Getting Ready For Something ? The Senate Proposes $500 Billion for the FDIC

Just $500 billion is all

WASHINGTON — Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat’s effort — which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner — would give the FDIC access to more money to rebuild its fund that insures consumers’ deposits, which have been hard hit by a string of bank failures.

Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding.

Mr. Dodd’s bill could also give the FDIC more firepower to help address “systemic risks” in the economy, potentially creating another source of bailout funds in addition to the $700 billion already appropriated by Congress.

Mr. Bernanke said in a Feb. 2 letter to Mr. Dodd that such a “mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system.”

The FDIC would be able to borrow as much as $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree such money is warranted. The bill would allow it to borrow $100 billion absent that approval. Currently, its line of credit with the Treasury is $30 billion.

The FDIC’s deposit-insurance fund has fallen precipitously with 25 bank failures in 2008 and 16 so far in 2009. Some bank failures have a bigger impact on the fund than others, as IndyMac’s failure cost the fund more than $10 billion, while many others cost the fund less than $100 million.

A 1991 law generally caps the amount of money the FDIC can borrow from the Treasury at $30 billion, and the FDIC hasn’t borrowed money from the Treasury in more than a decade.

Ms. Bair said a change in the law would give the FDIC more options to determine the best way to rebuild its depleted fund. In an interview, she stressed that all insured deposits were already backed by the “full faith and credit of the United States government.”

A change in the law would ease “the mechanics of how seamlessly we can access our lines of” funding. “I’m the kind of person that likes to be prepared for all contingencies,” she said.

From 43% 2 60% ownership

Shares in Lloyds, the bank group which rescued HBOS, soared by 7.4 per cent in early trading today as it emerged the Government was on the verge of increasing its stake in the bank from 43 per cent to about 60 per cent.

The deal would see Lloyds ringfence risky assets worth up to £250 billion in the Government’s Asset Protection Scheme.

At the same time, the bank would convert the costly preference shares held by the Government, on which it is paying 12 per cent interest, into ordinary shares, which draw no interest. An agreement could be announced this afternoon.

Relieved investors sent Lloyds’ shares up 3p to 43.3p this morning. Lloyds had been hoping to announce an agreement with the Government over the Asset Protection Scheme last week.

However, it is understood that talks between the bank and the Government have been fraught over the amount of fees Lloyds has been willing to pay to take part in the scheme.

Lloyds insisted there was“no certainty” that it would join the scheme, under which banks pay a fee to have their bad loans underwritten by the Government, leaving them with more freedom to lend to customers and businesses.

A Lloyds spokesman said: “We are continuing our talks with the Treasury about our potential participation in the asset protection scheme. This is a complex subject and there remains a good deal of detail that needs to be worked through.”

A Treasury spokesman said: “Discussions are ongoing. A deal will be announced at the conclusion of those discussions.”

If agreed, the move would give the Government a greater say in the way the bank is run as ordinary shares, unlike preference shares, carry voting rights.

The Treasury has struck a similar deal with Royal Bank of Scotland.

Lloyds has been forced to go to the Government for further support because of the heavy losses run up by HBOS, which it took over to prevent its collapse.

$300 million seems like a few pennies these days huh…

MUMBAI (Reuters) – Morningstar (MORN.O), best known for rating funds and stocks, may use part of its about $300 million cash holdings for acquisitions, with an eye on overseas assets as it looks to build a business less dependent on the U.S. economy, a top executive said on Friday.

The firm, which earns three quarters of its revenue in the United States, is also open to buying back shares or paying dividends, but the priority was acquisitions as the global slump opens up opportunities, Chief Financial Officer Scott Cooley said.

“We are attracted to the better pricing that is available when we buy assets in this sort of an environment,” Cooley, who was in Mumbai to formally launch Morningstar’s India business, told Reuters in an interview.

“Given that there are a lot of firms that are a little more distressed right now, and given that we have cash and the pricing is getting a little better, then I think our odds of having further acquisitions are very good,” he said.

Morningstar, popular for rating mutual funds, hedge funds and stocks, spent $105 million in 2008 to acquire six firms, including media and investor relations website businesses from Ipreo Holdings LLC for $51.6 million in cash.

The firm closed four acquisitions in the fourth quarter of last year, three of them outside of the United States.

“We think the stronger dollar makes acquisition a little bit cheaper for us. We do feel like we want to have to diversify our revenue and profit streams… we don’t want to be so concentrated in U.S. dollars,” Cooley said.

INDIA PLAN

Morningstar, founded by its Chairman and Chief Executive Joe Mansueto in his Chicago apartment in 1984, has assets under advisement of $66 billion and employees about 2,400 people, including nearly 200 in India.

