reporters in Singapore today. “The medium-term viewpoint is that the yuan is still significantly undervalued and there is room for adjustments.”
He also said he doesn’t believe European nations are “trying to depreciate” the euro, which has weakened amid the sovereign-debt turmoil. There isn’t much to worry about in Hungary right now and the situation in the country is much calmer, he added.
To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net
ABK: Ambac (ABK) Considering Bankruptcy (I'm sure u saw this, just amazing tho...the end of the road for municipal insurance companies....)
Jun 8, 2010
Ambac Financial Group (ABK) may default on its loan obligations – possible bankruptcy filing
Ambac has been dead for a long time, it seems they are just now smelling the rotting corpse that they are. Way back on June 30, 2008 I wrote that either Ambac or MBIA would end up insolvent, or worse yet they would end up being another taxpayer funded bailout. (original article here)
Well it seems that Ambac has started to move funds around in what can only be viewed as a precursor to bankruptcy. Late today Ambac announced that they commuted their remaining $16.4 Billion of exposure to CDO’s at its operating company.
When companies begin moving funds from operating divisions to the holding company, or vice-versa, it usually means a bankruptcy or default is not far off.
The FT reports:
NEW YORK, June 8 – Ambac, the bond insurer whose toxic assets were seized by Wisconsin state regulators in March, said it could default on its loan obligations and was still considering filing a prepackaged bankruptcy.
The company, which has had trouble writing new business since losing its triple-A credit rating in 2008, said in a US Securities and Exchange Commission filing on Tuesday that “as early as the second quarter of 2010” it may decide not to make interest payments on its debt, which could result in a default. {…} (FT)
Bondholders are hoping that a bankruptcy and reorganization will allow them to swap their debt holdings in exchange for a majority stock ownership of the reorganized company. If such a deal does transpire it will likely wipe out the common shares.
It remains my view that Ambac’s future, even with a prepackaged bankruptcy is bleak.
RIG: Transocean Says Cap Won't Limit Government Claims?
June 08, 2010, 7:46 PM EDT
By Laurel Brubaker Calkins and Margaret Cronin Fisk
June 8 (Bloomberg) -- Transocean Ltd., after seeking to limit its liability for oil-spill damage to $27 million under a 159-year-old maritime law, agreed today the cap doesn’t apply to environmental losses by the U.S. and Gulf Coast states.
Last week, the U.S. Justice Department objected to Transocean’s limitation request, telling a Houston judge the statute the company invoked can’t be used to limit governmental claims brought under more recent laws.
Governments are entitled to pursue claims “for pollution response costs, environmental damages and other injuries,” including civil and administrative penalties stemming from the largest oil spill in U.S. history, Assistant U.S. Attorney General Tony West said in a June 1 filing.
“There is no dispute between the government” and Transocean that its limitation action can be “modified for certain yet-to-be-filed claims of the government,” Frank Piccolo, the company’s lead attorney said in papers filed today in Houston federal court. Transocean agrees that “certain putative claims” by state and national governments should be excluded from the company’s limitation action, he said.
Transocean also agreed that its limitation action doesn’t cap any fines or penalties the U.S. may bring against the company, should the government determine state or federal environmental protection laws have been violated, Piccolo said in the filing.
Liability Cap
Transocean asked U.S. District Judge Keith Ellison in May to cap its liability to damages caused by an oil spill that resulted from the explosion and sinking of its Deepwater Horizon rig in the Gulf of Mexico to the value of the rig’s unpaid drilling rental fees, roughly $27 million.
The company seeks the cap as protection against more than 170 lawsuits including class actions filed by individuals and coastal businesses harmed by the spill, which threatens the coastline of at least five states.
BP Plc, which owns the offshore oil lease and had contracted Transocean to drill the well, has primary statutory liability for spill clean-up and restoration costs that could top $23 billion, according to a June 2 Credit Suisse analyst report. BP may seek to recover some of those costs or share liability for additional billions of dollars of economic damage claims with Transocean or other companies involved in the drilling operation.
