Sunday, April 18, 2010
Wednesday, May 20, 2009
China’s Record Lending Will Lead to Bank Losses, Fitch Says
(Bloomberg) -- China’s record lending growth and weaker corporate profits will lead to credit losses for banks, according to Fitch Ratings, which is “growing increasingly wary” about the nation’s banking industry.
“At the heart of these concerns is the recent steep rise in corporate exposure amid concurrent decline in enterprise profits,” Fitch analysts led by Charlene Chu said in a report today. “This means that each CNY invested or lent is unlikely to generate the same return as before, which over time will take its toll on corporate borrowers’ ability to repay and lead to credit losses for banks.”
Corporate loans accounted for more than 90 percent of the record 5.17 trillion yuan ($758 billion) of loans Chinese banks offered in the first four months of this year, almost triple the amount granted in the same period a year earlier. The nation’s state-owned companies posted a 32 percent decline in profit in the same period.
China is battling a global recession that choked off export demand, dragging economic growth to 6.1 percent in the first quarter, the slowest pace in almost a decade. Overseas shipments declined 22.6 percent in April from a year earlier.
Premier Wen Jiabao told lenders to boost loans by at least 5 trillion yuan in 2009 to support the nation’s 4 trillion yuan stimulus plan, triggering an explosion in credit, which has added to the risk of bad loans and asset bubbles. Banks face “significant” pressure on profits this year, Liu Mingkang, the head of the China Banking Regulatory Commission, said last week.
‘Excessive Risk-Taking’
Total lending may top 8 trillion yuan in 2009, Xiao Gang, chairman of Bank of China Ltd., the nation’s third-largest, said on May 15.
An emphasis on meeting loan targets and short-term profit may be contributing to “excessive risk-taking” by banks, Fitch said. The slow recognition of credit losses by lenders in China not only leads to “under-capturing” of nonperforming loans and delayed credit costs, but also inflated capital, it added.
Bad loans at Chinese banks fell by 10.7 billion yuan in the first quarter to 549.5 billion yuan, according to the country’s banking regulator. The ratio of soured debt relative to the total declined 0.38 percentage point to 2.04 percent.
The drop came at a time when at least 7.5 percent of the country’s 42 million small and medium-size enterprises had closed or suspended operations by the end of last year and about 30 million migrant workers have lost their jobs, according to official statistics.
Read more here
“At the heart of these concerns is the recent steep rise in corporate exposure amid concurrent decline in enterprise profits,” Fitch analysts led by Charlene Chu said in a report today. “This means that each CNY invested or lent is unlikely to generate the same return as before, which over time will take its toll on corporate borrowers’ ability to repay and lead to credit losses for banks.”
Corporate loans accounted for more than 90 percent of the record 5.17 trillion yuan ($758 billion) of loans Chinese banks offered in the first four months of this year, almost triple the amount granted in the same period a year earlier. The nation’s state-owned companies posted a 32 percent decline in profit in the same period.
China is battling a global recession that choked off export demand, dragging economic growth to 6.1 percent in the first quarter, the slowest pace in almost a decade. Overseas shipments declined 22.6 percent in April from a year earlier.
Premier Wen Jiabao told lenders to boost loans by at least 5 trillion yuan in 2009 to support the nation’s 4 trillion yuan stimulus plan, triggering an explosion in credit, which has added to the risk of bad loans and asset bubbles. Banks face “significant” pressure on profits this year, Liu Mingkang, the head of the China Banking Regulatory Commission, said last week.
‘Excessive Risk-Taking’
Total lending may top 8 trillion yuan in 2009, Xiao Gang, chairman of Bank of China Ltd., the nation’s third-largest, said on May 15.
An emphasis on meeting loan targets and short-term profit may be contributing to “excessive risk-taking” by banks, Fitch said. The slow recognition of credit losses by lenders in China not only leads to “under-capturing” of nonperforming loans and delayed credit costs, but also inflated capital, it added.
Bad loans at Chinese banks fell by 10.7 billion yuan in the first quarter to 549.5 billion yuan, according to the country’s banking regulator. The ratio of soured debt relative to the total declined 0.38 percentage point to 2.04 percent.
The drop came at a time when at least 7.5 percent of the country’s 42 million small and medium-size enterprises had closed or suspended operations by the end of last year and about 30 million migrant workers have lost their jobs, according to official statistics.
