July 2009
31 July
The global credit crunch has cost governments more than US$10 trillion, the International Monetary Fund (IMF) said. The IMF says that rich countries have provided US$9.2 trillion in government support for the financial sector, while emerging economies spent US$1.6 trillion. Around US$1.9 trillion represents up-front expenditure, while the rest is made up of guarantees and loans.
The UK government's plans for reforming the regulation of banks are "largely cosmetic" and "lack clarity", MPs in the Treasury Select Committee said. In its report on the banking crisis, the committee says that responsibility for strategic decisions and action remains "a muddle". The report also says that the Financial Services Authority (FSA) "failed spectacularly" in supervising banks.
Japan's biggest bank, Mitsubishi UFJ , has returned to profit, boosted by a recovery in the stock market. The bank reported a net profit of Y75.9bn (US$794m) for the April to June quarter, which was a rise of 24.7% on the same period a year ago.
Mizuho Financial Group made its fourth consecutive quarterly loss between April and June because of credit costs and losses on derivatives taken out to hedge against further declines in the market. The net loss for the quarter was Y4.4bn (US$46m). Mizuho’s operations produced a net profit of Y160.1bn, before credit provisions of Y76bn, valuation losses on hedges on Y88bn, and losses on stock holdings of Y19.8bn.
Citigroup and Merrill Lynch , which lost US$55bn in 2008, between them paid 1,400 employees bonuses of $1m or more each, according to a New York state report on banks propped up with taxpayer funds. The study, compiled by Andrew Cuomo, New York attorney-general, showed that JPMorgan Chase and Goldman Sachs , which both finished in the black last year, paid the most million-dollar bonuses - 1,626 and 953, respectively. However, the totals at a profitable bank such as Goldman were nearly matched by two of the year’s biggest losers on Wall Street. Citi, which suffered a US$27.7bn loss, paid million-dollar bonuses to 738 employees. Merrill, which lost US$27.6bn, paid 696 bonuses of US$1m or more.
Citigroup said it would raise Y112.4bn (US$1.2bn) by selling its Japanese fund management arm. Citi agreed to sell Nikko Asset Management to Sumitomo Trust & Banking, Japan’s fifth-biggest bank. The sale is Citi’s second significant divestment in Japan this year, after it reached a deal in April to sell Nikko Cordial, its local securities broker.
Japan saw unemployment levels reach a six-year high last month, with job availability at a new low, official figures have shown. The jobless number increased by 830,000 in June, or 31.3% from a year before, to 3.48 million. The unemployment rate was 5.5% up from May's figure of 5.2%. For every 100 people seeking work, there were 43 jobs.
30 July
The pace of economic decline has moderated or stabilized in most parts of the US, the Federal Reserve said, with manufacturing, residential property and even employment showing some signs of improvement. According to the Beige Book, which offers a picture of the economy based on anecdotal evidence provided to the US central bank, overall economic activity has stabilised at a low level since its last report in early June when most regions reported that conditions were weak or worsening. The report adds to mounting evidence that the worst recession in the past 50 years is easing.
Japanese industrial output rose for the fourth month in a row in June and is expected to keep climbing as manufacturers restart production lines halted during the country’s sharpest post-war slump. Preliminary data released by the Ministry of Economy, Trade and Industry showed June industrial production was up 2.4% month-on-month, a rate of increase lower than the revised 5.7% growth recorded for May but broadly in line with economists’ expectations.
Banco Santander has appointed advisers to spin off its Brazilian business in an initial public offering that could raise at least US$3bn and create one of the largest publicly listed banks in Latin America’s biggest economy.
TheInternational Monetary Fund (IMF) has said it will boost lending by up to US$17bn between now and 2014 and suspend interest on some loans to low income countries until 2011. It plans to sell some of its gold reserves to raise funds for the loans.
28 July
Deutsche Bank has reported a 67% rise in quarterly profits, boosted by its investment banking arm. Germany's largest bank announced a net profit of €1.1bn for the second quarter of 2009, compared with a €645m profit a year ago.
