Europe’s Financial Crisis Deepens as Greek Government Teeters

November 3, 2011

Europe’s financial turmoil deepened, dominating a Group of 20 summit, as Greece’s government neared collapse and Italy came under renewed pressure to prove its credit-worthiness.

 

Greek Prime Minister George Papandreou sought to maintain power after his call for a referendum on a week-old bailout package split his party and led Europe’s leaders to suspend aid. Italian Prime MinisterSilvio Berlusconi was pushed by German Chancellor Angela Merkel to accelerate an austerity drive as his country’s bond yields jumped to a euro-era record.

 

The hardball tactics of Merkel and French President Nicolas Sarkozy toward their crisis-ridden neighbors underscored the urgency for world leaders meeting in the French resort of Cannes to solve the two-year-old debt woes that are weighing on the global economy. The European Central Bank offered relief with an unexpected interest-rate cut.

 

“The most important aspect of our task over the next two days is to resolve the financial crisis here in Europe,” U.S. President Barack Obama told reporters in Cannes between one-on- one meetings with Sarkozy and Merkel.

 

Papandreou will seek to stay in office and speak in parliament today, two officials with his ruling Pasok party said. He stood firm following a morning of speculation that he was poised to quit after Merkel and Sarkozy turned his ballot into a vote on whether Greece stayed in the euro area, cutting off assistance in the meantime.

 

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Referendum Will Confirm Greece in Euro: Papandreou

November 2, 2011

Greek Prime Minister George Papandreou said a referendum onEurope’s rescue package will confirm the nation’s membership of the euro as he stuck to plans to hold the vote amid signs his government may collapse.

“The referendum will be a clear mandate and strong message within and outside Greece on our European course and our participation in the euro,” Papandreou told his ministers in Athens early today, according to an e-mailed transcript. It will “ensure this course in the most decisive way.” The Cabinet voted unanimously to endorse the plan.

Papandreou will fly to France today to face European leaders surprised by his decision to put the bailout plan to a national vote and call a confidence vote in parliament. His grip on power weakened after a lawmaker from his socialist Pasok party defected, leaving him with 152 deputies in the 300-seat chamber, while another, Vasso Papandreou, called for the formation of a national unity government.

Another four lawmakers have criticized the plans for the referendum, stopping short of defection, and six members of the party called on the premier to resign in a joint letter, Athens News Agency said yesterday. Opposition parties have ramped up calls for elections.

‘Yes or No’

“The dilemma isn’t ‘this or another government,’” Papandreou said. “The dilemma is ‘yes or no to the loan accord’, ‘yes or no to Europe’, ‘yes or no to the euro.’”

The euro erased a decline of as much as 0.5 percent against the dollar after Papandreou’s Cabinet backed his proposal. The currency was at $1.3754 per dollar at 8:50 a.m. in Berlin, having earlier traded as low as $1.3637.

Government spokesman Elias Mosialos told reporters in Athens after the meeting the referendum would be held “as soon as possible.”

Papandreou’s decision to seek the support of Greek voters is a fresh challenge to a European Union-led bailout agreed last week that involves a 50 percent writedown on Greek debt and further austerity measures in that country. The risk is that rejection by a referendum would spark a disorderly default and call into doubt Greece’s membership of the euro.

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World leaders aim to revive global recovery

November 1, 2011

PARIS (AP) — World leaders will try to understand how the global economy has swerved so horribly off its recovery track when they gather this week for a summit that will see a curious inversion of roles from previous meetings: Europeans will be asking developing countries in Asia and South America for financial help.

Though signs of an alarming slowdown in growth are everywhere — the U.S. is not creating enough jobs and China is struggling to cool down inflation without triggering a credit crunch — the old continent’s debt problems will take top billing at the summit.

As head of France’s year-long presidency of the Group of 20 meetings, Nicolas Sarkozy will scramble to show his peers gathered at the chic French Riviera resort of Cannes that Europe has gotten a grip on its debt crisis with last week’s grand plan to save the euro.

