Archive for September, 2010

Ireland faces mammoth bank bill, to redraft budget

Wednesday, September 29th, 2010 | Finance News

DUBLIN (Reuters) – Ireland put a 34 billion euros ($46 billion) price on bailing out stricken Anglo Irish Bank (ANGIB.UL) under a worst case scenario, prompting the government to promise on Thursday a new four-year budget plan in November.

Finance Minister Brian Lenihan said additional efforts were required to get the deficit below 3 percent of GDP by 2014 after Ireland's regulator said nationalized Anglo Irish Bank (ANGIB.UL), Allied Irish Banks (ALBK.I) and building society Irish Nationwide all needed additional capital.

Under its base case scenario, the central bank said the Anglo Irish bill was expected to be 29.3 billion euros while Allied Irish Banks (ALBK.I) needed to raise an additional 3 billion euros by the end of the year.

The government may take a majority stake in Allied Irish.

"Today's announcements take the Irish banking system closer to a final resolution of its restructuring, which is a prerequisite for sustained economic recovery," Central Bank Governor Patrick Honohan said in statement.

"The additional budgetary costs -- and in particular the higher debt-to-GDP ratio that is implied -- confirm the need for a reprogramming of the budgetary profile," Honohan said.

The euro slipped in the wake of the announcement about the nationalized lender.

Lenihan said the bank costs would be spread over more than 10 years but said Ireland was likely to take a majority stake in Allied Irish Banks, because it would not be able to conduct a privately underwritten capital raising transaction.

He also said he would raise support for Irish Nationwide Building Society (IRNBS.UL) to 5.4 billion euros from 2.7 billion.

The extra costs for Anglo Irish and Irish Nationwide will push Ireland's debt to GDP ratio to nearly 99 percent this year.

"I think it's bold because what they are doing is really giving us the bad news upfront. I think the market needs to know and here it is," said Padhraic Garvey, rate strategist at ING.

"It's a pretty astonishing deficit number, it's higher than the national debt a few years ago which is an incredible situation to be in," he said.

European Union officials had pressed Dublin to come up with a detailed plan for getting its fiscal gap -- the worst in the bloc -- under control by 2014.


Prime Minister Brian Cowen's government has a wafer-thin majority in parliament and faces a discontented electorate, making it politically difficult to toughen up a budget in December that is already expected to be harsh.

Ireland has already injected nearly 23 billion euros into Anglo Irish Bank.

Irish borrowing costs have climbed to euro lifetime highs and triggered jitters across Europe over as investors craved some certainty about the bill to wind down Anglo Irish.

Cowen was hailed internationally for taking early tough action to tackle Ireland's towering deficit but that goodwill has disappeared as the burden of dealing with the nationalized lender escalated.

Lenihan said Ireland, which is fully funded until late June 2011, had decided to cancel its bond auctions in October and November and would return to the bond markets as normal in early 2011.

Bond traders have said a figure of up to 35 billion euros had been priced into the market after ratings agency S&P said the bill could be that high.

(Reporting by Dublin bureau, writing by Mike Peacock)


China: US bill on yuan would violate WTO rules

Wednesday, September 29th, 2010 | Finance News


BEIJING (AFP) – China said Thursday a bill passed by US lawmakers that could punish Beijing for allegedly manipulating the value of the yuan would violate World Trade Organisation rules.

The comments by commerce ministry spokesman Yao Jian, carried by Xinhua news agency, come after US policymakers overwhelmingly passed a bill Wednesday to punish China for what they called its unfairly undervalued currency.

"It is inconsistent with relevant rules of the World Trade Organisation to conduct an anti-subsidy investigation based on exchange rate reasons," Yao said.

"China has never undervalued its currency in order to gain a competitive advantage. The US cannot use its trade deficit with China as an excuse to adopt trade protectionist measures."

The draft US bill calls on the US government to consider Beijing's currency policy as an improper trade subsidy, and expands the powers of the US Commerce Department by allowing it to slap retaliatory tariffs on Chinese goods.

The House passed the bill by a 348-79 margin, one of its strongest showings against China in years, fuelled by voter anger at the struggling economy and joblessness near 10 percent ahead of November elections.

The US Senate has signalled it will take up a companion bill after the elections, but the legislation's fate is unclear and President Barack Obama has not formally taken a position on whether he supports it.

A group representing US businesses in China on Thursday criticised the bill, saying it puts thousands of American jobs in export-related industries at risk and would not spur growth in the world's biggest economy.

"Blaming China won't help the US economy but this legislation may cost American jobs," John Watkins, chairman of the American Chamber of Commerce in China, said in a statement.

"We call on the US Senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."

Hours before the House vote on Wednesday, China's central bank issued a statement pledging to increase the flexibility of its exchange rate and "gradually improve the exchange rate setting mechanism."

The People's Bank of China's wording was almost identical to that used in a similar pledge in June.

Since then, the yuan has strengthened less than two percent against the greenback, angering critics who claim the currency is undervalued by as much as 40 percent.

The central bank on Thursday set the yuan central parity rate -- the middle of the allowed trading band for the currency -- at 6.7011 to the dollar. The yuan can move up or down 0.5 percent from that rate during the trading day.

That was weaker than the 6.6936 rate set on Wednesday, which was the strongest rate against the greenback since the summer pledge.


Oil hovers below $78 after US crude supply drop

Wednesday, September 29th, 2010 | Finance News


SINGAPORE – Oil prices hovered below $78 a barrel Thursday in Asia after strong gains the previous day on a drop in U.S. crude supplies, a sign demand may be improving.

Benchmark crude for November delivery was down 21 cents to $77.65 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract gained $1.20 to settle at $77.86 on Wednesday.

The Energy Department said commercial crude inventories decreased by 500,000 barrels to 357.9 million barrels, while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast an increase of 2.2 million barrels. The total was about 5.7 percent above year-ago levels.

Crude in storage had increased in recent weeks, dashing investor hopes that demand would rebound as the U.S. economy recovers from last year's recession. Some analysts expect robust demand growth in emerging economies will help offset sluggish consumption in developed countries.

"The rise in U.S. total petroleum inventories to their highest level in over 25 years suggests that the drawdown in OECD inventories to more normal levels will likely take some time," Goldman Sachs said in a report.

"However, we expect the supply-demand balance to continue to tighten in the second half as continued global economic growth continues to strengthen demand."

In other Nymex trading in October contracts, heating oil was steady at $2.191 a gallon and gasoline held at $1.996 a gallon. November natural gas was little changed at $3.966 per 1,000 cubic feet.

In London, Brent crude fell 18 cents to $80.59 a barrel on the ICE Futures exchange.