Commerzbank is to sell Dresdner Bank’ s Swiss subsidiary to LGT Bank of Liechtenstein as it presses ahead with reorganization after last year’s troubled takeover. The decision demonstrates what analysts reckon will be a trend to consolidation in the wealth management industry, as profits have fallen, banks’ capital bases remain weak, and pressure intensifies for countries to lift the veil on banking secrecy. The deal emphasizes Commerzbank’s intention to stick to its core markets and businesses after taking over Dresdner.
Banco Popular of Spain unveiled a 35% year-on-year fall in first-half net profits, as heavy bad loan provisioning and impairment charges eroded steady underlying growth. The bank, the country’s third largest listed lender by market value, said net profits for the six months to the end of June were €442.6m, compared with €677.5m in the same period last year.
Spain's second-largest bank, BBVA , has reported a 35% rise in quarterly profit thanks to higher income from its loans. BBVA said net profit for the April to June period was €1.56bn, compared with €1.16bn in the same period last year.
The Reserve Bank of India (RBI) has kept interest rates at record lows in a continuing effort to return the economy to growth. The repo rate - at which the central bank injects short-term money into the banking system - was held at 4.75%. The cash reserve ratio - the percentage of banks' deposits they must keep in cash - was also held at 5%.
27 July
The US government is poised to take a 34% stake in Citigroup , increasing both its exposure to and influence over the troubled financial group, following a long-awaited US$58bn share offering.
24 July
The UK economy contracted 0.8% between April and June, more than double the figure economists had expected. The contraction was much less than the 2.4% seen in the first quarter but was still above analysts' 0.3% prediction. The latest figures take the annual rate of decline to 5.6%, the biggest fall since records began in 1955.
American Express (Amex) reported an 84% drop in second-quarter earnings per share. Amex posted earnings of US$337m, or nine cents per share, compared with earnings of US$653m, or 56 cents per share, in the second quarter of last year.
South Korea’s economy grew 2.3% in the second quarter compared with the first three months of the year, supporting the view that Asia’s fourth-biggest economy will be one of the first to sail clear of the financial storm.
Ford Motor reported a surprise US$2.3bn second-quarter net profit, thanks largely to April’s debt restructuring deal but also to well-received models that boosted its share in markets around the world.
The slide in Japan's exports slowed in June in a sign government stimulus spending around the world may be propping up demand. But they were still 35.7% lower than the same month a year earlier.
23 July
Morgan Stanley made a loss of US$159m between April and June, a significant drop on the US$698m profit it made in the same period a year earlier. It is the third consecutive loss for the Wall Street bank and was worse than analysts had expected. It was also hit by the cost of repaying government funding. Including that charge, losses totalled US$1.3bn.
Swiss bank Credit Suisse has continued its recovery, with second quarter profits up 29%. For the April to June period of 2009, the lender made a net profit of 1.571bn Swiss francs (US$1.48bn).
The Asian Development Bank has predicted that growth in 2010 would be double that of 2009. However, the bank warned there were risks to recovery, including over-enthusiastic regulation of the financial sector. The bank estimated that aggregate gross domestic product growth of the grouping - which includes the 10 members of the Association of South East Asian Nations (Asean), China, Hong Kong, Taiwan, and South Korea - would rise from 3% this year to 6% in 2010.
Japan’s trade surplus widened for the first time since October 2007,largely as imports declined at a faster pace. Ministry of Finance data showed that the country’s trade surplus reached Y508bn (US$5.4bn), while imports dropped 41.9% to Y4,092bn, a slightly slower decline than May’s 42% drop.
22 July
National Australia Bank (NAB) launched its second-large equity raising in eight months with a move to secure up to A$2.75bn (US$2.25bn) from investors to fund growth and bolster its capital position. NAB said the funds were needed to maintain balance sheet strength and to provide firepower for possible acquisitions. NAB last month agreed to spend up to A$925m to buy the Australian life and wealth management businesses owned by Aviva, the UK insurer.
