Bank of America takes aim at gun-making clients; partners cut cord with NRA over gun control row

Bank of America Corp on Saturday became the latest financial heavyweight to take aim at gunmakers, saying it would ask clients who make assault rifles how they can help end mass shootings like last week’s massacre at a Florida high school.

Bank of America, the second-biggest US bank by assets, said its request to makers of the military-style weapons was in line with those taken by other financial industry companies to help prevent deadly gun rampages.

“An immediate step we’re taking is to engage the limited number of clients we have that manufacture assault weapons for non-military use to understand what they can contribute to this shared responsibility,” the Charlotte, North Carolina-based bank said in a statement.

It did not name the clients who make assault rifles. The weapons have been widely used in US mass shootings, including the one on Feb. 14 that killed 17 people at Marjory Stoneman Douglas High School in Parkland, Florida.

The Bank of America move came after BlackRock Inc, the world’s biggest asset manager, said on Thursday it would speak with weapons manufacturers and distributors “to understand their response” to the high school massacre.


The First National Bank of Omaha has said it will not renew a contract with the National Rifle Association to issue a NRA-branded Visa card. The lender was among several corporate partners that have cut marketing ties with the powerful gun lobby in recent days.

PARTNERS CUT CORD WITH N.R.A.

Earlier on Friday, the fallout over last week’s shooting in Florida started to take its toll on the NRAn’s roster of corporate partners as a half dozen companies severed marketing ties with the gun advocacy organization.

The exodus of corporate names, ranging from a major insurer to car rental brands and a household moving company, occurred after the NRA launched a counter-offensive against a student-led campaign for tighter US gun ownership laws.

At the same time, gun control activists are stepping up pressure on Amazon.com Inc and other online streaming platforms to drop the online video channel NRATV, featuring gun-friendly programming produced by the NRA.

Moms Demand Action for Gun Sense in America, founded after 20 first-graders were shot and killed at a Connecticut school in 2012, sent letters to Apple Inc, AT&T Inc, Amazon, Alphabet Inc’s Google and Roku Inc on Friday, asking them to drop NRATV from their platforms.

“We have been just disgusted by NRATV since its beginning,” Shannon Watts, founder of the Moms Demand Action group, told Reuters. “It tries to pit Americans against one another, all in an attempt to further their agenda of selling guns.”

AT&T said it does not carry NRATV. None of the other companies immediately responded to requests for comment.

The issue of gun control, and the NRA’s role in opposing it, became the focus of renewed national debate on Feb. 14, when a former student killed 17 people at Marjory Stoneman Douglas High School in Parkland, Florida, with an AR-15 assault rifle he had purchased legally.

The U.S. Constitution’s Second Amendment protects the right of Americans to bear arms. The NRA, which has long used campaign donations and effective lobbying to command political influence, argues that stricter gun control would erode individual rights. The group has not commented on companies cutting ties.

Angry student survivors of the shooting have confronted politicians from state lawmakers to U.S. President Donald Trump himself, demanding stricter gun control laws.

In response, the NRA and Trump have suggested arming teachers who have received training to deter attackers, a proposal that has been met with skepticism by teachers unions and gun violence experts.

TRENDING ON TWITTER

Before the corporate defections, nearly two dozen companies nationwide had offered incentives to NRA members, according to ThinkProgress.com, a news site owned by the Center for American Progress Action Fund.

The attrition started late Thursday when three rental car brands owned by Enterprise Holdings Inc said they were ending discount programs, and First National Bank of Omaha said it would not renew the NRA’s contract to issue a co-branded Visa card.

By Friday, the list of defectors expanded to include Symantec Corp, which ended an discount program for its LifeLock identity theft product. Home security company SimpliSafe and Hertz Corp also terminated discount programs.

Chubb Ltd said it would stop underwriting a NRA-branded insurance policy for gun owners that covers legal costs in self-defense shootings. Another insurer, MetLife Inc, also said it had ended an auto and home incentive program for NRA members. And North American Van Lines said it was scrapping its an affiliate relationship with the NRA.

David Hogg, one of the student survivors of last week’s attack who launched the #NeverAgain anti-gun violence movement, said the students would target any company with ties to the NRA, in addition to lawmakers who accept donations.

About a dozen other companies with marketing ties to the NRA, including FedEx Corp and Hertz, which offer discount programs, did not respond to requests for comment.

SOCIAL MEDIA CAMPAIGNS

Activists have also called on public pension funds to divest from gun maker stocks, which were broadly lower on Friday.