Read more here
Tuesday, May 19, 2009
AT&T mulls cheaper data plans for phones
(Reuters) - AT&T Inc is considering offering cheaper data service plans with limited Web surfing for advanced cell phones including Apple Inc's iPhone.
Ralph de la Vega, the head of AT&T's mobility and consumer business, also told the Reuters Global Technology Summit in New York on Tuesday that he sees a gradual economic recovery.
The executive said it would be costly for AT&T to cut the price of its unlimited Web surfing service. The minimum plan for iPhone users is $70 a month, which includes unlimited Web surfing and a certain amount of voice calls.
Instead, AT&T could offer more limited Web surfing on cell phones for a lower fee, similar to its trial offer of 200 megabytes of data downloads for wireless netbook users for $40 a month in Atlanta and in Philadelphia.
"Right now we continue to study what is the best thing that is available, not just from an iPhone point of view, but what you can do to stimulate additional demand," said de la Vega, who is responsible for all of AT&T's consumer sales along with his role as chief executive of the mobile business.
He also announced at the summit that AT&T will expand sales of netbook computers from Dell Inc, Acer Inc and Lenovo Group Ltd to all AT&T stores this summer. It currently sells netbooks only through retail partners and in AT&T stores in Atlanta and Philadelphia.
NEW DATA FEE OPTIONS
Some analysts expect AT&T to offer an iPhone without a data plan in future but de la Vega dismissed the suggestion, saying it would not be a very good business plan for AT&T, which is very dependent on data services for future growth.
"Our business is to sell services," he said, adding that AT&T doesn't make money from the sale of devices like the iPhone, which it subsidizes heavily.
He declined to comment on negotiations with Apple for the extension of its exclusive U.S. agreement to sell the iPhone. Bigger rival Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, has said it has also had talks with Apple about wireless devices.
"We view Apple as a strategic partner for us, a very good partner to have now and into the future," de la Vega said.
When AT&T launched the latest iPhone last year, the operator's mobile profit margins fell for a few quarters due to big subsidies it offered for the Apple phone.
De la Vega said AT&T expects wireless profit margins in the range of 40 percent to 45 percent in the next few years.
"I think that we will continue to see gradual improvement, but small improvement, over a long period of time," he said, adding that the recovery would not be a sharp return to growth, often described as a V shape recovery.
"I think it will be between the V and the L, if you ask me. I think it will be more of a gradual, slanted U," he said.
Read more here
Ralph de la Vega, the head of AT&T's mobility and consumer business, also told the Reuters Global Technology Summit in New York on Tuesday that he sees a gradual economic recovery.
The executive said it would be costly for AT&T to cut the price of its unlimited Web surfing service. The minimum plan for iPhone users is $70 a month, which includes unlimited Web surfing and a certain amount of voice calls.
Instead, AT&T could offer more limited Web surfing on cell phones for a lower fee, similar to its trial offer of 200 megabytes of data downloads for wireless netbook users for $40 a month in Atlanta and in Philadelphia.
"Right now we continue to study what is the best thing that is available, not just from an iPhone point of view, but what you can do to stimulate additional demand," said de la Vega, who is responsible for all of AT&T's consumer sales along with his role as chief executive of the mobile business.
He also announced at the summit that AT&T will expand sales of netbook computers from Dell Inc, Acer Inc and Lenovo Group Ltd to all AT&T stores this summer. It currently sells netbooks only through retail partners and in AT&T stores in Atlanta and Philadelphia.
NEW DATA FEE OPTIONS
Some analysts expect AT&T to offer an iPhone without a data plan in future but de la Vega dismissed the suggestion, saying it would not be a very good business plan for AT&T, which is very dependent on data services for future growth.
"Our business is to sell services," he said, adding that AT&T doesn't make money from the sale of devices like the iPhone, which it subsidizes heavily.
He declined to comment on negotiations with Apple for the extension of its exclusive U.S. agreement to sell the iPhone. Bigger rival Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, has said it has also had talks with Apple about wireless devices.
"We view Apple as a strategic partner for us, a very good partner to have now and into the future," de la Vega said.
When AT&T launched the latest iPhone last year, the operator's mobile profit margins fell for a few quarters due to big subsidies it offered for the Apple phone.
De la Vega said AT&T expects wireless profit margins in the range of 40 percent to 45 percent in the next few years.
"I think that we will continue to see gradual improvement, but small improvement, over a long period of time," he said, adding that the recovery would not be a sharp return to growth, often described as a V shape recovery.
