This article is looking at the most recent scrutiny of credit rating agencies and their role in the financial crisis. Prior to the financial meltdown, bad mortgage investments somehow earned credit ratings that made them look good. All of Wall Street was entitled access to formulas and computer models that derived these credit ratings. The open sharing by the rating agencies gave Wall Street banks this ability to manipulate complex investments deals to produce the desired ratings, “…banks started with the answers and worked backward.”
Goldman Sachs and others had cleverly hired analysts from rating agencies to help design these investment deals. According to this article, rating agencies didn’t suspect any problems before the financial crisis because they assumed housing prices were increasing and that diversified investments compiled of home loans from varying regions would make most complex investments safer. Rating agencies were wrong with these assumptions and this has cost investors billions.
Saturday, April 24, 2010
Stocks headed for gains
According to the news, the stock market is recovering and the overall situation is optimistic; stocks posted modest gains on Thursday as investors still concern about Greece, who officially activated an emergency financial aid package. It is said that, in spite of the financial crisis of Greece, investors remained encouraged by a promising corporate performance.
It is reported that the first-quarter corporate performance is better than expected, with 85% of companies in the S&P 500 beating earnings expectation. For example, after the market closed Thursday, Microsoft posted a higher quarterly profit that exceeds prediction. Also, late Thursday, Amzon.com reported that, earnings jumped 68% compared with that of a year earlier.
Additionally, as for the situation of world markets, the European Share rose solid, while Asian shares closed slightly lower.
It is reported that the first-quarter corporate performance is better than expected, with 85% of companies in the S&P 500 beating earnings expectation. For example, after the market closed Thursday, Microsoft posted a higher quarterly profit that exceeds prediction. Also, late Thursday, Amzon.com reported that, earnings jumped 68% compared with that of a year earlier.
Additionally, as for the situation of world markets, the European Share rose solid, while Asian shares closed slightly lower.
Another bad day for Greece
The downgrading of Greece's bonds has created doubts whether Greece will be able to meet the deadline of May 19th 2010 to cast the 8.5 billion euros in borrowing. Moreover the credit rating agency has rated Greece as A3 which means it's at significant risk. The problem is a chain effect of what happened to Greece last year. The country had $43.2 billion budget deficits which was13.6 % of GDP. In such circumstance, the European Union combined with IMF proposed a rescue plan to help Greece get out the credit crisis. But the way it's bonds being downgraded it's highly likely they won't be able to meet the deadline which will only worsen the situaiton. Hope this articles provides a follow up of Greece's economic crisis.
G-20 Split on the Need for a Global Tax on Banks
This article is discussing the proposal to establish a global tax on banks and the need to charge banks for the cost of government bailouts. The legislative body of the Group of 20 met to discuss this global tax proposal. The Group of 20 is an international gathering that meets to discuss economic issues. The G-20 members represent 19 countries some of which are with the world's biggest industrial and emerging economies, and this includes the European Union. The G-20 makeup 90 percent of the world's gross national product, 80 percent of world trade and two-thirds of total global population.
The G- 20 finance ministers and central bank governors discussed the need for the world’s big economies to synchronize changes in financial regulation. The International Monetary Fund endorsed this proposal to establish a tax on bank profits and executive salaries. Canada, whose banks withstood the crisis, is opposed to this idea. The Obama administration has proposed a $90 billion levy on banks that received the bailout money. The levy would be spaced out over the next 10 years. The absolute goal here is to get banks to hold more capital and prevent future economic disruptions. The bank tax would discourage banks from taking on too much risk and is addressing the public concern for privatized gains that create costs that affect everyone.
The G- 20 finance ministers and central bank governors discussed the need for the world’s big economies to synchronize changes in financial regulation. The International Monetary Fund endorsed this proposal to establish a tax on bank profits and executive salaries. Canada, whose banks withstood the crisis, is opposed to this idea. The Obama administration has proposed a $90 billion levy on banks that received the bailout money. The levy would be spaced out over the next 10 years. The absolute goal here is to get banks to hold more capital and prevent future economic disruptions. The bank tax would discourage banks from taking on too much risk and is addressing the public concern for privatized gains that create costs that affect everyone.
The truth about trade
President Barack Obama has taken an initiative inorder to double the export of United States in the next five years. This according to him would increase the empolyment by 2million jobs. He has created an Export Promotion Cabinet that will work to increase America's export inorder to hold some of the share of the emerging economies.
From the very early semester, we know an increase in export itself doesn't indicate that the economy is doing good. But it's is an indication that there is no problem in the economy. Apart from that since this will create 2million of jobs so this will increase consumtion in the economy and thus the GDP.
Hope this artilce helps to find out more about the new initiative that is being taken.
From the very early semester, we know an increase in export itself doesn't indicate that the economy is doing good. But it's is an indication that there is no problem in the economy. Apart from that since this will create 2million of jobs so this will increase consumtion in the economy and thus the GDP.
Hope this artilce helps to find out more about the new initiative that is being taken.
Portugal's Economy: The Importance of Not Being Greece
I found this article extremely interesting because it shifted focus away from Greece and instead to Portugal. Rather than facing the same fiscal issues as Greece did (and does), Portugal has a growth problem. In short, it's not happening. This is stagnating the economy and causing some economists to view the country as the next Greece. Portugal's GDP growth is well below the euro nation average. According to the article, a slow-moving bureaucracy, inefficient courts, poor schools and state-supported pockets of the economy protected from competition are combining to hold Portugal back. This once more makes me think about Japan and wonder if in fact the Japanese economy will also eventually suffer due to its stagnating economy.
Fed sees signs of improvement
This article discusses the latest edition of the Fed's Beige Book. The release of this Beige Book precedes the Fed's upcoming meeting scheduled for April 27th-28th, where the Fed will discuss policies. At their last meeting, the Fed decided to hold the federal funds rate between 0% and .25%, saying that while economic improvement is evident, especially in manufacturing activity, it is not "self-sustaining." This time around it is possible that they will increase it but the use of weak descriptors in the Beige Book ("somewhat," "softened") suggest that economic conditions still "warrant exceptionally low levels of the federal funds rate for an extended period."
Chile Plans Peso, Dollar Debt
This article talks about how the Chilean Finance Minister has decided to make a commitment to the market. He has decided to make 1.5 billion worth or bonds into the global market. This is also the fist time that the bonds are peso dominated, which is a way of making a statement to the chilean peso. This is good to see for their economy that the finance minister believes in their economy.
How long should we help the unemployed?
"Two years of unemployment benefits just isn't enough for some jobless Americans." Congress has extended unemployment insurance to an unprecedented 99 weeks. This is not proving sufficient for hundreds of thousands of people who say they simply cannot find a job in this weak economy. Another extension would be the worst thing for the unemployed. It would likely further delay these Americans' re-entry into the workforce.
They're hiring!