Meanwhile, an online campaign using the Twitter hashtag #StopNRAmazon picked up steam, putting pressure on Amazon CEO Jeff Bezos to drop the channel. Many of those tweeting are in the entertainment industry.

“Ironic how the @NRA likes to point a finger at what kids watch on TV … while they spew vile rhetoric on NRAtv, streamed on @Amazon and aimed solely at boosting gun sales,” wrote screenwriter Randi Mayem Singer.

Moms Demand Action, which sent the letters to the streaming platform, also posted an online petition using the hashtag #DumpNRATV.

“To be affiliated with them, whether you are a company or a lawmaker, it is not going to pay off in the long run,” said Watts, the group’s founder, signaling the start of a broader campaign. “Doing business with the NRA is clearly bad business.”

The target of its ire is NRATV, which describes itself as “America’s Most Patriotic Team on a Mission to Take Back The Truth.” The channel features programming that leans heavily on speeches by NRA chief executive Wayne LaPierre and spokeswoman Dana Loesch.

Yet another campaign, using the hashtag #BoycottNRA, was the top trending topic on Twitter on Friday morning.

The push is the latest effort by social activists to use social media to apply economic pressure to force change.
Last April, Fox News parted ways with television host Bill O‘Reilly when sponsors started to drop his show in the wake of sexual harassment allegations against him.

Similarly the National Football League announced a tougher policy on handling domestic violence accusations against players when its marketing partners applied pressure for changes.

source: interaksyon.com

Mayweather lives up to 'Money' moniker

LOS ANGELES - As he finished speaking at the post-fight conference of his showdown with Manny Pacquiao, Floyd Mayweather Jr. approached some reporters in their seats dangling a check he just claimed after a night's work.

It was a check issued by Bank of America indicating a staggering $100 million (about Php4.46 billion).

"No pictures, though," Mayweather, sliding the check out of an envelope. "Don't want any pictures of it."

On Saturday (Sunday in Manila) at the MGM Grand Garden Arena in Las Vegas, Mayweather reminded everyone why he proudly calls himself "Money".

He just outpointed Pacquiao in boxing's richest fight ever, fashioning out a unanimous decision victory in front of over 16,000 fans. And he was paid handsomely for it.

Since the fight went the full 12 rounds, Mayweather has made around $55,000 per second. He did it by side-stepping his way out each time Pacquiao cornered him on the ropes and countering the gritty Filipino with jabs and short rights.

The $100 million check was just the first of other possible paychecks Mayweather will receive, when income from the live gate receipts, pay-per-view buys and other revenue sources comes in. He walked away from the ring a big winner - unifying the WBC, WBA and WBO welterweight titles - and will even be a bigger winner when he walks into the bank.

His boxing brilliance has made him the world's highest paid athlete for several years now.

"The ultimate goal is to make nine figures in a night. And that's what I did," he said at the dais.

Mayweather has been a staple in Forbes' list of world's highest-paid athletes, ranking first in 2014 with total earnings of $105 million. Pacquiao, for his part, is at 11th with total winnings of $41 million.

Pacquiao, for his part, was handsomely rewarded as well, taking home around $80 million, or roughly P3.5 billion. He is also entitled to a share of other revenues generated by the fight.

But unlike the unbeaten Mayweather, Pacquiao isn't someone who loves to brag about it. - With report from AP

source: philstar.com

Oil, stocks go their separate ways

NEW YORK - Investors have wrung their hands over the last several weeks over the effect of lower oil prices on the broader S&P 500, but the relationship between the two is actually starting to break down.

Crude prices had dropped more than 10 percent in the trading week ended Dec. 12. That was largely responsible for a 3.5 percent drop in the S&P 500, as investors fled stocks over concerns about energy-sector bonds, corporate earnings, and expectations for world economic demand.

That seemed to change Thursday. The S&P 500 surged while oil fell, a potential change in sentiment among investors looking to focus on sectors that may benefit from an accelerating U.S. economy.

"The proof is that oil turned down and the market said, 'Oh, that was yesterday's news, today we're moving ahead,'" said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Bank of America Merrill Lynch credit strategist Hans Mikkelsen credited the decoupling partly to Fed Chair Janet Yellen's Wednesday news conference.

"She explained how declining oil prices are expected to be a net positive for the U.S. economy. Furthermore, she went out of her way to dismiss any downward pressure on inflation as transitory."

Investors may have already priced in the effect of cheaper oil on energy-sector earnings and are now starting to weigh the positives for other sectors.

