A $112 million combined quarterly loss for all South Florida-chartered banks might seem bleak, but may understate potential problems.
The question is whether banks shortchanged their loan loss reserves – giving them a better bottom line for now, but the potential for bigger future losses. Prolonged agony for the region’s banks could make it more challenging for businesses to get loans.
“We’re in a recessionary economy where things will get worse before they get better,” Miami-based banking analyst Kenneth H. Thomas said.
A key ratio for banks is the amount of reserve capital set aside for future loan write-offs compared to non-current loans.
Nationally, banks’ reserve capital equals 89 percent of non-current loans, which is a 15-year low, Federal Deposit Insurance Corp. data shows.
Among South Florida’s 79 banks, the ratio fell from 57.8 percent in the first quarter to 39.5 percent in the second quarter.
Unfortunately, South Florida’s housing market is one of the worst in the nation and a looming question is just how many mortgages banks will have to write off.
Thomas said he likes to see banks have reserve capital equal to 50 percent of non-current loans, but 12 of the region’s 30 largest banks had a ratio below 50 percent. Six of these were below 33 percent, FDIC data shows.
Thomas’ analysis found Florida banks had the fourth-lowest ratio in this measure among other states and U.S. territories.
Many South Florida banks did not keep up with the rising tide of delinquent loans in the second quarter.
Local banks were burdened with $2.3 billion in non-current loans as of June 30, up $942 million, or 69 percent, from the first quarter. Coral Gables-based BankUnited, the region’s largest bank, and Miami-based Ocean Bank, the region’s fifth-largest, accounted for 60 percent of the non-current loans in the region.
Overall, 3.92 percent of all loans by South Florida banks were non-current, up from 2.36 percent in the first quarter. Industrywide, the non-current rate in the second quarter was 2.02 percent – the highest it’s been since 1993.
In the face of all those non-current loans, South Florida banks increased their combined loan loss allowance reserves 15.5 percent, to $910.6 million. That, plus $189.6 million in charge-offs for bad loans, made their losses deepen from $15.4 million in the first quarter to $112 million in the past quarter.
It could have been much worse for many banks if they kept their reserves up.
To cover just half of their non-current loans as of June 30, South Florida banks would have needed to add an additional $242 million to reserves, which would have deepened losses by that much more bad credit payday loans. To maintain their 57.8 percent ratio from the prior quarter, it would have cost them $421 million. If they wanted to meet the 89 percent average for national banks – most of which do business in real estate markets that are hurting less than in South Florida – it would have taken $1.14 billion.
Federal regulators are putting more pressure on banks, especially those in Florida, to more adequately build reserves for non-current loans, said Michael Lozoff, a partner with the Miami-based law firm Adorno & Yoss and the chairman of its financial institution section, which advises more than 100 banks and credit unions. When regulators see delinquent loans soar and property values fall below loan amounts, they want to ensure banks are not maintaining the illusion of profitability by delaying the charge-offs for those problem loans, Lozoff said.
BankUnited is being pressured by regulators as its loan loss reserve slips to below one-quarter of its non-current loans.
Even though BankUnited regulatory capital ratios fall within what the FDIC usually considers well capitalized, the Office of Thrift Supervision told the bank on Sept. 5 it has been downgraded to adequately capitalized. Regulators are concerned about its residential mortgage portfolio and whether the bank will be successful in raising $400 million in capital to cover additional delinquencies, according to a BankUnited SEC filing.
Coral Gables-based Mercantil Commercebank received a $70 million infusion from its Venezuelan parent company on Sept. 4. Mercantil President and CEO J. Guillermo Villar said the money would pay for adding three branches in Palm Beach and Broward counties in the next six months and lending more money.
But, at the same time, the $6 billion-asset bank experienced deteriorating loans, and its loan loss reserve fell from 87 percent to 31 percent in the second quarter. Mercantil had a profit of nearly $4.4 million – more than double the first quarter.
Gas prices are poised to shoot back toward record highs after Hurricane Ike’s direct hit to the heart of the nation’s oil refineries, analysts said.
