Sunday 9 November 2008
UBS buys 900m yuan A shares in block deals
UBS Securities, one of the nation’s first qualified foreign institutional investors, spent 900 million yuan (HK$1.02 billion) to buy A shares through the off-market block trade system, the latest sign that overseas investors are hunting for bargains on the battered stock exchange.
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UBS buys 900m yuan A shares in block deals
Daniel Ren in Shanghai
8 November 2008
UBS Securities, one of the nation’s first qualified foreign institutional investors, spent 900 million yuan (HK$1.02 billion) to buy A shares through the off-market block trade system, the latest sign that overseas investors are hunting for bargains on the battered stock exchange.
The European investor shelled out about 300 million yuan on Thursday and invested an additional 600 million yuan yesterday in 40 deals on the block trading system, according to data from the Shanghai Stock Exchange. UBS bought shares in blue-chip companies such as Ping An Insurance (Group) and PetroChina.
UBS’s heavy purchase of A shares was a sign that some foreign investors believed the market was oversold amid a sharp decline during the past 13 months, analysts said.
The Shanghai Composite Index rose 29.991 points or 1.75 per cent to 1,747.713 yesterday.
It has tumbled 71.3 per cent from its peak of 6,092.057 in mid-October last year.
“It is relatively safe to buy A stocks now amid current valuations,” said Zhou Liang, the head of the China investment and advisory division at Thomson Reuters. “This should be a signal for mainland investors that good buys abound in the stock exchanges.”
UBS is a respected QFII investor in the country with investors believing it is able to sniff out good opportunities.
In 2003, it was among the first batch of qualified foreign institutions to buy A shares.
The company bought into the country’s infrastructure, telecommunications, transport and resource companies seeking to profit from the nation’s buoyant economic growth.
The QFIIs now have a combined US$3 billion quota for A-share investments, far less than the mainland’s mutual funds with nearly 2 trillion yuan.
According to the China Securities Depository and Clearing, foreign institutions increased their A-share holdings by 30.57 billion yuan to 82.18 billion yuan in August.
However, mutual funds are now wary of the market outlook and are looking to pare their holdings, according to fund managers.
Respected analyst Eric Fishwick says that China may be heading for a severe economic slowdown
Leo Lewis, Asia Business Correspondent
November 8, 2008
China must be radically reassessed by investors and could be lurching towards a more dramatic economic slowdown than Beijing authorities will admit, a CLSA report says.
The grim assessment from Eric Fishwick, chief economist at CLSA, an Asia specialist private equity firm, argues that it will be impossible for China to achieve anything like the growth rates it is presently projecting for next year.
Even with aggressive government measures, growth in 2009 could plunge to 5.5 per cent, he said.
The super-bearish forecast depends on certain weak signals that may emerge in the fourth quarter of 2008, but comes amid reports from the Chinese electricity sector that suggest the country’s mighty manufacturing engine-room is already sputtering badly.
More than 70 per cent of the electricity generated in China is consumed by industry and according to reports, monthly national power output in October fell for the first time in a decade.
Traders in Singapore said it could be a slump that would have a huge negative impact on global commodity demand: ferrous and nonferrous metal-processing industries are among the heaviest consumers of electricity in China and it is their slowdown that is reflected in the drop in power usage.
In the report circulated to investors yesterday, Mr Fishwick dismissed the idea that the authorities in Beijing would be able to manipulate the economy as effectively as other analysts believe.
CLSA has cut its 2009 GDP forecast for China from the previously projected level of 8 per cent, citing in-house research that suggests China is suffering the sort of domestic slowdown that many investors dread.
In the report, Mr Fishwick acknowledges that the 5.5 per cent growth forecast theory will be resisted: the market has come to believe that Beijing will simply “not allow” growth to slow below 7 per cent.
But he argues that while Beijing has greater influence over China’s economy than most other Asian governments have over theirs, the breakneck expansion of the private sector - now two thirds of the economy - means that large parts of China’s growth machinery are beyond Beijing’s direct control and subject to the same rules and laws as other market economies. “Investors need to analyse China as ‘Just Another Capitalist Country’ and question whether government policy will actually work,” he said.
“China is revealed as extremely cyclical with the volatile expenditure components much larger compared with the stable ones. Our 5.5 per cent GDP forecast has already factored in a broad and aggressive government stimulus.”
Capitalist economies, he added, are hard to control and respond slowly and unpredictably to government policies.
Although China does have more mechanisms to influence economic activity than elsewhere in Asia, because GDP composition is biased towards exports and investment, external conditions will hold sway.
Also limiting Beijing’s influence on economic growth is the relatively low contribution to GDP of consumer spending and government investment - 37 per cent and 2.3 per cent respectively.
In that light, said the CLSA report, both measures to boost spending and any proposed fiscal policy gambits will be of limited overall effect.
Even when China ramped up spending in 1998 in response to the Asian Crisis, it did not manage to maintain growth levels above 8 per cent.
Not all analysts share CLSA’s bleak assessment. Goldman Sachs issued a report on the Chinese economy yesterday that told investors to expect it to stabilise in the second half of 2009, with a potentially strong positive effect on stocks.
Deng Tishun, Goldman’s China strategist, said that the index of Chinese stocks listed in Hong Kong could rise more than 50 per cent next year.
Ghosts of Wall Street spell out capitalism's turbulent past
By Richard Pyle
2008-11-9
THE enduring symbols of Wall Street's fabled, turbulent history are inescapable as you walk through the epicenter of American capitalism.
Over there, at 23 Wall, is the former headquarters of J.P. Morgan's banking dynasty, its granite facade still scarred by pockmarks from a terrorist bomb that killed 33 people in 1920. A block away, a skyscraper at 48 Wall occupies the site of the city's first bank, founded by Alexander Hamilton in 1784. Names like Rockefeller, Roosevelt and Goldman Sachs are invoked at almost every turn.
The past, as outlined during a recent three-hour "Great Wall Street Crashes Walking Tour," takes on greater meaning in the current economic crisis - an ongoing story of boom and bust, bull markets and bailouts, recessions and recoveries.
October historically being the cruelest month on Wall Street, emphasis is on the October 1929 stock market crash that triggered the Great Depression and a decade of Dickensian deprivation for many Americans, that ended only with World War II.
"If we've learned anything from history, it is that history repeats itself," says Richard Warshauer, a real estate executive who founded the tour 20 years ago after the crash of 1987. His partner, James Kaplan, puts a more optimistic twist on that lesson: "Wall Street always comes back - every time there's been a crash, there's been a rebound. In order to have a rise, you have to have a fall."
On a recent rainy Saturday, Warshauer and Kaplan led some 30 people on the tour, which is offered annually, beginning at the Museum of American Finance, itself an engrossing presentation of history from the Dutch settlers of New Amsterdam to the modern Wall Street of glass and steel towers.
Warshauer and Kaplan noted that the United States had barely become a nation before facing its first economic crisis - the panic of 1792. Fortunately, Hamilton, wisely chosen by President George Washington to manage the nation's money matters as Secretary of the Treasury, rode to the rescue.
By having the federal government assume the new states' Revolutionary War debts and pay those off at 100 cents on the dollar, Hamilton established America's credit and credibility abroad, and himself as "the patron saint of American finance," Warshauer said.
Banking hall
Philadelphia remained the nation's financial capital until the 1820s when the new Erie Canal began carrying products from the Midwest to the port of New York. From then on, Wall Street became the center of commerce, he said.
From the museum - which, appropriately, occupies the former banking hall of Hamilton's Bank of New York - the tour moves to various points of historical interest.
That includes the New York Stock Exchange, with its huge American flag over the facade the statue of George Washington fronting the rebuilt Federal Hall where he took the first presidential oath in 1789 and the bomb-pocked House of Morgan. Now converted to condos, it is only four stories tall because "Morgan said he didn't need to build a skyscraper," Warshauer said.