In its 2015 global outlook, fund manager Pimco said the fall in energy costs, because it is largely supply-driven, should ultimately help growth in major economies, including the United States, Japan, and the euro zone.

Fourth-quarter energy-sector earnings are expected to decline 19.2 percent from a year ago; on October 1, growth of 6.6 percent was expected.

"You will see some pain in the short term because of fourth quarter earnings," said James Liu, global market strategist at JPMorgan Funds in Chicago. "So the broad S&P 500 will take a hit based on that, but over the next several quarters it is clearly going to be a good thing."

As recently as Tuesday, the 10-day correlation between the S&P 500 and Brent crude stood at 0.97, meaning each moved in almost perfect sync with the other. The correlation has been breaking down and last stood at 0.42, with Brent stumbling 3.1 percent, while the S&P 500 surged 2.4 percent, on Thursday.

According to data from S&P, energy has fallen to a market share representation of 8.31 percent, from 9.7 percent at the end of the third quarter, as names such as Denbury Resources, Nabors Industries and Halliburton have each tumbled more than 35 percent.

With investors hoping oil prices have at least stabilized as Brent hovers around the $60 mark, selling pressure could resume on equities if the downward march for oil begins again, weighing on the broader S&P index and tightening the correlation.

source: interaksyon.com

Bank of America's Newest Credit Card Pays You to Repay Them

A new credit card from Bank of America (BAC) will offer cash rewards up to $120 a year to cardholders who pay off more than the minimum balance every month.

The BankAmericard Better Balance Rewards card gives cardholders $25 per quarter as long as they always pay their bill on time and pay off more than their monthly minimum due amount. Cardholders who also have a Bank of America bank account get another $5 each quarter, bringing the total to $120 a year just for staying on top of their bills and making an effort to bringing down their debt. The rewards can be cashed out or put toward your credit card balance.




That's a very different rewards program than you see on standard rewards cards, which focus on getting cardholders to spend as much as possible to get cash back. And while those rewards cards tends to be geared toward people with excellent credit, the Los Angeles Times notes that this card is likely to be aimed at lower-income consumers with fair credit.

So is the card a good deal?

The rewards are certainly attractive. To get $120 in annual cash rewards on a standard rewards card with 1 percent cash-back, you'd need to spend $12,000 in a calendar year (though bonus categories with rewards of up to 5 percent can allow you to get there more quickly).

By contrast, you don't have to rack up a ton of spending on this card to get a comparable cash bonus. In fact, even if you have only a $15 minimum payment, you could put a measly $20 on the card every month, and as long as you're paying a little more than the minimum due amount, you'll reap the rewards. If you also have a bank account with Bank of America, that means you could wind up getting $120 in bonuses on $240 of spending, a tidy 50% cash-back rate.

But that same feature also means that the card doesn't necessarily encourage people to make a serious dent in their balances. Because the cardholder need only pay "any amount more than the monthly minimum due" to get the cash bonus, simply paying a dollar over the minimum would be sufficient to get the rewards. A better incentive to encourage responsible borrowing might be to require cardholders to pay a minimum percentage of their total balance.

Another issue is that the annual $20 perk for holding an account with Bank of America might backfire on some consumers. The card, after all, is aimed at lower-income customers, who may not be able to maintain the necessary minimum account balance to avoid Bank of America's monthly account fees. If you're considering this card and you're currently with a bank or credit union that doesn't charge a monthly maintenance fee, you should examine Bank of America's fee structure to make sure that switching banks won't cost you considerably more in the long run.

As with any other credit card, then, you'll need to examine your own personal finance habits to determine whether it's a good fit for you. Played the right way, the Better Balance Rewards card can help you make some easy money without significantly altering your spending. Just don't be fooled into thinking it's a magic bullet for eliminating your credit card debt.


source: dailyfinance.com

US banks told to make plans for preventing collapse

US regulators directed five of the country's biggest banks, including Bank of America Corp. and Goldman Sachs Group Inc., to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

Officials like Lehman Brothers former chief executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.

According to documents obtained by Reuters, the Federal Reserve and the US Office of the Comptroller of the Currency first directed five banks –which also include Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co. – to come up with these "recovery plans" in May 2010.

They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to "make no assumption of extraordinary support from the public sector," according to the documents.

Spokespeople for the five banks declined to comment. The Federal Reserve also declined to comment.

Recovery plans differ from living wills, also known as "resolution plans," which are required under the 2010 Dodd-Frank financial reform law. Living wills aim to end bailouts of too-big-to-fail banks by showing how they would liquidate themselves without imperiling the financial system.

