Archive for January, 2010

Nikkei leads Asia up, China falls on policy worry (Reuters)

Friday, January 8th, 2010 | Finance News

SINGAPORE (Reuters) –
Japanese stocks hit a 15-month high on Friday as the yen eased against the dollar, leading most Asian markets higher, but Chinese shares and commodities stumbled on fears that Beijing is ready to tighten policy to cool economic growth.

European equities were set to edge higher, with financial spreadbetters expecting Britain's FTSE 100 (.FTSE) to open as much as 0.3 percent higher, and Germany's DAX (.GDAXI) and France's CAC-40 (.FCHI) seen up as much as 0.4 percent.

Investors were cautious, however, ahead of all-important U.S. non-farm payroll data later in the day (1330 GMT). The report is expected to show the world's largest economy stopped shedding jobs last month for the first time since it fell into recession two years ago.

Expectations that the job report will point to an improving U.S. economy have helped lift the dollar to a four-month high against the yen.

Japan's Nikkei average rose 1.1 percent, with exporters such as Honda Motor Co (7267.T) buoyed by expectations that yen weakness will make their products more competitive, while memory chip-related stocks climbed on growing global demand for high-tech products. Honda shares jumped 3 percent.

"Shares of exporters will likely continue to fare well for a while, helped by the weakening yen," said Kenichi Hirano, operating officer at Tachibana Securities.

The MSCI index of Asia Pacific stocks outside Japan edged up 0.3 percent (.MIAPJ0000PUS) but was still off its 17-month highs hit earlier this week.

A similar Thomson Reuters index (.TRXFLDAXPU) rose nearly 0.6 percent.

However, fears that Beijing may be getting ready to use more forceful measures to fight inflation hurt investor sentiment in China and Hong Kong.

The central bank surprised markets on Thursday by raising the interest rate on its three-month bills for the first time since August.

The Shanghai Composite Index (.SSEC) fell as much as 1 percent at one point before ending the day little changed. The index fell nearly 2 percent on Thursday, its biggest daily percentage drop in two weeks, after the central bank's move.

Hong Kong's Hang Seng index (.HSI) was down 0.2 percent at midday on worries that China will rein in bank lending and property purchases to prevent possible asset bubbles from forming.

Commodity prices extended losses from Thursday as traders feared policy tightening would curb China's enormous appetite for resources from metals to crude oil.

Shanghai copper prices fell 1 percent and zinc futures tumbled their 5 percent daily limit.

Spot gold shed almost 0.9 percent to $1,121.60 per ounce. Bullion prices had climbed 4 percent in the first three trading sessions of 2010 to a three-week.

Crude oil for February delivery was down 40 cents, or 0.5 percent, to $82.26 a barrel, falling further from a 15-month high hit on Wednesday.

DOLLAR FIRM ON ECONOMY, RATE EXPECTATIONS

The dollar hit a fourth-month high against the yen on expectations for an upbeat U.S. jobs report, but briefly gave up some of its gains after new Japanese Finance Minister Naoto Kan said markets should decide exchange rates.

Kan said on Thursday he wanted the yen to weaken to help the country's exporters, raising the possibility of intervention by Japanese authorities and sparking a sell-off in the currency.

The dollar edged up 0.1 percent to 77.977 against a basket of six major currencies (.DXY).

The U.S. dollar also got help from U.S. regulators urging banks to protect themselves against hikes in interest rates, supporting views that the Federal Reserves will start raising interest rates this year.

A strong jobs report would fuel speculation that the Federal Reserve could start tightening policy and perhaps even raise interest rates sooner than expected.

Global investors are increasingly focused on when central banks will unwind emergency growth-stimulus measures put in place during the global financial crisis. Withdrawing them too soon could undermine still fragile economic recoveries, while leaving them in place too long could trigger inflation and potentially sow the seeds of another crisis.

Central banks in South Korea, India and the Philippines have all talked explicitly this week about exit strategies as their economies improve.

(Editing by Kim Coghill)

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Bank of America to pay bonuses close to ’07 levels: report (Reuters)

Thursday, January 7th, 2010 | Finance News

NEW YORK (Reuters) –
Bank of America Corp (BAC.N) will pay its investment bankers bonuses close to the levels of 2007, as it tries to reduce defections following its takeover of Merrill Lynch & Co., the Wall Street Journal said late Thursday.

Citing people familiar with the matter, the paper said on its website some bankers were expected to receive bonuses equal to what they got in 2007, but the overall average was likely to be "somewhat" lower.

Under the basic formula likely to be used, about 25 percent of 2009 bonuses will be paid in cash, with the rest as deferred payments of stock or cash that will vary in value with the company's performance, the Journal said.

Portions of pay for many executives would be subject to clawbacks in the event of future losses, the report added.

