French Finance Minister Christine Lagarde said she hoped the warning from the Group of Seven nations against “sharp fluctuations'' in currencies will strengthen the dollar.
“I hope this concerted wording on currencies will help,'' she said in a Bloomberg Television interview in Washington yesterday when asked how worried she was by the dollar's slide.
Finance ministers and central bankers from the G-7 yesterday signaled concern about the dollar's drop by saying that recent movements in exchange rates may hurt the global economy. The dollar has slumped 8 percent against the euro and 6 percent versus the yen since the officials last met in Tokyo in February.
The statement released after talks marks the first “significant change'' in the G-7's currency stance in four years, Lagarde said. “It clearly reflects changes that have occurred in the market since the last meeting,'' she added.
President Nicolas Sarkozy's government recently stepped up complaints that the euro's appreciation against the dollar is pushing France-based companies, including planemaker European Aeronautic, Defence & Space Co., to cut jobs at home and relocate some activities abroad.
`Suffocating' Impact
Paris-based Hermes International SCA, the maker of Kelly and Birkin handbags, is running out of room for price increases to counter declines in the dollar, Chief Executive Officer Patrick Thomas said March 20. EADS CEO Louis Gallois told Le Figaro on March 26 that the euro's record high against the dollar is “suffocating.''
The U.S faxless payday advance. currency reached a record low of $1.5913 against the euro on April 10. “Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,'' the G-7 officials said in their statement.
European Central Bank President Jean-Claude Trichet called for “discipline'' on currency markets and said in Washington that authorities will be monitoring them “closely and collaborate'' if needed.
Still, Italian Finance Minister Tommaso Padoa-Schioppa said his country must adapt to the euro's strength because it may not wane.
“The economy has not completely learned to live with a strong currency,'' Padoa-Schioppa told reporters after yesterday's meetings. The International Monetary Fund this week forecast Italian growth of 0.3 percent this year, the weakest in the G-7.
The G-7 also laid out a 100-day plan to strengthen financial-market regulation amid an eight-month credit squeeze. The initiatives “will actually address some of the confusion, the uncertainty and the lack of confidence that prevails on the markets at the moment,'' Lagarde said.
The U.S. trade deficit unexpectedly widened in February, reflecting a jump in imports of automobiles and machinery that swamped record exports.
The gap grew 5.7 percent to $62.3 billion, the highest since November, from a revised $59 billion in January, the Commerce Department said today in Washington. The 3.1 percent gain in imports was the biggest in almost a year, even as purchases of petroleum and goods from China dropped.
The increase in demand for products from overseas may be short lived as more recent evidence showed U.S. consumer and business spending has slowed. Exports rose for the 12th consecutive month, representing one of the few bright spots helping the economy avoid a deeper and longer recession.
“This is a much wider trade deficit, even when you exclude petroleum,'' Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina, said in an interview with Bloomberg Television. “Adjusting for inflation, the trade deficit is much wider and it looks like it will not add much to growth.''
The trade gap was forecast to narrow to $57.5 billion from an initially reported $58.2 billion in January, according to the median estimate in a Bloomberg News survey of 74 economists. Deficit projections ranged from $55 billion to $61 billion.
The dollar, which fell earlier today, remained lower against the euro and the yen after the report. It dropped 0.3 percent from late yesterday to $1.5875 per euro at 8:34 a.m. in New York, and was at 100.34 yen, down 1.4 percent.
Record Imports
Imports rose to a record $213.7 billion in February as Americans bought more foreign-made autos, industrial machines, and pharmaceuticals. The latter category is often volatile and economists tend to downplay month-to-month changes.
The petroleum deficit shrank to $32.5 billion, the first decline in eight months. A drop in the quantity imported offset a record price of $84.76 a barrel.
Americans also bought fewer goods from China. The politically sensitive gap with the Asian nation shrank to $18.4 billion, the lowest since March 2007, as imports dropped 7.8 percent.
