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Tuesday, 10 February 2009

Treasury revamps financial rescue plan

The US Treasury on Tuesday announced a revamp of its financial rescue plan, pledging to clean up to a trillion dollars of distressed assets from banks’ balance sheets and inject fresh capital into troubled financial institutions.

The “financial stability plan”, unveiled by Tim Geithner, the Treasury secretary, will create a new “bad bank” style partnership called the Public-Private Investment Fund, which will bring in private money with the initial aim of buying $500bn-worth of distressed assets from banks. The programme could be extended to $1,000bn if necessary.

The proposal involves no new public money for the moment and will aim to use the remaining $350bn in the Troubled Asset Relief Programme (Tarp) authorised in October, together with an extension of credit guarantees from the Federal Reserve to finance up to $1,000bn in new consumer and business loans.

How do you say ‘oops’ in Russian?

Some curious rumblings out of Russia today.

First, there was a report in the Nikkei newspaper that Russian banks and businesses may ask foreign banks to restructure loans worth $400bn. The Japanese paper cited an interview with the Anatoly Aksakov, head of the Russian Association of Regional Banks, saying the association is already in talks with HSBC and Deutsche Bank. Cue the European reaction.

From the FT:

The euro suffered on Tuesday as a report that Russia was looking to restructure $400bn of its outstanding corporate debt highlighted concerns over the eurozone’s exposure to problems in emerging Europe.

Analysts said the report triggered a knee-jerk bout of heavy euro selling, given the eurozone’s high exposure to the region through bank lending. According to the Bank for International Settlements, European banks’ foreign claims on Russia totalled just over $200bn, or around 1 per cent of GDP.

Syria emerging from economic shadows

For years, Zhouheir Yassar Sahloul was the most powerful rogue trader in Syria. As the head of the country's largest money changer, he was the linchpin between Syria's struggling, isolated economy and its huge diaspora that remits billions of dollars a year to families back home.

In a country that was saddled with strict foreign exchange laws, it was Mr Sahloul's agents who ensured Syrian merchants had enough hard currency to do business with partners overseas.

In 2005, when the Syrian pound was on the verge of collapse because of regional political tensions, the Syrian government turned to Mr Sahloul because the country's central bank lacked the resources to support the currency on its own.

Kuwaitis seek change in terms of Dow Chemical's move for Rohm

The Kuwait Investment Authority would consider increasing its support for Dow Chemical's disputed takeover of Rohm and Haas if the terms of the deal were changed to account for the downturn, a person familiar with the matter says.

Dow failed to complete the $15bn (€11.5bn) deal after the collapse of a joint venture between Dow and PIC - an arm of the Kuwaiti Petroleum Corporation - that was supposed to contribute $7.5bn to help pay for the acquisition. Warren Buffett has agreed to contribute $3bn and the KIA was to have added $1bn. According to a person with direct knowledge of the matter, the KIA would consider putting up more money, if there were new terms.

"Today, it is very difficult to complete this deal on the old terms," this person added. "There would have to be a new price and new terms. The environment has changed so much and chemical companies are losing so much money."

Iran faces 44 billion dollar deficit: research centre

TEHRAN, Feb 09, 2009 (AFP) - Iran faces a budget deficit of 44 billion dollars in the financial year starting in March, according to a parliamentary research centre report published in the press on Monday.

The research centre said the government's "expansionary budget bill" plans expenditure of 103 billion dollars against projected income of 59 billion dollars, according to the Sarmayeh newspaper.

And it warned that the budget bill could be in for a rough ride when parliament starts debating it on February 28.

Nouriel Roubini on prospects for 2009 Q & A

It is pretty much consensus now that 2009 will be a zero growth year for the world economy (something that you forecast well in advance). It seems that the major risk for the following years is having a lost decade of Japanese-style stagnation but on a worldwide basis. How are the governments in US and Europe faring so far in their effort to avoid that?
Marco, Sao Paulo

Nouriel Roubini: To avoid a Japanese style multi-year L-shaped near-depression or stag-deflation (a deadly combination of stagnation, recession and deflation) the appropriate, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies) is necessary.

The eurozone is well behind the US in its efforts as: a) the ECB is behind the curve in cutting policy rates and creating non-traditional facilities to deal with the liquidity and credit crunch; b) the fiscal stimulus is too modest as those who can afford it (Germany) are lukewarm about it and those who need it the most (Spain, Portugal, Greece, Italy) can least afford it as they already have large budget deficits; c) there is lack of cross-border burden sharing of the fiscal costs of bailing out financial institutions.

