Why markets are worried about suddenly cold Turkey

NEW YORK — Why are investors around the world so worried about Turkey's economy, when it's smaller than Florida's? Because of the possibility that somebody bigger will be next.

Investors have been pulling out of Turkey's markets, sending its stock market and currency plunging. That's making debt that Turkish companies owe in dollar terms even more expensive to pay back, which only further weakens the country's financial system.

Turkish companies need to pay close to 5.80 lira for each $1 of debt that they owe, for example, up from 3.79 lira at the start of the year.

The big fear, though, is that the distress could spill over into other emerging markets and cause a cascading wave of losses as investors pull out of other countries that borrow heavily in dollars and are dependent on foreign investors. Argentina? Brazil? South Africa?

Such a thing has happened before. A financial crisis that began in 1997 after Thailand devalued its currency eventually sent markets reeling across the region in what became known as the Asian financial crisis.

Stoking the concerns is the rising US dollar and a Federal Reserve that has pledged to continue raising short-term interest rates. Such moves have historically coincided with pain for emerging market stocks. When US rates are higher, investors feel less need to head to emerging markets in search of higher returns.

Many analysts along Wall Street, though, say they don't expect another Asian financial crisis. Turkey has borrowed much more in foreign currencies than any other country, as a percentage of its economy, and investors question how much authority its central bank has to raise interest rates.

Emerging-market economies broadly are also in much better shape than 20 years ago, with stronger currency reserves, say strategists at Wells Fargo Investment Institute.

"Turkey is both more exposed and less able to do something about it than any other country," says Brad McMillan, chief investment officer for Commonwealth Financial Network.

source: philstar.com

Euro zone economy falls deeper into recession

BERLIN/PARIS - The euro zone slipped deeper into recession in the last three months of 2012 after its largest economies, Germany and France, shrank markedly at the end of the year.

It marked the currency bloc's first full year in which no quarter produced growth, extending back to 1995.

Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, the EU's statistics office Eurostat said on Thursday, following a 0.1 percent drop in output in the third quarter.

The drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4 percent drop in a Reuters poll of 61 economists.

For the year as a whole, gross domestic product (GDP) fell by 0.5 percent.

Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.

The big economies set the tone.

Germany contracted by 0.6 percent on the quarter, official data showed, marking its worst performance since the global financial crisis was raging in 2009.

France's 0.3 percent fall was also slightly worse than expectations.

Worryingly for Berlin, it was export performance - the motor of its economy - that did most of the damage although economists expect it to bounce back quickly.

"In the final quarter of 2012 exports of goods declined significantly more than imports of goods," the German Statistics Office said in a statement.

The euro hit a session low against the dollar after the weaker than forecast German reading and dropped again after the release of full euro zone figures.

Back revisions to the French figures showed its output fell by 0.1 percent in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.

While the European Central Bank's pledge to do whatever it takes to save the euro has taken the heat out of the bloc's debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.

French Prime Minister Jean-Marc Ayrault acknowledged for the first time on Wednesday that weak growth was putting his government's deficit goal for 2013 out of reach.

Economists say the euro zone may also shrink in the first quarter of 2013 although more resilient Germany is expected to rebound.

"The chances that the (German) economy will return to growth at the beginning of this year are very good. The early indicators are all pointing upwards," said Andrea Rees, chief German economist at UniCredit.

"The question is how strong the first quarter will be. We expect growth of 0.3 percent but it could be more."

Dutch GDP dropped 0.2 percent over the quarter, keeping it in recession, while the Austrian economy shrank at the same rate.

Weak periphery

For the more embattled members of the currency bloc, matters are of course worse.

Italy suffered its sixth successive quarterly fall in GDP - this time by a sharp 0.9 percent - putting it into a longer slump than it suffered in 2008/2009.

Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.

With an election due on February 24/25, all sides in a three-way race between Monti's centrist bloc, Pier Luigi Bersani's center-left coalition and Silvio Berlusconi's center-right are pledging to cut taxes to try to kickstart economic growth.

Spain, the euro zone's fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a 0.7 percent contraction in the fourth quarter.

Madrid is also pressing on with harsh austerity measures to cut its debt but may be given more time to meet its deficit targets by the European Commission if its economy worsens further.