This is an article with 20 different slides discussing different companies that are hiring. These Fortune 100 employers have at least 200 openings each, totaling more than 60,000 jobs. Company representatives talk about what they're looking for and secrets to getting hired.
Lehman Asks for Dismissal of Japanese Firm’s Claims
Charged with recovering money for the investment bank’s creditors, the Lehman estate is trying to trim hundreds of billions of dollars of claims that it says are invalid. The estate is also seeking to reclaim $11 billion of assets from Barclays Capital, the British bank that acquired the bulk of Lehman’s North American business days after it filed for bankruptcy. The estate claims that Barclays Capital improperly reaped a windfall that was hidden from the bankruptcy court as it negotiated the sale.
Greece, Out of Ideas, Requests Global Aid
Greece was forced to make the request after investors shunned the country’s bond offerings because of concern about its runaway debt. Those worries intensified Thursday when the European statistics agency raised its estimate for Greece’s debt above the government’s most recent figures, pushing the yield on Greek bonds to nearly 9 percent.
Summer Fuel Price Outlook
Summer Fuel Price Outlook
Last week President Obama announced a plan to begin offshore drilling for oil and natural gas in the Atlantic, along the Gulf of Mexico and near Alaska.
His proposal, which he says will help meet the nation's growing energy needs without further relying on foreign producers or harming the environment, has spurred backlash from both supporters and opponents.
But according to Neil Gamson, an energy fuel price analyst for the U.S. Energy Information Administration (EIA), it'll be a long time before American drivers will see any effects from the new drilling--if it happens at all.
Gas Prices On The Rise
Industry insiders have a pretty good idea of what’s expected in the months ahead: a rise in gas prices. Regular-grade gas prices will average $2.92 per gallon during this summer's driving season (from April 1 to Sept. 30), according to the EIA's April 2010 Short-Term Energy and Summer Fuels Outlook. That's up 48 cents from $2.44 per gallon last summer--and higher than the $2.86 current national average--but nowhere near the $4-and-up prices of July 2008.
In some states, like Alaska and Hawaii, average gas prices will likely exceed $3.50 per gallon this summer, while others (Texas, Oklahoma) will see average highs that don't cross the $3 mark. All told, average annual prices for regular gas will likely reach $2.84 this year, up from $2.35 in 2009, and hit $2.96 by 2011, according to the report. Projected annual average diesel prices per gallon are $2.95 in 2010 and $3.12 in 2011.
State-By-State: What You’re Paying Now
The biggest factor in determining gas prices is the price of crude: It typically makes up between 65% and 70% of the total cost of one gallon of regular gasoline. Taxes contribute about 15% of the cost, distribution and marketing contribute 10%, and refining contributes about 6%.
The Worst-Made Cars On The Road
Crude oil prices act like other commodities and experice wide price swings due to OPEC supply and consumer demand. (The summer season typically increases demand for gasoline--this year an increase of 0.5% is expected over last summer's demand.)
"In general, this summer calls for modest growth in motor gasoline and distillate fuel markets, reflecting the stimulus of moderate economic growth and the constraining effects of higher crude oil and product prices compared with last summer," the report says. "As long as the global economy continues to recover, and the Organization of the Petroleum Exporting Countries remains satisfied with its constrained supply targets, global oil markets should remain in this situation."
Gamson says fuel energy price forecasts can indeed be uncertain. That said, crude will probably average more than $81 per barrel this summer and just under $81 per barrel for the entire year. Last summer, crude prices didn't go above $74 a barrel. (It average $61.66 per barrel for the whole year, a 38.1% decline from the $99.57 average of 2008.) He expects it to cost $85 per barrel by the end of 2011.
How To Get By On Less Gas
Cities in states where distribution and taxes are especially difficult and high, respectively, tend to have higher gas prices. Right now, Honolulu, Anchorage and San Francisco have the highest average gas prices in the nation, at $3.424, $3.382 and $3.147, respectively. On a regional basis, as is often the case, the West Coast has the highest average gas prices, followed by the Rocky Mountain region, the Central Atlantic and the Midwest. The Gulf Coast has the lowest average prices in the region, averaging $2.71 per gallon compared with a national average of $2.82.
Californians and Idahoans, though, do have some options for eking out the most value from every dollar they spend on gas. Christie Hyde, a spokesperson for AAA, says common-sense driving pays off big time.
"The biggest factor in getting better fuel economy is driving conservatively," Hyde says. "You don't have to do really extreme hypermiling things or anything like that that are dangerous. Just coast to a stop; don't rush into the red light and slam on the brake."
The other obvious answer, she says, is to buy a small-engined vehicle. According to a report AAA released last week, the average cost to own and operate a mid-level sedan has risen 4.8% since last year, mostly due to higher gas prices. It costs 56.2 cents per mile to drive a sedan like the Toyota Camry or Ford Fusion--but it costs 43.3 cents to drive a small sedan like the Honda Civic or Nissan Versa. Over 15,000 miles of driving, that's a cost of $8,436 compared to $6,496.
But large sedans and SUVs come out the worst in this tally. According to the AAA report, a 4WD SUV costs 73.9 cents to driver per mile, or $11,085 for one year. Large sedans cost 70.2 cents to drive for a total cost of $10,530 per year. SUVs also depreciate much more than small cars, making them even more expensive to own.
Consumers would do well to note the difference, especially this summer, Hyde says: "So many people when they go to buy a car, all they think about is the sticker price, and there's just so much more to it. You need to consider all of this."
Last week President Obama announced a plan to begin offshore drilling for oil and natural gas in the Atlantic, along the Gulf of Mexico and near Alaska.
His proposal, which he says will help meet the nation's growing energy needs without further relying on foreign producers or harming the environment, has spurred backlash from both supporters and opponents.
But according to Neil Gamson, an energy fuel price analyst for the U.S. Energy Information Administration (EIA), it'll be a long time before American drivers will see any effects from the new drilling--if it happens at all.
Gas Prices On The Rise
Industry insiders have a pretty good idea of what’s expected in the months ahead: a rise in gas prices. Regular-grade gas prices will average $2.92 per gallon during this summer's driving season (from April 1 to Sept. 30), according to the EIA's April 2010 Short-Term Energy and Summer Fuels Outlook. That's up 48 cents from $2.44 per gallon last summer--and higher than the $2.86 current national average--but nowhere near the $4-and-up prices of July 2008.
In some states, like Alaska and Hawaii, average gas prices will likely exceed $3.50 per gallon this summer, while others (Texas, Oklahoma) will see average highs that don't cross the $3 mark. All told, average annual prices for regular gas will likely reach $2.84 this year, up from $2.35 in 2009, and hit $2.96 by 2011, according to the report. Projected annual average diesel prices per gallon are $2.95 in 2010 and $3.12 in 2011.