The Morgan dynasty, founded in the 1830s by paying insurance claims on an 1835 fire that leveled much of lower Manhattan, became the greatest force on Wall Street until broken up by the government in the early 20th century.
Despite its reduced clout, Warshauer said, it was J. Pierpont Morgan - to many the quintessential robber baron - who halted the panic of 1907 by summoning other top bankers to an emergency meeting that ultimately saved many smaller banks from failure, an action not unlike the recent federal bailout.
"He wouldn't let them leave until they had ponied up US$25 million to go with another US$25 million from the government," Warshauer said. "The parallels with today are scary."
Thirteen years later, a bomb, hidden in a horse-drawn cart, exploded in the middle of Wall Street at high noon on September 16, 1920, hurling cast-iron shards for two blocks through the lunchtime crowd, killing 33 people and injuring more than 200.
Anarchists were suspected in what was the bloodiest terror attack in New York until 9/11, but the case was never solved. The pockmarks in the House of Morgan "are emblematic of what has happened on Wall Street," Kaplan said.
As for the popular tales of ruined Wall Street investors leaping to their deaths in the Crash of 1929, Warshauer says he has "no definite evidence of people jumping out of windows - I suspect it has been exaggerated over the years."
That historical collapse was followed by a slight rise in the market, but by 1932 the economy had "really begun to deteriorate, and by 1933, one fourth of all US banks had failed," said Kaplan.
Franklin D. Roosevelt, who became president just as the Depression took hold, was a former Wall Street lawyer who Kaplan says "had never accomplished much," and "flailed around" before settling on actions to reinflate the economy - closing banks, setting up agencies to create jobs and taking bold steps to boost farm prices.
"FDR, whether true or not, is considered to be one of the saviors of the country," Kaplan said.
Other tour stops touch on the first Jewish immigrants to America in 1654 and the literal rags-to-riches tale of Marcus Goldman, a fabrics peddler who began dabbling in personal finance to help other small entrepreneurs, and with son-in-law Samuel Sachs and other relatives created what would become the investment banking powerhouse Goldman Sachs.
How successful that was, Kaplan said, is underscored by Robert Rubin and Henry Paulson, two chairmen of Goldman Sachs who later became secretary of the Treasury.
The tour includes other locations of historical interest that are known only to dyed-in-the-cloth aficionados of finance.
Few people may know, for example, that the vest-pocket park called Hanover Square, now a memorial garden dedicated to British victims of the 9/11 terrorist attacks, was named for Britain's royal family - using the original German surname predating Windsor.
Import tariffs
A short detour reaches the 1907 US Custom House at Bowling Green, which once managed import tariffs that provided as much as two thirds of the federal government's revenue before the income tax.
Kaplan recalled it also was where a customs collector, Chester A. Arthur, was fired for requiring employees to kick back part of their salaries to the Republican party. A few years later he ran for vice president and became president when James A Garfield was assassinated.
Standing on the Custom House steps, Kaplan pointed to the sky-scraper at 26 Broadway that once housed Standard Oil, the company that gave new meaning to the word monopoly.
While few people might associate oil with New York City, John D Rockefeller controled 90 percent of the world's oil supply by 1900, prompting a backlash that led to Standard Oil's court-ordered breakup in 1911.
Another stop on the tour is India House, a circa 1850 edifice that once housed the Hanover bank and a gathering place for maritime industry leaders, now a restaurant and private club. A block away is the legendary Delmonico's restaurant frequented by such bygone celebrities as Mark Twain and Diamond Jim Brady.
The tour loops back to 40 Wall Street, a 70-story skyscraper that was for a few months in 1930 the world's tallest. After the Depression, it was home to the Chase Manhatttan Bank, descended from a company founded by Aaron Burr, who killed Hamilton, his sworn enemy, in a duel. In 1946, a US Coast Guard plane struck the building in a fog, killing four people.
Neither Warshauer nor Kaplan claims that their tour of Wall Street's turbulent past foretells the future. "The great crashes of Wall Street are always followed by rebirth. So we are not pessimistic."
Fund managers shift focus to risk
Recent performance suggests that volatility was a misleading metric
By David Hoffman
November 2, 2008
Recent market volatility is forcing mutual fund managers to pay more attention to how much risk they are taking in their portfolios and to focus more on balance sheets.
The change in strategy may improve performance, industry experts said.
"A whole generation of managers will be more sensitive" to risk and company balance sheets, said Don Phillips, managing director of Morningstar Inc. of Chicago.
For years, many fund managers haven't been measuring risk properly, industry observers said.
"We as fund managers ... have embraced a type of risk modeling over the years that measures stock volatility," said Ken Lambden, global head of equities at Schroder Investment Management North America Inc., a New York subsidiary of Schroders PLC of London.
It was assumed that the less volatile the stocks in a portfolio were, the less risky the portfolio was, he said.
But recent market swings show that that's not always the case.
'AWFUL FRIGHT'
Fund managers who simply relied on volatility as a measure of risk "would have had an awful fright" when markets started to swing, Mr. Lambden said.
Preceding recent market gyrations was a long period of low market volatility, a situation that caused many managers to buy stocks that were riskier than they appeared, he said.
As a result, many managers likely underperformed their benchmarks by wider margins than they otherwise would have, Mr. Lambden said.
Schroder Investment puts more emphasis on risk measures such as active share, which is the percentage of portfolio holdings that differ from the benchmark index, he said.
It has helped some Schroder funds to outperform, Mr. Lambden said. The recent performance across all seven of its equity funds, however, has been uneven.
Only two of seven Schroder equity funds — the Schroder U.S. Opportunities Fund (SCUVX) and the Schroder U.S. Small and Mid-Cap Opportunities Fund (SMDVX) — were in the top quartile of their fund category year-to-date as of Oct. 28, according to Morningstar.
It is unlikely that one single risk measure is the best solution for everyone, said Chris Orndorff, head of equity strategies at Payden & Rygel of Los Angeles. There are numerous ways to measure risk, he said.
The important thing for managers is to evaluate their risk measures continually to make sure they are accurate, Mr. Orndorff said.
The long-term implications of the recent volatile market "requires people to better understand their risk measure and their risk models," he said. "I think in the past people tended to take it for granted that whatever the output [of the risk model], people generally accepted it."
How managers measure risk, however, isn't likely to be the only change that results from the recent market volatility. Managers will also likely pay more attention to balance sheets, Mr. Orndorff said. "A lot of equity investors look at income and cash flow and that's it," he said.
If they want to avoid disaster, they will have to delve deeper, Mr. Orndorff said. That is why in 2000, Payden & Rygel combined equity and credit teams. As a result "we see companies more holistically," he said.
It hasn't helped Payden & Rygel's equity funds with regard to recent performance.
None of its four equity funds — nor three international funds from Metzler-Payden LLC of Los Angeles, a joint venture between B. Metzler seel. Sohn & Co., a banking company in Frankfurt, Germany, and Payden & Rygel — cracked the top quartile of their respective fund categories year-to-date as of Oct. 28, according to Morningstar.
Payden & Rygel, however, has the right idea, and given recent market swings it is probably an idea more fund companies will adopt, Mr. Phillips said. "You are going to have a return to analyzing the balance sheets," he added.
No longer will a fund manager be able to say simply that a stock is a good buy because it appears cheap on a price-to-earnings basis, Mr. Phillips said. "You have to dig deeper that. You are going to look at the quality of assets."
It's a lesson learned by managers who lived through other tough markets, Mr. Phillips said.
The volatile markets of 1973 and 1974 convinced many young managers who started during the "go-go" era of the stock market in the 1960s to pay much greater attention to balance sheets, he said.
Some would go on to become highly praised mutual fund managers. One is Ralph Wanger, founder of Wanger Asset Management of Chicago, who until 2003 managed the well-regarded Acorn Fund, Mr. Phillips said. That was the year Bank of America Corp. of Charlotte, N.C., acquired the firm, eventually changing its name to Columbia Wanger Asset Management LP, and the fund name to the Columbia Acorn Fund.