"I think it will be between the V and the L, if you ask me. I think it will be more of a gradual, slanted U," he said.
Read more here
Sunday, May 17, 2009
Temasek Sells Bank of America Stake, Looks to China
(Bloomberg) -- Temasek Holdings Pte sold its 3.8 percent stake in Bank of America Corp. at a loss that may total $4.6 billion, as the Singapore state-owned fund shifts bets from Wall Street to emerging markets.
The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. Temasek declined to comment on the price.
Temasek, whose investments shrank 31 percent in the eight months through Nov. 30, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said yesterday the fund would reduce exposure to developed economies. Temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America on Jan. 1 after the stock slid 78 percent last year.
“The belief now is that the world is not so American- centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.”
The value of Temasek’s assets fell to S$127 billion ($87 billion) in the eight months to Nov. 30 as the credit crisis drove down the value of stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc. The drop in the portfolio tracked a 38 percent retreat in the MSCI World Index.
Bank of America Stake
Ho, wife of Singapore Prime Minister Lee Hsien Loong, drove an expansion outside Singapore and increased financial assets to 40 percent of the company’s portfolio. Charles ‘Chip’ Goodyear, the 51-year-old former head of BHP Billiton Ltd. who oversaw a fourfold increase in the company’s stock during his almost five- year tenure as CEO, will replace Ho in October.
A Form 13F filing to the U.S. Securities and Exchange Commission yesterday from Temasek indicates that the fund no longer held shares in Bank of America or Merrill Lynch as of March 31. An earlier filing showed that the Singapore firm owned 219.7 million Merrill Lynch shares at the end of 2008.
At the average price of $6.73 for the first quarter, the stake would have been valued at $1.27 billion. The sale would have been worth $2.14 billion at yesterday’s closing price.
Since the end of March, when Temasek completed the sale, Bank of America has risen 66 percent. The stock dropped 52 percent in the first quarter.
Temasek confirmed it sold its Bank of America shares in an e-mailed response to Bloomberg News queries today. The company declined to say how much it sold the stake for or when the sale was conducted. Mark Tsang, a Hong Kong spokesman at Bank of America, declined to comment.
Raising Capital
“They probably want to turn the page on this one and move on,” said David Cohen, an economist with Action Economics in Singapore. “I suspect they’re telling themselves they should have focused on Asian investments, particularly China. You can’t fault them now. The financial crisis blind-sided a lot of investors.”
Merrill Lynch investors received 0.8595 Bank of America stock for each share held in the U.S. brokerage in the acquisition. The deal meant Temasek received about 188.8 million Bank of America shares, the equivalent of a 3.8 percent stake in the company, according to calculations by Bloomberg.
Bank of America Chief Executive Officer Kenneth Lewis has said he was pressured in December by Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill Lynch acquisition amid mounting losses at the brokerage firm.
The Charlotte, North Carolina-based bank has to raise $33.9 billion to boost capital after U.S. regulator stress tests. Its shares have tumbled 69 percent in the past year, outpacing the 37 percent decline in the Standard & Poor’s 500 Index.
Read more here
The sale may have raised about $1.27 billion, based on the average price of Bank of America stock in the first quarter. The divestment was completed by March 31, according to a U.S. filing. Temasek declined to comment on the price.
Temasek, whose investments shrank 31 percent in the eight months through Nov. 30, raised its stake in China Construction Bank Corp. this week, and Chief Executive Officer Ho Ching said yesterday the fund would reduce exposure to developed economies. Temasek had spent about $5.9 billion since 2007 buying shares in Merrill Lynch & Co., acquired by Bank of America on Jan. 1 after the stock slid 78 percent last year.
“The belief now is that the world is not so American- centric anymore,” said Melvyn Teo, associate professor of finance at the Singapore Management University. “It’s going to be driven more and more by the Chinese economy and consumer so might as well load up more on Chinese banks than American banks.”
The value of Temasek’s assets fell to S$127 billion ($87 billion) in the eight months to Nov. 30 as the credit crisis drove down the value of stakes in Merrill Lynch, Barclays Plc and Standard Chartered Plc. The drop in the portfolio tracked a 38 percent retreat in the MSCI World Index.
Bank of America Stake
Ho, wife of Singapore Prime Minister Lee Hsien Loong, drove an expansion outside Singapore and increased financial assets to 40 percent of the company’s portfolio. Charles ‘Chip’ Goodyear, the 51-year-old former head of BHP Billiton Ltd. who oversaw a fourfold increase in the company’s stock during his almost five- year tenure as CEO, will replace Ho in October.