"Recovery plans are about protecting the crown jewels," said Paul Cantwell, a managing director at consulting firm Alvarez & Marsal. "It's about, 'How do I sell off non-core assets?' The priority is to the shareholders. A resolution plan is about protecting the system, taxpayers and creditors."

The recovery plans are being used as part of regulators' ongoing supervisory process. In Britain, recovery and resolution plans have both been part of the living will requirements for large banks.

Mike Brosnan, senior deputy comptroller for large banks at the OCC, said the regulator continuously evaluates contingency planning at the banks and savings associations it supervises.

"Recovery plans required of the largest banks are helpful in ensuring banks and regulators are prepared to manage periods of severe financial distress or instability affecting the banking sector," he said.

This summer, nine global banks submitted living wills to the Fed and Federal Deposit Insurance Corp, and regulators released the public portion of the documents.

The recovery plans requested in 2010, meanwhile, have received little publicity. The names of the banks required to submit them have not been previously disclosed, and Reuters obtained them only through a Freedom of Information Act request.

The Fed supplied Reuters with the letters requesting plans from banks, but not the banks' actual plans because they were deemed confidential supervisory information. The regulator said it was withholding 5,100 pages of information.

Moving further from disaster

Five years after the financial crisis, concerns remain about whether blow-ups at big banks could lead to another round of taxpayer bailouts. Trading losses have cost JPMorgan nearly $6 billion so far, and scandals such as the alleged rigging of an international interest rate benchmark have only highlighted the risks lurking inside big banks.

These disasters have damaged banks' reputations, but not their balance sheets. Most are still profitable, and in recent years the five banks have improved their capital bases and liquidity. They also have been subjected to annual Federal Reserve stress tests that measure whether the banks have sufficient capital to weather severe economic scenarios.

Bank of America and Citigroup, in a sense, have already been executing the kind of moves called for in the recovery plans. Both have been selling off non-core operations and assets to streamline their sprawling businesses, after receiving multiple bailouts during the financial crisis.

Bank of America in June 2011 told Fed officials that it could shed branches in some parts of the country if it needed to raise capital in an emergency, a person familiar with the matter said in January. The proposal was part of a series of options provided to the Fed, including issuing a tracking stock for Bank of America's Merrill Lynch operations.

But just because the bank proposed selling branches does not mean it's a desirable move or highly probable, the person said. In the past year, Bank of America has shown progress in building capital without such actions. Its Tier 1 common capital ratio increased to 11.24 percent of risk-weighted assets as of June 30 from 8.23 percent a year earlier.

Tier 1 refers to a bank's core capital and has been the main focus of regulators in assessing a bank's capital adequacy.

Mentioned in passing

The banks' chief risk officers, and in the case of Citigroup, Chief Executive Vikram Pandit, received letters in May 2010 instructing them on what to include in the recovery plans. The requests stemmed from January 2010 crisis management meetings held by regulators. The letters sent to the five banks were nearly identical.

Each plan was to address severe financial stress at the firm, as well as "general financial instability." The plans should be capable of being executed ideally within three months, but no longer than six months, the documents said.

The plans should "make appropriate assumptions as to the valuations of assets and off-balance sheet positions," the documents said.

Recovery plans have been mentioned in public before, but only in passing. In testimony to Congress in July 2010, Fed Governor Daniel Tarullo said the "largest internationally active US banking organizations" were working on recovery plans. The initiative stemmed from work led by the Financial Stability Board, a body that coordinates the work of international financial regulators, he said.

In a presentation in March, JPMorgan Chase said it had a recovery plan in place and said it was ordered by regulators. The presentation was organized by Harvard Law School and was closed to the media at the time, but is available online. — Reuters

source: gmanetwork.com

Common Facing Foreclosure on Chicago Apartment

Mortgage payments are allegedly an uncommon practice for rapper Common ... who is now in danger of having his Chicago apartment foreclosed on because he allegedly hasn't paid his mortgage since March.

According to legal docs,Common (real name Lonnie Lynn) and his manager, Derek Dudley, got a mortgage for a condo back in 2008. But Bank of America claims ... beginning in March, the duo stopped making the monthly, $2,285 mortgage payments.

So now BOA is getting tough, filing foreclosure docs. The Bank wants to sell the property, and recoup the amount of the mortgage, plus interest and penalties, which total $345,389 ... and 52 cents.