There are signs that countries like Spain are starting to benefit from harsh internal devaluations - marked by wage falls and job losses aimed at making companies leaner and more productive.

The ECB predicts the euro zone will pick up later in the year although its currency, if it keeps strengthening, could quickly snuff out any of those hard-won competitive advantages for its high debt members.

More recent data for January have already suggested some upturn in the first months of 2013, in the bloc's stronger members at least, and if improvement comes it is likely to be seen in Germany first.

"The debt crisis has ebbed significantly and the global economy has turned up," said Joerg Kraemer at Commerzbank. "Therefore all the important early indicators for Germany are pointing upwards. I expect noticeable economic growth again in the first quarter."

source: interaksyon.com

Global regulators ease key bank rule to spur credit

BASEL, Switzerland/LONDON - Global regulators gave banks four more years and greater flexibility on Sunday to build up cash buffers so they can use some of their reserves to help struggling economies grow.

The pull-back from a draconian earlier draft of new global bank liquidity rule to help prevent another financial crisis went further than banks had expected by allowing them a broader range of eligible assets.

Banks had complained they could not meet the January 2015 deadline to comply with the new rule on minimum holdings of easily sellable assets from the Basel Committee of banking supervisors and also supply credit to businesses and consumers.

The committee's oversight body agreed on Sunday to phase in the rule from 2015 over four years, as reported by Reuters on Thursday, and widen the range of assets banks can put in the buffer to include shares and retail mortgage-backed securities (RMBS), as well as lower rated company bonds.

The new, less liquid assets can only be included at a hefty discount to their value, but the changes are a significant move from the draft version of the rule unveiled two years ago.

The Basel Committee, drawn from nearly 30 countries representing nearly all the world's markets, hopes they will stop banks from shrinking loan books to comply with the rule.

"For the first time in regulatory history, we have a truly global minimum standard for bank liquidity," the oversight body's chairman Mervyn King told a news conference in Basel, Switzerland.

"Importantly, introducing a phased timetable for the introduction of the liquidity coverage ratio ... will ensure that the new liquidity standard will in no way hinder the ability of the global banking system to finance a recovery," said King, who is also Bank of England governor.

Sunday's amendments, endorsed unanimously, came after two years of haggling among Basel Committee members.

They surprised relieved bankers with their scope and will help kick-start the mortgage backed securities market, languishing after being tarnished by the U.S. subprime crisis which set off the 2007-09 financial crisis.

"The inclusion of good quality RMBS in the liquidity buffer is a very welcome twelfth night present," said Simon Hills, executive director of the British Bankers' Association.

"It will make a real difference to issuance volumes by improving their marketability so that banks are better able to manage their balance sheets and provide funding to the real economy," Hills said.

Market pressure

The rule requires banks to hold enough liquid assets like government and corporate bonds to cover net outflows for up to a month to avoid taxpayers having to bail them out.

Basel Committee chairman Stefan Ingves, who also heads Sweden's central bank, said Sunday's changes mean that the average buffer at the world's top 200 banks rises from 105 to 125 percent, meaning it is well above full compliance.

But many banks elsewhere are well below full compliance, especially in some euro zone countries, and they will have to find an estimated trillion euros of assets over coming years at a time when bank profitability is being hammered.

Furthermore, liquidity held by some banks is on loan from their central bank and will have to be returned at some point. A revived mortgage-backed securities would help wean lenders off central banks.

King said regulators want to be "crystal clear" that banks in countries undergoing stress like in the euro zone could draw down their buffers below minimum levels if the local supervisor agreed.

Jim Embersit, a former Federal Reserve official and Basel Committee member and now with Ernst & Young in Washington, said many banks would move to fully comply before 2019 given market pressures and the need to change business models.

"Firms will not be eager to jump to full 100 percent implementation quickly but would be expected to meet the required milestones on their own prior to the designated deadlines," Embersit said.

Less stress

The Basel Committee also agreed to ease the "stress scenario" for calculating the amount of liquid assets banks must hold, meaning the buffer would be smaller.

Under the Basel regime, the rules would run alongside separate rules governing banks' capital, intended to ensure their longer-term stability.