The firm is starting to offer fund data, research and analytics on India’s $100 billion mutual fund industry and expects to start stock research for institutions in 2009, its Asia Chief Executive Jin Tian said.

India has more than a billion people with a median age of 25 years and a savings rate of more than 30 percent, making it a powerful lure for foreign financial firms.

UBS (UBSN.VX) and Japan’s Shinsei Bank (8303.T) are among more than 20 players waiting in the wings to join India’s 33-member industry, forecast to manage about $520 billion by 2015 and offering opportunities for investment and advisory services.

Morningstar, which faces competition from fund trackers such as Value Research, ICRA Online and CRISIL in India, expect to start making profits in 3-5 years, Tian said.

“We are not here really to try to compete and to get the larger piece of the cake. We are here to build a bigger cake,” he said. “It’s a strategic move.”

Morningstar has wide presence in Asia including China, Japan, Taiwan and Hong Kong and Tian said the firm was looking to start operations in Vietnam this year.

Can we believe this ?

BEIJING (Reuters) – China’s economic leaders struck a note of quiet confidence on Friday that the economy is already reviving in response to swift action to counter the shock of the global financial crisis.

Premier Wen Jiabao disappointed financial markets on Thursday by failing to announce an increase in a 4 trillion yuan ($585 billion) investment plan rushed out on November 9 as crumbling exports drained life from the world’s third-largest economy.

But comments by a trio of top officials suggested that, while Beijing stands ready to prime the pump further, extra measures might prove unnecessary because substantial fiscal and monetary stimulus is already coursing through the economy.

“The economic figures are stabilizing and recovering, which demonstrates that the policies have begun to show an impact,” central bank governor Zhou Xiaochuan said.

Speaking at a news conference during the National People’s Congress, the largely ceremonial parliament, Zhou said China had learned the lesson from other countries that a sluggish response to the crisis delays the restoration of confidence.

“We must err on the side of being quick and decisive.”

Zhou was speaking a day after Wen said China would ramp up deficit spending this year to hit its target of 8 percent growth, widely thought to be the minimum needed to keep a lid on unemployment and head off the threat of social unrest.

JOB MARKET STABILISING?

More than 20 million migrants who lost their jobs due to the global crisis are still without work, according to Chen Xiwen, director of the Office of the Central Rural Work Leading Group.

But Chen said there had not been a fresh wave of migrants returning jobless to the countryside in the month since the end of the Lunar New Year, or Spring Festival, holiday.

“At present, according to the situation on the ground, with factories reopening after the Spring Festival, employment is recovering and there is no new phenomenon of migrant workers returning home,” Chen told a news conference.

The cautiously optimistic assessment follows figures suggesting that the economy may be on the cusp of a recovery.

New domestic-currency lending has surged since November and hit a record 1.6 trillion yuan in January, while surveys show manufacturing is picking up from very depressed levels.

On the other hand, a tentative recovery in steel prices has petered out, and recessions in China’s main export markets appear to be worsening.

Zhang Ping, head of the National Development and Reform Commission, the main planning agency, said Beijing would keep tracking the flow of economic data before deciding whether extra stimulus was necessary. Continued…

>Dollar falls against the Yen and Euro

March 6 (Bloomberg) — The dollar fell against the euro and the yen before a government report that may show the U.S. lost the most jobs last month since 1949.

The U.S. currency weakened for a second day against the yen before the Labor Department report, which may show the unemployment rate rose in February to a 25-year high as payrolls fell by 650,000. The euro strengthened on speculation European investors will repatriate profits before the end of the first quarter on March 31.

“There’s going to be a horrific employment report in the U.S.,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi Ltd. “There are signs now in the market that the dollar is becoming more vulnerable.”

The dollar dropped to $1.2688 per euro as of 9:33 a.m. in London from $1.2540 in New York yesterday. The decline was the biggest since Feb. 24. The U.S. currency slid to 97.26 yen from 98.07 yen. The euro rose to 123.38 per yen from 123.00 yesterday, and traded at 89.20 British pence from 88.82.

The unemployment rate probably surged to 7.9 percent, according to the median estimates in a Bloomberg News survey. The Labor Department data are scheduled for release at 8:30 a.m. in Washington.

The U.S. currency’s decline versus the euro was stoked by speculation European investors will bring home overseas earnings as they close their books at the end of this quarter, said Yuji Saito, head of the foreign-exchange group at Societe Generale SA in Tokyo.

‘Buying Back Currency’

“European investors appear to be repatriating funds from abroad ahead of the quarter-end,” said Saito. “They’re buying back their own currency.”

The economy of the 16 euro nations is shrinking faster than the European Central Bank expected just three months ago as the global slowdown curbs export demand and companies cut back on workers. ECB President Jean-Claude Trichet said yesterday policy makers cut their economic forecasts and expect inflation to stay “well below” the bank’s 2 percent ceiling this year.