Calls to Common's rep were not returned.

article source: TMZ

US Stock Market Bounces Back; Big Banks, Lenders Move Higher

NEW YORK (AP) – The US stock market bounced back Friday, a day after suffering its second-worst loss this year. Bank of America, JPMorgan Chase and other big lenders posted solid gains even though many of them had their credit ratings cut the day before.

Analysts said the downgrades from Moody's Investor Service late Thursday had been expected for months and removed some of the uncertainty that had been weighing on bank stocks.

"It's been like a cloud over the sector,'' said Brian Gendreau, market strategist with the broker Cetera Financial. "And look at who's going up: Bank stocks. There are obviously some people who thought it would be much worse.''

The Dow Jones industrial average gained 67.21 to close at 12,640.78. Bank of America gained 1.5 percent, or 12 cents, to $7.94, one of the best showings of the 30 stocks in the Dow.

In a note to clients, analysts at the investment bank Keefe Bruyette & Woods called Morgan Stanley "the clear winner.'' Some analysts had expected Moody's to lower Morgan Stanley's rating by three notches, instead of the two-notch cut it received.

Bank stocks rose across the board. Morgan Stanley rose 18 cents to $14.14. JPMorgan Chase climbed 48 cents to $35.99.

The Standard & Poor's 500 index rose 9.51 points to 1,335.02 and the Nasdaq composite index climbed 33.33 points to 2,892.42. The gains turned the Nasdaq positive for the week.

Information technology stocks had the strongest gains of the 10 industry groups tracked by the S&P 500 index, followed by health care stocks and banks. The gains were small but widespread. All 10 sectors rose. Of the 30 stocks in the Dow, just two fell.

The Dow and S&P 500 finished the week lower, their first week of losses since June 1. The biggest drop of the week came Thursday, when a trio of weak manufacturing reports stirred fears about the global economy. The Dow lost 251 points, its second-steepest fall this year. The worst was June 1, after a dismal US jobs report rattled markets.

Even with two days of deep losses, the S&P 500 is still up 1.9 percent this month. To Gendreau, it looks like investors have been overreacting to recent economic reports. "The market is getting jerked around,'' he said. "The economic data point to a softening economy, but we've had a softening economy for three years now.''

Among other stocks making big moves:

– Facebook surged 3.8 percent, rising $1.21 to $33.05. A Nomura analyst started covering the social-networking company with a price target of $40 and a "buy'' recommendation. Brian Nowak said Facebook could make more money through charging companies for pages. He also thinks the stock looks cheap in comparison to what investors paid for Google at the same age.

– Truck leasing company Ryder System plunged 13 percent, the worst decline in the S&P 500 index. The Miami-based company cut its earnings forecast for the second quarter and full year, blaming weak demand for commercial truck rentals and unusually high costs for medical benefits. The stock lost $5.31 to $35.44.

– The cruise ship operator Carnival Corp. dropped 2.7 percent after reporting a 92 percent plunge in quarterly profits, largely a result of losses on derivative fuel contracts. The company's brands include the Costa line of cruise ships, whose Concordia capsized off the Italian coast in January. Carnival's stock lost 92 cents to $33.66.

source: mb.com.ph

Big Banks Brace for Credit Rating Downgrades

Moody’s Investors Service has begun notifying some big banks that their credit ratings may get cut as early as this afternoon.

The calls started going on in the last hour or so, according to people briefed on the matter but not authorized to speak on the record. With ratings changes, Moody’s typically reaches out to the banks a few hours before it publicly announces anything, giving them a chance to process the information.

Moody’s, one of that nation’s largest ratings agencies, announced in February that it would assess the credit of 17 global financial companies for potential downgrades, including Goldman Sachs and Bank of America. Morgan Stanley, which was hit hard in the financial crisis, could be the most vulnerable. The agency has warned it could cut the bank’s ratings by three notches, leaving it two levels above junk and below some of its rivals.

Moody’s did not respond to requests for comment. While Moody’s has started notifying the banks for prepare for rating changes this afternoon, the timeline for the agency’s actions is unclear.

A downgrade can have serious implication for a bank’s bottom line, potentially increasing the cost of borrowing and eroding the confidence of customers and lenders. Trading partners may opt to move their business elsewhere.

Shares in the nation’s biggest banks began falling more sharply in early afternoon trading on Thursday, as investors anticipated the potential downgrades.

Five institutions — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley — were all down by more than 1 percent. Morgan Stanley was down 1.5 percent. Hardest hit were Bank of America and Citigroup, which had fallen 2.6 percent. JPMorgan was down 1.5 percent, while Goldman was down 2.3 percent.