Some U.S. lawmakers accuse China of keeping its currency, the yuan, undervalued to boost its exports, and advocate legislation to force faster appreciation.
China's Yuan
U.S. Treasury Secretary Henry Paulson has praised China's accelerated appreciation of the yuan and said last week its value needs to reflect economic fundamentals. The currency has gained 18 percent since a peg to the U.S. dollar was scrapped in July 2005.
American exports increased 2 percent to $151.4 billion, boosted by sales of fuel oil, autos, food oils and corn.
After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit widened to $51.5 billion from $49.7 billion cash advance. The average gap for the first quarter so far is lower than the $51.3 average from October through December, indicating trade will still add to growth.
The U.S. economy will not expand at all in the first six months of 2008 as consumer spending cools, according to the median forecast of economists surveyed by Bloomberg News from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession.
IMF Forecast
The International Monetary Fund's World Economic Outlook issued this week also projected the U.S. will tip into “a mild recession'' this year. At the same time, economies in Asia will remain “robust'' and the fallout from a U.S. slowdown may be less severe than during previous downturns, the IMF said. That signals American exports may keep growing.
Federal Reserve Chairman Ben S. Bernanke, who on April 2 conceded for the first time that the economic expansion may end, told lawmakers that businesses are benefiting from growing demand overseas.
“Net exports should continue to provide considerable support to U.S. economic activity in coming quarters,'' Bernanke said last week in testimony before Congress.
Growth in China and Latin America is stoking demand for goods such as aircraft and industrial engines, averting a deeper slump among American manufacturers.
A lower dollar is also helping. The dollar was down 10 percent against a trade-weighted basket of currencies from the U.S.' biggest trading partners in the 12 months ended in February.
Honeywell Sales
Honeywell International Inc. is among companies benefiting from growing overseas sales. Morris Township, New Jersey-based Honeywell this week said it won its biggest business-jet engine order, beating two rivals for a $23 billion contract from Brazil's Empresa Brasileira de Aeronautica SA.
“We've worked very hard to make sure we're in the right place at the right time,'' Honeywell Chief Executive Officer David Cote said in an interview on April 9.
February exports to the European Union were a record $23.8 billion, led by growing demand from Germany, Poland and the Netherlands. Sales to Japan also jumped 9.8 percent.
Imports may be restrained in coming months as consumers, facing mounting job losses and record fuel bills, slow spending. Companies are also investing less in foreign-made equipment as concern grows that consumer demand will continue to weaken.
The U.S. trade gap with Canada and Mexico widened, today's report showed.
Economic growth in the U.S. will come to a halt in the first six months of 2008 as consumer spending cools, a Bloomberg News survey showed.
The world's largest economy will not expand at all from January through June, according to the median estimate of 62 economists surveyed from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession.
Job losses, falling home values and credit restrictions are plaguing consumers already burdened by soaring food and gasoline bills. Federal Reserve Chairman Ben S. Bernanke, who conceded for the first time last week that the economic expansion may end, will cut interest rates again, the poll showed.
“The economy is not going anywhere in the first half,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “The American consumer is pretty dismal right now. We're in the middle of a recession and we've got another three to six months to work our way out of it.''
The deepest reductions came in the outlook for the second quarter as economists slashed the growth estimate to zero from last month's projected 0.5 percent annual pace.
Increases in fuel prices and the unexpected pickup in firings since the start of the year explain the downgrade.
“Those two things are hitting the consumer hard,'' said Stephen Stanley, chief economist for RBS Greenwich Capital Markets in Greenwich, Connecticut. “Demand is deteriorating rapidly.''
Consumer Outlook
Consumer spending, which accounts for more than two-thirds of the economy, will rise at an average annual pace of 0.5 percent in the first half of the year, the survey showed. That would be the smallest two-quarter gain since dropped in the six months that ended March 1991.