State-By-State: What You’re Paying Now
The biggest factor in determining gas prices is the price of crude: It typically makes up between 65% and 70% of the total cost of one gallon of regular gasoline. Taxes contribute about 15% of the cost, distribution and marketing contribute 10%, and refining contributes about 6%.
The Worst-Made Cars On The Road
Crude oil prices act like other commodities and experice wide price swings due to OPEC supply and consumer demand. (The summer season typically increases demand for gasoline--this year an increase of 0.5% is expected over last summer's demand.)
"In general, this summer calls for modest growth in motor gasoline and distillate fuel markets, reflecting the stimulus of moderate economic growth and the constraining effects of higher crude oil and product prices compared with last summer," the report says. "As long as the global economy continues to recover, and the Organization of the Petroleum Exporting Countries remains satisfied with its constrained supply targets, global oil markets should remain in this situation."
Gamson says fuel energy price forecasts can indeed be uncertain. That said, crude will probably average more than $81 per barrel this summer and just under $81 per barrel for the entire year. Last summer, crude prices didn't go above $74 a barrel. (It average $61.66 per barrel for the whole year, a 38.1% decline from the $99.57 average of 2008.) He expects it to cost $85 per barrel by the end of 2011.
How To Get By On Less Gas
Cities in states where distribution and taxes are especially difficult and high, respectively, tend to have higher gas prices. Right now, Honolulu, Anchorage and San Francisco have the highest average gas prices in the nation, at $3.424, $3.382 and $3.147, respectively. On a regional basis, as is often the case, the West Coast has the highest average gas prices, followed by the Rocky Mountain region, the Central Atlantic and the Midwest. The Gulf Coast has the lowest average prices in the region, averaging $2.71 per gallon compared with a national average of $2.82.
Californians and Idahoans, though, do have some options for eking out the most value from every dollar they spend on gas. Christie Hyde, a spokesperson for AAA, says common-sense driving pays off big time.
"The biggest factor in getting better fuel economy is driving conservatively," Hyde says. "You don't have to do really extreme hypermiling things or anything like that that are dangerous. Just coast to a stop; don't rush into the red light and slam on the brake."
The other obvious answer, she says, is to buy a small-engined vehicle. According to a report AAA released last week, the average cost to own and operate a mid-level sedan has risen 4.8% since last year, mostly due to higher gas prices. It costs 56.2 cents per mile to drive a sedan like the Toyota Camry or Ford Fusion--but it costs 43.3 cents to drive a small sedan like the Honda Civic or Nissan Versa. Over 15,000 miles of driving, that's a cost of $8,436 compared to $6,496.
But large sedans and SUVs come out the worst in this tally. According to the AAA report, a 4WD SUV costs 73.9 cents to driver per mile, or $11,085 for one year. Large sedans cost 70.2 cents to drive for a total cost of $10,530 per year. SUVs also depreciate much more than small cars, making them even more expensive to own.
Consumers would do well to note the difference, especially this summer, Hyde says: "So many people when they go to buy a car, all they think about is the sticker price, and there's just so much more to it. You need to consider all of this."
Geithner: Bailout to cost less than expected
The government’s bailout of the financial system would amount to less than a third of what the Obama administration originally expected, according to Treasury Secretary Timothy Geithner.
One of the good things is that it shows the economic situation now is recovering faster. Also, the less the government spends the less the private business investment will be crowded out. And the possible high inflation after the economic recovery will now be controlled at a even lower rate.
Friday, April 23, 2010
New-home sales rise fastest in 47 years
The author wrote that new home sales sales in the US in the most recent year had risen fastest in the past 47 years.The reason, however, is not that the economy is improving dramatically. But that the tax credit was about to expire so buyers snatched up properties ahead of the expire day.
However, there are now fewer home to buy, as indicated by the author. Although new-home sales in March exceeded analyst expectations, sales are still trending near record lows. Oversupply still exists and the prices are under pressure.
However, there are now fewer home to buy, as indicated by the author. Although new-home sales in March exceeded analyst expectations, sales are still trending near record lows. Oversupply still exists and the prices are under pressure.
Obama to Wall St.: ‘Join Us, Instead of Fighting Us’
This article is interesting because it shows how politics have real effects on the financial sector. Obama, whose poll numbers have been dropping significantly, has ramped up his efforts to regulate Wall Street in attempt to tap into the anti-establishment sentiment of the country. However, financial reforms which have great effect should not be made as part of a political strategy to win favor before midterm elections.
Sharp Rise in New-Home Sales in March
There is finally good news coming from the real estate market! Sales of new homes increased by 27% last month. Economists suspect potential home buyers are trying to take advantage of the home buying credit that will expire at the end of the month. However, the number of new homes for sale only fell by 2%, which means that it would still take seven months to exhaust the supply of current homes for sale. Regardless, this is good news and is reflective of the overall improvement of the economy. Orders for manufactured goods are on the rise and last month there were the most orders since the recession began.
Home Sales for March jump 27%
Good news for the housing market, sales jumped for the month of march (up 27%). This is the first month in four months with positive numbers. This could because consumers wanted to buy homes before the tax credit expiration.
Greece Aid Plea Lifts European Stocks
Greece's prime minister requested the activation of a joint European Union-International Monetary Fund rescue package, making it the first euro-zone bailout in history. As a result, European stocks rose. Despite this relief, there is speculation that Greece's move to tap the aid package merely opens the door to more problems. Should the European Union continue to bailout Greece?
Thursday, April 22, 2010
A Routine Deal Became an $840 Million Mistake
A Routine Deal Became an $840 Million Mistake
By LANDON THOMAS Jr.
LONDON — To the bankers here, it seemed like a chance to make a quick $7 million — risk free.
Instead, their sweet deal turned into a $840.1 million debacle.
In May 2007, a handful of bankers in London agreed to take a role in a complex mortgage investment being devised by Goldman Sachs.
That decision set off a chain of events that left the Royal Bank of Scotland Group — to many Britons, a symbol of the excesses that brought the financial world to its knees — as the biggest loser in the deal that has now drawn Goldman into a legal maelstrom.
How R.B.S. became entangled in this investment, Abacus 2007-AC1, is a story of these financial times. What is perhaps most unusual about the deal, and the London bankers’ role in it, is that it was so routine. Abacus, which is now at the center of accusations that Goldman defrauded investors, was one of countless mortgage deals that ricocheted between Wall Street and Europe during the heady days of the boom.
Indeed, after R.B.S., the biggest loser in Abacus was IKB Deutsche Industriebank of Germany, which was a big player in such mortgage investments.
Executives involved in the transaction say that while the fine print was scoured intently, the larger question of why the bank was increasing its exposure to an increasingly tenuous American housing market was given short shrift.
The $840.1 million that Abacus cost R.B.S. represented a small part of the crippling losses that led the British government to rescue the bank in the costliest bailout of any bank worldwide. Today R.B.S. is all but nationalized; the British government owns about 84 percent of it.