One of the main ideas behind creating the G-20 three years ago was to expand global economic decision-making beyond the North Atlantic axis to include more diverse countries. But this year’s G-20 summit, to be held Thursday and Friday, is all about old Europe. And instead of Europeans offering aid to struggling nations, as occurred in the past, now the Europeans are asking developing nations with big cash reserves — like China — for financial help.

Eurozone leaders, for their part, have preventively dodged questions on details of their latest euro rescue operation, saying last week that the mechanics won’t be settled until early December — almost six months after their previous plan was announced and then left to slowly go past its expiration date.

European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy last week pledged to carry out the new measures “rigorously and in a timely manner.”

“We are confident that they will contribute to the swift resolution of the crisis,” Barroso and Van Rompuy wrote in a joint letter to the G-20 leaders.

“Swift” may not be the right word after two years of faltering half-steps and missed opportunities. Meanwhile, European leaders must use the face time with colleagues from Brazil, Russia, India, China and beyond to drum up interest in the euro440 billion ($616 billion) European bailout fund. Increasing the fund’s firepower by getting cash-rich developing world countries to invest in bonds insured by the fund is key to the European plan’s success.

If recent comments by the head of China’s sovereign wealth fund are anything to go by, convincing outsiders of Europe’s investment potential will be a hard sell.

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MF Global files for bankruptcy after deal unravels

October 31, 2011

By Jonathan Spicer and Nick Brown

NEW YORK (Reuters) – MF Global Holdings Ltd, the futures broker run by former Goldman Sachs chief Jon Corzine, has filed for Chapter 11 bankruptcy after a tentative deal with a buyer fell apart.

The firm’s meltdown in less than a week is a stunning setback for Corzine, who sought to turn MF Global into a mini-Goldman. Corzine became CEO last year after losing his governorship of New Jersey, and his big bets on euro-zone debt sealed the company’s fate.

The bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier Monday, a person familiar with the matter said. Earlier, central banks and exchanges had slapped the broker with suspensions.

The bankruptcy makes MF Global the most prominent U.S. casualty yet from the euro-zone debt crisis, and harkens back to 2008 when Lehman Brothers collapsed at the height of the U.S. financial crisis.

But market participants said the impact from this collapse, far smaller, would likely be contained.

“Ultimately it will have lost all confidence of its investor base,” said Michael Epstein, a restructuring adviser with CRG Partners. “I’m not sure what restructuring it actually does. In some respects, it’s a baby Lehman, in effect.”

The New York Federal Reserve suspended MF Global from conducting new business with the central bank. CME Group Inc ICE Futures U.S. and Singapore Exchange all halted the broker’s operations in some form.

Three traders wearing MF Global jackets were seen leaving the Chicago Board of Trade prior to the opening of pit trading, and floor sources told Reuters they had been turned away after their security access cards were denied. They declined to comment.

BANKRUPTCY FILING

MF Global scrambled through the weekend and into Monday to find buyers for all or parts of the company, while at the same time hiring restructuring and bankruptcy advisers in case nothing could be done.

The company’s shares and bonds plunged in recent days. In the past week, MF Global posted a quarterly loss, its shares fell by two-thirds and its credit ratings were cut to junk.

The company, which under Corzine ramped up more risky proprietary trading, is suffering because of low interest rates and the bets on European sovereign debt.

Corzine was trying to transform MF Global from a brokerage that mainly places customers’ trades on exchanges into an investment bank that bets with its own capital.

MF Global Finance USA Inc also filed for Chapter 11 protection, court records show. Both MF Global entities filed for protection from creditors with the U.S. bankruptcy court in Manhattan.

It may be easier for MF Global to work out a sale deal in bankruptcy than outside of it, said Bill Brandt, chief executive of Chicago-based turnaround firm Development Specialists Inc.

By filing for bankruptcy, MF Global freezes the value of its free-falling notes and gives potential suitors a clearer picture of the losses they would be taking on, Brandt said.

“If I were trying to do a deal fast, rather than sell the company itself, I’d see if I could peg the notes at a discounted price and find someone else to buy the distressed notes,” Brandt said.