But recent market volatility may convince young managers to follow in their footsteps, Mr. Phillips said.
There's no doubt managers will become more cautious, said Donald Hodges, co-portfolio manager of the Hodges Fund and founder of Hodges Capital Management Inc. in Dallas.
In his own practice, he plans on looking a little more carefully at balance sheets. "I think going forward, money managers in general will all be much more sober," he said.
More bad news likely in store for AC casinos
By WAYNE PARRY
Nov 8, 2008
ATLANTIC CITY, N.J. (AP) -- Lately, the luck has been all bad for Atlantic City's 11 casinos. Last week alone, a major casino developer put a $2 billion Boardwalk project on indefinite hold, and the city's newest and most successful casino laid off 400 workers.
And Donald Trump had to knock $46 million off the price of one of his casinos in order to salvage a deal to sell it to someone else. Trump's casino company is cutting the pay of its top executives by 5 percent.
More bad news is expected Monday with the release of October's casino revenue numbers. To say they are expected to be bad is putting it mildly.
Consider: September saw the greatest monthly decline in revenues in the 30-year history of legalized gambling, down more than 15 percent.
And that was before the financial meltdown hit with full force, and before a smoking ban on the casino floor took effect; it's not due to expire until Nov. 16.
That ban chased away some of the city's most prolific gamblers, who went to slots parlors in Pennsylvania and New York, and Indian-run casinos in Connecticut, where they can still smoke.
All told, it was a most unwelcome October surprise.
On Thursday, Pinnacle Entertainment said it could be "years and years and years" before it builds its beach house-themed casino on land where the Sands Casino Hotel once stood. Since the company blew it up last fall to make way for its new project, the land has sat vacant, to the dismay of city officials and many residents, including Sands workers who lost their jobs to make way for a new resort that now looks iffy.
In fact, Pinnacle says it would consider selling the land and backing out altogether "if someone made us a decent offer."
Pinnacle chairman and CEO Dan Lee was gloomy about the atmosphere in Atlantic City right now.
"With Atlantic City, we recognize that this isn't an environment to go dream big," he said. "We are going to sit in Atlantic City. We may be sitting there for a very long period of time."
Joining him on the bench is MGM Mirage, which announced a massive $5 billion casino hotel project in October 2007, only to put it, too, on indefinite hold because of the economy.
That's $7 billion worth of new development that might never happen.
Job prospects aren't bright, either. The Borgata's job cuts were surprising in that the casino is the newest and most successful in Atlantic City.
Borgata joined the four Atlantic City casinos operated by Harrah's Entertainment Inc. - Harrah's Resort Atlantic City, Caesars Atlantic City, Bally's Atlantic City, and the Showboat Casino Hotel - which laid off "several hundred" employees in recent months, spokeswoman Alyce Parker said.
Resorts Atlantic City, said that casino has also had layoffs this year, but a spokesman would not say how many.
According to the state Casino Control Commission, there were 40,124 workers in the Atlantic City casinos as of Nov. 1. - a reduction of 664 since the beginning of the year, though not all were due to layoffs.
Also in October, Trump Entertainment Resorts and New York developer Richard Fields agreed to reduce the purchase price for the Trump Marina Hotel Casino to $270 million, down from the $316 million they set as the price back in May. The declining economy was a main reason.
On Friday, the company said it was cutting the salary of its 22 highest-paid executives by 5 percent to save about $500,000 a year. Donald Trump does not draw a salary from the company, where he serves as chairman.
Trump Entertainment said cost-cutting is essential due to heavy losses in the third quarter. On Friday, the company reported a net loss of $139.1 million, or $4.39 per share, compared with a profit of $6.6 million, or 21 cents per share, in the third quarter last year. Net revenue fell to $198.3 million from $216.6 million.
For the first nine months of the year, Atlantic City casinos won $3.6 billion, down 6.3 percent from the same period in 2007.
States face unemployment cash crisis
Rising unemployment drains state trust funds, forcing them to borrow from Washington to continue paying claims.
By Tami Luhby
November 7, 2008
NEW YORK -- State unemployment insurance trust funds are rapidly running out of money amid soaring job losses.
This is prompting state officials to consider raising employer taxes or curtailing benefits, while forcing them to borrow from the federal government to cover claims.
"Some states didn't have adequate reserves built up," said Andrew Stettner, deputy director of the National Employment Law Project. "They are having significant problems paying out the increased number of benefits."
The number of people collecting state unemployment benefits hit a 25-year high of 3.84 million, on a seasonally adjusted basis, the Labor Department said Thursday. The following day, the department announced that 240,000 jobs were lost in October, pushing the unemployment rate up to 6.5%, up from 6.1%. It's the highest rate since March 1994. Nearly 1.2 million jobs have been lost this year.
With companies unveiling mass layoffs almost daily, states are likely to see further strains on their trust funds. This comes at a time when the weakening economy is already putting great stress on governments and employers alike.
The trust funds are financed through unemployment insurance taxes levied on businesses. States must pay out the claims promised under the law, even if they have to borrow the funds from the feds.
The trust funds of five states are insolvent - meaning they have reserves of three months or less - while another eight state funds are nearly insolvent with reserves of four to six months, according to the National Employment Law Project. Six other states don't have enough money to cover a year of payments.
Michigan is hurting
Michigan, hit hard by the collapse of the auto industry, has essentially nothing left in its trust fund, said Norman Isotalo, spokesman for state's Department of Labor & Economic Growth. New initial claims are up 21% over a year ago, while the unemployment rate hit 8.7% in September, up from 7.3% a year earlier.
Though it has borrowed money from the feds to cover claims since 2006, Michigan has avoided paying interest on the loan by repaying it quickly. The state, however, no longer has the funds to repay the loan, which currently totals nearly $473 million. The debt will starting accruing interest in January, and the state will pass along the additional fees to employers.
Businesses already shell out between .06% and 10.3% on the first $9,000 of earnings of each worker, depending on how many of their former employees are drawing benefits. About 20% of companies soon will start paying up to $67.50 in an additional solvency tax, levied on employers who have paid less in unemployment taxes than their former employees have received in benefits.
The state realizes the additional tax will impose yet another burden on struggling companies, but the law does not allow exceptions, said Stephen Geskey, director of Michigan's Unemployment Insurance Agency.
"It is not an optimal time for the solvency tax to kick in," Geskey said. "But there's really no wiggle room."
The Michigan fund is being squeezed, in part, because of changes lawmakers made over the past 12 years, Geskey said. When times were good -- the fund had a $3 billion balance in 2001 -- officials lowered the tax rate. This resulted in a loss of $1.1 billion in contributions, he said.
Spurred by the looming interest payments, legislators are only now planning to address the matter. Discussions should begin soon, said Democratic state Sen. Michael Switalski.
"Now it has our attention," Switalski said. "We're going to have to deal with it."
Ohio contemplates benefit freeze
In Ohio, claims are running 40% above last year's levels. The state's trust fund is running an uncomfortably low balance of $305.6 million. Its own calculations show it needs $2.3 billion to withstand a moderate recession, said Sara Hall Phillips, labor policy analyst with the state's Department of Job and Family Services.
Ohio lawmakers failed to act on recommendations by a state advisory council to replenish the fund. The council had proposed raising taxes paid by employers and freezing workers' benefits for three years, Hall Phillips said.
Employers in Ohio pay between 0.5% and 9.2% on the first $9,000 of earnings of each worker. The maximum weekly benefit is $365 for a worker with no dependents.
Even though the fund will likely run out of money by early January, lawmakers likely won't address the issue before the middle of next year.
The rising number of claims is not the only reason the fund is running out of money, Hall Phillips said. The law calls for benefits to increase annually, though there's no provision for taxes to do the same.
When Ohio faced a similar fiscal crunch in the 1980s, forcing it to borrow from the feds from 1980 through 1988, it had to temporarily freeze benefits and raise taxes.