Insurance Coverage
Yesterday, Ranger Insurance Ltd. filed suit in Houston federal court seeking declaratory judgment that BP isn’t entitled to access any of Transocean’s $50 million in primary liability insurance coverage. Last month, underwriters with Lloyd’s of London filed a similar request to block BP’s attempt to draw on $700 million in excess-coverage insurance the rig company also carries.
Lawyers for oil-spill victims claim the maritime statute is outdated and shouldn’t prevent injured parties from accessing Transocean’s insurance policies or other corporate assets to repay economic damages caused by the spill. They’ve asked the judge to toss out the limitation request and allow lawsuits against Transocean to proceed.
“The government’s memorandum cynically suggests that the limitation act is a cobwebbed piece of legislation that limitation petitioners dredged up from the deep, dark past,” Piccolo said. The government has utilized the same limitation statute in court proceedings, he said. “Just because a law is ‘old’ does not mean that it is wrong or that it was improperly invoked.”
The case is In Re the Complaint and Petition of Triton Asset Leasing GmbH, Transocean Holdings LLC, 10-01721, U.S. District Court for the Southern District of Texas (Houston).
--Editors: Peter Blumberg, Fred Strasser
To contact the reporters on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net
Kujo, thank you. Only 12 in Lobster Years :)
Thanks for the ecard, that was great :)
Stuffie, GM, and thank you again :). I was out til late...headed to San Antonio this weekend
A break from all the bad news is needed.
Hugs
Good Moorning BB!Thank you so much for the greetings :)
Good Morning ZOOMster! Thank you for the Bday wishes yesterday....I went out and had a good time :)
How bout you?
The fact: Gulf Oil well produces "light crude". Why it matters???
6-Jun-10 09:57 pm
Because at least 70% of the leak oil turns into gases at surface temp.
According to Wikipedia "Petroleum", under the surface temp and pressure, the lighter hydrocarbons, such as methane, propane, ethane, butane occur as gases, while the heavier hydrocarbons, such as pentane, are in the form of liquids or solids.
And the proportion of lighter hydrocarbon in the petroleum mixture ranges from as much as 97% by weight in lighter oils to as little as 50% in heavier oils.
Given the gulf oil well produces "lighter crude", the 70+% of leaked oil turn into gases at ocean surface is a very reasonable estimate.
_________________________________
Re: The fact: Gulf Oil well produces "light crude". Why it matters??? 6-Jun-10 10:00 pm In other words we are breathing the crap too, thanks bp
__________________________________
Re: The fact: Gulf Oil well produces "light crude". Why it matters??? 6-Jun-10 10:29 pm That is not good news as all of the chemicals such as Benzene that are found in light sweet crude are carcinogens and much more toxic in much lower exposure rates than heavy crude.
BP will be fighting cancer lawsuits decades from now. Just like Owens Corning.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_B/threadview?m=tm&bn=26496&tid=169994&mid=170149&tof=38&rt=2&frt=2&off=1
PRESSTV: BP says cap not stopping oil spill
Fri, 04 Jun 2010 14:08:20 GMT
The cap has been lowered in hope of stopping the oil flow.
The British Petroleum engineers have installed a cap on the ruptured oil well in the Gulf of Mexico but failed to stop and capture all the gushing crude.
BP robots successfully placed a funnel-like device on the damaged riser wipe after slicing it off nearly a mile (1.6 km) below the surface late Thursday, AFP reported.
The device, however, is not capable of capturing all the gushing oil as the crude was still pouring from the cap, a live video feed showed.
Despite failing to stop the leak for 45 consecutive days, the London-based oil giant remained optimistic about its operation, saying the device could trap the "vast majority" of the spewing oil.
"I'm pretty confident this is going to work," BP chief operating officer Doug Suttles said on ABC's Good Morning America on Friday.
"It probably won't capture all of the flow. But it should capture the vast majority."
The tactic applied by BP is the latest in a series of desperate attempts to contain the worst oil spill in US history.
"Even if successful, this is only a temporary and partial fix and we must continue our aggressive response operations at the source, on the surface and along the Gulf's precious coastline," said US Coast Guard chief Admiral Thad Allen, the official in charge of the government response to the spill.