Spending will pick up in the latter half of 2008 as Americans receive tax-rebate checks under the $168 billion stimulus package passed by Congress and the administration. Still, the plan is unlikely to have a lasting effect as debt- ridden consumers will probably use some of the money to pay off loans or shore up savings.
“The consumer has virtually ground to a halt,'' said Nariman Behravesh, chief economist at Global Insight Inc., a forecasting firm in Lexington, Massachusetts. “We may see a bump up in third- and fourth-quarter growth, then a drop-off before a real recovery kicks in.''
The odds the economy will be in a recession in the next 12 months jumped to 70 percent from 50 percent in the March survey, according to the median forecast same day payday loans.
Fed Less Optimistic
Minutes of the Fed's March 18 policy meeting released yesterday showed policy makers and staff economists at the central bank are even more pessimistic.
“Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the minutes said. “Some believed that a prolonged and severe economic downturn could not be ruled out.''
Fed staff economists told policy makers they had “substantially revised down'' their forecast to show a first- half contraction in gross domestic product.
Bernanke echoed their concern when he told Congress on April 2 that the economy is going through a “very difficult period.''
The Fed will trim the benchmark rate by a half point to 1.75 percent by June and keep it there the rest of the year, the Bloomberg survey showed. Policy makers lowered the rate three- quarters of a point in March, bringing the total reduction so far this year to 2 percentage points, the fastest drop in borrowing costs in two decades.
`Aggressive' Fed
“The Fed will stay on the side of being aggressive, doing more rather than less,'' RBS Greenwich Capital's Stanley said.
The S&P/Case-Shiller index showed property values in 20 metropolitan cities fell by the most on record in January as the residential real estate slump extended into its third year.
Consumer confidence as measured by Reuters/University of Michigan dropped to a 16-year low in March and the average price of regular gasoline reached a record $3.34 a gallon this week.
Employment, formerly the main pillar of support for consumers, is now a liability. Payrolls fell by 80,000 in March, the most in five years, and the jobless rate jumped to 5.1 percent. Unemployment is likely to reach 5.5 percent by the end of the year, the survey showed.
“This is really the most challenging environment we've faced in recent memory,'' said Gary Schlossberg, a senior economist at Wells Capital Management in San Francisco. “The weakness seems to be broad based.''
European finance ministers said the credit crisis will plague their economies through 2009 and pressed for greater disclosure by the region's banks and a coordinated response from governments around the world.
With the cost of borrowing euros reaching the highest since December last week, finance chiefs and central bankers concluded two days of talks in Brdo, Slovenia, on April 5 by saying the credit squeeze increasingly threatens to undermine European growth.
They agreed to tighten oversight of banks and urged them to be more open about the losses they face from the meltdown in the U.S. subprime-mortgage market. The ministers will this week call on the Group of Seven industrial nations to cooperate more in finding solutions, according to a confidential report obtained by Bloomberg News.
“Forecast after forecast, the outlook gets less favorable and we have to accept this fact,'' Italian Finance Minister Tommaso Padoa-Schioppa said in an interview with Bloomberg Television in Brdo. “The general sentiment is that the turmoil is not over, that there is still possible bad news in the pipeline.''
The fallout from record defaults on mortgages to U.S. households with a poor credit history has so far caused about $232 billion in losses and writedowns among the world's biggest financial companies, data compiled by Bloomberg show. The impact has spread to Europe with at least 34 of its institutions losing or writing down more than $77 billion.
Such Pain
Such pain has led banks to stop lending to all but the safest borrowers, forcing the euro interbank offered rate, or Euribor, to rise to 4.74 percent last week. European Central Bank President Jean-Claude Trichet told reporters in Brdo that the world's top central bankers are mulling fresh ways of boosting liquidity as they prepare to meet in Washington on April 11 for the G-7 meeting.
“We continue to see on the money market a level of tension,'' Trichet said.