The yen declined against 12 of the 16 major currencies on concern Japan’s political turmoil will make it harder for the government to cope with a deepening recession. Japanese prosecutors suspect a group headed by Trade Minister Toshihiro Nikai of taking illegal political donations, local media reported today.

“Political uncertainty seems to be mounting and the Japanese economy isn’t showing any signs at all of improving,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-largest lender. “The yen is likely to be sold” to 124.10 per euro today, he said.

‘Worse’ Data

Japan’s economic data has been “much worse” than expected and the government will need to revise its gross domestic product forecast soon, Finance Minister Kaoru Yosano said today.

Japan will record a current-account deficit of 15.3 billion yen ($157 million) in January, the first shortfall in 13 years, according to a Bloomberg survey of economists before the March 9 report. The world’s second-biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis.

The yen will fall to 102 against the dollar as risk sentiment improves and a weakening domestic economy prompts investors to buy assets outside Japan, Barclays Capital said.

“The deteriorating state of both the economy and the political situation appears likely to add momentum to negative sentiment about Japanese assets,” Toru Umemoto and Yuki Sakasai, Tokyo-based strategists at Barclays, wrote in a research note yesterday. “The Japanese current account is declining, outward foreign direct investment increasing and Japanese investors continue to purchase foreign securities.”

Trade minister Nikai told reporters in Tokyo today he had no knowledge of an investigation into one of his political groups over suspected campaign donations and had done nothing wrong. Prosecutors suspect a group he headed received donations from Nishimatsu Construction Co., the Sankei newspaper reported, without saying where it got the information.

Nerves are tense:

March 6 (Bloomberg) — U.S. stock futures fell, suggesting the Standard & Poor’s 500 Index will extend a 12-year low, on speculation a report will show the economy lost more jobs last month than at any time since 1949. The MSCI Asia Pacific Index capped its fourth weekly drop, while European shares fluctuated.

General Motors Corp. decreased 2.3 percent after saying costs to cut its Swedish Saab Automobile unit loose may exceed $1 billion. Barrick Gold Corp., the world’s biggest gold producer, Alcoa Inc. and BHP Billiton Ltd. advanced more than 2 percent in Europe on higher metals prices.

Futures on the Standard & Poor’s 500 Index expiring this month slipped 0.3 percent to 683.90 at 10:40 a.m. in London after the index closed at the lowest level since September 1996. Dow Jones Industrial Average futures fell 0.4 percent to 6,602 and Nasdaq-100 Index futures lost 0.6 percent to 1,076.25.

Europe’s Dow Jones Stoxx 600 Index slid 0.4 percent after earlier climbed as much as 0.5 percent. The MSCI Asia Pacific Index dropped 1.2 percent today as Honda Motor Co. fell.

U.S. stocks sank yesterday after Moody’s Investors Service said it cut JPMorgan Chase & Co.’s credit rating and China quelled speculation the government will add to its stimulus plan. The S&P 500 is headed for its fourth straight weekly decline as the worsening recession, a third government rescue for Citigroup Inc. and dividend cuts at companies from General Electric Co. to JPMorgan have helped drag the measure down 24 percent this year.

“The payrolls and unemployment numbers will be strongly in focus to see whether the negative trends will flatten somewhat,” said Andreas Nigg, who helps oversee about $39 billion as a fund manager at Vontobel Asset Management in Zurich.

Worsening Recession

More than $1.6 trillion has been erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse. The Dow average has fallen 20 percent since Inauguration Day, the fastest drop under a new president in at least 90 years, as investors speculated Barack Obama’s stimulus measures won’t revive the economy anytime soon.

Employers probably cut payrolls by 650,000 in February, a plunge that may force further reductions in spending and send more Americans into bankruptcy, economists said before a report scheduled for 8:30 a.m. in Washington. The jobless rate rose to a 25-year high of 7.9 percent, according to the median estimate in a Bloomberg survey.

GM declined 2.3 percent to $1.80. The largest U.S. automaker said it may lose more than $1 billion separating from Saab, which filed for bankruptcy protection last month. GM has said it will only support Saab until Jan. 1, while Sweden’s government has said it won’t provide any aid to Saab until a long-term owner has been found.

Barrick added 2 percent to $29.41 in Germany as gold climbed for a second day in Asia.

Alcoa, the biggest U.S. aluminum producer, rose 4 percent to $5.47, while Freeport-McMoRan Copper & Gold Inc. increased 1 percent to $31.96. BHP, the world’s largest mining company, climbed 5.1 percent to 1,163 pence. Copper, nickel and tin all rose on the London Metal Exchange.