A leading think-tank is predicting it may take another five years for UK income per head to return to the level it was before the recession hit in early 2008. The National Institute of Economic and Social Research (NIESR) sees total UK GDP falling 4.3% in 2009 before growing 1% in 2010 and 1.8% in 2011.
TheBank of England's interest rate setters voted unanimously to hold interest rates at the record low of 0.5% earlier this month. The Monetary Policy Committee (MPC) also agreed to maintain its £125bn quantitative easing (QE) programme.
21 July
The total exposure of the US government to the financial crisis could hit US$23.7 trillion, according to a watchdog report. Neil Barofsky, overseeing the Troubled Asset Relief Programme (Tarp), made the estimate in prepared remarks to a House of Representatives committee. The worst-case estimate represents the maximum exposure if all parties offered support requested maximum assistance. The figure includes all government and Federal Reserve initiatives.
_Total outstanding government debt in the UK has risen to a record £799bn, or 56.6% of UK GDP - the highest since records began in 1974. Figures showed the government borrowed £13bn in June, almost twice as much as a year ago, after the downturn shrank tax receipts.
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TheUK has the highest percentage of financially distressed companies in Western Europe, as a result of its position as the leveraged buy-out capital over the past decade. The UK has just under a quarter of all distressed assets, as at 1 July, said bankers at Close Brothers in a report based on data from Debtwire. The UK had 24% of all distressed companies in 2009, while Germany had 14%, Italy had 12% and France had just 6%.
Banks that have agreed to pay their executives a guaranteed bonus for more than a year risk heavy penalties, the head of the Financial Services Authority(FSA) has warned. In a letter sent to more than 40 chief executives within the financial services industry, FSA chief executive Hector Sants said that using long-term guarantees to lure star investment bankers could put them in breach of the authority’s new remuneration code. The new rules will cover all deals struck since the FSA first opened its pay consultation in March, meaning that bankers who have recently negotiated guaranteed bonuses may see them revoked.
SEB , one of Sweden’s largest banks, announced a SKr3bn (US$388m) write-down on the value of its eastern European assets in the latest sign of how economic turmoil in the region is hurting Nordic lenders. The write downs in Latvia, Lithuania, Estonia and Russia showed how the bank’s heavy investments across the Baltic have turned sour as the former Soviet states have plunged into deep recession.
Sri Lanka has agreed a US$2.5bn loan accord from the International Monetary Fund (IMF) to the help it weather the global economic crisis.
20 July
Iceland will announce a €1.5bn recapitalization of its banking sector and unveil a deal to hand control of two of the country’s healthy new banks to foreign creditors. The government will issue bonds worth IKr270bn next month to three new banks set up last year after the country’s three main banks fell victim to the global credit crunch.
The UK economy is set to shrink by 4.5% in this year, the biggest fall in a single year since 1945, according to an influential think-tank. The downbeat forecast is more pessimistic than the consensus view, and considerably worse than the 3.5% fall predicted by the government. The Ernst & Young Item Club also warned that hopes of economic recovery are "running ahead of reality".
CIT , the troubled American bank, has approved a US$3bn rescue loan from major shareholders to keep the company out of bankruptcy, reports say. The emergency financing is aimed at giving the firm time to restructure some of its debt payments, according to The New York Times and the Wall Street Journal.
Ghana is to get a US$600m three-year loan from the International Monetary Fund (IMF). It will also be able to draw up to US$450m from the IMF through a special facility - expanded after the G20 summit - to help poor countries.
Tesco , Britain’s biggest retailer is considering seeking a separate credit rating for its financial services arm to give it more clout for its aggressive assault on banking.
17 July
JPMorgan Chase has become the second major US bank to report a big rise in profits for the April to June period. Net profit for the second quarter totaled US$2.72bn, an increase of 36% on the same period last year. Revenues at the company rose 41% to a record US$27.7bn. Its results come two days after rival Goldman Sachs reported a US$3.44bn second quarter profit.