Gordon Brown, Britain’s prime minister, has called for an investigation into the Abacus deal, as has the German chancellor, Angela Merkel.
But R.B.S. became involved in Abacus almost by accident. Bankers working in London for ABN Amro, a big Dutch bank that was later acquired by R.B.S., agreed to stand behind a portfolio of American mortgage investments that were used in the deal. ABN Amro shouldered almost all of the risks for what, in retrospect, might seem like a small reward: that $7 million. When the housing market fell and Abacus collapsed, R.B.S. ended up on the hook for most of the losses.
For ABN Amro, Abacus was just another product on the Wall Street assembly line. Like its counterparts in the United States, the Dutch bank seized on the mortgage mania to expand what was, at the time, a highly lucrative business.
How much its bankers earned, in salaries and bonuses, is not known. But at many banks, bonuses were often based on profits that turned out to be ephemeral, much like the profits that ABN Amro initially reaped on Abacus.
When the Abacus investment soured, Royal Bank of Scotland, under the terms of the deal, was obligated to cover the $840.1 million in losses. The British bank paid that sum to Goldman Sachs, which, in turn, paid John A. Paulson, the hedge fund manager who had bet against the deal. According to the Securities and Exchange Commission, Goldman had devised the investment to fail from the start so that Mr. Paulson could wager against it. Goldman has vowed to fight the claims, which it has called baseless.
Mr. Paulson was not named in the S.E.C.’s civil fraud suit.
The ABN Amro executives who were involved in the Abacus deal were, like Abacus itself, largely unknown. Many focused on “exotics,” that is, complex instruments that are virtually unheard of outside of financial circles.
These executives included Mitchell Janowski, the head of credit trading exotics at ABN; Richard Whittle, global head of credit and alternatives trading; and Stephen Potter on the trading desk, whose job it was to present the trade to ABN’s credit and risk committee.
At the furthest remove from the trade was Robert McWilliam, who was in charge of assessing the credit quality of ABN’s trading counterparties.
According to people involved in the transaction, Goldman and ACA Capital, a bond insurance company that also played a central part in Abacus, contacted ABN Amro because they needed a big bank to offset ACA’s risk in the deal.
Some at ABN Amro questioned ACA’s second-tier status in the industry, as well as signs that the housing market was in trouble. But the Dutch bank was happy to take the easy $7 million upfront fee for what its executives concluded was a relatively small risk. The bank’s credit committee signed off.
In its role, ABN Amro essentially agreed to pay off bets on the mortgage investments linked to Abacus in the event hard-pressed homeowners defaulted on their mortgages and the investments declined in value. In return, the bank would collect its $7 million.
But, almost from the start, Abacus began to fall apart. More than 80 percent of the mortgage securities behind the deal were soon downgraded as the crisis in the housing market spread. Goldman itself claims that it lost about $100 million on the deal.
Some inside ABN Amro were leery of Abacus early on. Indeed, several traders there immediately bought credit default swaps — insurance-like instruments — from Goldman Sachs to hedge their exposure to ACA.
After R.B.S.’s purchase of ABN Amro became official in 2008, most of the ABN team went their separate ways. Only Mr. McWilliam, who focuses on counterparty risk, remains at the bank.
Mr. Janowski lives in Boulder, Colo., where he trades independently. He declined to comment on his role. Mr. Potter and Mr. Whittle could not be reached. A spokesman for R.B.S. said Mr. McWilliam declined to comment.
Former ABN executives were divided on the merits of the case against Goldman. One person involved in the deal said that if ABN Amro executives had known of Mr. Paulson’s role in Abacus they might have had second thoughts about the deal.
But another former executive insisted that ACA, as an expert in this area, had a chance to reject the securities that Mr. Paulson had chosen for the deal.
“These guys were experts,” this person said. “If they were so good and thought the market was going to go to hell, they should not have put their name to it.”
By LANDON THOMAS Jr.
LONDON — To the bankers here, it seemed like a chance to make a quick $7 million — risk free.
Instead, their sweet deal turned into a $840.1 million debacle.
In May 2007, a handful of bankers in London agreed to take a role in a complex mortgage investment being devised by Goldman Sachs.
That decision set off a chain of events that left the Royal Bank of Scotland Group — to many Britons, a symbol of the excesses that brought the financial world to its knees — as the biggest loser in the deal that has now drawn Goldman into a legal maelstrom.
How R.B.S. became entangled in this investment, Abacus 2007-AC1, is a story of these financial times. What is perhaps most unusual about the deal, and the London bankers’ role in it, is that it was so routine. Abacus, which is now at the center of accusations that Goldman defrauded investors, was one of countless mortgage deals that ricocheted between Wall Street and Europe during the heady days of the boom.
Indeed, after R.B.S., the biggest loser in Abacus was IKB Deutsche Industriebank of Germany, which was a big player in such mortgage investments.
Executives involved in the transaction say that while the fine print was scoured intently, the larger question of why the bank was increasing its exposure to an increasingly tenuous American housing market was given short shrift.
The $840.1 million that Abacus cost R.B.S. represented a small part of the crippling losses that led the British government to rescue the bank in the costliest bailout of any bank worldwide. Today R.B.S. is all but nationalized; the British government owns about 84 percent of it.
Gordon Brown, Britain’s prime minister, has called for an investigation into the Abacus deal, as has the German chancellor, Angela Merkel.
But R.B.S. became involved in Abacus almost by accident. Bankers working in London for ABN Amro, a big Dutch bank that was later acquired by R.B.S., agreed to stand behind a portfolio of American mortgage investments that were used in the deal. ABN Amro shouldered almost all of the risks for what, in retrospect, might seem like a small reward: that $7 million. When the housing market fell and Abacus collapsed, R.B.S. ended up on the hook for most of the losses.
For ABN Amro, Abacus was just another product on the Wall Street assembly line. Like its counterparts in the United States, the Dutch bank seized on the mortgage mania to expand what was, at the time, a highly lucrative business.
How much its bankers earned, in salaries and bonuses, is not known. But at many banks, bonuses were often based on profits that turned out to be ephemeral, much like the profits that ABN Amro initially reaped on Abacus.
When the Abacus investment soured, Royal Bank of Scotland, under the terms of the deal, was obligated to cover the $840.1 million in losses. The British bank paid that sum to Goldman Sachs, which, in turn, paid John A. Paulson, the hedge fund manager who had bet against the deal. According to the Securities and Exchange Commission, Goldman had devised the investment to fail from the start so that Mr. Paulson could wager against it. Goldman has vowed to fight the claims, which it has called baseless.
Mr. Paulson was not named in the S.E.C.’s civil fraud suit.
The ABN Amro executives who were involved in the Abacus deal were, like Abacus itself, largely unknown. Many focused on “exotics,” that is, complex instruments that are virtually unheard of outside of financial circles.