The threat of tighter credit is “starting to materialize in the real economy,'' Slovenian Finance Minister Andrej Bajuk said after leading the talks. “It is expected in 2008 and 2009 there will be some slowdown in the European economy.''
European Expansion
The International Monetary Fund will this week cut its forecast for European expansion this year to 1.3 percent from 1.6 percent and predict a slowdown to 1.1 percent next year, according to the European document, which was discussed by the ministers in Brdo. European Monetary Affairs Commissioner Joaquin Almunia called the IMF's prediction “pessimistic.''
With the IMF forecasting global growth of 3.7 percent this year and next, the weakest since 2002, the European delegation to the G-7 will press their counterparts for greater coordination in battling the credit squeeze cashadvance.
“It is important to coordinate global responses, not least within the G-7, to the challenges the world economy is facing in terms of financial-market turbulence,'' according to the confidential report. “Authorities must remain vigilant to further policy responses that may be needed, in particular aimed at stemming mechanisms with a potential to amplify the effects of the turmoil.''
Banks should disclose their exposure to distressed assets and improve their management of risk, the document said. It warned that “it cannot be excluded that banks operating globally will face further deterioration in the credit quality of their assets, perhaps even extending to corporate loans.''
Banking Regulation
Amid concern that Europe's patchwork of banking regulation means a coordinated response would be difficult in a continental crisis, the ministers also agreed to create links among the supervisors of multinational financial companies and set guidelines for responding to market disruptions.
“We do not have satisfactory arrangements in place to deal with such a situation,'' Financial Services Commissioner Charlie McCreevy, in charge of drafting EU banking rules, told Bloomberg Television.
European officials played down concerns about the euro's 17 percent jump against the dollar in the past year and indicated they wouldn't push for the G-7 to criticize it. ECB Vice President Lucas Papademos told reporters in Brdo the G-7 message on currencies “would be the same'' as at the February meeting.
Trichet called excessive volatility “counterproductive for global growth'' and said recent trading was a “concern.''
Central bankers attending the Brdo talks signaled that the highest European inflation rate in almost 16 years remains a barrier to lowering interest rates. The ECB's Governing Council meets on April 10 and all 58 economists surveyed by Bloomberg News forecast it will leave the benchmark rate at 4 percent.
“We see some of the base effects coming down toward the end of the year, but we will still be at levels we don't feel comfortable with,'' ECB council member Yves Mersch said in Brdo. John Hurley, his colleague on the council, said “there are upside risks to price stability.''
ATA Airlines has ceased all flights as it files for bankruptcy, apologizing to its customers for the airline’s "sudden shutdown," according to a company statement released Thursday.
The low-cost, charter airline based in Indianapolis, Indiana, filed for Chapter 11 status on Wednesday as a result of financial problems "following the loss of a key contract for our military charter business," ATA said.
ATA spokesman Michael Freitag estimated the airline had 50 flights a day, serving about 10,000 people daily.
"The decision to shut down was just totally unexpected and happened very quickly," he said.
Freitag said ATA will set up signs at airports alerting travelers of the shutdown, and will also update the airline’s Web site with current information. He suggested that customers with existing reservations make arrangements with other carriers for travel.
Southwest Airlines (LUV, Fortune 500), which often worked in conjunction with ATA, has a plan to reschedule travelers who booked tickets through Southwest on ATA flights. A spokeswoman for the airline estimates as many as 30,000 people currently have ATA service booked through Southwest.
"We are sad to end our codeshare relationship with ATA but understand it’s extremely difficult for an airline to flourish in today’s arduous financial environment that has been plagued by soaring fuel prices," said a statement on Southwest’s Web site.
ATA, founded in 1973, served major business centers - including Chicago, Dallas and Oakland - and popular vacation spots throughout the United States, including Hawaii, Los Angeles, California; Phoenix, Arizona; and Las Vegas, Nevada cash advance loan no fax. The airline also operated as a leading carrier for the U.S. military.