A Form 13F filing to the U.S. Securities and Exchange Commission yesterday from Temasek indicates that the fund no longer held shares in Bank of America or Merrill Lynch as of March 31. An earlier filing showed that the Singapore firm owned 219.7 million Merrill Lynch shares at the end of 2008.
At the average price of $6.73 for the first quarter, the stake would have been valued at $1.27 billion. The sale would have been worth $2.14 billion at yesterday’s closing price.
Since the end of March, when Temasek completed the sale, Bank of America has risen 66 percent. The stock dropped 52 percent in the first quarter.
Temasek confirmed it sold its Bank of America shares in an e-mailed response to Bloomberg News queries today. The company declined to say how much it sold the stake for or when the sale was conducted. Mark Tsang, a Hong Kong spokesman at Bank of America, declined to comment.
Raising Capital
“They probably want to turn the page on this one and move on,” said David Cohen, an economist with Action Economics in Singapore. “I suspect they’re telling themselves they should have focused on Asian investments, particularly China. You can’t fault them now. The financial crisis blind-sided a lot of investors.”
Merrill Lynch investors received 0.8595 Bank of America stock for each share held in the U.S. brokerage in the acquisition. The deal meant Temasek received about 188.8 million Bank of America shares, the equivalent of a 3.8 percent stake in the company, according to calculations by Bloomberg.
Bank of America Chief Executive Officer Kenneth Lewis has said he was pressured in December by Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson to complete the Merrill Lynch acquisition amid mounting losses at the brokerage firm.
The Charlotte, North Carolina-based bank has to raise $33.9 billion to boost capital after U.S. regulator stress tests. Its shares have tumbled 69 percent in the past year, outpacing the 37 percent decline in the Standard & Poor’s 500 Index.
Read more here
Thursday, May 14, 2009
Chrysler Dealers Hunt for Answers After Shutdown News
(Bloomberg) -- A half-century of Chrysler car sales ended when Eldon Howe received a delivery from United Parcel Service Inc.
That’s how Howe learned that his Beacon Sales Inc. in Charlotte, Michigan, was among the dealers targeted to be shuttered as bankrupt Chrysler LLC prunes its retail outlets in a restructuring led by Italy’s Fiat SpA.
“We got the letter today from UPS,” said Howe, 78, who founded Beacon 55 years ago in the central Michigan city about 110 miles (177 kilometers) west of Detroit. “I’ve done this all my life,” he added. “I haven’t done anything else.”
From Virginia to California, Chrysler’s decision to cancel 789 dealership agreements forced franchisees to assess what they’ll do next, prepare to dismiss employees and ponder how to wind down decades-long relationships with their customers.
The reductions represent about 25 percent of the 3,200 Chrysler, Dodge and Jeep-brand dealers. Those who survive stand to gain business as their ranks are thinned. Those on the cut list will be gone by about June 9, Chrysler said.
“I’m worried about the people in this town, they don’t want to go somewhere else to buy their cars,” Howe said. “And what about the people who have already bought cars from us? We won’t be able to take care of the service for them.”
In Seaside, California, fourth-generation dealer Donald Butts will lose the Jeep brand from his Pontiac-Cadillac-Jeep store on June 9.
‘Walking Away’
“I cannot see how this will help them recover, walking away from entire markets,” Butts said in a telephone interview. Butts, who declined to give his age, said his family began selling General Motors Corp.’s Buicks in 1907 and took on Jeep about 25 years ago.
Shrinking the number of dealers is intended to ensure profitability for the remainder, President Jim Press said on a conference call. Stronger dealers help Auburn Hills, Michigan- based Chrysler by investing their properties, selling more vehicles and satisfying buyers with well-run service departments, Press said.
Chrysler culled mostly among retailers that had annual sales of 100 or fewer vehicles; sold just one Chrysler brand; or carried Chrysler vehicles along with those of other automakers, he said.
Buying Inventory
Surviving dealers will be urged to purchase autos and supplies of replacement parts from those being closed, Press said. Dealers on the list collectively accounted for 14 percent of the company’s sales, Press said.
Job losses, which Chrysler said it didn’t estimate, will be part of the fallout.