These executives included Mitchell Janowski, the head of credit trading exotics at ABN; Richard Whittle, global head of credit and alternatives trading; and Stephen Potter on the trading desk, whose job it was to present the trade to ABN’s credit and risk committee.
At the furthest remove from the trade was Robert McWilliam, who was in charge of assessing the credit quality of ABN’s trading counterparties.
According to people involved in the transaction, Goldman and ACA Capital, a bond insurance company that also played a central part in Abacus, contacted ABN Amro because they needed a big bank to offset ACA’s risk in the deal.
Some at ABN Amro questioned ACA’s second-tier status in the industry, as well as signs that the housing market was in trouble. But the Dutch bank was happy to take the easy $7 million upfront fee for what its executives concluded was a relatively small risk. The bank’s credit committee signed off.
In its role, ABN Amro essentially agreed to pay off bets on the mortgage investments linked to Abacus in the event hard-pressed homeowners defaulted on their mortgages and the investments declined in value. In return, the bank would collect its $7 million.
But, almost from the start, Abacus began to fall apart. More than 80 percent of the mortgage securities behind the deal were soon downgraded as the crisis in the housing market spread. Goldman itself claims that it lost about $100 million on the deal.
Some inside ABN Amro were leery of Abacus early on. Indeed, several traders there immediately bought credit default swaps — insurance-like instruments — from Goldman Sachs to hedge their exposure to ACA.
After R.B.S.’s purchase of ABN Amro became official in 2008, most of the ABN team went their separate ways. Only Mr. McWilliam, who focuses on counterparty risk, remains at the bank.
Mr. Janowski lives in Boulder, Colo., where he trades independently. He declined to comment on his role. Mr. Potter and Mr. Whittle could not be reached. A spokesman for R.B.S. said Mr. McWilliam declined to comment.
Former ABN executives were divided on the merits of the case against Goldman. One person involved in the deal said that if ABN Amro executives had known of Mr. Paulson’s role in Abacus they might have had second thoughts about the deal.
But another former executive insisted that ACA, as an expert in this area, had a chance to reject the securities that Mr. Paulson had chosen for the deal.
“These guys were experts,” this person said. “If they were so good and thought the market was going to go to hell, they should not have put their name to it.”
Wednesday, April 21, 2010
Flights resume
The International Air Transport Association has lifted the ban on flights after safety tests that showed plane engines could cope in areas of low density ash.
Global airlines have lost about $1.7bn (£1.1bn) of revenue as a result of the disruptions caused by the Icelandic volcanic eruption
Over 1.2 million passengers a day were affected.
But after a six day shutdown in the UK, flights are taking off again.
And while the airlines have faced many costs, they have also been able to save, approximately $110m a day on fuel while planes were not flying.
Global airlines have lost about $1.7bn (£1.1bn) of revenue as a result of the disruptions caused by the Icelandic volcanic eruption
Over 1.2 million passengers a day were affected.
But after a six day shutdown in the UK, flights are taking off again.
And while the airlines have faced many costs, they have also been able to save, approximately $110m a day on fuel while planes were not flying.
Untangling the bets that snagged Wall Street
This is a good article relating to what we have discussed in class this week. It briefly summarizes how the SIVs or derivatives multiplied the effect of the declining housing market. The rest of it focuses on possible new regulations that are aimed at preventing a similar crisis in the future. The main idea is to have more transparency on derivative products and even possibly have them traded on an exchange.
Iceland volcano ash costing U.S. airlines $20 million a day
In this article it explains how the airlines in the US are being affected by the Iceland Volcano explosion. As many of you know, the explosion has grounded thousands of flights all over the world. The major airlines in the US (American Airlines, Continental, US Airways, Delta Airlines) are collectively gathering losses averaging up to $21.9 million dollars a day. The company that is taking the biggest hit is Delta Airlines since they have a large business in Europe. They are losing $6.5 million a day. To add, FedEx and UPS are experiencing delays in their international shipments.
It is said that 63,000 flights have been canceled in Europe as of this past Sunday. If $21.9 million is bad enough, European airlines are losing $200 million a day due to the explosion. This is catastrophic to the airline industry with no estimate to when this will blow over.
Morgan Stanley easily tops estimates
This article discusses Morgan Stanley's strong profit. The article is similar to my post about Citi, where the profits have exceeded the estimates. I thought it would be good to follow - up with another company doing well and showing more economic stability.
Goldman Sachs Says SEC Case Hinges on Actions of One Employee
The article states that the U.S. fraud case against Goldman Sachs can be blamed on one man. Last week the SEC sued the firm for mortgage-linked securities fraud, Goldman now says Fabrice Tourre, a 31 year old GS executive is the man to blame for the fraud. He was accused of misleading investors about the investments that the SEC claimed was unlawful and unethical.
Tourre says "Goldman's board knew what they were doing". It remains to be seen who will bear the final blame to this lawsuit.
Financial Debate Renews Scrutiny on Size of Banks
The largest financial institutions have only grown bigger, mainly as a result of government-brokered mergers. There is no attempt to break up big banks as a means of creating a less risky financial system. Richard W. Fisher said, "The disagreeable but sound thing to do regarding institutions that are too big to fail is to dismantle them over time into institutions that can be prudently managed and regulated across borders." This means that banks are to big to fail. The government helped them and made them even bigger and cushioned them. It is now even harder for smaller banks. Maybe the thing to do is break them up. However, it will be hard during this when the United States is in a great recession. These banks are inefficient and may be valuable if they were smaller then making them bigger.
Tuesday, April 20, 2010
Fixing finance--Synthetic, derivative
This article talked about the financial reform. Both parties are seeking a reform in the financial system. A lawsuit brought against Goldman Sachs by the Securities and Exchange Commission has boosted expectations that a reform bill will pass. A slew of big financial firms have just announced stellar results, including Citigroup (which announced a $4.4 billion first-quarter profit this week) and Goldman (which announced a $3.46 billion profit), turning the heat up further. President Barack Obama will make a speech in New York on Thursday outlining his case for reform.
However, several aspects of the bill still invite debate. Perhaps most notable is the proposal for a $50 billion fund, paid for by the banks, to keep banks in trouble from becoming a systemic risk to the financial system. The other big point for debate is a new consumer financial-services authority. The third sticking-point is over derivatives. Both the banks and Republicans are opposed to the bill's requirement that most derivatives trading be moved from dealer markets to regulated exchanges.
However, several aspects of the bill still invite debate. Perhaps most notable is the proposal for a $50 billion fund, paid for by the banks, to keep banks in trouble from becoming a systemic risk to the financial system. The other big point for debate is a new consumer financial-services authority. The third sticking-point is over derivatives. Both the banks and Republicans are opposed to the bill's requirement that most derivatives trading be moved from dealer markets to regulated exchanges.