"Claimants will still receive unemployment compensation benefits and that will continue no matter what happens with the trust fund or with the legislature," she said. But "benefits may be locked at that level for a few years."
Wall Street woes hit New York
The implosion of Wall Street and the weakened economy around the state has led to a surge of unemployment claims in New York. The state now pays benefits to 148,000 people, up from 113,000 a year ago, said Leo Rosales, spokesman for the state Department of Labor.
As a result, New York's trust fund has dwindled to $357 million, down from $538 million a year ago. To meet its obligations, the state has been borrowing from the feds for years, receiving nearly $1.1 billion over the past three years alone. In 2006, the state had to pay $7 million in interest of $1.5 billion it borrowed in 2005.
The state legislature tried unsuccessfully in the spring to increase unemployment insurance taxes, while also raising the maximum weekly benefit, which now stands at $410, to $550. The bill would have increased the wage base to $11,500 over time, from its current $8,500.
Tuesday's election left Democrats in control of both chambers of the state legislature, and the bill now has a better chance of getting passed, said Assembly member Susan John, a Democrat, chair of the labor committee.
"Members are back home in their districts and are recognizing how much people are struggling," John said.
Shipowners Idle 20% of Bulk Vessels as Rates Collapse
By Alaric Nightingale
Nov. 7 (Bloomberg) -- At least 20 percent of the vessels most commonly hired to haul coal and ore are sitting empty as steelmakers cut output and dwindling trade credit halts deliveries, Lorentzen & Stemoco A/S shipbroker Kjetil Sjuve said.
Fifty to 100 so-called capesizes, each bigger than The Trump Building in New York, have been unable to find cargoes or their owners won't accept rental rates that have plunged 98 percent in five months, Sjuve said by phone today. Normally about 250 such carriers compete for spot bookings, he said.
``There are simply no cargoes,'' Sjuve said from Oslo. ``It's primarily the steel market but it's even more difficult due to financial markets and letters of credit in particular.''
ArcelorMittal, the world's biggest steelmaker, on Nov. 5 said its global output will decline by more than 30 percent. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, last month said it will cut production. Of the $13.6 trillion of goods traded worldwide, 90 percent rely on letters of credit or related forms of financing and guarantees such as trade credit insurance.
Letters of credit are centuries-old instruments that transfer payments internationally from buyer to seller once shipments have been delivered.
Capesizes that were attracting rates of $233,988 a day as recently as June are now available for $4,793, according to the Baltic Exchange in London. That's below the cost of paying for crew, insurance, maintenance and lubricants.
Capesizes are the second-largest commodity transporters, after very large ore carriers. The Baltic Dry Index, a measure of shipping costs across different ship sizes, has slumped 93 percent from a record in May.
Ships at Anchor
The number of empty capesizes in the spot market may climb to as many as 150 in the next two weeks, said Sjuve, who is a capesize broker. The precise number at anchor is ``very difficult to pinpoint'' because owners don't often announce it, he said.
There are 105 capesizes indicating their status as ``at anchor,'' according to data compiled by Bloomberg. The data doesn't differentiate between ships that are hired and those that haven't got cargoes. On June 30, there were 43.
Zodiac Maritime Agencies Ltd., the shipping line managed by Israel's billionaire Ofer family, said last month it was considering idling 20 of its largest ships. Ukraine's Industrial Carriers Inc. filed for bankruptcy protection last month and London-based Britannia Bulk Holdings Plc was placed into administration under U.K. insolvency laws.
Loan Accords
As many as 20 percent of shipping lines are at risk of breaching their loan accords because the decline in rents has caused a similar plunge in ship prices, Tufton Oceanic Ltd., the world's largest shipping-hedge fund group, said last month.
The 12-member Bloomberg Dry Ships Index has plunged 76 percent from its peak in May, taking its combined market capitalization to $6.7 billion from $27.8 billion.
Global ship orders tumbled 90 percent last month, Richard Sadler, chief executive officer of Lloyd's Register, said in an interview yesterday. The full-year order tally will likely fall more than the 15 percent previously predicted, he said.
The drop in rental rates ``came fast and will be gone quickly,'' China Cosco Holdings Co. Chairman Wei Jiafu said yesterday at a shipping conference in Dalian, China. ``The unusual drop was because of investors' panic amid the global financial tsunami.''
China Cosco Holdings is the world's largest dry-bulk ships operator.
Japanese industry set for a lithium rush as carmakers turn focus to green motoring
Leo Lewis, Asia Business Correspondent
November 6, 2008
Japan's largest automotive and electronics giants are poised to embark on a worldwide scramble for lithium - the material that could be required in bulk if the roads of the future are to be filled with electric cars.
Companies as diverse as Toyota and Panasonic could add mining or lithium-extraction operations to their portfolio of businesses as the technology that powers laptops and iPods is upgraded to drive the Chevrolet Volt, the Mitsubishi Miev and a dozen other electric cars that are on their drawing-boards.
The lithium-ion battery has recently emerged as a potentially critical stop-gap green technology as the motor industry gradually weans itself off the internal combustion engine. Although substantial advances have been made in the production of a commercially viable fuel cell vehicle, infrastructure issues - such as the lack of any network of hydrogen fuelling stations - mean it could be some decades before they enter the mainstream. Cars that can be plugged in and charged overnight, meanwhile, represent a more immediate development focus for the carmakers.
The impending rush to secure stable lithium supplies comes as large swaths of Japanese industry are suffering a crisis of confidence about their pipeline of raw materials. As a country that relies entirely on imports to feed its factories, companies now talk of building “upstream supply” in the form of investment in mines.
Panasonic, which stands to become the world's largest producer of lithium batteries if it completes its planned purchase of Sanyo, its local Osaka rival, has amassed a $10 billion (£6.2 billion) cash reserve for overseas acquisition.
A company spokesman said that while it had no concrete plans at the moment, purchasing an interest in a lithium production facility could “be thought of as one option”.
In addition to the emerging pursuit of lithium, Japanese trading companies have begun an energetic land-grab for other types of mines: bauxite, platinum and nickel are prime targets because of the huge demand from Japanese industry.
Stung by soaring prices earlier this year, motor companies have even begun to look at securing their own supplies of raw materials for steel production. Toyota Trading - an affiliate of the carmaker - has already bought part of a coking coal mine and admitted that further mine investments, including lithium, were a possibility.
Research by The Times suggests that at least ten leading Japanese companies have begun investigating ways of securing lithium supplies, or are mulling corporate alliances that would guarantee a degree of price stability. Some are considering outright purchases of existing lithium production facilities in Chile and Argentina, while others are looking at investing in planned lithium plants in China.
Global leaders in lithium-ion batteries, such as Sanyo and NEC Tokin, have unveiled improvements to the technology that have persuaded big carmakers, such as Nissan, to invest heavily in the development of next-generation electric cars.
Nissan's own electric car development team is aiming to design lithium batteries with three times the charge capacity of existing models, meaning that an electric vehicle could travel up to 500km on a full charge.
AIG in talks with Fed over new bail-out
By Francesco Guerrera
November 8 2008
New York - AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation.
AIG’s executives were on Friday night locked in negotiations with the authorities over a plan that could involve a debt-for-equity swap and the government’s purchase of troubled mortgage-backed securities from the insurer.
People close to the talks said the discussions were on-going and might still collapse, but added that AIG was pressing for a decision before it reports third-quarter results on Monday.
AIG’s board is due to meet on Sunday to approve the results and discuss any new government plan, they added.
The moves come amid growing fears AIG might soon use up the $85bn cash infusion it received from the Fed in September, as well as an additional $37.5bn loan aimed at stemming a cash drain from the insurer’s securities lending unit.
AIG has drawn down more than $81bn of the combined $122.5bn facility. The company’s efforts to begin repaying it before the 2010 deadline have been hampered by its difficulties in selling assets amid the global financial turmoil.