Banks would start complying in 2015 when they are expected to hold at least 60 percent of the total buffer, building up to 100 percent by January 2019, when Basel's separate, tougher bank capital requirements also must be met in full.

The liquidity rule is meant to avoid a repeat of the scenario in which a short-term funding freeze brought down lenders like Britain's Northern Rock early on in the 2007-09 financial crisis.

It is part of the Basel III bank capital and liquidity accord agreed by world leaders in 2010 and being phased in over six years from this month, though there are delays in the United States and European Union.

Ingves said the Basel Committee is still committed to enacting a third plank of Basel III, the net stable funding ratio to limit dependence on short-term funding, by the end of 2018.

The Basel Committee will study how the introduction of the liquidity rule affects the impact of central banks injecting liquidity into the economy in a bid to spur growth.

source: interaksyon.com

Merkel: Euro debt crisis 'far from over'

The eurozone debt crisis is "far from over," even as reforms begin to show results, German Chancellor Angela Merkel said in remarks to be broadcast Monday.

"The reforms that we've agreed on are starting to be effective," Merkel said in her recorded New Year's address.

"Nevertheless, we still need a lot of patience. The crisis is far from over," she said in a transcript of her addressed released early Monday.

Her comments differed from those of Finance Minister Wolfgang Schaeuble, who was quoted Thursday as telling the Bild newspaper, "I think we have the worst behind us."


They also differed from those of European Central Bank President Mario Draghi, who told France's Europe 1 radio Nov. 30, "The recovery for the entire eurozone will no doubt begin in the second half of 2013."

Merkel, 58, who faces an election to a third term in September, pointed to Germany's lowest level of unemployment since 1990's reunification of East Germany and West Germany, while the number of people employed had risen to record highs.

She said this meant "many hundreds of thousands of families have a secure future."

Merkel urged Germans to resist laying blame on economically weaker countries for the 3-year-old financial crisis that has made it difficult or impossible for some eurozone governments to repay or re-finance their debt without assistance.

"For our prosperity and our solidarity, we need the right balance. We need the willingness to perform and social security for all," she said in the recorded remarks. "The European sovereign debt crisis shows how important this balance is."

source: upi.com

Exclusive: U.S. Mortgage Task Force to Act Soon

NEW YORK (Reuters) - The mortgage task force formed by President Barack Obama to probe misconduct that contributed to the financial crisis will soon take legal action, New York Attorney General Eric Schneiderman said on Thursday.

Schneiderman, a co-chair of the task force, would not say whether cases would be brought against individuals or financial institutions. He also would not comment on whether criminal charges would be filed.

But he said his office would take action and that he expected his federal counterparts on the task force to do so as well. 

"We'll see actions being taken sooner rather than later," said Schneiderman, speaking in an interview at his office in New York. 

The Residential Mortgage-Backed Securities Working Group was formed in January, to probe the pooling and sale of risky mortgages in the runup to the 2008 financial crisis. Obama said he was creating the group to "hold accountable those who broke the law" and "help turn the page on an era of recklessness." 

Schneiderman said he believes it is still necessary to go after the "bad actors" to restore confidence in the financial markets. 

"It's important to convey the sense that no one is above the law. There's a set of rules to which all will be held accountable, including big players on Wall Street," Schneiderman said. 

Schneiderman noted that only days earlier protesters had gathered in a park nearby to mark the first anniversary of the Occupy Wall Street movement. 

Last year, Schneiderman fought to limit the scope of a $25 billion settlement with major banks over foreclosure abuses. He wanted authorities to retain the ability to probe misconduct in the securitization of mortgages, the area now being investigated by the task force. 

The task force includes the Justice Department, the Securities and Exchange Commission, the Department of Housing and Urban Development and the Internal Revenue Service. 

Schneiderman said the group, which has been criticized for inaction, had taken a few months to staff up. He said he was optimistic resources would continue to expand. 

"History will show the working group acted pretty quickly given the circumstances," he said. "The important thing is to see results and then continued results ... (that) we don't just have one or two cases and then this peters out." 

Another law enforcement official involved with the task force told Reuters on Wednesday that any action from the task force was more likely to be civil than criminal. 

In the interview on Thursday, Schneiderman said he could not comment on whether there would be criminal charges. 