Apple Says Profit Rises 90 Percent on IPhone Sales
This is an article that shows the amazing growth that Apple has seen in the past quarter. I think this reflects an increase in consumer confidence. However, I believe it is important to keep in mind that last quarter was a difficult time for many companies and any growth that is being seen may be a result of a poor previous quarter. Never the less, Apple's Stock is currently at its all time highs, trading at $244.59.
U.S. Treasury Seeks to Ease Path for Bank Seizures in Dodd Bill
This article dissects the complexities of the new regulatory bill that the Obama administration is trying to push through that would cause the largest restructuring of Wall Street regulation since 1930. The current stagnancy is attributed to a particular part of the bill regarding control of large financial institutions during bankruptcy or failure. The current proposal prohibits the dismantling of banks that may hurt the system and the US Treasury Department would like to have the power to control the amount of money injected into these troubled institutions while they determine their place in the market. Both the Treasury Department and the Senate are working hard together to perfect the plan while still maintaining a stern stance on the financial industry.
A Difficult Path in Goldman Case
The Securities and Exchange Commission has filed a lawsuit against Goldman Sachs for fraud, specifically claiming that Goldman misrepresented how their product was created. This case is unique because fraud cases usually claim that the defendant misrepresented the product to buyers, not how it was created. The SEC claims that in 2007, Goldman sold to investors a package of securities picked by one of their hedge fund managers, John Paulson. While Goldman was promoting the package, Paulson was betting against the very securities he chose for the package. In order to win the case, the SEC has to prove that Goldman misled investors and that if the information had been provided to investors, they would not have purchased the package. This case has large implications for the future of securities law.
Monday, April 19, 2010
Too big to be nailed
This is a good article that talks about crimes committed be US firms other than financial institutions. Especially with recent events, most corruption and illegal activity new has hovered around banks and other financial services (Goldman for example). The article goes on to talk about how the US gov encouraged other nations to crack down on bribery cases and the ramifications of this.
A Controversial New Policy Tool
This article talks about the Value-added taxes that are being used in most developed countries that the states might have to start using as-well. A value added tax is a tax that is collected throughout the entire process of production until the sale of the final good. There are some advantages to this policy tool but there is a big problem with it and it is that it is regressive. Poor people will proportionally pay a higher percentage or their salary as taxes while buying the finalized goods. There will be much disapproval by the working class and by a large proportion of the liberal government representatives. It will be interesting to see if this policy tool will begin to be used in the United States in order to try to move the deficit closer to balance.
Great time to be Graduating
According to this article it is a great time to be younger worker with tons of drive. This article explains how companies where downsizing are keeping the cheaper and younger employees who go above and beyond expectations. Considering all of us our currently in school it is possible that we will be entering the workforce at a perfect time for college graduates.
Economists See Limited Volcano Fallout for U.K.
Europe's economy took a hit after the Icelandic volcano spewed ash, forcing Europe's airspace to close. Tourists can't enter, companies can't get supplies or ship goods out, and tons of meetings have been canceled. "London’s Heathrow airport, one of the world’s busiest hubs, is still out of commission. The International Air Transport Association estimates that airlines around the world are losing more than $200 million a day."
Stocks, Commodities Dive as Goldman Sued, China Curbs Loans
The article describes why and how Goldman Sachs Group was sued by the Security and Exchange Commission on charges regarding collateralized debt obligations. GS dropped more than 13 percent, erasing the past 2 months of gains. The article also describes how Asian markets have declined the most in two months.
Citi wows Street with $4.4 billion profit
The article discusses the surprising results of Citi's performance with a $4.4 billion profit. The results are far above what Wall Street had anticipated. Citi claims that fundamentally, it is a different company from what it was two years ago. This is yet another positive step in the direction of economic stability.
Yes, 47% of Households Owe No Taxes. Look Closer.
-really interesting article about our current tax situation. It says that taxes will probably be a really big issue this next year and I agree that there are going to be a lot of tax changes coming up.
China Stocks Retreat Most in Six Weeks; Developers Lead Decline
China Stocks Retreat Most in Six Weeks; Developers Lead Decline
April 18, 2010, 11:30 PM EDT
April 19 (Bloomberg) -- China’s stocks declined, sending the benchmark index to its biggest decline in six weeks, on concern economic growth will slow after the government stepped up measures to curb gains in the property market.
A gauge tracking real-estate stocks tumbled the most in three months, led by China Vanke Co. and Poly Real Estate Group Co., after the State Council ordered banks to stop lending to third-home buyers. Industrial & Commercial Bank of China Ltd., the country’s largest lender, slid 2 percent. Anhui Conch Cement Co. led losses by construction material companies.
The latest property curbs “probably will weigh on sentiment for a while,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees $90 billion.
The Shanghai Composite Index fell 59.43, or 1.9 percent, to 3,070.88 at 10:25 a.m., the most since March 4. The gauge, Asia’s worst-performing stock market, has lost 6.3 percent in 2010 as the government unwound monetary stimulus to avert asset bubbles after banks extended record credit last year. The CSI 300 Index slid 2.3 percent to 3,279.15. All four contracts on the CSI 300 declined on the China Financial Futures Exchange.
Stocks across the Asian region fell, dragging the MSCI Asia Pacific Index down by the most in two months, on concern a U.S. suit against Goldman Sachs Group Inc. signals increasing regulatory scrutiny on financial companies.
Vanke slumped 3.5 percent to 8.72 yuan, the most since Dec. 22. Poly Real Estate declined 4.4 percent to 17.83 yuan, set for its lowest close in a year. The Se Shang Property Index slid 3.5 percent, the biggest drop since Jan. 26.
Property Measures
China told banks to stop loans for third-home purchases in cities with excessive property price gains and suspend lending to non-residents without tax returns or proof of social security contributions in that city, according to a statement by the State Council on April 17. Local governments may also limit the number of units that can be bought, according to the statement.
“These are the most draconian measures on the property market in history,” Jun Ma, Deutsche Bank’s Greater China chief economist, wrote in a note to clients today. Chinese press reports point to “panic selling” by investors who own more than one home in Shanghai, Beijing and Shenzhen, he said.
China’s latest moves to cool its property market come after previous measures failed to slow gains in housing prices, which rose at a record 11.7 percent in March. The world’s third- biggest economy this year told banks to set aside more deposits as reserves, raised mortgage rates and re-imposed a sales tax on homes.
Bank Losses
Prices of mid- and high-end properties may tumble 20 percent and monthly transaction volumes may slide more than 50 percent in the coming months, Ma said.
Banks declined on concern non-performing loans may increase. Industrial & Commercial Bank of China Ltd. lost 2 percent to 4.80 yuan. Bank of China Ltd., the third-largest lender, retreated 1.9 percent to 4.12 yuan. Industrial Bank Co. dropped 6.8 percent to 31.49 yuan, the most since Aug. 31.
“The latest measures on third-home mortgages will exacerbate concerns of asset quality and lower earnings estimates,” Chen Qi, a Shanghai-based analyst at CSC Securities HK Ltd., said in a telephone interview today.