AIG executives have complained to government officials that the interest rate on the initial loan – 8.5 per cent over the London Interbank Borrowing Rate – is crippling the company.
They compared the loan’s terms with the 5 per cent interest rate paid by the banks that recently sold preferred shares to the government.
One of AIG’s proposals to the Fed is to swap the loan, which gave the authorities an 80 per cent stake in the company, for preferred shares or a mixture of debt and equity.
Such a structure would reduce the interest rate to be paid by AIG and possibly the overall amount it has to repay. An extension in the term of the loan from the current two years to five years is also possible, according to people close to the situation.
The renegotiation of the loan could be accompanied by the government’s purchase of billions of dollars in mortgage-backed securities whose steep fall in value has been draining AIG cash reserves.
AIG is also proposing the government buy the bonds underlying its troubled portfolio of credit default swaps in exchange for the roughly $30bn in collateral the company holds against the assets.
Losses on the mortgage-backed assets, which were acquired by AIG with the proceeds of its securities lending programme, and the CDSs caused the company’s collapse.
Since the government rescue, they have continued to haunt AIG, which is required to put up extra capital every time the value of these assets falls. AIG and the Fed declined to comment.
2 more banks go belly-up
Regulators close down Franklin Bank, a Houston bank with $5.1 billion in assets, and Security Pacific Bank of California, with assets of $561 million, raising the tally of failed banks this year to 19.
By Catherine Clifford
November 8, 2008
NEW YORK -- The tally of failed banks in 2008 rose to 19 as the government announced that a Texas and a California bank had been shuttered Friday night.
Franklin Bank, a Houston, Texas-based bank and Security Pacific Bank, a Los Angeles, Calif.-based bank were shut down by state regulators Friday, marking the 18th and 19th bank failures this year.
Franklin Bank (FBTX) had total assets of $5.1 billion and total deposits of $3.7 billion as of Sept. 30, 2008, according to a statement on the Federal Deposit Insurance Corp.'s Web site.
Ironically, Lewis Ranieri, the 61-year-old co-founder and chairman of parent Franklin Bank Corp., is credited with inventing mortgage-backed securities two decades ago, the AP reported, back when he worked at Salomon Brothers, where he is a former vice chairman.
Franklin Bank Corp. just Sunday said it had received proposals for transactions to strengthen Franklin Bank's capital position and was keeping regulators informed of the talks' progress, according to the Associated Press.
Security Pacific Bank had total assets of $561.1 million and total deposits of $450.1 million as of October 17, 2008, according to the FDIC.
Prosperity Bank (PRSP), based in El Campo, Texas, will assume all of the deposits of the failed Texas bank, including those that exceed the insurance limit and brokered accounts. Depositors of the failed bank will automatically become depositors of Prosperity.
In addition to taking over the deposits of the failed Franklin Bank, Prosperity will purchase $850 million of assets. The FDIC will retain the remaining assets to dispose of later.
Pacific Western Bank of Los Angeles will assume all of the deposits of Security Pacific Bank and will purchase approximately $51.8 million of the assets. The FDIC will hold on to the remaining assets to dispose of later.
The failed Houston bank's 46 offices will open as branches of Prosperity under normal hours, including Saturday hours. The deal will give Prosperity more than 170 banking locations in Texas.
Security Pacific's four branches will reopen on Monday as branches of Pacific Western.
Customers of both banks should continue to use their existing branches, according to separate press releases on the FDIC's website. Dan Rollins, president of Prosperity Bank, in a statement said records will be fully integrated during the first quarter of 2009.
"The customers will be able to go about their business as usual; they will be able to access their money and use their ATM/debit card, Internet banking, bill pay service or other electronic banking services beginning Saturday morning," said Rollins.
Security Pacific customers can continue to access their funds via ATM, checks or debit cards, according to the FDIC.
In Friday's announcement about Franklin Bank, the FDIC said that the cost of its failure to the Deposit Insurance Fund will be between $1.4 billion and $1.6 billion.
Meanwhile, Security Pacific's failure, the third in California this year, will cost the FDIC $210 million. The FDIC said that for both banks, acquisition of their deposits was the least costly resolution.
Smaller regional banks have been under pressure as the financial crisis continues to take its toll.
Prosperity Chief Executive David Zalman said in a statement that his bank was "committed to taking care of their existing and new customers during this volatile time in the financial industry."
How the FDIC pays for bank failures
By Laura Bruce
Oct. 10, 2008
Barely a day has gone by during the past several weeks without a mention in the news of the FDIC, the agency that is best known for handling the disposition of the assets of failed banks and making sure consumers receive their insured deposits.
To date, failures due to the current crisis in the financial world haven't caused undue concern. But the size of some of these institutions, such as IndyMac, have some people wondering how much the FDIC can handle before it needs a bailout.
The FDIC doesn't receive any tax dollars; instead it's funded by the premiums paid by banks and thrifts for insurance coverage on deposits. Its deposit insurance fund is really just an accounting entry with the Treasury Department.
FDIC promises security
Christopher Whalen, co-founder and managing director at Institutional Risk Analytics, as well as a writer and former investment banker, says the FDIC will always be able to reimburse customers for their insured deposits.
"The FDIC is like any federal agency; the government runs on cash. Money comes in and money goes out and each of these little funds gets a piece of paper that says I owe you money plus accrued interest. But really, in most cases, it just evidences legal authority to spend money. In the case of the FDIC, it merely evidences funds paid in by the industry, minus losses. But it's still just a theoretical balance because it doesn't reflect at all the cash available to the agency to fund resolutions."
As long as the FDIC has a positive balance in the fund, the agency is just asking for the industry's money back. If that money is gone, the FDIC runs a tab at the Treasury because, by law, it has borrowing authority.
Unlimited borrowing authority
Traditionally, the FDIC's borrowing authority at the Treasury is limited to $30 billion, but Congress bestowed unlimited borrowing authority temporarily as part of the Emergency Economic Stabilization Act of 2008.
The deposit insurance fund is currently at 1.01 percent, meaning it has $1.01 for every $100 of insured deposits. The law requires that the fund is maintained at a level of at least 1.15 percent. The FDIC is required to submit a restoration plan detailing how it will bring the deposit insurance fund above the minimum within a five-year period when the fund slips below the required level.
The agency has just submitted a restoration plan and is proposing to raise premiums beginning Jan. 1, 2009. The premiums are risk-based and banks are currently paying anywhere from 5 basis points to 43 basis points. The agency wants to raise that uniformly by 7 basis points. A basis point is one one-hundredth of a percent.
The sting of those premium increases will be offset to some extent by the Federal Reserve's announcement that it will pay interest on the reserve funds that banks are required to maintain. The Fed had been slated to start paying interest on reserves Oct. 1, 2011. The Stabilization Act moved that date up to Oct. 1, 2008.
Furthermore, in the second quarter of 2009, the FDIC wants to increase assessments to institutions that rely heavily on secured liabilities and brokered deposits.
"It would include charging banks more if they have brokered deposits or secured borrowings, and then possibly giving banks a little extra credit if they have unsecured borrowing," say David Barr, FDIC spokesman. "Unsecured borrowings can actually decrease the cost of bank failures because the losses associated with the failure are shared with the unsecured debtors."
In addition to raising premiums and the previously mentioned borrowing authority which is, essentially, a line of credit at Treasury, the FDIC has a second line of credit at Treasury that can be called upon, Barr says.
"We have a separate borrowing authority for what we call working capital. When banks fail, the FDIC retains assets from those banks. These tend to be illiquid assets such as physical properties or hard-to-sell loans. Since a lot of our money could be tied up in these illiquid assets, we have borrowing authority from the Treasury for working capital. It's meant to be short-term borrowing and it would be repaid as the FDIC sells the assets."
Not the worst banking crisis
As awful as the overall financial picture is today, the situation in the banking industry was considerably more dire 20 years ago during the savings and loan crisis.