If a sale is in the offing, the buyer may be a European bank or sovereign government, as such entities would be particularly keen on stopping the slide and maximizing the value of the notes, Brandt said.

“The real question is how many assets will be left to transfer,” said Niamh Alexander, an analyst at Keefe, Bruyette & Woods.

“Customers might move very quickly and it may be that every hour that passes shrinks the portfolio of assets that could be transferred” to a buyer, said KBW’s Alexander.

MF Global’s deeply distressed 6.25 percent notes maturing in 2016 fell 10.5 cents on the dollar to 39.5 cents, pushing their yield up to 31.6 percent, according to the Trace bond pricing service. The price had earlier fallen as low as 15 cents.

Its shares remained halted in New York.

The company hired boutique investment bank Evercore Partners Inc to help find a buyer, separate sources said this past week.

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China Stocks Decline on Wen’s Property Remarks

October 31, 2011

China’s stocks fell for the first time in six days, narrowing the benchmark index’s biggest monthly gain in a year, after Premier Wen Jiabao said the government should “firmly” maintain property curbs.

China Vanke Co. and Huaxia Bank Co. led a gauge of financial companies to its first drop in more than a week after the government said local authorities should continue to strictly implement tight policies in the property industry in the coming months. Baoshan Iron & Steel Co., the biggest publicly traded steelmaker, slid the most in two weeks and China Railway Group Ltd. dropped 2.2 percent after earnings for both companies slumped in the third quarter.

“It’s too early to celebrate after the rally as the government is still keeping its control policies,” said Tu Jun, a strategist at Shanghai Securities Co. “The market may be range-bound at current levels and the uncertainty over policy easing will lead to volatility.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 17.3 points, or 0.7 percent, to 2,456.16 at 1:06 p.m. local time. The gauge advanced 6.7 percent last week, the biggest gain since the period ended Oct. 15, 2010. The CSI 300 Index slid 1 percent to 2,681.82.

A gauge tracking real estate companies in the Shanghai Composite dropped 1 percent, the most among five industry groups, and the first slide since Oct. 20. China Vanke, the biggest developer, sank 1 percent to 7.83 yuan. Gemdale lost 1.6 percent to 5.06 yuan. Huaxia Bank retreated 2.8 percent to 11.14 yuan, set for the biggest drop since Oct. 18.

China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time, according to a statement following a State Council meeting chaired by Premier Wen.

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Russia Expects 18-Year Wait for WTO Membership to Be Mediated by December

October 30, 2011

Russia expects any outstanding issues with Georgia over entry to theWorld Trade Organization to be resolved by Swiss mediators, clearing its way to join the alliance in December after an 18-year wait.

“We expect that all issues will be coordinated within hours,” Arkady Dvorkovich, chief economy aide to President Dmitry Medvedev, told reporters today. “There are no big issues remaining, but a number of issues need to be clarified.”

A Swiss delegation is flying to Tbilisi, Georgia’s capital, tonight after Medvedev held talks with Swiss President Micheline Calmy-Rey earlier today outside Moscow. Calmy-Rey told Medvedev that she hoped Russia would be able to join the 153-member WTO by the end of the year.

Georgia is the final WTO member to give its approval after the European Union backed Russia’s bid last week. Joining the WTO may boost Russia’s $1.5 trillion economy by more than 3 percent in the medium term, according to the World Bank.

With 2 percent of global gross domestic product, Russia is the biggest economy and the only Group of 20 nation outside the WTO, whose members carry out 97 percent of world trade. The world’s biggest energy producer is counting on WTO entry to help lure foreign investment and reduce its reliance on energy exports, which account for 40 percent of budget revenue.

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Americans spending more with income almost flat

October 29, 2011

WASHINGTON (AP) — Americans are making a little more money and spending a lot more.

Under normal circumstances, that would be a troubling sign for the economy. But a closer look at some new government figures suggests another possibility: People are saving less money because they’re earning next to nothing in interest.