Amid public anger about the government response to the catastrophe, US President Barack Obama has reportedly postponed his trip to Australia and Indonesia, heading toward the Gulf instead to show the oil disaster is top on his crowded agenda.
"I would love to just spend a lot of my time venting and yelling at people, but that is not what I was hired to do -- my job is to solve this problem," Obama told CNN Thursday, adding he was "furious at this entire situation."
The administration recently sent BP a 69-million-dollar 'preliminary' bill for the recovery operations relating to the oil spill, which was caused by an explosion on April 20. The explosion left 11 workers killed.
http://www.presstv.ir/detail.aspx?id=129035§ionid=3510203
>>Big US pension fund moves into commodities
By Jack Farchy in London
Published: June 4 2010 11:13 | Last updated: June 4 2010 22:16
The second-largest public pension fund in America has approved its first investment in commodities in a sign of the growing trend for institutional investors to move into raw materials as a diversification strategy and an inflation hedge
The California State Teachers’ Retirement System said “the Calstrs investment committee voted to move ahead with an allocation to commodities”, adding that a plan for the investment would be developed and presented to the board later in the year.
The decision comes as US federal commodities regulators explore whether to impose limits on institutional investors’ exposure to raw materials markets.
Critics, including several senior lawmakers in Washington, worry that big investors helped inflate commodity prices in 2008 when oil, wheat, cotton and other markets surged.
Calstrs, which holds $138.5bn in assets, follows its neighbour, the $198.7bn California Public Employees’ Retirement System, or Calpers, into the commodities asset class.
The huge Dutch pension funds PGGM and ABP pioneered investing in commodities in 2003.
Other European funds, such as the UK’s BT pension scheme and France’s state-owned Fonds de Réserve pour les Retraites, as well as US-based schemes, including the Teacher Retirement System of Texas and the Teachers Retirement System of the State of Illinois, have also diversified into commodities since 2005.
The allocations are relatively small, however, with most pension funds investing just 1-2 per cent of their assets in commodities.
Calstrs staff said in a report that “commodities can serve a strategic role in Calstrs’ Absolute Return allocation as one potential hedge against inflation or negative shocks impacting other investment markets”.
Elsewhere in commodities markets, cocoa was the star performer, with the spot cocoa contract in London rising above the £2,600-a-tonne level for the first time in nearly 33 years.
Liffe July cocoa rose to an intraday high of £2,606, up 7.7 per cent on the week.
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>>Euribor soars as banks clamp down on lending
By David Oakley in London and?Ralph?Atkins in?Frankfurt
Published: June 3 2010 19:28 | Last updated: June 3 2010 19:28
Tensions in the European international lending markets jumped on Thursday to the highest levels this year as banks are increasingly refusing to lend to each other.
Three-month euribor, or the cost to borrow money in euros over three months, rose to 0.706 per cent – the highest level since December 29. In contrast, the cost to borrow Swiss francs over three months has fallen to a record low since data was first collected in January 1989.
This is because of the Swiss National Bank pumping money into the market to prevent its currency strengthening against the euro. The last time the SNB intervened was on May 19, according to traders.
However, the critical rate is euribor, which highlights the increasing refusal of banks to lend because of worries over counterparty risk – the threat of another bank failing to pay back its loans because of the eurozone debt crisis.
Don Smith, an economist at interdealer broker Icap, said: “There are plenty of banks wanting to borrow but very few prepared to lend. They are also only prepared to lend to the strongest banks.”
This has been reflected in the growing differences between the rates various banks are charged for lending. For example, UBS was quoted a rate of 50 basis points for three-month money on Thursday whereas West LB was quoted 71bp.
The smallest and weakest banks cannot access the international lending markets at all. Worries over counterparty risk have also prompted more banks to park their money at the European Central Bank.
Although the rate offered by the ECB is only 0.25 per cent, banks are prepared to accept a low return in exchange for the assurance they will not lose their money.
Underscoring financial market tensions, eurozone banks have set a fresh record for the amount parked overnight at the ECB. Use of the ECB’s deposit facility reached €320.4bn ($390.5bn) on Wednesday – a fresh high and more even than in the period after the collapse of Lehman Brothers in 2008.
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