In Michigan, Howe said he planned to tell his 14 employees today about the company’s announcement. Butts, the California dealer, said at least three service technicians would have to find work elsewhere. He owns another dealership selling Honda Motor Co.’s Acura brand and wouldn’t say how many of his 39 employees would be affected.
John Gunning, 69, was among the dealers on the shutdown list who said he saw the move coming because his Manassas Dodge in Virginia sells only one of Chrysler’s three brands.
“There are still a lot of things up in the air,” said Gunning. “Obviously I am disappointed, but I’m not amazed.”
Gunning used to be on Chrysler’s national dealer advisory board. Last month, his dealership was the top-selling Dodge outlet in Northern Virginia. He also owns a dealership for Fuji Heavy Industries Ltd.’s Subaru, which he will keep open, he said.
“I’m not convinced Chrysler is going to make it anyway,” he said. “I just want to try to save my Subaru franchise.”
Read more here
That’s how Howe learned that his Beacon Sales Inc. in Charlotte, Michigan, was among the dealers targeted to be shuttered as bankrupt Chrysler LLC prunes its retail outlets in a restructuring led by Italy’s Fiat SpA.
“We got the letter today from UPS,” said Howe, 78, who founded Beacon 55 years ago in the central Michigan city about 110 miles (177 kilometers) west of Detroit. “I’ve done this all my life,” he added. “I haven’t done anything else.”
From Virginia to California, Chrysler’s decision to cancel 789 dealership agreements forced franchisees to assess what they’ll do next, prepare to dismiss employees and ponder how to wind down decades-long relationships with their customers.
The reductions represent about 25 percent of the 3,200 Chrysler, Dodge and Jeep-brand dealers. Those who survive stand to gain business as their ranks are thinned. Those on the cut list will be gone by about June 9, Chrysler said.
“I’m worried about the people in this town, they don’t want to go somewhere else to buy their cars,” Howe said. “And what about the people who have already bought cars from us? We won’t be able to take care of the service for them.”
In Seaside, California, fourth-generation dealer Donald Butts will lose the Jeep brand from his Pontiac-Cadillac-Jeep store on June 9.
‘Walking Away’
“I cannot see how this will help them recover, walking away from entire markets,” Butts said in a telephone interview. Butts, who declined to give his age, said his family began selling General Motors Corp.’s Buicks in 1907 and took on Jeep about 25 years ago.
Shrinking the number of dealers is intended to ensure profitability for the remainder, President Jim Press said on a conference call. Stronger dealers help Auburn Hills, Michigan- based Chrysler by investing their properties, selling more vehicles and satisfying buyers with well-run service departments, Press said.
Chrysler culled mostly among retailers that had annual sales of 100 or fewer vehicles; sold just one Chrysler brand; or carried Chrysler vehicles along with those of other automakers, he said.
Buying Inventory
Surviving dealers will be urged to purchase autos and supplies of replacement parts from those being closed, Press said. Dealers on the list collectively accounted for 14 percent of the company’s sales, Press said.
Job losses, which Chrysler said it didn’t estimate, will be part of the fallout.
In Michigan, Howe said he planned to tell his 14 employees today about the company’s announcement. Butts, the California dealer, said at least three service technicians would have to find work elsewhere. He owns another dealership selling Honda Motor Co.’s Acura brand and wouldn’t say how many of his 39 employees would be affected.
John Gunning, 69, was among the dealers on the shutdown list who said he saw the move coming because his Manassas Dodge in Virginia sells only one of Chrysler’s three brands.
“There are still a lot of things up in the air,” said Gunning. “Obviously I am disappointed, but I’m not amazed.”
Gunning used to be on Chrysler’s national dealer advisory board. Last month, his dealership was the top-selling Dodge outlet in Northern Virginia. He also owns a dealership for Fuji Heavy Industries Ltd.’s Subaru, which he will keep open, he said.
“I’m not convinced Chrysler is going to make it anyway,” he said. “I just want to try to save my Subaru franchise.”
Read more here
Wednesday, May 13, 2009
Fed Views Jump in Yields as Sign of Better Outlook
(Bloomberg) -- The Federal Reserve considers the recent jump in Treasury yields more as a reflection of a better economic outlook than a signal it needs to step up purchases of U.S. government debt, according to central bank officials who declined to be identified.
It’s too early to judge the effectiveness of the Fed’s $300 billion plan to buy Treasuries even after 10-year yields climbed 0.65 percentage point since the initiative began in March, the officials said. They added that the goal is to stimulate private lending, rather than to target government-bond rates.