Saving is already difficult because of more expensive gas and food. It’s even tougher because of the lower returns — the flip side of super-low interest rates that the Federal Reserve has kept in place since 2008 to help the economy.

Critics say the Fed is punishing those who play by the rules — those careful enough to set aside money for savings or people who built up a nest egg and are living on fixed incomes that depend on interest.

Americans spent 0.6 percent more in September, three times the increase from the previous month, the government said Friday. Spending was especially strong on durable goods — things like cars, appliances and electronics.

At the same time, what they earned was mostly flat. Pay increased 0.3 percent, and overall income just 0.1 percent. After deducting taxes and adjusting for inflation, income fell for a third straight month.

So to make up the difference, many have cut back on savings. The savings rate fell to its lowest level since December 2007, the first month of the recession — and right about the time the Fed started its dramatic series of interest-rate cuts.

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Europe Resolution Critical to Obama Re-Election

October 28, 2011

President Barack Obama’s path to re- election may pass through Berlin and Paris.

The European debt crisis that German Chancellor Angela Merkel and French President Nicolas Sarkozy are struggling to contain looms as the most visible threat to the U.S. economy as Obama heads into his re-election campaign.

European leaders took a critical step toward curbing the crisis yesterday, agreeing to expand their rescue fund. Further details need to be worked out, and the negotiations could still fall prey to political infighting or an investor revolt.

Obama has limited capacity to influence the discussions even with the significance of the outcome for the U.S. economy and the his re-election prospects. He will meet with European leaders at the Group of 20 summit in Cannes, France, on Nov. 3- 4.

Obama’s leverage “is inherently restricted,” said Jacob Kirkegaard, a research fellow at the Peterson Institute of International Economics in Washington. “This is essentially domestic European politics.”

A cascade of defaults that spread from Greece to other nations such as Portugal, Ireland, Spain and Italy would risk a financial panic and freeze in U.S. credit markets, as well as a surge in the dollar’s value that would raise the cost of U.S. exports, said Nariman Behravesh, chief economist for IHS Inc., a forecasting firm. U.S. corporate profits from European operations could face a sharp decline as the continent sank into recession.

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Big Banks Blink on New Card Fees

October 28, 2011

A month after Bank of America got pummeled by consumers and politicians for introducing plans for new debit-card fees, most other big U.S. banks are steering clear of imposing similar charges.

Following eight months of consumer testing, J.P. Morgan Chase & Co. (JPM - News) has decided that it won’t charge customers who use their debit cards to make purchases, according to a person familiar with the bank’s plans. The New York bank’s Chase retail unit is one of the largest U.S. consumer banks, with 26.5 million checking accounts and 5,300 branches.

J.P. Morgan joins U.S. Bancorp (USB - News), Citigroup Inc. (C - News), PNC Financial Services Group Inc. (PNC - News), KeyCorp (KEY - News) and other large banks that have said in recent days that they won’t impose monthly fees on debit cards. None of those banks said they made their decisions because of the outcry over Bank of America’s fees.

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Euro Crisis Fix May Threaten Lifeline for East Europe Banks

October 27, 2011

Eastern Europe is at risk of its economies running out of credit as western lenders may have to focus on recapitalizing themselves, making it difficult to fund their units in the region.

With about three-quarters of the region’s banking industry owned by western lenders such as UniCredit SpA (UCG) and Erste Group Bank AG (EBS), local units are likely to receive less support, “bearing on credit growth,” the European Bank for Reconstruction and Development said last week.

Lenders that bankrolled eastern Europe’s boom before the 2008 credit crunch are already squeezed by deteriorating loan quality and slowing economic growth. The region was the world’s worst-hit in the aftermath of the collapse of Lehman Brothers Holdings Inc. three years ago and faces the threat of the same fate as the euro area’s troubles spread.

“This will definitely have an impact,” Christian Keller, an emerging-markets economist at Barclays Capital in London, said in a telephone interview. “If you have a banking system that is intrinsically linked to western European banks and western European banks deleverage, you realize that growth in that region will no longer be as it was before

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