The average price of gasoline nationwide has already shot up 12 cents in the past two days to $3.795 a gallon, according to figures released by the AAA Sunday. And the average price of gas is now at or above $4 in Alaska, Georgia, Hawaii, Illinois, Indiana, Michigan and South Carolina.
In addition, Hurricane Ike could turn out to be the third-most expensive natural disaster in U.S. history, according to preliminary forecasts from a firm that does loss estimates for the insurance industry.
Experts say it’s too soon to know exactly how much damage the hurricane - which slammed into Galveston, Texas, early Saturday - did to the refineries.
Some early reports suggested that the damage could be limited despite the nearly direct hit.
But the output at the refineries, which produce nearly 25% of the nation’s gasoline, could still be affected if it takes weeks or months to restore full power to the region.
The uncertainty left experts projecting everything from a nationwide gasoline spike above $5 a gallon to a jump to just below the $4 mark.
Many consumers throughout the Southeast have already started to see sharp increases in gas prices before the storm even hit. The latest nationwide survey by AAA conducted Friday showed that prices were up nearly 6 cents a gallon to $3.733.
Some areas, particularly in the Gulf Coast and South, have been hit with a more than a 20 cent a gallon overnight increase. For example, the price of gas jumped 27 cents in Knoxville, Tenn., to $3.924.
"This is a fear factor among station owners," said Kevin Kerr, editor of Global Commodities Alert. "They’re worried that they’re not going to get any more supply or if they do it’s going to be a lot more expensive."
Gas prices soared three years ago in the week after Hurricane Katrina slammed into New Orleans. Prices jumped 17% to a then-record high of $3.0569 due to damage to refineries and pipelines.
In a statement to CNN, the U.S. Department of Energy said it "is very concerned about the impact of gasoline prices on American families" and encouraged people to report price gouging at its Web site.
The Department of Energy added that it is ready to release crude oil from the Strategic Petroleum Reserve "when and where it is necessary to ensure refineries are capable of maintaining operations" and that is analyzing the amount of fuel production likely to be lost because of Hurricane Ike and Hurricane Gustav, which hit near New Orleans on Sept. 1.
Kerr said the path of Hurricane Ike was the worst possible scenario. There are about 20 refineries between Lake Charles, La., and Corpus Christi, Texas. All of them saw winds and heavy rain from the storm. Together, they can refine nearly 5 million barrels a day.
Almost half of that capacity is concentrated in the Houston-Galveston area - where the center of the storm hit. In addition to area refineries, gasoline pipelines and other key transportation infrastructure could limit the supply of gas reaching consumers.
"We could see gas go up to $6 in certain states," said Kerr. "I think the baseline will be more like $4.50, maybe even $5."
The ExxonMobil (XOM, Fortune 500) refinery in Baytown, Texas, with a daily capacity of 567,000 barrels, is the largest refinery in North America. And the eye of the hurricane passed right over it.
CNN correspondent Ali Velshi reported Saturday morning that there was no apparent damage to the outside of the refinery, despite extensive damage in Baytown faxless payday loan.
Kevin Allexon, spokesman for ExxonMobil, said the company has not yet determined if there was damage that could further disrupt operations.
"There’s still some pretty significant weather that affects how safe it is to do assessment work," he said.
Oil analyst Peter Beutel of Cameron Hanover said he’s encouraged by initial reports suggesting that crucial oil facilities in the region survived without substantial damage. He’s hopeful that if refineries can resume near normal operations later this week, gas prices will remain below record levels.
"Right now it looks like we took a licking and we kept on ticking, although it’s still early to get full reports," he said. "As of now, I don’t have reason to believe it’s going to be a lasting factor. It doesn’t look like you’ll get to $4 nationwide, but you’ll see $4 gas in a number of places," he said.
But Tom Kloza, the chief oil analyst for the Oil Price Information Service, which provides the data for the AAA survey, said he’s worried about how long it will take to get full production going again.