UK government departments have amassed more than £20bn in under spends, the Treasury revealed, adding to the problem of public expenditure control over the next decade. The announcement of the totals built up under what is termed ‘end-year flexibility’ - money which departments have a right to spend - came on the same day when the International Monetary Fund’s (IMF’s) annual assessment of the economy confirmed its initial recommendation to bring forward more concrete and rapid plans to cut the £175bn deficit in the public finances this year.
Spain’s central bank has relaxed provisioning rules for lenders in a move that could help some banks avoid losses next year and allow others to strengthen their capital ratios. The Bank of Spain confirmed that it had advised all banks that they would no longer have to set aside the full value of high-risk mortgage loans - those for more than 80% of a property’s value - after two years of arrears. Instead, they would only have to provision for the difference between the value of the loan and that of 70% of the mortgaged property.
16 July
China’s economy accelerated significantly in the second quarter, with gross domestic product expanding by 7.9%, ahead of analysts’ consensus estimates. The surge in growth was driven by the government’s aggressively loose fiscal and monetary policies, introduced late last year, with most of the funding coming from record lending by state banks.
The Obama administration has unveiled draft legislation that will require all US hedge funds with more than US$30m in assets under management to register with the Securities and Exchange Commission (SEC).
Russia’s economy shrank 10.1% in the first half of this year, the economy minister said, its worst decline since the early 1990s.
CIT faced the prospect of a bankruptcy filing or other restructuring as hopes of a government-led rescue plan for the troubled US middle-market lender were dashed. CIT has battled a liquidity crisis and faces US$1bn of debt maturing next month, but it is locked out of the wholesale funding markets. Thousands of small businesses depend on CIT for funding.
American Express has suspended its contributions to the pension scheme of its UK workforce. The US-based credit card company said it had stopped matching employee contributions to its pension scheme for the next 18 months, affecting some 6,000 British workers. The decision was part of a global cost-cutting initiative to save US$2.6bn, which was announced earlier this year and has included shrinking its workforce by 10%.
Citigroup is close to a secret agreement with one of its main regulators that will increase scrutiny of the US bank and force it to fix financial, managerial and governance issues. According to the Financial Times , people close to the situation said that the deal had been discussed in recent weeks amid increased pressure on Citi from the Federal Deposit Insurance Corporation, the regulator, and could be finalized soon.
15 July
Goldman Sachs has reported quarterly earnings of US$3.44bn on revenues of US$13.8bn. Combined with Goldman’s repayment of US$10bn in taxpayer funds last month, the strong showing - almost double its healthy returns for the first quarter - suggests that the investment bank has defied the downward trend as when many of its competitors will see profits trimmed by exposure to consumer-related write-downs.
The volume of goods leaving euro zone factories rose in May in the first pick-up since last August, although the upturn was weaker than expected and was accompanied by signals that German investors think any rebound there could be sluggish. Industrial production in the 16-member currency region rose 0.5% in May, although output was still 17% below the level seen the year before, the European Union’s statistics office said.
UK unemployment rose by a record 281,000 to 2.38 million, in the three months to May, the Office for National Statistics has said. The jobless rate increased to 7.6%, the highest in more than 10 years.
China's foreign exchange reserves, the world's largest, have surpassed US$2 trillion, the country's central bank has said. Currency reserves rose 17.8% from June 2008 to a record US$2.13 trillion. Its currency stockpile is twice the size of Japan's - the second-biggest holder.
Japan's central bank has downgraded its economic forecast for the current financial year, but has reiterated that the worst of the recession is over. The Bank of Japan now expects the economy to shrink 3.4% in the 12 months to 31 March 2010, a deeper contraction than its previous forecast of -3.1%.
14 July
The US budget deficit has moved above US$1 trillion for the first time - with three months of the financial year remaining, official data show. The government stepped up spending to counter the recession, and the bailout of financial institutions has taken a huge chunk out of government finances. Falling tax revenues and unemployment benefit spending have also contributed.
UK annual inflation fell in June as the Consumer Prices Index (CPI) dropped to 1.8% from 2.2% in May, the Office for National Statistics (ONS) said. It is the first time since September 2007 that the CPI is below the Bank of England's target of 2%.
