The Star Online: Business
The Star Online: Business |
- China increases holdings of US Treasury securities to US$1.15tril
- Commodities fall on worries about Greek debt
- UK government backs separation of banks
| China increases holdings of US Treasury securities to US$1.15tril Posted: 15 Jun 2011 05:54 PM PDT WASHINGTON (AP) - China, the biggest buyer of U.S. Treasury debt, boosted its holdings in April, the first increase after five straight declines. The Treasury Department said Wednesday that China increased its holdings by $7.6 billion to $1.15 trillion. Total foreign holdings of Treasury securities rose 0.2 percent to $4.49 trillion. Japan, the second largest buyer of U.S. debt, trimmed its holdings slightly by $1 billion to $906.9 billion. There had been concerns that the March 11 earthquake and tsunami would lead Japan to sharply reduce its purchases to use the money for reconstruction. The government hit its $14.3 trillion borrowing limit on May 16. Since then, Treasury officials have been making various bookkeeping maneuvers to clear room to continue normal borrowing operations. Treasury Secretary Timothy Geithner has said he will run out of maneuvering room by Aug. 2 if Congress has not passed a higher debt limit by that time. The debt limit is the amount the government can borrow to finance its operations. Republicans are demanding spending cuts that would equal the total increase in the debt limit. But Federal Reserve Chairman Ben Bernanke warned Republicans on Tuesday that it would be dangerous to use an increase in the debt ceiling as leverage to get spending cuts. The deficit is expected to exceed $1 trillion for the third straight year as the government is borrowing 40 cents of every dollar it spends and a large portion of that borrowing is financed by foreigners. Analysts said that latest foreign holdings data show that foreign buyers of Treasurys were not deterred in April by the politics affecting the U.S. debt limit. Gregory Daco, U.S. economist at Global Insight, said foreign investors still consider U.S. Treasury securities a good investment, particularly at a time of global turmoil over such issues as European debt problems. "Private investors seem to be making the bet that the current U.S. growth slowdown is transitory and that momentum should pick up in the second half of the year," Daco said. The Treasury report said that the United Kingdom, the third largest holder of Treasury securities, increased its holdings to $333 billion in April, up from $325.2 billion in March. Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| Commodities fall on worries about Greek debt Posted: 15 Jun 2011 05:48 PM PDT NEW YORK (AP) - Commodities plummeted Wednesday after Greece's debt crisis grew worse and New York area manufacturing weakened. The news undermined confidence that demand for basic materials will continue to grow at a fast pace. Oil and other energy products plunged at least 4.5 percent while grains fell as much as 4 percent. Most metals also dropped, although gold settled up slightly. Thousands of people protested in Athens against cutbacks required to avoid a default on the government's debt. If Greece defaults on its loans, it could affect the economies of other European countries. Moody's said it may downgrade its ratings of France's three largest banks because of their exposure to Greek debt. Earlier this week Standard & Poor's cut Greece's creditworthiness to the bottom of the 131 countries that have ratings. The New York Federal Reserve's survey of manufacturers in the New York region fell to -7.8 in June from 12 the previous month. A reading below zero indicates that the sector is shrinking. It marked the first time the index had fallen below zero since November. The National Association of Home Builders said its builders' sentiment index fell in June to the lowest level in nine months. Investors also are watching closely as the Federal Reserve ends a $600 billion bond-buying program at the end of June. The program, called quantitative easing, was intended to keep interest rates low and encourage economic growth. "The trend overall is just weakening data and with (quantitative easing) coming to an end at the end of the month, it's got a lot of people very, very concerned," Kingsview Financial analyst Matt Zeman said. "The question still remains, can this economy continue to recover without stimulus?" Most commodities also were pushed lower as the dollar grew stronger. Commodities are priced in dollars so a stronger dollar makes them more expensive for buyers who use other currencies. In contracts for July delivery, wheat fell 22.75 cents, or 3.1 percent, to settle at $7.085 a bushel, corn dropped 29.75 cents, or 3.9 percent, at $7.2575 a bushel and soybeans were unchanged at $13.68 a bushel. Benchmark oil for July delivery fell $4.56, or 4.6 percent, to settle at $94.81 per barrel on the New York Mercantile Exchange. In other Nymex contracts, heating oil dropped 14.1 cents, or 4.5 percent, to settle at $2.9848 per gallon, gasoline fell 14.11 cents, or 4.6 percent, to $2.9235 per gallon and natural gas dropped 0.4 cent to $4.577 per 1,000 cubic feet. August gold settled up $1.80 at $1,526.20 an ounce. July silver fell 0.1 cent to settle at $35.41 an ounce. In other metals contracts, July copper dropped 3.3 cents to settle at $4.122 a pound, July platinum dropped $20.70 to $1,774.20 and September palladium fell $16.75 to $776 an ounce. Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