"Even if we missed the worse of it, it’s going to be a mess," he said. "U.S. refineries are really dependent on local utilities. When you hear them talking about power outages lasting for weeks, it’s a worry."
The Department of Energy reported that 2.4 million customers were without power as of Saturday morning, essentially everyone in the direct path of the hurricane.
Kloza said fear of a political backlash could keep oil companies and wholesalers from raising prices as high as the market might support in the face of such a tight supply.
But he said that even if consumers are spared the full brunt of price increases, they could end up dealing with limited supplies in some markets.
"You’re going to see a lot of stations in some places that don’t have gasoline and you’ll see some lines," he said. He’s predicting nationwide gasoline prices to rise to about $4 a gallon, give or take a dime for the next month.
What’s more, production at refineries along the Gulf Coast had yet to return to normal since they shutdown in preparation for Hurricane Gustav, even though the hurricane caused limited damage.
Kloza added that jet fuel, diesel and heating oil prices could sharply increase - partly because they don’t get the public attention or political scrutiny that gasoline prices do.
But Hurricane Ike will prove to be costly even beyond the impact on gas and other energy prices.
Catastrophe risk modeling firm AIR Worldwide Corporation said Saturday that it estimated insured losses to onshore properties would be between $8 billion and $12 billion. The firm said it expected significant wind damage to skyscrapers in Houston as well as to mobile homes and warehouses.
And Eqecat Inc., a firm that makes catastrophe estimates for the insurance industry, initially forecast insured losses from Ike at between $8 billion and $18 billion.
The low end of that estimate would make Ike the fifth most expensive storm in history after adjusting earlier storms’ costs for inflation.
But the high end of that forecast would put Ike behind only Hurricanes Katrina and Andrew as the most expensive natural disasters, according to the Insurance Information Institute.
Hurricane Katrina cost insurers an inflation-adjusted $43 billion, while Hurricane Andrew, which hit South Florida in 1992, cost the industry an inflation-adjusted $22.9 billion.
Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.
“If we cannot solve the political conflict in the very short term, GDP may be below 5 percent'' this year, Surapong, 51, said in an interview in Bangkok today. “We still hope that we can achieve 5.5 percent.''
Thailand has been without a prime minister since Samak Sundaravej was forced to resign by a Sept. 9 court ruling that he violated the constitution. The central bank has said political instability has overtaken inflation as the biggest threat to Southeast Asia's second-largest economy, which slowed for the first time in two years in the second quarter.
“Most of the political observers think the new government may not last longer than a couple months,'' Surapong said. “Political turmoil is a very crucial factor for the economy.''
The government's economic advisory agency on Aug. 25 said expansion may be as much as 5.7 percent this year. That compares with Merrill Lynch & Co.'s 5.1 percent estimate. Gross domestic product expanded 4.8 percent last year.
`Cloudy' Outlook
“For Thailand, there is more downside risk than upside,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore. “Even a nomination of a prime minister this week may not resolve anything. This kind of risk continues to weigh down on sentiment. Next year may be even more cloudy.''
Surapong, a medical doctor, is secretary-general of the People Power Party, which controls 315 of 480 lower-house parliamentary seats in a six-party coalition. The former spokesman for Thaksin Shinawatra, the premier ousted in a 2006 coup, will be a contender in a party vote today to decide on the next prime minister.
The government had been counting on domestic consumption to buoy the economy this year amid an expected slowdown in exports, which account for 70 percent of GDP. Shipments were buoyed by rubber and rice in the second quarter amid record commodity prices, which have since fallen.
The Bank of Thailand forecasts the nation's economy will grow between 4.3 percent and 5.8 percent next year. Merrill Lynch estimates a 4.7 percent pace.
Slowing Exports
Export growth may slow to 16.5 percent this year from 17.3 percent last year, according to the government's economic adviser. Deepening global financial market turmoil may cool demand from the nation's key markets — the U.S., Europe and Japan, according to a Sept. 11 Merrill Lynch report.
Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand americashadvance. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.