When the group was formed, Attorney General Eric Holder announced civil subpoenas had been sent to 11 financial institutions. But little information has been made public since then. 

(Reporting by Karen Freifeld; Additional reporting by Emily Flitter; Editing by Eddie Evans, Gary Hill) 

source: nytimes.com

French PM says financial system solid but some banks ailing

PARIS -- French Prime Minister Jean-Marc Ayrault said Sunday that France's financial system is solid, even though the state was this weekend forced to help struggling mortgage lender Credit Immobilier (CIF).

"It is globally (solid), but there are a certain number of banks or establishments that are posing problems. Since I have taken up my post, we have had to deal with two situations -- CIF and Dexia," Ayrault said.

The CIF case is "very important because it is also about housing finance," he noted, without naming other banks which were facing trouble.

First bailed out in 2008 amid the global financial crisis, Dexia was not able to survive subsequent turmoil created by the eurozone debt crisis. In October last year France, Belgium and Luxembourg stepped in to wind up the bank.

Meanwhile, sources told AFP on Sunday that the French state would guarantee CIF to the tune of 4.7 billion euros ($5.9 billion) and wind down its operations.

France said on Saturday it would grant the guarantee to CIF, which has been hit by a liquidity crisis as markets shunned its calls for financing and must find 1.75 billion euros to pay off creditors in October.

Sources close to the matter said CIF, which specialised in mortgage lending to less privileged families, would cease providing new loans as its financial model was no longer viable.

Unlike banks, CIF does not take deposits from savers and rather taps the financial markets for funds to lend to homebuyers.

But tightened rules aimed at averting a repeat of the financial crisis have called into question the group's financing model. A recent credit downgrade by ratings agency Moody's added to its problems, forcing it to turn to the state for help.

CIF has 33 billion euros on its loan books.

Meanwhile, the French association of bank users said that granting a guarantee to CIF was a "high-risk gamble".

"We understand the procedure. But this method has so far led to a disaster," Serge Maitre, spokesman for the association said, citing Dexia as a precedent.

source: interaksyon.com

Asian Cities to Become Top Finance Centres by 2022-Survey

LONDON (Reuters) - Top UK traders and dealmakers bruised by intense banker bashing believe an Asian city will take over as the world's dominant financial centre within 10 years, according to a survey.

They also relegated London to third place from second as their preferred location behind Singapore and New York, the poll by headhunters Astbury Marsden found.

Nearly two thirds of 450 British investment bankers surveyed said Hong Kong, Shanghai or Singapore would be the top global finance centre in 10 years.

One fifth felt London would be the world leader in 2022 and one sixth said New York would hold no.1 spot.

"A fast growing, low tax and bank friendly environment like Singapore stands as a perfect antidote to the comparatively high tax and anti-banker sentiment of London and New York," said Mark Cameron, operations chief at Astbury Marsden.

The annual ‘Preferred Location Survey' also found Singapore is the city where British bankers would most like to live, claiming 31 percent of the vote, up from 27 percent last year.

New York was second with a fifth of votes while London slipped to third with 19 percent of the votes versus 22 percent last year.

"Financial centres in the West have taken a real battering since the start of the financial crisis," said Cameron.

"Cities like Singapore and Hong Kong have been quick to capitalise on setbacks in London and New York, courting investment banks and reacting to demand from expats," he added.

Investment banks and trading firms in New York and Europe have struggled to maintain profitability in recent years amid economic uncertainty partly linked to the ongoing euro zone debt crisis.

Bankers and traders in the United States and Europe also face the prospect of draconian restrictions on their riskier practices, moves likely to impact future profitability.

Commodities trader Trafigura said in May that Singapore would become its main trading centre as it seeks to tap demand in Asia, dealing a blow to its former home Switzerland.

Asian banks, in contrast to their Western peers, avoided much of the damage inflicted by the latest financial crisis and have benefited in recent years from solid economic growth and a booming commodities market across the Asia-Pacific region.

source: nytimes.com

Eurozone crisis prompts Bangko Sentral to cut BOP, GIR targets

The Bangko Sentral ng Pilipinas on Monday said it lowered its targets for balance of payments (BOP) and gross international reserves (GIR), because of the raging financial crisis in Europe.