Some of the deferred stock would be in the form of "phantom units" subject to fluctuations in the bank's share performance and available in increments over a three-year period, the Journal said.

Bankers expect to be told about their pay in late January or early February. The amounts will be awarded in mid-February.

Bank of America, which received $45 billion in federal bailout money at the height of the financial crisis, was sued by the U.S. Securities and Exchange Commission over accusations it misled shareholders over the bonuses paid by Merrill during the final months of 2008.

According to the SEC, Bank of America, which bought Merrill in September 2008, said in a proxy filing in November of that year that Merrill agreed not to pay bonuses. This was after the bank had already agreed to Merrill paying as much as $5.8 billion.

The bank has argued that shareholders already knew from media reports that Merrill was expected to pay year-end bonuses.

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NY Fed sought to limit AIG bank disclosures (Reuters)

Thursday, January 7th, 2010 | Finance News

WASHINGTON (Reuters) –
The New York Federal Reserve Bank under Timothy Geithner urged insurer AIG in late 2008 to limit disclosures about its payments to banks after getting a $180 billion government bailout, emails released on Thursday showed.

The email exchanges, between the New York Fed and American International Group Inc lawyers, showed that AIG initially proposed disclosing to the U.S. Securities and Exchange Commission in early December 2008 that it would pay counterparties 100 cents on the dollar to liquidate credit default swaps it sold them.

But the decision to pay Goldman Sachs (GS.N), Societe Generale (SOGN.PA) and other global banking giants in full with taxpayer funds was not disclosed by AIG until March 2009, when it announced a $93 billion payoff that stoked public rage over the bailout.

Adding fuel to the fire, Geithner, who by then had become the U.S. Treasury secretary, was forced to allow AIG to pay $165 million in bonuses to top executives of the division that nearly caused its collapse.

Representative Darrell Issa, a California Republican who requested the emails from AIG and made them public, said they show that the New York Fed tried to suppress politically sensitive information about the bailout.

"It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the SEC," he said in a statement. "The American taxpayers, who own approximately 80 percent of AIG, deserve full and complete disclosure under our nation's securities laws, not the withholding of politically inconvenient information."

The emails showed that an explicit reference to counterparties receiving 100 percent of par value and other information on the transaction was crossed-out from a proposed SEC filing that was "marked up" by attorneys working for the New York Fed.

When the regulatory filing, disclosing a deal for the New York Fed's Maiden Lane III fund to take on an additional $16 billion of AIG obligations, was finally made on December 24, 2008, it made no reference to the counterparty payment rate.

Banks ultimately received $27.1 billion in payments from Maiden Lane III to liquidate the credit default swaps -- part of the overall $93 billion AIG payout that critics have labeled a stealth bailout of the institutions.

The New York Fed during Geithner's final weeks at the bank also has been chided for not negotiating hard enough for concessions from the banks. All but one bank refused to offer any discount on their holdings.

Geithner, who was nominated for Treasury secretary in November 2008, has faced a firestorm of criticism on his handling of AIG. He has said there was little leverage to negotiate and that "selectively defaulting" on the obligations could have had disastrous consequences for a financial system in crisis.

Republican Representative Roy Blunt of Missouri said the emails meant Geithner "has some explaining to do."

"Finding out that the leader now responsible for shepherding our economy through these troubled times encouraged bailout recipients to hide the ball is nothing short of stunning," he said in a statement.

Treasury spokeswoman Meg Reilly said the New York Fed loan at the heart of the transaction was on track to be paid back in full with interest. "Somehow the fact that the government's loan is 'above water' gets lost in all the consternation," she said.

SEC REQUESTS COUNTERPARTY DETAILS

The email traffic, which Issa requested from AIG in October, shows that attorneys for the New York Fed requested delays in AIG disclosures to the SEC and sought to delete references to "synthetic" collateralized debt obligations and the list of payments to counterparties.

"We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed," Peter Bazos, a Davis Polk & Wardwell lawyer representing the New York Fed, wrote to AIG attorneys on November 25, 2008. "Please let us know your thoughts in this regard."

Six days after the December 24 filing, the SEC said in a private letter to AIG's then chief executive, Edward Liddy, that the insurer should disclose listings of collateral postings for the swaps and name the bank counterparties that were paid. This led to the March disclosure.

An AIG spokeswoman declined to comment on the matter.

A Davis Polk spokesman could not immediately reached for comment.

Thomas Baxter, the New York Fed's general counsel, said it was appropriate for the bank to weigh in on the disclosures, but the final decision rested with AIG and its lawyers.

"Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress," he said in a statement. "All information was in fact disclosed that was required to be disclosed by the company, showing that counterparties received par value," Baxter said. He did not say when the disclosures were made.

"There was no effort to mislead the public," Baxter said.

(Editing by Padraic Cassidy and Carol Bishopric)

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