It operated 29 aircraft, including Boeing 737-800s, Boeing 757-200s, Boeing 757-300s, DC10s and Lockheed L-1011s.
At the time of its shutdown, ATA employed approximately 2,230 people, including about 600 pilots, more than 800 flight attendants, and more than 100 mechanics.
President George W. Bush's chief economist pays less attention to the U.S. unemployment rate when it rises than he does when it falls.
“I don't focus too much on the monthly unemployment rate because it has been a bit volatile,'' Edward Lazear, chairman of Bush's Council of Economic Advisers, said in a Bloomberg Television interview today after the government reported an increase in the jobless rate in March.
That contrasts with Lazear's comments last month following a report that joblessness fell in February. Then, he said “what we do tend to place more weight on is the unemployment rate because the unemployment rate is not volatile.''
Lazear's latest remarks followed a Labor Department report earlier today that showed U.S. employers cut 80,000 jobs in March and unemployment rose to 5.1 percent, from 4.8 percent a month earlier. By historical standards, Lazear said joblessness isn't that high.
“Even at 5.1 percent, I would point out that that is still a historically low rate of unemployment, well below the average for the 90s, which was 5.8 percent, so we still have a decent labor market,'' he said.
He added, “obviously we don't like to see negative job growth.''
At a White House press briefing March 7, Lazear said “the unemployment rate number tends to be pretty stable,'' and added that February's rate of 4.8 percent was “still at a very low level of unemployment.''
Labor Market Expert
Lazear, a Stanford University labor market economist, said the Bush administration's forecast for the economy to accelerate in the second half of the year is on target after little growth in the first half cash advance.
“I don't think we're unrealistic at all,'' he said. In the first half, “what we're expecting is growth rates that are close to zero — slightly positive perhaps, slightly negative perhaps.''
Other members of the Bush administration remained optimistic.
Labor Secretary Elaine Chao said in a separate Bloomberg Television interview that she doesn't believe the economy is in a recession. The unemployment rate is “still quite low,'' she said.
Phillip Swagel, the assistant Treasury secretary for economic policy, told reporters at a briefing today “we know it's a slowdown. We have a very realistic view of the economy.''
Swagel cited “flat'' personal income and spending, “negative'' job growth, rising unemployment and weakness in manufacturing. Asked if he agreed with Federal Reserve Chairman Ben S. Bernanke's view earlier this week that a recession is possible, Swagel replied, “Sure.''
It's choked with debt, should have been fixed a long time ago, and both leading candidates for Italian prime minister decry its condition.
As April 13-14 elections near, you can't tell whether Silvio Berlusconi and Walter Veltroni are talking about Italy's economy or its national airline, Alitalia SpA.
Italy has become Europe's second-least competitive economy since adopting the euro in 1999. It has the largest debt in Europe — bigger than its annual gross domestic product — and economic growth this year is likely to be the slowest among the 15 nations that share the single currency, according to the European Commission. Meanwhile, both candidates are pledging tax cuts and higher public-works spending, a strategy that may increase the budget deficit.
“Italy and its economy are like the Titanic hitting the iceberg,'' said Gianni De Michelis, deputy prime minister in 1988 and 1989. “It's gotten to this stage after years of negligent governments on both sides. Berlusconi or Veltroni? It makes no difference.''
The national election, called when Prime Minister Romano Prodi's government collapsed Jan. 24 after 20 months in power, comes as the outlook is worsening. The government last month slashed its 2008 growth forecast by more than half to 0.5 percent and predicted that the deficit, now 1.9 percent of gross domestic product, would widen.
Promises
While two-time prime minister Berlusconi, 71, and Veltroni, the 52-year-old former mayor of Rome, both promise to reduce spending so they can cut taxes, neither has made clear what they would trim. The prospect of rising debt fuels the risk to Italy's credit rating, ratings companies say.