| UK government backs separation of banks Posted: 15 Jun 2011 05:46 PM PDT LONDON (AP) - The British government intends to force banks to separate their retail operations from their more volatile investment banking, and it is putting up for sale the first bank nationalized during the credit crisis, the nation's Treasury chief said Wednesday. George Osborne endorsed the principle of insulating retail banking from other bank activities, but said he was waiting for the final report of the Independent Commission on Banking to flesh out the details. The move is intended to help prevent a repeat of the financial crisis of 2008 and to keep banks from becoming too big to be allowed to fail. Even before Osborne spoke to a gathering of financial executives, bank shares tumbled lower following reports of his decision. "All banks should be allowed to fail safely without affecting vital banking services," Osborne said, "without imposing costs on the taxpayer." He also announced that the government is preparing to sell nationalized mortgage lender Northern Rock, the first British casualty of the credit crisis. Shares in Britain's big banks fell Wednesday, with Barclays down 2.7 percent at the close, while bailed-out Royal Bank of Scotland and Lloyds Banking Group fell 1.9 percent and 1.8 percent, respectively. HSBC was also down 1.2 percent. Osborne said the government hopes to find a single buyer who will pay 1 billion pounds ($1.6 billion) for Northern Rock, which has been restructured and is still not profitable. The government has siphoned off Northern Rock's most toxic assets into a "bad bank" and is in the process of liquidating them. The 1.4 billion pounds the government spent to rescue Northern Rock was just the first drop of a flood of taxpayer cash and guarantees which peaked at 955 billion pounds, according to the National Audit Office. In December, the agency said taxpayers are still exposed to half a trillion pounds in potential liabilities. And that doesn't count the cost of an 18-month recession, rising unemployment and the cost of servicing government debt which piled up during the crisis. "The Treasury retains the unquantifiable ultimate risk of supporting banks should they threaten the stability of the overall financial system," the NAO said. The Independent Commission on Banking, chaired by Sir John Vickers, a former chief economist of the Bank of England, has recommended a clear separation of retail and investment banking; details of the commission's proposal are expected in a final report on Sept. 12. In his interim report in April, Vickers said that "ring-fencing" retail banking would make it easier and less costly to sort out a crisis. This would allow retail operations including current accounts, consumer loans and mortgages to continue, while the investment side could be allowed to fail. Vickers said the split, along with higher capital requirements on the retail side, "could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking." Bruce Packard, analyst at Seymour Pierce, said the success of the plan depends on whether investors believe any of the big banks' investment arms would be allowed to fail. If so, Packard said, "they should impose much greater discipline on these divisions. If the idea works, it would make the whole sector more resilient in a crisis, and a more investable proposition for equity investors." Sir Mervyn King, governor of the Bank of England, had advocated a break up of the big banks. In his speech to the gathering, King did not comment on Osborne's decision, but said taxpayers could not credibly continue to support a banking system with assets several times larger than Britain's annual GDP. Banks "cannot be allowed to benefit from an unsustainable dependence on the U.K. taxpayer. To allow that would be unfair to millions of people, not here tonight, who are now bearing the costs of the financial crisis," King said. Bankers have been divided in their reaction to the proposals. Stephen Hester, chief executive of Royal Bank of Scotland, recently told a parliamentary committee that ring-fending could backfire by creating "a protected beast that the government would support," inadvertently encouraging excessive risk-taking on the retail side. Hester added that the removal of implicit government support would also make other parts of the bank more exposed. RBS and Barclays favor a limited ring-fencing which only covers retail deposits, while HSBC Chairman Douglas Flint recommended that the retail side should include some corporate deposits and loans. Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by USA Best Price. |
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