Top 10 at 10: South Canterbury's related parties; Eurozone banking timebomb; Lovely charts; Dilbert; Daily Show
16th Jun 09, 10:34am
by
Here's my Top 10 links from around the Internet at 10am. I welcome your additions in the comments below. I'm glad I'm not a Somali pirate.
1. Greg Ninness at the Sunday Star Times has dug into the related party lending around South Canterbury Finance and its executives, including CEO Lachie McLeod, who has responded in the article.
In a complicated shuffling of assets between South Canterbury and various other companies in the Southbury Group, South Canterbury has transferred $89.6m of loans to Southbury and purchased shares in several Southbury subsidiaries, including a $22.5m stake in Scales Corp and Commtest Instruments and $20m of preference shares in Helicopters NZ. However, the biggest related- party transaction was a post balance-date deal for South Canterbury to buy what are described as "various farming properties", from an unnamed related party for $67.2m. The size of this transaction at a time when the value of many rural assets is in freefall, and the fact that no further details of the deal are provided is a concern because it is equivalent to nearly 27% of the company's equity. McLeod dismissed concerns over these arrangements as "great bloody gossip from The Viaduct". "I think a lot of it is to do with the [dairy] payout drop. We've only got $45m in dairy loans, but everyone thinks we've got hundreds of millions," he said.2. The IMF says there are signs of recovery emerging in the global economy, but the worst is not over yet. It says 2009 is a writeoff and the first global contraction since the Depression, while 2010 looks like being a year of recovery, Reuters reports. 3. Eurozone banks face extra losses of US$283 billion, the European Central Bank has warned. The FT.com reported the ECB saying the fates of the European economy and its banks are increasingly interlinked.
Risks to the stability of the financial sector remained high, it said, while "uncertainty prevails" over the shock-absorbing capacity of the banking system. Its stark comments could fuel calls for European politicians to step up the "stress-testing" of the Continent's banks to restore confidence in the system. Weaknesses in continental Europe's banks have come under increasing global scrutiny recently, with finance ministers facing pressure at a G8 summit in southern Italy at the weekend to follow the lead set by the US.4. Felix Salmon from Reuters also talks about The German Problem.
The base-case scenario, then, is that Germany goes Japan "” and drags the rest of the Eurozone, if not the entire world, into a Japan-style Lost Decade. How do we stop that from happening, especially absent political will in Berlin? I have no idea.5. As if to reinforce the point, Moody's has put UBS on review for a multiple notch downgrade, the New York Times' Dealbook reports.
The ratings review reflects challenges in UBS's two largest business lines: investment banking and wealth management, the credit ratings agency said. "Moody's believes these challenges are unlikely to be short-lived and pose greater risk to bondholders than it had previously believed," David Fanger, senior vice president of the agency, said in a statement. The Zurich-based bank warned last month that it might have to increase credit provisions in coming quarters while posting another steep loss for its first quarter amid writedowns in its investment banking operations. "Given the magnitude of the bank's challenges and the length of time it may take to fully address them, the bank's ratings are vulnerable to a downgrade of more than one notch," Mr. Fanger said. Moody's said that any downgrade would probably be limited to one or two notches "because of the bank's high degree of systemic importance."6. Federal Reserve black sheep Richard Fisher, who is the Dallas district president, has pointed out the Fed isn't capable of offsetting the flood of US government borrowing with its bond buy-back programme (money printing), Bloomberg reported.
"The program has had its impact," Fisher said today in an interview with Bloomberg Television. "At the same time, you cannot counter this enormous flood" of borrowing "coming from the United States Treasury." The Fed's efforts to stimulate the economy are complicated by rising Treasury yields, which push up the cost of mortgages even after policy makers have lowered short-term interest rates near zero. Fed district bank presidents including Janet Yellen of San Francisco, Dennis Lockhart of Atlanta andThomas Hoenig of Kansas City are among those who say higher yields may reflect concerns about inflation and imbalances such as the budget deficit. The Fed won't "monetize" the fiscal deficit by effectively printing money to finance the shortfall, and there's been no "pressure" from the Obama administration to do so, said the Dallas bank chief, who doesn't vote on rates this year.7. Wolfgang Munchau at FT.com has some sobering thoughts on complacency and green shoots.
Fiscal policy exit strategies were at the top of the Group of Eight finance ministers' agenda on Saturday, with the Europeans in greater haste than others. Nobody is solving the toxic asset and recapitalisation problems of the banks. Financial regulation does not seem to be extending much beyond populist pseudo-measures on tax havens. Plus there is still financial meltdown potential in the system. Latvia, for example, is a ticking time bomb. So at this point, I see the chances as roughly even between a global slump and a return to quasi-stagnation. What is so galling about this scenario is that it is avoidable. The central banks took the right decisions. But the political reaction has been near-catastrophic almost everywhere. Instead of solving the problems to generate a recovery, the political strategies have consisted of waiting for a recovery to solve the problem. The Europeans are relying on the Americans to generate growth. The Americans are relying on the Chinese, who in turn are waiting for the rest of the world.8. This is a must read series of economic charts for chart lovers from the Council for Foreign Relations. It looks at data from the current recession and compares it with averages of previous recessions. HT Felix Salmon. The one below on global trade will knock a few people's socks off.
9. The shock to the American economy from the destruction of wealth should not be underestimated. Here is a great post from Newsneconomics.com on the Wealth Effect. HT Matt Nolan at TVHE.
10. Meanwhile, Moody's has also downgraded 25 Spanish banks and has Banco Santander on review for downgrade, FTAlphaville reported. The European banking time bomb looks like being the story of the next couple of months.
Jon Stewart at The Daily Show looks at whether the economy is "F##cked or Fixed" in this video.
| The Daily Show With Jon Stewart | Mon - Thurs 11p / 10c | |||
| F#@ked or Fixed - Economic Crisis | ||||
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