A state of emergency imposed in Bangkok on Sept. 2 after deadly clashes between pro- and anti-government demonstrators was lifted yesterday. More than 10,000 mostly middle-class Bangkok protesters who have occupied Government House since Aug. 26 say they will stay put. Parliament is due to vote on a new prime minister on Sept. 17 after lawmakers boycotted a Sept. 12 session.
Other People Power Party candidates include acting Prime Minister Somchai Wongsawat, 61, a former judge and Thaksin's brother-in-law, and Justice Minister Sompong Amornvivat.
`Uncertainty'
“I don't think an appointment of any three of them will be seen as a huge improvement,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore, adding investors may not get a full picture of economic policies for “a few months. There's still so much uncertainty.''
Consumer confidence in August fell to the lowest this year. The SET Index of stocks has sunk 26 percent since May 25, when the protesters began calling for Samak's ouster. The baht is close to its weakest level per dollar in more than a year on concern that the political impasse will drag on.
Fitch Ratings last week said politics have affected the nation's economic policies, posing a negative risk for the sovereign rating. The rating agency ranks Thailand's long-term debt as BBB+, the eighth-highest investment grade. Moody's Investors Service earlier this month kept its stable outlook on the nation's Baa1 credit rating, indicating it's disinclined to change it.
“We are getting more concerned about political risk,'' said James McCormack, Hong Kong-based head of Fitch's Asian sovereign ratings. “There is no evidence so far where the resolution will come from.''
Credit Suisse warned Sept. 3 that Thailand risks becoming “ungovernable'' as the political situation “remains far from reaching anything resembling equilibrium.''
Thaksin was ousted in a 2006 military coup that followed street protests led by the same group behind the campaign against Samak. The so-called People's Alliance for Democracy says the government contains too many allies of Thaksin, the People Party's patron, and is calling for a mostly appointed House of Representatives to replace the fully elected body.
Federal Reserve Chairman Ben S. Bernanke and his fellow policy makers agreed at their August meeting that their next move on interest rates would probably be up. They may turn out to be wrong.
Inflation looks likely to ebb, thanks to falling commodity prices and contained labor costs. The U.S. economy, meanwhile, may be set to take another lurch down as consumer spending gives way and the credit crunch intensifies with the plunge in Lehman Brothers Holdings Inc.'s shares.
“If the consumer balance sheet starts to unwind quickly, you'd get another disinflationary force and then the Fed would be brought back into play with lower rates,'' says Mohammed El- Erian, co-chief executive officer of Pacific Investment Management Co. in Newport Beach, California.
Bernanke and his colleagues are likely to hold their benchmark rate at 2 percent when they meet Sept. 16 and may keep it there until 2009, trading in federal funds futures indicates. Still, the odds of a rate cut by year-end have been growing. Futures trading shows more than a 40 percent chance of a December reduction, up from zero odds at the beginning of September.
Traders increased their bets after government figures today showed sales at U.S. retailers unexpectedly dropped in August and a bigger-than-forecast decline in wholesale prices signaled inflationary pressures may ease.
San Francisco Fed President Janet Yellen left open the possibility of a rate cut in comments to reporters after a Sept. 4 speech in Salt Lake City. “There is some chance'' of easing credit “if things start going seriously wrong,'' she said.
Policy Decision
She made clear, though, that she agreed with her fellow policy makers, who “generally anticipated that the next policy move would be a tightening,'' according to the minutes of the Fed's last meeting on Aug. 5.
If the Fed instead ends up lowering borrowing costs, it wouldn't be the first time Bernanke and his colleagues have been forced to shift their stance from fighting inflation to supporting growth. When the credit crisis first struck in August 2007, the Fed cut its discount rate on loans to banks just 10 days after declaring that inflation was its overriding concern.
Investors have remained on edge since then, even after the Fed-assisted takeover of Bear Stearns Cos. in March and the rescue of Fannie Mae and Freddie Mac this month. Shares in Lehman Brothers dropped more than 70 percent this week as the firm reported a record $3.9 billion loss for the third quarter and concern mounted about its capital levels.