There are 117 banks on the FDIC's current "watch list;" about 2 percent of the FDIC-insured banks nationwide. In 1987 there were 2,165 institutions, or 12 percent, on the list. There have been 13 bank failures so far this year. In 1989, 534 institutions failed.
Institutions on the watch list are in financial trouble and are receiving increased scrutiny by the regulatory agencies. It's important to note that, historically, only about 13 percent of the banks on the list have failed.
"We were in triple-digit bank failures for four or five years (back then) and we're still here," says Barr. "The FDIC, and the banking industry, is facing this economic downturn from a position of strength. Ninety-eight percent of the banks are well capitalized. That's the highest level of capital in the regulatory arena.
"At one point we had $52 billion in our insurance fund. That's the most we've ever had to help resolve troubled institutions. It's down to $45 billion, but that's taking into account IndyMac, Washington Mutual and Wachovia (original agreement with Citi). So, getting those behind us and still having $45 billion, that's a strong position and we're going to bolster it by proposed premium increases. We're here to protect depositors -- it's what we've been doing for 75 years. Not a single customer has lost a penny of insured money and they never will."
The moral to this is, don't worry about the FDIC. Just make sure that your deposits are insured.
Banks ease credit for themselves but not you
Sam Zuckerman
November 7, 2008
If you're a financial institution, it has become a little easier to borrow money. But for most of the rest of us, it's tougher than ever.
It was the freeze-up of the wholesale lending markets used by banks to fund day-to-day operations that caused the financial system to break down in September. That crisis has eased significantly, thanks to government intervention to guarantee loans and prop up financial institutions.
But the credit crunch hasn't gone away. It has just moved to Main Street, where businesses and consumers are hard-pressed to get loans. And the scarcity of credit is intensifying the economy's downward spiral.
"Lending standards on most forms of credit are now tighter than at any time in recent memory," Ryan Sweet, an economist with Moody's Economy.com, wrote in a recent report. "The reduction in credit availability threatens to lengthen and deepen the recession."
In an October survey of bank lending practices, the Federal Reserve noted a broad move to restrict credit.
About 85 percent of domestic banks told the Fed they had imposed stricter lending standards on large and mid-size commercial borrowers, while 75 percent said they had done so for small businesses. At the same time, 60 percent indicated they had tightened criteria for credit cards, and 65 percent clamped down on other consumer loans.
Tighter standards
"This matches my observation of institutions in the West," said Steven Buster, chief executive officer of Mechanics Bank in Richmond. "It's very clear to me there has been a tightening of credit standards."
With banks on the receiving end of hundreds of billions of dollars in aid from Washington, the credit cutback could become a significant political issue. Institutions will find themselves under pressure from political leaders to open the spigots.
Last week, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, fired a shot across the banking industry's bow, warning that it faced the wrath of Congress if it used bailout money to pay dividends and bonuses or buy out other institutions.
"Increased lending activity is the only legitimate purpose for taxpayer funding of these institutions," Frank declared. "It is very important if congressional and public support for this program is to continue that we receive assurances ... that the money being advanced will be used only for relending and for no other purpose."
Bankers argue that it's legitimate to use public money to buy securities such as corporate debt, because those markets also were shut by the credit lockdown. And they say allowing strong banks to buy weak ones also serves the public good because it means taxpayer money wouldn't be needed to pay off depositors at failing institutions. They point to JPMorgan Chase's takeover of insolvent Washington Mutual in September, carried out without use of Federal Deposit Insurance Corp. funds.
The Treasury Department plans to buy ownership stakes in an array of strong banks, providing additional capital to fund loans. The problem, bankers say, is that in a recession there aren't a lot of good lending opportunities. For example, no lender would finance expansion of a shopping center when retail sales are falling fast.
Mechanics Bank, one of the larger community banks in Northern California, is an exception in that it hasn't tightened loan qualifications. It has long been a conservative lender with strict standards on commercial loans, according to Buster.
"Our underwriting hasn't changed at all in the last two years," he said. "It's just that fewer projects meet our underwriting criteria."
The bank used to assume it would take roughly 18 months from construction for a developer to sell the units in a condominium. The borrower had to demonstrate they had the resources to carry the project during that absorption period. Now, the bank assumes it would take substantially longer to fill up the condo, which would make it a lot harder for the developer to qualify for a loan, Buster said.
Things are similar for consumers, where a combination of stiffer standards and worsening household finances are undermining borrowing power for credit cards and home and auto loans.
Cherry-picking
With credit cards, lenders have become much more aggressive about segmenting the market, cherry-picking consumers with the best credit records and squeezing everybody else.
"Credit card issuers are playing defense and are being much more selective about which cardholders qualify for the best rates," said Greg McBride, senior analyst with Bankrate.com, a personal finance Web site. "They're also being more proactive in reducing exposure by cutting down credit lines."
It's a similar story for home loans. "Good credit, proof of income and money for a down payment - if you have those three ingredients, credit is widely available," McBride said.
But, he noted, the best rates are reserved for customers with credit scores above 740, a tiny elite among borrowers.
The legal landscape for foreign property investors
China Economic Review
November 2008
With returns on investment exceeding 15% in recent years, China's real estate market has been a hotbed of foreign investment. As offshore capital flooded into the country's property market, however, prices soared, prompting Beijing to intervene. For would-be investors today, the legal landscape of property investment can be difficult to navigate.
Two pieces of legislation have had the largest impact on foreigners looking to invest. In July 2006, six ministries and commissions, including the Ministry of Commerce, jointly published "Opinions Concerning Regulating the Access to and Administration of Foreign Investment in the Real Estate Markets." Additionally, on January 29, 2007, Beijing published "Notice Concerning Regulating the Purchase of Residential Property by Foreign Institutions and Foreign Individuals."
One person, one property
Most importantly, these laws require "owner-occupation," status of the property purchaser. In other words, an individual buyer can purchase only one apartment for personal use and cannot own property where he or she is not registered to live. A foreign institutional buyer, meanwhile, can only buy an apartment for its business in the city where its branch or representative office is located.
There are ways around this limitation. For example, policies provide that a foreigner can buy one apartment only, but his or her spouse or other relatives may buy another residential property. Also, foreigners or foreign institutions who fail to meet the new requirements are still permitted to share ownership with a Chinese partner under the protection of the China Civil Law through a special agreement.
Another important feature of the new restrictions is that a foreign buyer must now submit a certificate that he or she has studied or worked in China for at least one year. Besides preventing speculation, the reasoning for this is that foreign individuals who have worked here for more than one year are effectively contributing to China's economic growth.
Yet even if you are looking to buy your first China property and have lived in country at least one year, financing the purchase is another challenge. Since payment must be made from a local bank account, transferring funds from an overseas bank account is subject to increased taxation. Relevant property laws also impose taxes on the transaction itself. It is usually very difficult for foreigners to secure a loan from local banks, but it may be possible through a local branch of one's overseas bank.
Power to purchase
Only those who adhere to the principle of "owner-occupation" can be approved to go through the formalities relating to foreign exchange. Foreign institutions and individuals who remit capital from foreign countries or pay for the real estate property directly from a domestic foreign currency account shall be examined and must be ratified by the appointed bank. Only then may they transfer payment to the developer's renminbi account. They must not transfer the foreign currency to the foreign currency account of the developer directly.
If payment for the property is aborted for some reason and the renminbi needs to be exchanged back into foreign currency and remitted outside China, this also requires examination and approval by the appointed bank.
When the time comes, selling one's property and exchanging the proceeds back into one's home currency is also contingent on the bank's approval. Such renminbi capital can be settled into foreign currency and remitted outside China after being confirmed by the department of foreign exchange for the area where the real estate is located.
In addition, when foreign institutions or individuals want to sell their property, they must sign a government-issued sales agreement with the purchaser first. After this is signed, they can go back to the local real property transaction office with the purchaser to transfer the title of the property. After paying off all relevant taxes, including value-added property income tax, they can wire the received money back to their overseas account.