Standard & Poor's and Fitch Ratings slashed Italy's creditworthiness in October 2006, less than six months after the last election. S&P also cut the rating in July 2004, during Berlusconi's tenure. Fitch rates Italy's long-term debt AA-, while S&P gives it A+.
“We hope they would reduce expenditure in public administration and, more importantly in the long term, cut pension spending before contemplating tax cuts,'' S&P's credit analyst Trevor Cullinan said in a telephone interview from London. “That doesn't look likely.''
Investors are indicating skepticism as well. The difference in yield between Italy's benchmark 10-year bond and the German bund, Europe's benchmark security, rose to 65 basis points last month. It was the highest spread in more than a decade. A basis point is equivalent to 0.01 percentage point.
Interest
Interest on the national debt is 70 billion euros ($109 billion) a year, about 1,200 euros per Italian http://payday-z.com. Italy is also burdened with a pension system that eats up 15 percent of GDP, the highest in the European Union, according to the Organization for Economic Cooperation and Development.
Prodi's government raised taxes and cut spending to reduce the debt and bring the deficit below the EU limit for the first time since 2002. He had less success finding a domestic solution for state-owned Alitalia, which hasn't earned an operating profit in almost a decade and has had nine government-appointed chief executives in the past 15 years. The carrier owes creditors about twice its current market value and has received two state bailouts in the past six years.
Prodi, 68, chose Air France-KLM Group SA to buy the state's 49.9 percent stake. The March 16 offer valued Alitalia at 10 cents a share, 80 percent less than its market value then. Air France yesterday broke off negotiations, ending the government's 15-month attempt to find a buyer.
`Arrogant and Unacceptable'
Berlusconi denounced the bid in campaign appearances as “arrogant and unacceptable'' and called on Italian entrepreneurs to come forward with an alternative offer “in the name of national pride.'' Veltroni asked that Alitalia stay outside “the electoral meat grinder.''
That's unlikely. Air France dropped its bid after failing to gain union support for the offer, prompting Alitalia Chairman Maurizio Prato to resign. Finance Minister Tommaso Padoa- Schioppa said yesterday that the only alternative to the Air France purchase would be to seek protection from creditors.
While the airline was amassing more than 3 billion euros in losses in the past decade, Italy's overall competitiveness was slipping to 46th in the World Economic Forum's 2007-2008 ranking. It trails behind Latvia, South Africa and Bahrain and, in the euro area, ranks only above Greece.
Prone to Recession
Much of that slide came during Berlusconi's second stint as prime minister between 2001 and 2006, when Italy went through three recessions.
Even with Berlusconi's economic record, he has maintained an advantage over Veltroni in opinion polls that has held at between 6 and 9 percentage points during the campaign.
“Italy is the land that resists change,'' said James Walston, a professor of politics at Rome's American University. “Everyone complains, but in the end no one is willing to undergo the sacrifices necessary: for Alitalia it's the job cuts, for the economy it's the public spending it just can't contain.''
Securities sales by UBS AG, the world's largest money manager, and Lehman Brothers Holdings Inc. underpinned a rally in financial stocks that may signal an end to eight months of market turmoil.
UBS, battered by the biggest writedowns from the collapse of the U.S. subprime mortgage market, announced plans to seek 15 billion Swiss francs ($14.8 billion) in a rights offer to replenish capital, while New York-based Lehman, the fourth-largest U.S. securities firm, raised $4 billion in a stock sale.
The fund-raising plans quelled speculation the companies might follow New York-based Bear Stearns Cos., which agreed to sell itself last month to JPMorgan Chase & Co. for a fraction of its market value after a run on the company. Investors looked past Zurich-based UBS's 12 billion-Swiss franc first-quarter loss disclosed yesterday after record writedowns on debt securities, as well as Deutsche Bank AG's $3.9 billion of markdowns.
“When UBS does a massively dilutive deal and the stock still goes up, that's helpful,'' said Henry Herrmann, chief executive officer of Overland Park, Kansas-based Waddell & Reed Financial Inc., which manages $65 billion. “It's a rally associated with the presumed elimination of survival risk. The market's getting a little more comfortable that the crisis is over.''