`Feedback Loop'
The big risk is what some at the Fed have called an “adverse feedback loop'' as the credit crisis and the weak economy aggravate each other. Now, officials also fear that another spiral could take hold as the U.S. housing collapse and credit crunch weaken economies overseas, in turn curbing U.S. exports.
“The balance of risks in the American economy is now towards contraction and a vicious cycle in which declining economic performance exacerbates financial strains, which feeds back to hurt the economy,'' Harvard University professor and former Treasury Secretary Lawrence Summers said in congressional testimony Sept. 9.
Jan Hatzius, chief U.S. economist at Goldman, Sachs & Co. in New York, reckons that the credit squeeze will bring the economy to a halt in the fourth quarter of this year and the first quarter of next, after growth of 2 percent this quarter no checking account payday advance.
“The headwinds pushing against the economy look to be a good bit stronger than those experienced in the early 1990s,'' when the country last faced a credit crunch, Boston Fed President Eric Rosengren said in a speech Sept. 3.
`Tapping the Brakes'
Wachovia Corp. of Charlotte, North Carolina, the fourth- largest U.S. bank, is “tapping the brakes'' on lending as credit losses mount, Chief Executive Officer Robert Steel told investors Sept. 9.
Debt-laden consumers appear particularly vulnerable as house prices continue to fall and unemployment rises. Credit- card payments 30 or more days overdue rose to 4.7 percent of total card debt in the second quarter, the highest level in 4 1/2 years, according to the Federal Deposit Insurance Corp.
The Fed reported in its latest regional economic survey, released Sept. 3, that consumer spending was slow in most of the country, “with purchasing concentrated on necessary items.'' Nondiscretionary outlays — including rent, taxes, food and fuel — accounted for a record 57.8 percent of expenditures in July, up from 56.3 percent a year earlier.
Even some well-off consumers are feeling the pinch. Cie. Financiere Richemont SA, the Geneva-based maker of Cartier necklaces and Piaget watches, said Sept. 10 that the lower and middle range of the luxury-goods market in the U.S. is facing “difficult'' market conditions.
Threat to Exports
The spread of the weakness abroad is threatening to undercut one of the U.S. economy's few strengths: exports, which accounted for virtually all of the growth in second-quarter gross domestic product. On Sept. 10, the Japanese government said the world's second-largest economy is “deteriorating,'' and the European Commission forecast a recession for Germany.
“Not only is the U.S. in a recession, but the rest of the world is slowing down,'' Ford Motor Co. Chief Executive Officer Alan Mulally said in a Sept. 8 speech. “I've never seen anything quite like it.''
The global slowdown does have one silver lining: It's sapping demand for everything from oil to soybeans, dragging down their prices and taking the edge off inflation. The Reuters/Jefferies CRB Index of 19 raw materials has tumbled 25 percent since hitting a record in July. Crude-oil prices dropped close to $100 a barrel this week from a high of $147.27 just two months ago.
`Very Hopeful'
“I am very hopeful that inflation will come down quite substantially,'' Yellen said in a Sept. 5 speech, pointing in particular to the drop in commodity prices.
Consumers' troubles will also help to temper inflation — which ran at a year-over-year rate of 5.6 percent in July, the fastest pace in 17 years — by making it tougher for companies to raise prices. Some may even be forced into reducing them.
Medford, Oregon-based Harry & David Holdings Inc., which markets gift baskets and other products, said Sept. 7 that it is cutting shipping charges to its customers by as much as one- third from last year as it prepares for what analysts expect will be a tough holiday-selling season.
“With the risk of inflation steadily disappearing and the economic risk rising, the Fed will cut rates,'' says Ethan Harris, chief U.S. economist at Lehman Brothers in New York.
South Florida’s active hurricane season is helping one Boca Raton-based startup sell a new approach to the old problem of losing electricity during a storm – or through power outages in general.
Power Ready International’s Indoor Power System (IPS) is a $9,000 portable unit that doesn’t require gas or a permit, can run on solar power – but also can take charge from electrical outlets – and holds 12,000 watts in its battery.