Baoshan Iron & Steel Co., the nation’s largest steelmaker, slumped 4.3 percent to 7.31 yuan. Anhui Conch Cement, the largest cement producer, plunged 4.4 percent to 40 yuan. Jiangxi Copper Co. slipped 3 percent to 35.78 yuan. PetroChina dropped 1.8 percent to 12.81 yuan.
Gold futures slumped 2 percent, the most since Feb. 4, to $1,136.90 an ounce in New York. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.2 percent to 276.29, the biggest decline since Feb. 25.
Investors should avoid property, banking, steel and construction material stocks as market reaction to the “austerity” measures may be negative in the near term, Jerry Lou and Allen Gui, Morgan Stanley analysts, wrote in a note to clients. They said a property tax is “finally coming close.”
Shanghai may tax individuals who own multiple properties, the China Times reported, citing an unidentified person close to the Ministry of Finance.
April 18, 2010, 11:30 PM EDT
April 19 (Bloomberg) -- China’s stocks declined, sending the benchmark index to its biggest decline in six weeks, on concern economic growth will slow after the government stepped up measures to curb gains in the property market.
A gauge tracking real-estate stocks tumbled the most in three months, led by China Vanke Co. and Poly Real Estate Group Co., after the State Council ordered banks to stop lending to third-home buyers. Industrial & Commercial Bank of China Ltd., the country’s largest lender, slid 2 percent. Anhui Conch Cement Co. led losses by construction material companies.
The latest property curbs “probably will weigh on sentiment for a while,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees $90 billion.
The Shanghai Composite Index fell 59.43, or 1.9 percent, to 3,070.88 at 10:25 a.m., the most since March 4. The gauge, Asia’s worst-performing stock market, has lost 6.3 percent in 2010 as the government unwound monetary stimulus to avert asset bubbles after banks extended record credit last year. The CSI 300 Index slid 2.3 percent to 3,279.15. All four contracts on the CSI 300 declined on the China Financial Futures Exchange.
Stocks across the Asian region fell, dragging the MSCI Asia Pacific Index down by the most in two months, on concern a U.S. suit against Goldman Sachs Group Inc. signals increasing regulatory scrutiny on financial companies.
Vanke slumped 3.5 percent to 8.72 yuan, the most since Dec. 22. Poly Real Estate declined 4.4 percent to 17.83 yuan, set for its lowest close in a year. The Se Shang Property Index slid 3.5 percent, the biggest drop since Jan. 26.
Property Measures
China told banks to stop loans for third-home purchases in cities with excessive property price gains and suspend lending to non-residents without tax returns or proof of social security contributions in that city, according to a statement by the State Council on April 17. Local governments may also limit the number of units that can be bought, according to the statement.
“These are the most draconian measures on the property market in history,” Jun Ma, Deutsche Bank’s Greater China chief economist, wrote in a note to clients today. Chinese press reports point to “panic selling” by investors who own more than one home in Shanghai, Beijing and Shenzhen, he said.
China’s latest moves to cool its property market come after previous measures failed to slow gains in housing prices, which rose at a record 11.7 percent in March. The world’s third- biggest economy this year told banks to set aside more deposits as reserves, raised mortgage rates and re-imposed a sales tax on homes.
Bank Losses
Prices of mid- and high-end properties may tumble 20 percent and monthly transaction volumes may slide more than 50 percent in the coming months, Ma said.
Banks declined on concern non-performing loans may increase. Industrial & Commercial Bank of China Ltd. lost 2 percent to 4.80 yuan. Bank of China Ltd., the third-largest lender, retreated 1.9 percent to 4.12 yuan. Industrial Bank Co. dropped 6.8 percent to 31.49 yuan, the most since Aug. 31.
“The latest measures on third-home mortgages will exacerbate concerns of asset quality and lower earnings estimates,” Chen Qi, a Shanghai-based analyst at CSC Securities HK Ltd., said in a telephone interview today.
Baoshan Iron & Steel Co., the nation’s largest steelmaker, slumped 4.3 percent to 7.31 yuan. Anhui Conch Cement, the largest cement producer, plunged 4.4 percent to 40 yuan. Jiangxi Copper Co. slipped 3 percent to 35.78 yuan. PetroChina dropped 1.8 percent to 12.81 yuan.
Gold futures slumped 2 percent, the most since Feb. 4, to $1,136.90 an ounce in New York. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.2 percent to 276.29, the biggest decline since Feb. 25.
Investors should avoid property, banking, steel and construction material stocks as market reaction to the “austerity” measures may be negative in the near term, Jerry Lou and Allen Gui, Morgan Stanley analysts, wrote in a note to clients. They said a property tax is “finally coming close.”
Shanghai may tax individuals who own multiple properties, the China Times reported, citing an unidentified person close to the Ministry of Finance.
Sunday, April 18, 2010
The recession: When did it end ?
Check out this optimistic article. The recession is over!
There are some points to believe in that: "recovery in manufacturing is well established, and service-industry expansion has picked up pace in each of the past three months. Labour markets are finally improving; during the first quarter of this year employment grew by 162,000 or 1.4m, depending on which data set you use. And investors have bought the idea of recovery. The Dow Jones Industrial Average has risen by over 10% since early February, and recently closed above 11,000 for the first time since September 2008."
On the contrary, since June 2009 as the likely recession end-date, we saw a huge deterioration in employment. Did the increase in real GDP recently a sign of recession ending? I think it is not. The graph of employment after recession do not show the consistency to come up with such conclusion.
Will Customers Start Walking from Goldman Sachs?
This is an interesting article that discusses the recent accusation the SEC made towards GS of deception. The biggest worry for Goldman Sachs is if its clients will start choosing other investment banks to do business with. GS has been accused of lying to customers and it would made sense that there would be a decrease in clients. Why would clients trust Goldman Sachs with their money if GS has been accused for lying?
Icelandic volcanic regulation
As many of you probably know, recent volcanic activity has shut down a lot of airline travel in Europe. The regulatory travel agencies in Europe made the decision to shut down air travel, and now airlines are complaining that the threat is minimal and that the shut down of airports is overkill. I found this to be an interesting example of regulation versus consumer choice in the marketplace. Not allowing it may be the safest option, but allowing it would let consumers decide for themselves knowing full well that it might be dangerous.
Together We Stand
In Northern Ireland, plenty of politicians discreetly but fervently hoped that a hung parliaments was to decided the outcome of the general election. The Democratic Unionist Party, which held 9 of the 18 seats, were the group that secretly wanted this the most. A few months ago, the DUP lost the favor of voters. They disapproved of the Swish Family Robinson’s expertise in extracting taxpayer support via expenses, as well as employing their own relatives over more qualified people. But a skilful defensive performance by Mr Robinson saved his leadership and steadied his party.