The Fed officials’ stance contradicts the view of firms including BlackRock Inc. that have predicted the rise in yields will prompt the central bank to announce an increase in the size of the program as soon as next month.
“It would be very different if the economy still appeared to be in freefall and yields were backing up, but it’s not,” said John Ryding, founder of RDQ Economics LLC in New York and a former Fed researcher. Increasing Treasury purchases would “fight against what is in my opinion a recovery signal, or a signal that the recession is drawing to a close.”
Deflation Risk
Chairman Ben S. Bernanke said May 11 that the danger of deflation, or prolonged declines in consumer prices, is “receding” and earlier this month cited evidence the economy’s contraction is easing. The Treasuries market, along with stocks and some commodities, have reflected those shifts.
Ten-year note yields closed at 3.18 percent late yesterday, up from as low as 2.46 percent after the March 18 announcement of the plan to buy long-term government debt. The gap in yields between the notes and 10-year Treasury Inflation Protected Securities, a gauge of the inflation rate expected by investors, hit a seven-month high of 1.64 percentage points last week.
The Standard & Poor’s 500 Stock Index closed at 908.35 yesterday in New York, up 21 percent from two months before. Crude-oil futures reached $60.08 yesterday, the highest level since November.
Fed policy makers committed to buy as much as $300 billion of Treasuries over a six-month period in their March 18 Open Market Committee statement. The aim was “to help improve conditions in private credit markets,” the FOMC said.
‘Pretty Clear’
“The statement is pretty clear,” Richmond Fed President Jeffrey Lacker, who was the first FOMC member to vote for buying Treasuries this year, told reporters May 8. “It doesn’t say anything about a U.S. Treasury yield” as a target, he said after a Washington speech. “I would urge people to take it at face value.”
The Fed has bought $101.7 billion under the initiative so far, part of its campaign to cut borrowing costs by purchasing assets with the benchmark interest rate near zero. Policy makers in March also decided to boost purchases of mortgage securities this year to $1.25 trillion from $500 billion and buy $200 billion, double the previous amount, of federal agency debt.
Stuart Spodek, BlackRock’s co-head of U.S. bonds in New York, said in an interview last week the Fed “needs to consider increasing its purchases of Treasuries” to “stabilize” long- term yields. He told Bloomberg Television May 11 officials may announce an increase as soon as the June 23-24 meeting. Spokeswoman Melissa Garville declined to comment further.
American Century
Another fund manager, James Platz of Mountain View, California-based American Century Investments, expects the Fed to announce further purchases “at some point.”
Should the rise in yields cause mortgage rates to surge, that may prove to be a trigger for a stronger Fed response, said Richard Clarida, a strategic adviser at Pacific Investment Management Co., the world’s biggest bond-fund manager. “That’s going to really, really, really hurt the economy,” Clarida said in a Bloomberg Television interview this week.
Last week, fixed mortgage rates rose for the first time in four weeks, with the average cost of a 30-year home loan climbing to 4.84 percent from 4.78 percent, which was the lowest level in Freddie Mac data going back to 1970.
The increase in Treasury yields, coupled with a drop in consumer prices, is increasing real interest rates for companies. Real investment-grade corporate borrowing costs climbed to 8.34 percent in March, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co.
Read more here
It’s too early to judge the effectiveness of the Fed’s $300 billion plan to buy Treasuries even after 10-year yields climbed 0.65 percentage point since the initiative began in March, the officials said. They added that the goal is to stimulate private lending, rather than to target government-bond rates.
The Fed officials’ stance contradicts the view of firms including BlackRock Inc. that have predicted the rise in yields will prompt the central bank to announce an increase in the size of the program as soon as next month.
“It would be very different if the economy still appeared to be in freefall and yields were backing up, but it’s not,” said John Ryding, founder of RDQ Economics LLC in New York and a former Fed researcher. Increasing Treasury purchases would “fight against what is in my opinion a recovery signal, or a signal that the recession is drawing to a close.”
Deflation Risk
Chairman Ben S. Bernanke said May 11 that the danger of deflation, or prolonged declines in consumer prices, is “receding” and earlier this month cited evidence the economy’s contraction is easing. The Treasuries market, along with stocks and some commodities, have reflected those shifts.