A full battery could last a few days if it’s running at 3,000 watts, Power Ready GM Bill Dato said. The generator could last an extra two days if a 200-watt solar panel was plugged in and getting full sun.
And, unlike traditional fuel generators, it can be run indoors without worrying about carbon monoxide poisoning, he said.
The key is the IPS’s proprietary battery that is rated to last 1,500 cycles. (A full cycle is when the battery is completely drained and recharged, Dato explained.) Plus, the unit has a full warranty up to five years, and a partial warranty up to 10 years, he said.
“You don’t have to wait until the wind stops blowing to go out and fuel up the system,” Dato said.
The IPS can stay juiced on a conventional power outlet, a solar panel or windmill, but it basically acts like a giant battery, ready immediately after a home’s regular power gives out. In this respect, it’s like a laptop computer battery.
Power Ready opened in January, said Jill Serubol, who co-owns the company with a pair of investors who aren’t involved in regular operations. Serubol said she started it along with Dato after they worked for a traditional gas generator dealer.
“We built a prototype and started playing around with it,” she added faxless cash advance.
Both Serubol and Dato declined to disclose how much startup capital went into the company.
Power Ready is currently setting up a series of distributorships, but is also considering larger retail opportunities, Dato said.
Serubol said Power Ready hopes to sell 500 units this year.
That would put it ahead of schedule for achieving profitability, Dato added.
“Our first-year projections are approximately $2 million,” he said.
In that last 60 days, Dato said, Power Ready has shipped over 24 demonstration models to dealers.
But, success may depend on the unit’s price.
Ed Huss, GM at Beach Ace Hardware in Lauderdale-by-the-Sea, said a conventional 3,000-watt gas generator sells for about $700, on average.
That’s a major cost differential with the $9,000 Power Ready system, but Huss added that the IPS’s solar compatibility could make it very attractive for people living in condos and apartments.
“I don’t know one apartment building or condo in our area, up and down the beach, that allows a generator.”
Huss also said the IPS technology is “not very common at all,” although he noted the unit’s price could be a turnoff for many.
Still, Dato said the IPS could help reduce electric bills since it can be used continuously with renewable energy sources.
GM: Bill Dato
Web site: www.powerreadyintl.com
Address: 178 Glades Road, Boca Raton 33432
Phone: (561) 394-2550
E-mail: info@powerreadyintl.com
India's inflation slowed for a third straight week, signaling that the central bank's three interest-rate increases since early June are beginning to work.
Wholesale prices rose 12.1 percent in the week to Aug. 30 from a year earlier, the commerce ministry said in New Delhi today. That compared with a 12.34 percent gain in the previous week and the median 12.01 percent forecast in a Bloomberg News survey of 22 economists.
Governor Duvvuri Subbarao, who took over the top job at the Reserve Bank of India last week, said Sept. 9 he would take “appropriate'' action as it was not yet clear if the moderation in inflation was a “discernible trend.'' Wholesale prices have risen at more than twice the central bank's targeted 5 percent pace since June.
“The present level of inflation is way above the comfort zone,'' said Dharmakirti Joshi, an economist at Mumbai-based Crisil Ltd., the local unit of Standard & Poor's. “I expect the central bank will raise the repurchase rate by another 25 basis points at its October meeting.''
Subbarao's predecessor Yaga Venugopal Reddy, who retired Sept. 5, in July raised the benchmark interest rate by a half point to a seven-year high of 9 percent after raising it twice in June. Other central banks across Asia have also been increasing borrowing costs amid higher food and fuel prices.
Bonds Rise
India's 10-year bonds rose for a third day, pushing yields to a three-month low. The yield on the benchmark 8.24 percent note due April 2018 fell 9 basis points to 8.28 percent at the 5:30 p.m. close in Mumbai, according to the central bank's trading system.