(Allen X. Jiang is principal of Shanghai-based law firm Allen & John, which has 12 years of Chinese legal experience. All lawyers are licensed locally and with overseas legal education background. The main focus of Allen & John is to support and protect the interests of overseas investors in China in areas of business laws, intellectual property laws, real estate laws and related litigations.)
Treasury, Congressional Democrats Clash on Policing Bank Loans
By John Brinsley
Nov. 8 (Bloomberg) -- Senate Democrats are demanding that the U.S. Treasury force banks participating in the government's $700 billion financial rescue plan to show they are using the funds to increase lending.
Senators Charles Schumer of New York and Robert Menendez of New Jersey wrote a letter yesterday urging Treasury Secretary Henry Paulson to issue rules requiring banks accepting public funding to lend to companies and consumers rather than using the money to finance takeovers.
``Loans must not be used to acquire healthy banks, hoard in their coffers, or pay shareholder dividends,'' the two Senate Banking Committee members wrote to Paulson. ``We are also troubled by the fact that the Treasury Department appears to be taking a `hands off' approach to this issue, preferring instead to leave decisions solely up to the discretion of senior bank executives.''
The letter, the second the two Democrats have sent to Paulson in the last two weeks, came as the head of the Treasury's program rebuffed any suggestions to ``micromanage'' financial firms' lending decisions.
``We want this capital to be put to work, to stabilize the system, to increase lending for our businesses and our communities,'' Neel Kashkari, the interim assistant secretary who heads the program, said yesterday in New York. At the same time, he said, it's ``not appropriate'' to set targets for bank loans.
Obama Reviewing Plan
Kashkari acknowledged that the incoming administration of President-elect Barack Obama might ``go in a different direction'' than Paulson. Obama yesterday said he would review the plan.
Speaking at his first press conference since winning the presidential election, Obama said in Chicago that the program must stabilize financial markets, protect taxpayers and help homeowners ``while not unduly rewarding the management of financial firms that are receiving government assistance.''
Lawmakers are faulting Paulson for letting financial institutions finance acquisitions using some of the $250 billion the banks are receiving in capital infusions from the government. PNC Financial Services Group Inc. last month agreed to buy Cleveland-based National City Corp. after getting $7.7 billion from the government.
Clash to Continue
``Treasury needs to put together guidelines both on how the capital is allocated and how it's used,'' said Joseph Mason, a professor at Louisiana State University in Baton Rouge who previously worked at the Treasury's Office of the Comptroller of the Currency. ``I expect this clash with Congress to continue.''
Schumer's and Menendez's letter echoes earlier comments from House Financial Services Committee Chairman Barney Frank, who said he may move to block further bailout funding if institutions that have already received cash don't prove they are boosting lending. Lawmakers have the option of blocking the second half of the bailout funding because the legislation requires President George W. Bush to request the money from Congress.
``There had better be a showing of increased lending roughly in the amount of the capital infusions,'' Frank said in a Nov. 6 interview in his office in Newton, Massachusetts.
Year-end bonus payments at nine banks that received $125 billion from are being investigated by House Oversight and Government Reform Committee Chairman Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on compensation plans.
Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. have set aside $20 billion to pay bonuses this year.
The Treasury should ``issue guidelines or best practices'' to ensure Americans ``know that their money is being used to provide maximum benefit for our economy as a whole and not to create banking empires or reward players on Wall Street,'' Schumer and Menendez wrote.
Teacher by day, bar dancer by night
By SEAH CHIANG NEE
November 8, 2008
As the recession bites harder some find unconventional ways to get spending money while others show their meaner side.
WHAT was an ungracious act in a train has turned the spotlight on just how much stress the current financial havoc is putting on Singaporeans.
The news website, Asia One, kicked off its report of the encounter by saying: “Desperate times call for depraved measures. The financial crisis might have hurt more than just our wallets.”
It occurred last Sunday, when a train commuter refused to give up his seat to a pregnant woman even when he was asked. Instead, he blamed it on the tough life, reported The Straits Times’ news portal.
The episode was photographed by an eyewitness, who quoted him as saying, ‘Life is already full of suffering, why should I reward her (the pregnant woman) for bringing one more life into this world?’
The furore centred on his ill manners and ignored his reference to ‘suffering life’.
Some believe it should not be dismissed out of hand and that the uncivil behaviour could actually reflect his despondent mood over the economic crisis.
“Singaporeans react differently to a crisis. Not everyone can articulate his thoughts rationally under pressure,” said one writer.
The man’s allegation about stress is, however, not without basis.
The majority of Singaporeans are coping well, striving to survive these hard times, keep jobs and preserve assets. Not all will succeed.
The stronger characters see it as an opportunity for a better future or to buy cheap, but for a segment of the society morale has sagged and a bit of lethargy has set in.
A forum recently started a discussion on unscrupulous retailers fleecing customers in Singapore, despite its reputation as a shoppers’ paradise.
A woman tourist said when her daughter wanted to buy a new digital camera, the salesman demanded S$30 to have the international guarantee stamped. She stood her ground and was spared paying.
Widely-travelled ‘mybingoh’ wrote, “Every time I returned to Singapore, I found people brasher and outright peevish.”
In sporadic instances, salespersons had shown distaste for their job and did not bother to hide it from the customers.
“I hear from the man in the street they are all trying hard to cope with the escalating costs of living and the sky-high rental premiums,” one said.
He gave several other examples: a hawker adamantly demanding $4 for a pineapple, a salesgirl at a camera repair shop ignoring a customer while chatting on the phone and specialist doctors charging exorbitant fees.
A retail businessman put the main cause in one word, money. In recent boom years, rents in the central areas had been skyrocketing – by as much as 50%-60% a year.
The recession has forced retailers to keep wages low, which in turn resulted in unhappy staff and customer service.
Others disagreed and attributed it to a spoiled generation following decades of prosperity.
“In certain jobs, we don’t have a good work culture, unlike Thailand,” one food centre operator said, explaining why he had to rely on China workers.
In a recession, service standards should in fact improve because workers generally need to work harder to keep their jobs, he contended.
Within the next 12-18 months, jobs will remain the biggest worry for Singaporeans.
Thousands of fresh graduates will come out of universities at home and abroad to start hunting for work at a critical time. They will be joined by youths from Asia’s job-hungry countries.
Manpower Minister Gan Kim Yong last week warned people to expect deterioration over the next few months, with more Singaporeans losing their jobs.
“There will be higher retrenchment,” he said. So far, unemployment has stayed at 2.2%, although 2,000 more workers were retrenched in the recent quarter.
The more pessimistic analysts talk of a job tsunami, with decline across Singapore’s entire economy, including manufacturing, shipping, finance, tourism, retailing and property.
Yuppies seem to be doing reasonably well – so far. This breed is not good at being thrifty, compared with the older generation. Generally, they do not have a sense of urgency to save, so some of them are using unconventional ways to make spending money.
One ‘university’ girl offered to sell her soiled underwear while another – a 17-year-old – offered her virginity to the highest bidder.
The tabloid New Paper just ran a story about engineers, teachers and other professionals working as bar dancers at night-clubs, partly for fun but mostly for the extra dollars.
The newspaper exclaimed in a headline, “Is that my housing agent dancing on the bar?”
This market meltdown has struck the government and the wealthy just as badly.
The billionaires and wealthy property developers have seen their fortunes decimated, at least on paper, by as much as 60% since early this year.
“Some of these poor souls are down to their last one or two hundred million dollars,” joked a remisier.
In worst shape are Singapore’s state reserves, once estimated to be about US$330bil, much of it invested at home and overseas. Today values in the tens of billions are believed to have been erased.
In Singapore more than elsewhere, if the wealthy suffer so will the poor. That could mean less investment and employment as well as a drop in tax revenue for public services.