Ten-year note yields closed at 3.18 percent late yesterday, up from as low as 2.46 percent after the March 18 announcement of the plan to buy long-term government debt. The gap in yields between the notes and 10-year Treasury Inflation Protected Securities, a gauge of the inflation rate expected by investors, hit a seven-month high of 1.64 percentage points last week.
The Standard & Poor’s 500 Stock Index closed at 908.35 yesterday in New York, up 21 percent from two months before. Crude-oil futures reached $60.08 yesterday, the highest level since November.
Fed policy makers committed to buy as much as $300 billion of Treasuries over a six-month period in their March 18 Open Market Committee statement. The aim was “to help improve conditions in private credit markets,” the FOMC said.
‘Pretty Clear’
“The statement is pretty clear,” Richmond Fed President Jeffrey Lacker, who was the first FOMC member to vote for buying Treasuries this year, told reporters May 8. “It doesn’t say anything about a U.S. Treasury yield” as a target, he said after a Washington speech. “I would urge people to take it at face value.”
The Fed has bought $101.7 billion under the initiative so far, part of its campaign to cut borrowing costs by purchasing assets with the benchmark interest rate near zero. Policy makers in March also decided to boost purchases of mortgage securities this year to $1.25 trillion from $500 billion and buy $200 billion, double the previous amount, of federal agency debt.
Stuart Spodek, BlackRock’s co-head of U.S. bonds in New York, said in an interview last week the Fed “needs to consider increasing its purchases of Treasuries” to “stabilize” long- term yields. He told Bloomberg Television May 11 officials may announce an increase as soon as the June 23-24 meeting. Spokeswoman Melissa Garville declined to comment further.
American Century
Another fund manager, James Platz of Mountain View, California-based American Century Investments, expects the Fed to announce further purchases “at some point.”
Should the rise in yields cause mortgage rates to surge, that may prove to be a trigger for a stronger Fed response, said Richard Clarida, a strategic adviser at Pacific Investment Management Co., the world’s biggest bond-fund manager. “That’s going to really, really, really hurt the economy,” Clarida said in a Bloomberg Television interview this week.
Last week, fixed mortgage rates rose for the first time in four weeks, with the average cost of a 30-year home loan climbing to 4.84 percent from 4.78 percent, which was the lowest level in Freddie Mac data going back to 1970.
The increase in Treasury yields, coupled with a drop in consumer prices, is increasing real interest rates for companies. Real investment-grade corporate borrowing costs climbed to 8.34 percent in March, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co.
Read more here
Tuesday, May 12, 2009
Toyota to Cut 2009 Output to Lowest in Seven Years
(Bloomberg) -- Toyota Motor Corp., the world’s biggest automaker, will slash global vehicle production by 28 percent in 2009 to the lowest in seven years as worldwide vehicle demand plummets.
Global output will fall to 6.68 million vehicles from 9.24 million in 2008, Hideaki Homma, a company spokesman, said today by phone. Sales will drop 18 percent to 7.34 million vehicles, he said. The figures include the carmaker’s Daihatsu Motor Co. and Hino Motors Ltd. subsidiaries.
Toyota, which has enough capacity to build 10 million vehicles a year, has slashed production as rising unemployment and falling wages sap demand in the U.S. and Japan, its two biggest markets. Auto sales in the U.S. have dropped to the lowest volumes in about 30 years.
“The U.S. market slump is having a huge impact on Toyota,” said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co., which manages $5.5 billion in Japanese equities. “Toyota’s forecast looks pessimistic.”
The carmaker fell 3.2 percent to 3,620 yen, at the 11 a.m. trading break on the Tokyo stock exchange. It has risen 27 percent this year.
Read more here
Global output will fall to 6.68 million vehicles from 9.24 million in 2008, Hideaki Homma, a company spokesman, said today by phone. Sales will drop 18 percent to 7.34 million vehicles, he said. The figures include the carmaker’s Daihatsu Motor Co. and Hino Motors Ltd. subsidiaries.
Toyota, which has enough capacity to build 10 million vehicles a year, has slashed production as rising unemployment and falling wages sap demand in the U.S. and Japan, its two biggest markets. Auto sales in the U.S. have dropped to the lowest volumes in about 30 years.
“The U.S. market slump is having a huge impact on Toyota,” said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co., which manages $5.5 billion in Japanese equities. “Toyota’s forecast looks pessimistic.”
The carmaker fell 3.2 percent to 3,620 yen, at the 11 a.m. trading break on the Tokyo stock exchange. It has risen 27 percent this year.
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