$9.3 bn drains from quant funds

Quantitative investment managers suffered a net outflow of $9.3bn in the third quarter last year as they ran for cover from the financial sector in favour of information technology and materials stocks.

The activities of quantitative funds, which trade using statistical models designed to identify patterns in financial markets, are increasingly important because they account for such huge trading volumes.

Tabb Group, the US consultancy, predicts that by next year algorithmic trading, one aspect of quant-investing, will account for half of all US equity trading.

Libya sets sights on majority stake in UniCredit

Libya's central bank agreed to buy an extra €250m ($326m) of convertible bonds issued by UniCredit, potentially making it the biggest shareholder in the Italian bank.

The move makes the Libyan government agency a potentially crucial actor in a clash between management at UniCredit and its largest existing Italian shareholder.

UniCredit is looking to boost its balance sheet in the teeth of the global financial crisis. But it has lost the support of the Cariverona Foundation, which owns a 6 per cent stake and stunned investors last week by saying it would not subscribe to its €3bn bond issue.

Dubai forced to battle for custom

Sol Kerzner, who still runs a hotel business at the age of 73, has operated through four economic crises, from the recession of 1987 to the collapse in air travel after 9/11.

“But this is the worst,” says Mr Kerzner in an interview from Dubai’s latest hotel resort, the Atlantis.

Less than three months after his hotel hosted hundreds of celebrities for its grand opening, Mr Kerzner says occupancy at the resort is holding up at around 70 per cent.

Kuwaiti banks, firms may merge under rescue plan

Kuwaiti banks or investment firms may have to merge if they want to obtain state help under a $5 billion (Dh18bn) rescue plan, a bill devised by the central bank said.

On Thursday, the Gulf Arab state's cabinet approved a stimulus package worth 1.5 billion dinars ($5.08bn) including state guarantees of up to 50 per cent for fresh loans banks provide to local firms.

Investment firms getting loans which are backed by state guarantees have to comply with the plan's rule that "the firm enter a merger with one or several firms if this is required", according to the detailed plan.

UAE has reserves to tackle any liquidity shock

2008 will probably be remembered as the most eventful year in the modern history of financial services; global markets experienced a once in a generation meltdown. The financial crisis started with falling real estate prices in the US and is continuing without showing any signs of abating. Some of the largest icons in the Western financial services industry have disappeared into thin air, while others are struggling to survive on government backing, which is generating more debt to buy them time. The situation is ironic.

The effects are just beginning to trickle out: major economies are in recession, huge job losses are on the way, consumer spending has stalled, real estate is tumbling, investors have lost faith in the financial system, and most importantly, the image of the US financial system as safe haven has been dented – perhaps beyond repair. We have witnessed in recent years that excessive leverage and speculative activity only creates an illusion of temporary growth and uncertainty in the economy. Debt is not wealth, and borrowed money has to be paid back at a significant mark-up; if we borrow too much we end up working for our creditors rather than ourselves.

This is the fatal problem of "running fast to stand still". Speculative activity is typically a characteristic of market peaks in any economy and if not controlled it can have adverse affects on the long-term prospects of the economy.

Saudi Arabian banks may cut their foreign assets

The global financial turmoil could force Saudi Arabia's banks to slash their foreign assets and channel them back into the Gulf Kingdom, a former Saudi Finance Ministry official said yesterday.

Abdullah Al Quwaiz said such a move would deprive the banks from good income but added that the loss could be offset by growing investment opportunities in Saudi Arabia due to lower lending by foreign banks.

Quoted by Saudi newspapers, Quwaiz said Saudi banks would be more affected by the global economic crisis than other sectors in the Kingdom.

UAE banks need $27.2bn in 'liquidity boost' - analysts

The UAE needs to inject in excess of AED100bn ($27.2 bn) into its banking sector to bring the advances to deposit ratio below 100 percent and improve liquidity conditions, Standard Chartered said on Monday.

“The first and most important agenda priority for the UAE is to fix the liquidity problem so that the banks could start lending again,” analysts at Standard Chartered wrote in a research note.

The Abu Dhabi government last week announced that it would inject $4.36bn into five banks, but experts say that more cash is needed, with Dubai yet to announce any such measures.