In fact, the government here is facing one of its toughest political tests since independence. It has to strike a fine balance between giving big business a free hand to cut costs to stay healthy and placating voters who may want just the opposite.
On the ground, these common folks want more spending by the corporations so they can have a better life.
China announces $586-billion stimulus plan
HEATHER SCOFFIELD
November 9, 2008
SAO PAULO, Brazil — China has formally announced a long-anticipated stimulus package worth $586-billion (U.S.) – a move that will likely be received as a major shot in the arm for the global economy, and a signal that emerging markets are willing to actively fight the global financial crisis.
China said it would spend the money before the end of 2010, on infrastructure and social programs, and at the same time it would loosen monetary policy.
“It's very important that the Chinese consumer gets jingle into his or her pocket,” commented Paul Martin, Canada's former prime minister who is closely following the developments of the global financial crisis.
“It's also important for the rest of the world. So much of the world depends on them,” he said in a phone interview. “It will give the rest of the world some confidence.”
The measures are along the lines of what the rest of the world has been pushing for at the Group of 20 finance ministers and central bankers, as the global financial crisis pushes key economies into recession and begins to undermine the economic stability of the rest of the world.
The G20 is expected to issue a plea for all countries to dig up the resources to finance fiscal stimulus packages, and cut interest rates too, in a co-ordinated effort to stymie the spread of the financial crisis.
While the Chinese stimulus package has been in the works for a while, it's significant that they announced it during the G20 meeting this weekend, and before the G20 summit of heads of state next week in Washington, said Mr. Martin. That's because it shows that the Chinese are responsive to the concerns expressed loud and clear by other countries at the G20 meetings, that the global economy is at an alarming rate.
The group's recommendations will form the basis of a high-profile summit next weekend in Washington, where heads of state of the G20 countries will meet to hash out a crisis resolution strategy.
But while there was a consensus emerging among central bankers and finance ministers that all fiscal and monetary tools should be used to fix the global economy, the G20 meeting in Sao Paulo stalled on Sunday morning over the issue of how much of a voice to give emerging markets.
Sources said the division – between Canada, the United States and Japan, on the one hand, and emerging markets backed by Europe on the other – was proving to be difficult to overcome.
Canada's finance minister, Jim Flaherty, said on Saturday that he did not think now was the time to get bogged down in such “constitutional” issues about which international organization should be beefed up to better reflect emerging markets.
Canada has also been resisting calls from Europe to create a new organization that would be tasked with regulating the world's financial institutions.
But Mr. Martin, who helped found the G20 as well as the Financial Stability Forum a decade ago, says now is exactly the time to be reforming global decision-making and giving emerging markets the voice they're asking for.
“The battle is going to come down to ‘what's the new organization,'” Mr. Martin said. “They want in, and you're not going to get any kind of co-ordination if they can't get in.”
Sooner or later, global governance will better recognize emerging markets' voices, he said, and if Canada stands in the way of that force, its own voice risks getting sidelined.
China gives Agricultural Bank $19 billion bailout
China gives Agricultural Bank $19 billion bailout; preparing rural lender for IPO
7 November 2008
SHANGHAI (AP) -- The Chinese government has given the Agricultural Bank of China a $19 billion bailout in a major step toward restructuring the rural lender as it prepares to issue publicly traded shares.
The funds, from Central Huijin Investment, a unit of China's sovereign wealth fund, are meant to "boost the bank's capital, improve the balance sheet and strengthen profitability," Agricultural Bank said in a statement seen Friday on its Web site.
Although investor sentiment has been dulled by a lengthy share market correction, Beijing is moving ahead with restructuring and listing the state-owned bank's shares as part of wider reforms aimed at boosting incomes and productivity in rural areas that have lagged behind China's booming cities.
Central Huijin and the Ministry of Finance will each hold 50 percent of the bank following the 130 billion yuan ($19 billion) bailout, the bank said.
The Agricultural Bank is the last of China's four major state-owned commercial banks to be restructured in preparation for a share listing. The move was delayed by the heavy load of bad debts carried by the bank.
The government has not said when the bank will list its shares.
The ruling Communist Party last month approved a landmark reform that for the first time will let farmers lease or transfer their land. The change in control of land rights was viewed as a crucial step in revitalizing the rural sector and creating larger, more efficient farms.
Central Huijin has also provided billions of dollars in bailouts to other big state commercial banks — Bank of China, Industrial & Commercial Bank of China and China Construction Bank following massive write-offs by those lenders.
Agricultural Bank reported that bad loans accounted for about a fifth of its total lending as of the end of June. It had assets totaling 6 trillion yuan ($878 billion) by the end of 2007, according to its annual report.
Zoellick: China in good position to expand economy
SAO PAULO, Nov. 8 (Xinhua) -- World Bank President Robert Zoellick said on Saturday that China is in a good position to have a strong fiscal expansion, a way to offset the effects of the international financial crisis.
"China is in a very good position to have a strong fiscal expansion. The Chinese authorities spoke of that aspect," he told a press conference in Sao Paulo, where he participates in a G20 meeting.
Officials from the finance ministries and central banks of the world's key developed and emerging countries began a two-day meeting here Saturday to look at ways to tackle the global economic crisis.
Zoellick compared China's situation in comparison with other developing countries which cannot expand their expenditures so much.
Zoellick considered "very wise" China's decision to make large improvements in its infrastructure in the last few years, adding that it could be taken as a model by other countries.
China benefited from the high liquidity in the global market in the last years, which proves that the injection of resources that is taking place in the financial markets can be, to many countries, an opportunity that comes from the crisis, he said.
The World Bank president stressed that the G20 debates changed their focus in the last months from the need for homogeneous fiscal policies to implementation of expansion policies in order to fight the threat of a global recession.
Lenovo says profit down 78 percent on weaker sales
November 7, 2008
BEIJING (AP) — Lenovo Group's quarterly profit dived 78 percent as the global economic slowdown battered sales, and the company, the world's fourth-largest PC maker, said it will launch a restructuring with possible job cuts.
Profit for the three months ended Sept. 30 was $23 million, or 0.27 U.S. cents per share, compared with $105 million, or 1.22 U.S. cents per share, in the same period last year, the Beijing-based company said Friday. Lenovo eked out a 0.4 percent rise in total global sales to $4.33 billion.
Chairman Yang Yuanqing expressed disappointment at the results and blamed both the global slowdown and management problems.
"We had our own execution issues. The rollout of new products, control of gross margins and the progress of the strategic plan fell short of our expectations," Yang said in a conference call with reporters.
Yang said Lenovo would make "extensive changes" to cut costs, improve efficiency and speed up expansion in faster-growing emerging markets.
President and CEO William J. Amelio said the restructuring might include job cuts but no details were decided. He said it would cost $75 million to $100 million, including a $24 million charge recorded in the past quarter.
"We will be looking at anything and everything that will make us more efficient," Amelio said. "The team is working hard to reduce expenses dramatically."
Amelio said Lenovo would look at possible acquisitions that might increase economies of scale, improve profitability or acquire new technology.
The results were a sharp turnabout for Lenovo, which had been reporting double-digit annual increases in sales and profits following its acquisition of IBM Corp.'s personal computer unit in 2005.
Yang said Lenovo was especially hard-hit by a slowdown that began earlier this year in corporate spending, which accounts for a large share of its business. He said tougher market conditions were expected to continue for several more quarters.
Sales in Greater China — which includes Hong Kong and Taiwan — rose 11 percent to $1.9 billion, the company said. But elsewhere, shipments in the Americas were off 4 percent and in the Asia-Pacific outside China down 10 percent.
Amelio said Lenovo will "stay the course" and tried to reassure investors that its strategy is "solid and fundamentally strong." The company said its cash reserves are a healthy $1.5 billion.
"We believe we will become a stronger player by investing in growth during the downturn," said Wong Wai Ming, the company's chief financial officer. "We believe Lenovo is well-positioned to capture opportunities in high-growth emerging markets."
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