The GIR will hit somewhere between $77.5 billion and $78 billion, Bangko Sentral Gov. Amando Tetangco Jr. It was expected to reach $79 billion this year.

The BOP surplus is seen narrowing down to $2.6 billion from an earlier of $2.8 billion, Tetangco noted in his keynote address before the Financial Market Forum.

“The revisions took into account the latest figures, actual figures–the prospects for the future–given the developments that are taking place in Europe as well as the US,” according to the central bank chief.

What the Bagnko Sentral decided to keep were its remittance and current account targets, he said.

Remittances will likely grow 5 percent this year, from the record $20.12 billion recorded last year, according to the Bangko Sentral.

Latest Bangko Sentral data showed the current account surplus was down 20 percent to $7.1 billion last year from $8.9 billion in 2010, largely on weak global demand.

However, monetary authorities decided to keep estimates for export growth unchanged at 10 percent for the year, said Tetangco. - V S, GMA News

source: gmanetwork.com

Wall Street rises, pushing S&P above 1,400

US stocks rose on Thursday, with the S&P 500 topping the 1,400-mark for the first time since the financial crisis on a strong run of economic data.

Though 1,400 on the S&P, which marks the highest level for the index since June 2008, does not have much technical importance, it is viewed as a bullish psychological marker.

Trading was also volatile at the start of "quadruple witching," the dates of expiration and settlement of four types of equity futures and options contracts.

The S&P 500 has risen more than 11 percent so far this year without a major pullback, and while some have called for a consolidation, others see the momentum persisting.

"We've had such a strong run that a lot of people are concerned we're up too much, but data has been so positive that I think we'll continue to grind higher," said Hank Herrmann, chief executive of Waddell & Reed Financial Inc in Overland Park, Kansas.

Herrmann, who helps oversee $90 billion in assets, forecast further gains of as much as 8 percent in the S&P until the U.S. presidential election in November.

On Thursday, U.S. Labor Department data showed new claims for unemployment benefits fell back to a four-year low last week, and producer prices, excluding food and energy, were contained.

Manufacturing data in New York and the U.S. mid-Atlantic region also improved, according to regional Federal Reserve surveys.

The Dow Jones industrial average .DJI was up 32.39 points, or 0.25 percent, at 13,226.49. The Standard & Poor's 500 Index .SPX was up 6.38 points, or 0.46 percent, at 1,400.66. The Nasdaq Composite Index .IXIC was up 12.45 points, or 0.41 percent, at 3,053.18.

The S&P 500 snapped a five-day winning streak on Wednesday as investors found little reason to extend a rally that took the benchmark index to four-year highs. But the index is up over 2 percent this week, its best since early February.

Apple Inc (AAPL.O) pulled back 1.1 percent to $582.89, ending a six-day streak of gains, though it hit a new all-time high above $600 in early trading. Some analysts have predicted the stock will move to $700 within 12 months.

Helping transport stocks but hurting energy companies was Britain's decision to cooperate with the United States in a bilateral agreement to release strategic oil stocks in an effort to prevent high fuel prices derailing economic growth in a U.S. election year, according to two British sources.

Brent crude futures fell 1 percent. The Dow transport index .DJT rose 3.2 percent, while the S&P energy index traded flat.

Semiconductors moved higher, led by Advanced Micro Devices Inc (AMD.N), which jumped 5.7 percent to $8.20 after Jefferies upgraded the stock to "buy." The Philadelphia Semiconductor Index .SOX gained 1.4 percent.

Ross Stores Inc (ROST.O) reported a higher profit for the holiday quarter as shoppers sought out popular clothing brands at discount prices, and the off-price chain forecast "respectable" sales and profit gains for this fiscal year. Shares dropped 0.5 percent to $55.26. The Morgan Stanley retail index .MVR rose 0.4 percent.

Three initial public offerings made their debuts on Thursday: cloud computing-based software company Demandware Inc (DWRE.N), analog chipmaker M/A-Com Technology Solutions Holdings (MTSI.O) and Allison Transmission Holdings (ALSN.N).

Demandware surged 53 percent to $24.59, M/A-Com advanced 10.5 percent to $21 and Allison Transmission rose 1.5 percent to $23.35. — Reuters

source: gmanetwork.com