UBS rose 12.3 percent in Swiss trading, the biggest gain in two weeks, leading a 5.1 percent rally in the 60-member Bloomberg Banks and Financial Services Index. The company has lost 55 percent of market value during the past 12 months.
`Enough Demand'
Chairman Marcel Ospel, 58, who helped form UBS through a merger a decade ago, will be replaced by general counsel Peter Kurer. UBS said it plans more job cuts at the investment bank and will set up a separate unit to segregate assets at risk from the credit-market meltdown.
Lehman advanced 17.8 percent in New York Stock Exchange composite trading, the most in two weeks, after increasing the size of its sale to 4 million convertible preferred shares from 3 million and saying demand “significantly'' outpaced supply. Investors paid $1,000 for each Lehman preferred stock, which can convert to 20.0509 common shares once the stock reaches $49.87, or 32 percent higher than the closing price on March 31.
Macquarie Group Ltd. and Mizuho Financial Group Inc. led gains in Asian financial stocks, spurred higher by the capital raisings from UBS and Lehman.
The MSCI Asia Pacific Financials Index rose 5 percent as of 11 a.m. in Tokyo, on course for its biggest gain in more than two months. Macquarie, Australia's largest investment bank, climbed 8.7 percent in Sydney while Mizuho, Japan's third-biggest bank by market value, gained 8.7 percent in Tokyo. Kookmin Bank, South Korea's largest by assets, gained 7.1 percent in Seoul trading.
Mitigating Risk
“Investors were worried that these big writedowns were going to impede their ability to raise capital,'' said William Fitzpatrick, an analyst at Optique Capital in Racine, Wisconsin, which owned 565,000 Citigroup Inc payday advance online. shares as of Dec. 31. “The way Lehman was able to bring in capital, that mitigates a lot of that risk. Clearly there's enough demand for these companies that raising capital is no longer the major overhang.''
The debt market turmoil spurred by rising U.S. mortgage defaults hasn't abated, and presents the most severe crisis for banks in 30 years, Morgan Stanley and management-consulting firm Oliver Wyman said in a joint report yesterday.
The world's biggest financial companies reported about $232 billion in credit losses and writedowns since the start of 2007, data compiled by Bloomberg show. In all, investment banks may post $75 billion in markdowns in 2008, the report from analysts led by London-based Huw van Steenis said. Revenue from investment banking may drop 20 percent in 2008, with credit businesses declining 60 percent, the analysts said.
Leveraged Loans
Deutsche Bank, which operates Europe's biggest investment bank by revenue, said it expects to book first-quarter writedowns on leveraged loans, commercial real estate and residential mortgage-backed securities. The Frankfurt-based company said market conditions “have become significantly more challenging.''
“I don't see how many banks are going to sustain revenue because parts of the business have disappeared due to the financial crisis,'' said Stefan Mueller, a managing partner at Proprietary Partners AG, a Frankfurt fund management company.
While investors agree that more writedowns and share-price swings are inevitable, Kevin Rendino, who runs the $6.5 billion BlackRock Basic Value Fund in Plainsboro, New Jersey, found cause for encouragement.
“You want to get all the bad assets off the balance sheets, and the banks are in the process of doing that,'' Rendino said in an interview. “You're seeing the writeoffs, the charges and the replenishment of the balance sheets, so all that's good.''
The U.S. Federal Reserve cut its main lending rate on March 18 by three-quarters of a percentage point to 2.25 percent. The central bank also started a lending program for brokers, which is similar to the so-called discount window used by commercial banks, after the run on Bear Stearns.
“You can't ignore what the Fed has done,'' Rendino said. “It's been a game-changing set of events over the last couple months. It doesn't make the bad assets worth more but it's going to be good for banks and it creates a better environment for financials going forward.''
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