Higher interest rates have slowed growth in India, Asia's third-largest economy, Subbarao said this week. The central bank expects the $912 billion economy to expand 8 percent in the 12 months ending March, the slowest pace in four years payday loan.
India's economy grew 7.9 percent in the three months to June 30 from a year earlier, the weakest pace since the last quarter of 2004. The central bank's next monetary policy statement is due Oct. 24.
Declining oil and commodity prices are helping cool inflation across Asia and easing pressure on the region's central banks to keep increasing interest rates. Consumer prices in China rose 4.9 percent in August from a year earlier, the smallest gain since June 2007. Japan's wholesale inflation rate fell for the first time in 11 months.
Crude Oil
Crude has fallen about 30 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduced demand for fuels.
India's inflation has eased since reaching a 16-year high of 12.63 percent in the week to Aug 9.
Prices of rice, corn, onions, potatoes, spices and edible oils declined in the week to Aug. 30, today's report showed. Manufactured-price inflation, with a 64 percent weight in the inflation basket, rose 11.07 percent, slower than the 11.28 percent gain in the previous week.
Elevated energy and commodity prices forced the central bank in July to raise its inflation forecast for the year to March 31 to 7 percent from a previous target of between 5 percent and 5.5 percent.
The government may revise today's preliminary wholesale- price estimate in two months after receiving additional data. The commerce ministry today raised its inflation estimate for the week ended July 5 to 12.19 percent from 11.91 percent.
Computers, unable to see the mold on an outdated UAL Corp (UAUA.O: Quote, Profile, Research, Stock Buzz) article, sparked confusion, a mass sell-off, and an emergency trading halt earlier this week that highlights the pitfalls of increasingly automated financial markets.
Shares in the parent of United Airlines plunged about 76 percent after a nearly 6-year-old news story on its 2002 bankruptcy filing appeared online on Monday.
UAL, which is no longer in bankruptcy, scrambled for a retraction and its stock later bounced back — but for some investors, especially frequent traders, the damage was done.
The use of algorithms — which allow computers to make decisions in fractions of a second — appears to be a main culprit in the UAL case.
Experts said the automated programs were applied to both the reading of the outdated news story and the trading of shares based on that information.
“You’re taking human judgment out of the news processing payday loans. Ninety-nine times out of 100 you get good results, but this is a pretty glaring exception.” said Jamie Selway, managing director of institutional broker White Cap Trading.
“Savvier people will benefit, and the art is knowing when someone is trading on bad information,” said Selway, who focuses on market structure.
So-called algos are now used to scour the Internet, combing through news for market-moving information.
French industrial production rose more than expected in July after car output increased and oil prices fell.
Output from factories and utilities climbed 1.2 percent from June, when it fell 0.6 percent, said Insee, the national statistics office, in Paris today. Economists expected an increase of 0.2 percent, according to the median of 20 forecasts in a survey by Bloomberg News. Industrial production accounts for about 15 percent of the euro-area's second-largest economy.
Manufacturers may struggle to increase production as the French economy, which contracted in the second quarter, is skirting recession for the first time since 1993. While oil prices have dropped 28 percent since touching a record $147.27 per barrel in July, they are still 34 percent higher than a year ago and a U.S. slowdown is dragging down growth across the world.
“This rebound should not make us forget that French economy is just going to avoid recession and we don't expect it to grow more than 1 percent this year,'' said Cedric Thellier, an economist at Natixis, in an interview with Bloomberg Television.
France's trade deficit narrowed in July from a record as exports rose 0.3 percent to 35 billion euros ($49.5 billion) and imports fell 1 percent to 39.8 billion euros. Imports of oil products and cars fell
Industrial production in the period from May to July dropped 1.9 percent from a year earlier, Insee said instant payday loan. Year on year, output fell 2.3 percent.
Confidence
Output of cars increased 5.1 percent in July from a month earlier, Insee said. The French car producers association said that truck sales rose 5.2 percent in July from a year before and climbed 19.3 percent in the seven months through July.