Dubai Stocks Drop Most in 3 Weeks on Dubai World Interest Plan
Dubai Stocks Drop Most in 3 Weeks on Dubai World Interest Plan
April 18, 2010, 7:00 AM EDT
By Dana El Baltaji
April 18 (Bloomberg) -- Dubai’s stocks fell the most this month on concern Dubai World is offering creditors interest that is about a fifth of the market rate and after global markets slumped on fraud allegations at Goldman Sachs Group Inc.
Arabtec Holding PJSC slipped the most since February after a unit of the construction company won’t bid for a contract to build a 1.1 kilometer (0.68-mile) skyscraper in Saudi Arabia. Emaar Properties PJSC retreated 3.9 percent. The Dubai Financial Market General Index lost 2.3 percent, the biggest drop since March 29, to 1,775.56 at the close in Dubai. Saudi Arabia’s Tadawul All Share Index fell 0.9 percent at 1:48 p.m. in Riyadh.
Dubai World, the state-owned holding company restructuring $24.8 billion of debt, is offering to pay creditors 1 percent interest on new loans as part of a restructuring plan, a banker familiar with the plan said April 15. Banks are reluctant to accept the new rate presented on March 25 as it is lower than the market rate of about 5 percent and would force Dubai World’s creditors to book impairment provisions, two bankers said.
“A 1 percent interest on the restructured amount is not in the best interest of anyone,” said Marwan Shurrab, assistant fund manager and chief trader at Gulfmena Alternative Investments in Dubai. “It would hurt banks and force them to make more provisions, which will affect their results.”
A spokesman for Dubai World declined to comment when contacted on April 15.
Withdrawing Offer
U.S. stocks fell on April 16, halting the longest rally in a year, after allegations of fraud at Goldman heightened concern the government will crack down on Wall Street.
Arabtec Construction had planned to submit a proposal for Kingdom Tower with its South Korean partner Samsung Corp. this month, The National reported earlier.
Emaar, the developer of the world’s tallest tower in Dubai, fell to 3.90 dirhams. Dubai Islamic Bank PJSC, the United Arab Emirates’ biggest Islamic lender, retreated to the lowest level in a month, falling 3.8 percent to 2.29 dirhams.
Abu Dhabi’s measure declined 1 percent, the most in more than two weeks, on concern a cloud of ash from volcanic eruptions in Iceland will disrupt flights to and from Abu Dhabi ahead of a real estate exhibition in the emirate this week.
The number of people attending the property exhibition in Abu Dhabi is likely to drop because of flight cancelations, said Majed Azzam, a real estate analyst at Al-Futtaim HC Securities.
Aldar Properties PJSC, Abu Dhabi’s biggest real-estate developer, fell 4.8 percent, the most since Jan. 26, to 4.20 dirhams and Sorouh Real Estate Co. lost 2.9 percent to 2.38 dirhams.
Iceland’s Volcano
“There’s a lot of foreign ownership in Aldar and Sorouh,” Azzam said. “Whenever there is bad or good news globally, the stocks tend to overreact. Even though the property conference is directed more at Asian investors than the European market, the ash cloud doesn’t help sentiment.”
Northern and central Europe may remain closed to air traffic until April 22 as winds push ash from volcanic eruptions in Iceland across the continent, forecasters said. European airlines canceled more than 77 percent of their flights yesterday as airports from Dublin to Moscow closed.
The Muscat Securities Market 30 Index fell 0.4 percent and the Bahrain All Share Index retreated 0.3 percent. Qatar’s gauge declined 1 percent and Kuwait’s measure was little unchanged.
April 18, 2010, 7:00 AM EDT
By Dana El Baltaji
April 18 (Bloomberg) -- Dubai’s stocks fell the most this month on concern Dubai World is offering creditors interest that is about a fifth of the market rate and after global markets slumped on fraud allegations at Goldman Sachs Group Inc.
Arabtec Holding PJSC slipped the most since February after a unit of the construction company won’t bid for a contract to build a 1.1 kilometer (0.68-mile) skyscraper in Saudi Arabia. Emaar Properties PJSC retreated 3.9 percent. The Dubai Financial Market General Index lost 2.3 percent, the biggest drop since March 29, to 1,775.56 at the close in Dubai. Saudi Arabia’s Tadawul All Share Index fell 0.9 percent at 1:48 p.m. in Riyadh.
Dubai World, the state-owned holding company restructuring $24.8 billion of debt, is offering to pay creditors 1 percent interest on new loans as part of a restructuring plan, a banker familiar with the plan said April 15. Banks are reluctant to accept the new rate presented on March 25 as it is lower than the market rate of about 5 percent and would force Dubai World’s creditors to book impairment provisions, two bankers said.
“A 1 percent interest on the restructured amount is not in the best interest of anyone,” said Marwan Shurrab, assistant fund manager and chief trader at Gulfmena Alternative Investments in Dubai. “It would hurt banks and force them to make more provisions, which will affect their results.”
A spokesman for Dubai World declined to comment when contacted on April 15.
Withdrawing Offer
U.S. stocks fell on April 16, halting the longest rally in a year, after allegations of fraud at Goldman heightened concern the government will crack down on Wall Street.
Arabtec Construction had planned to submit a proposal for Kingdom Tower with its South Korean partner Samsung Corp. this month, The National reported earlier.
Emaar, the developer of the world’s tallest tower in Dubai, fell to 3.90 dirhams. Dubai Islamic Bank PJSC, the United Arab Emirates’ biggest Islamic lender, retreated to the lowest level in a month, falling 3.8 percent to 2.29 dirhams.
Abu Dhabi’s measure declined 1 percent, the most in more than two weeks, on concern a cloud of ash from volcanic eruptions in Iceland will disrupt flights to and from Abu Dhabi ahead of a real estate exhibition in the emirate this week.
The number of people attending the property exhibition in Abu Dhabi is likely to drop because of flight cancelations, said Majed Azzam, a real estate analyst at Al-Futtaim HC Securities.
Aldar Properties PJSC, Abu Dhabi’s biggest real-estate developer, fell 4.8 percent, the most since Jan. 26, to 4.20 dirhams and Sorouh Real Estate Co. lost 2.9 percent to 2.38 dirhams.
Iceland’s Volcano
“There’s a lot of foreign ownership in Aldar and Sorouh,” Azzam said. “Whenever there is bad or good news globally, the stocks tend to overreact. Even though the property conference is directed more at Asian investors than the European market, the ash cloud doesn’t help sentiment.”
Northern and central Europe may remain closed to air traffic until April 22 as winds push ash from volcanic eruptions in Iceland across the continent, forecasters said. European airlines canceled more than 77 percent of their flights yesterday as airports from Dublin to Moscow closed.
The Muscat Securities Market 30 Index fell 0.4 percent and the Bahrain All Share Index retreated 0.3 percent. Qatar’s gauge declined 1 percent and Kuwait’s measure was little unchanged.
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