Singapore appears to be emerging from its worst recession on record after the economy expanded at an annualized rate of 20.4% between April and June. It was the first quarterly expansion in a year, lifted by increased drug sales and construction activity, said the Ministry of Trade and Industry. However, the government still expects the economy to contract for the year.
13 July
The number of profit warnings by UK-listed firms fell in April-June to their lowest second quarter level since 2003, said accountants Ernst & Young (E&Y;). There were 63 warnings issued by firms listed on the London Stock Exchange in the quarter, down 36% from a year ago. The decline may add to the growing feeling that the UK is nearing the bottom of the recession, E&Y; said.
The firm set up to manage taxpayer stakes in nationalized banks has said it will be ‘challenging’ to return the investments to the private sector. UK Financial Investments (UKFI) was set up to manage a 70% stake in Royal Bank of Scotland and a 43.3% holding in Lloyds Banking Grou p. BBC business editor Robert Peston said these stakes were worth about £60bn. UKFI said the stakes currently showed a paper loss of £10.9bn, and it would take time to sell the shareholdings.
Boutique banks, which provide advice on mergers and acquisitions and restructurings, accounted for 14% of global M&A; fees so far this year - the highest level since records began, according to Dealogic.
The US saw its deficit narrow to US$26bn in May, its lowest level in more than nine years, according to figures from the Commerce Department. Imports continued to fall while exports increased, pushing the deficit to its lowest level since November 1999.
7 July
The worst of the UK's recession is over, according to the British Chambers of Commerce (BCC) business group. A BCC report that surveyed 5,600 companies found that there had been 'welcome progress' in confidence levels between April and June 2009. However, the BCC still expects unemployment in the UK to reach 3.2 million by 2010.
China is trialing a scheme that allows trade with its neighbors to be settled with its own currency. Six Shanghai companies have signed contracts with counterparts in Hong Kong and Indonesia to settle deals in RMB.
Inflation in thePhilippines fell to 1.5% in June - its lowest rate in 22 years - after energy prices fell, according to official figures.
2 July
Governments around the world have continued to push up trade barriers in spite of high-profile pledges at the G20 summit and other forums to resist protectionism, according to a World Trade Organization (WTO) report. Over the past three months, the WTO recorded 83 trade-restricting measures undertaken by 24 countries and the European Union - more than double the number of trade-liberalizing measures enacted during the same period. However, the report noted that the worst abuses had largely been contained.
Euro zone annual inflation has turned negative for the first time since records began in 1991. Consumer prices in the 16-country euro zone were 0.1% lower in June than the same month a year before, according to Euro stat, the European Union’s statistical office. The fall in prices reflects sharply lower energy costs and the effects of the region’s worst economic downturn since the second world war. Annual inflation is hugely undershooting the ECB’s target of ‘below but close’ to 2%.
Official figures confirmed the UK had suffered its worst slump in output for 50 years. Economists warned Britain would almost certainly have to wait at least two years before it regained the output lost over the past year. The figures showed a 2.4% quarter-on-quarter fall in gross domestic product for the first three months of 2009 - much sharper than the 1.9% initially calculated.
Japan's Shinsei Bank and Aozora Bank have agreed to merge to form the country's sixth largest bank, with assets of 18 trillion yen (US$186bn). Shinsei reported a loss of 143bn yen last year while Aozora lost 243bn yen. They have big US private equity shareholders: JC Flowers holds 33% of Shinsei and Cerberus Capital Management owns more than half of Aozora.
Malaysia has announced extensive economic liberalization measures to attract foreign investments, including changes to its long-standing policy of giving preferential treatment in business to the country’s ethnic Malay majority.
Unemployment in the Irish Republic was 11.9% in June, the highest rate since April 1996, according to the Central Statistics Office. The number of people claiming jobless benefits has almost doubled in the past year to 418,592.
India's exports fell in May for the eighth month in a row. Exports in May were valued at 534.3bn rupees (US$11bn), down 29.2% from 655bn rupees a year earlier, government figures showed. Exports are a significant driver behind the Indian economy, making up about 15% of gross domestic product.