While Europe remains a pressure point with audits showing that Spanish lenders may need another $78 billion, it was the prospect of action by Moody’s that appeared to be weighing on the bank stocks.

Investors began tweeting about a report by Sky News’s Mark Kleinman this morning, saying that Moody’s was expected to make its long-awaited announcement about bank ratings after the market closed on Thursday.

source: nytimes.com

Global economy week ahead: US tiptoes around the euro crisis

WASHINGTON - The US employment report for May will measure America's economic resilience to the political turmoil in Europe that is weakening the global growth outlook.

Manufacturing slumped in both China and the euro zone in May, Britain is in recession, Brazil is stagnating and India's growth is faltering, leaving the United States as a relative bright spot in an uncertain world.

Home sales in the United States are perking up, consumer sentiment reached a four-year high in May, and the pace of job layoffs has slowed over the past month, all pointing to a gradual healing in the US economy.

Falling gasoline prices also are pumping up spending power into consumers' pockets. While there are some soft spots—capital goods orders are weak and manufacturing eased in May—it is not enough to derail a plodding US economic recovery.

The government's closely watched monthly jobs report due out on Friday could prove pivotal.

If employment gains accelerated in May to 150,000, the consensus in a Reuters poll and up from the 135,000 monthly average over the past two months, it would suggest the economy has regained internal momentum and has greater ability to withstand the headwinds from Europe.

"The global economy is struggling. There is recession in Europe, a slowdown in emerging markets that hasn't fully run its course and China decelerating. To offset this trend, you have modest growth in the United States and Canada," said Craig Alexander, chief economist at TD Economics.

"Political risks are high but if Europe muddles through, a risk that has not yet fully run its course, we should see moderate US growth continue," he said.

A weaker jobs number and a rise in the unemployment rate from the current 8.1 percent level, however, would suggest that businesses are growing increasingly wary as financial markets display unease over Europe and the rest of the world slows.

Narim Behravesh, chief economist at IHS Global Insight, said he sees little evidence yet that Europe's problems have spilled over to the United States. He said he is tempted to think that the slowdown in emerging markets is temporary, reflecting the lagged effects from their monetary tightening in the latter half of 2011. Additionally, a fresh round of stimulus measures promised by China should prevent a serious slump.

"We will probably see another couple of months of mixed data and then a firming, as long as Europe steers clear of crisis," he said.

European high-wire act

But Europe is casting a long shadow.

European Union leaders are playing a high-wire act in trying to convince the Greek public ahead of fresh elections on June 17 that they must stick to their austerity program if they wish to remain in the euro zone monetary union.

But as governments and banks draw up contingency plans to handle a possible Greek euro-zone exit, and polls show the leftist anti-austerity camp holding a lead in Greece, investors' hopes are diminishing for a happy ending in Europe.

Further complicating the picture is Spain, where the banking system needs recapitalizing and regional governments are running short of cash. This makes Spain highly vulnerable to market attack if Greece were to leave the euro. Italy, Portugal and Ireland could then be in the line of fire.

"The situation in Europe is becoming more uncertain," Michelle Meyer, a Bank of America economist, warned clients.

Lacking a clear road map for how EU leaders plan to stabilize the financial system and shore up monetary union, investors are fleeing the euro. It has lost more than 5 percent of its value in less than a month to reach a 22-month low against the dollar.

The weakening euro raises concern about spillover effects to the United States economy, even if Greece stays in the euro zone.

A costlier US dollar makes US exports more expensive in world markets, and if Europe sinks into recession, the United States will lose one of its primary export markets.

But the trade impact on the US economy would be quite small. Trade with Europe accounts for only a sliver of total US output, or 1.3 percent, and Bank of America said that recent research shows that exchange rates are far less of a factor today in determining import prices than they were in prior decades.

The International Monetary Fund, Bank of International Settlements and the US Federal Reserve have found that the pass-through effects of exchange rates to import prices have declined to about 20 percent from 50 percent in 1970s and 1980s. And the Organization for Economic Cooperation and Development found it would take a 10 percent depreciation of the euro against the dollar over one year to shave 0.1 percentage point from annual US growth in gross domestic product.

The primary impact on the United States from a worsening European crisis would be from financial markets turmoil.

If global stock markets plunged and the banking system in Europe seized up, Craig Alexander at TD Economics said, "It would be a mess. It would be welcome back to Lehman Brothers in 2008." –Reuters

source: gmanetwork.com