French business confidence dropped to the lowest in more than three years in July, suggesting manufacturing activity will slow in coming months. The European Union will cut its growth forecast today as confidence wanes and inflation expectations increase, Commissioner Joaquin Almunia said yesterday.
L'Oreal SA, the world's largest cosmetics maker, said on Aug. 28 that first-half profit rose 6.8 percent, the slowest pace in three years, after European and U.S. shoppers pared spending on makeup and perfumes.
The French economy will probably expand about 1 percent this year, Prime Minister Francois Fillon said Sept. 1, down from a previous growth forecast of 1.7 percent to 2 percent.
Exports from Germany, Europe's largest economy, declined more than economists forecast in July as cooling global growth curbed demand.
Sales abroad, adjusted for working days and seasonal changes, fell 1.7 percent from June, the Federal Statistics Office in Wiesbaden said today. Economists expected a drop of 1.1 percent, the median of 10 forecasts in a Bloomberg News survey showed. In the year, exports rose 7 percent.
Exporters are grappling with a slowdown in the economies of their main trading partners. Europe's gross domestic product shrank 0.2 percent in the second quarter and may not recover in the third, raising the risk of the region's first recession since the euro was introduced in 1999. While oil prices fell 28 percent from a July record, they're still up almost 40 percent over the past year, boosting inflation and damping the outlook.
“Today's result matches recent negative data,'' said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “There's a risk of a drop in gross domestic product in the third quarter. We don't see a significant recovery anytime soon.''
Imports rose 7.4 percent from June. That's the biggest gain since June 2002. In the year, imports gained 16 percent.
The trade surplus narrowed to 13.9 billion euros ($20 billion) from 19.9 billion euros in June. Economists forecast a surplus of 17.5 billion euros. The surplus in the current account, the measure of all exports including services, narrowed to 11.8 billion euros from 18.9 billion euros in June.
Dropping Orders
German factory orders unexpectedly fell in July, extending their longest-ever declining streak and increasing the likelihood that the economy is heading for a recession.
The German economy contracted 0.5 percent in the second quarter and may not recover in the third as investments falter and consumer spending slumps. The VDMA lobby has said that plant and machine orders dropped for a third straight month in July, led by sliding foreign demand payday loan.
German business confidence declined to a three-year low last month and consumer optimism fell to the lowest level in five years. Growth is slowing globally after the U.S. subprime mortgage market collapsed, making banks reluctant to lend and driving up the cost of credit.
Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank, had a net loss in the first six months of the year following writedowns related to the credit-market collapse, the company reported on Aug. 28.
Bertelsmann AG, Europe's largest media company, cut its 2008 profit forecast after advertisers slashed marketing budgets to cut costs amid the economic slowdown.
Asian Demand
Some companies are trying to offset falling European and U.S. orders by expanding in Asia and oil-exporting countries. German exports to India more than tripled in the four years through 2007 to 7.4 billion euros, the statistics office said.
Adidas AG Chief Executive Officer Herbert Hainer last week repeated the company's forecast, saying growth in emerging markets following this summer's Beijing Olympics will drive sales at the second-largest sporting-goods maker.
Shipments to countries outside the European Union rose 10 percent from a year earlier, today's report showed. Exports to EU member states increased 5.4 percent from July 2007. Imports from within the EU trade bloc rose 13.7 percent from a year ago.
Still, the German government forecasts growth will slow to 1.7 percent this year and 1.2 percent in 2009 from 2.5 percent in 2007. Economy Minister Michael Glos said Aug. 26 the economy is “exposed to a serious economic stress test.''
Federal prosecutors in Connecticut say a scheme to manipulate the financial statements of the world’s largest insurance company, American International Group Inc., resulted in a loss of more than $1 billion.
Four former executives of General Re Corp. and a former executive of American International Group (AIG, Fortune 500) were convicted in February of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission fast cash now. They await sentencing.
One of the defendants, Christopher Garand, says in court papers that the government contends the loss from the scheme exceeded $1 billion.
A spokesman for the U.S. attorney’s office in Connecticut declined Friday to comment, saying prosecutors will respond in court.
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