The UK’s banking watchdog, the Financial Services Authority (FSA), has put domestic banks up to the test and found them wanting. Banks’ projections about their capital buffers and risk exposure are far too rosy, the Bank of England said in a statement today.
In case you were wondering, this is how you pronounce Jeroen Dijsselbloem, the Dutch finance minister and Eurogroup president, whose offhand remark about Cyprus—namely, that the country’s bailout conditions may not be such a special case, after all—has thrown European markets into a bit of turmoil. Now that everyone is furious at Dijsselbloem, you might as well know how to say his name.
Hedge funds are set to do remarkably well this quarter. Data from consultancy Hedge Fund Research show that, in January and February alone, the average fund was up 2.7% (paywall), and the average equity-focused fund was up 4%. That’s about half of the gains the average hedge fund manager saw in all of last year: Funds returned just over 6% for all 2012, and lost 5% in 2011. Even if this year’s spectacular returns turn out to be short-lived, they signal a secular change that could keep the hedge-fund business an attractive outlet for investment.
European banks have always been big or even dominant lenders in emerging-market economies. But now, weathering a new European recession, subject to stricter capital rules, and spooked by uncertainty, they’ve been forced to deleverage. They’re getting rid of assets at a staggering pace and particularly in emerging markets, find BBVA economists Alicia Garcia Herrero and Fielding Chen (pdf). This is giving US, Japanese, Australian, and even UK banks a chance to get into markets where they used to be only minor players. Though US banks, like European ones, are having to somewhat limit their expensive foreign operations because of new regulation, they’re still taking advantage of new opportunities in emerging markets.
Although negotiations between Cyprus, the EU, and the IMF have ended with a deal to preserve the country’s place in the euro and prevent its banking sector from failing entirely, the smoke around the event remains thick. Last night, euro zone policymakers adopted some unprecedented measures to keep the Cypriot financial system from failing and cut down the amount other euro zone countries will have to pay to make that happen.
Cyprus has finally reached a deal with euro zone policymakers and the IMF. But although this solution will stop Cyprus from defaulting, printing a new currency, and leaving the euro, there are plenty of people who are going to be cursing this deal.
Update (10:10 PM ET):
After a contentious late-night meeting, Cyprus has a draft agreement with the troika of the European Central Bank (ECB), the IMF, and euro zone countries to obtain a €10 billion ($13 billion) bailout that would keep the country in the euro. Euro zone finance ministers have signed off on the deal, and German Finance Minister Wolfgang Schäuble says that the new plan will not need approval from the Cypriot parliament, which struck down an earlier plan.
Moody’s downgraded the United Kingdom’s credit rating back in February, Standard & Poor’s put the country on watch for a downgrade in December, and now Fitch joins the party, putting the country on ratings watch negative. Fitch cited slower-than-expected growth and higher-than-expected levels of public debt:
Things are getting dicey for Cyprus. On March 16, the Mediterranean nation rejected a proposed €10 billion ($12.9 billion) bailout from the European Union, the European Central Bank (ECB), and the IMF because it would have imposed a tax on depositors in the country’s banks, violating an important taboo. It rejected attempts to modify the terms of that bank levy. The ECB stood its ground, and now the country needs to come up with €5.8 billion to win that money from the troika (ECB, IMF, and EU). The Cypriot government is trying to do that, with late-night attempts to restructure banks and pass capital controls (paywall), but and it needs to find a plan that works—or else.
No, it wasn’t just a bad dream. The tiny island tax haven of Cyprus is still in a crisis that could upset the fabric of the euro zone, and everyone’s still having trouble figuring out what to do about it.
Cyprus’s over-stretched banks are at a breaking point. The IMF estimates that they need some €10 billion ($12.9 billion) in capital to stay on their feet, even after a €1.9 billion recapitalization by the Cypriot government in July 2012. Although the government has been doing its darnedest to keep Cyprus’s financial sector afloat, overburdened banks are still sinking into oblivion. But because Cyprus is widely considered an offshore tax haven for the Russian wealthy, European policymakers are unwilling to bail them out.
FedEx reported sub-par earnings today, sending share prices down more than 5% in US trading. With just $1.13 in earnings per share—versus the $1.38 Wall Street was expecting—the company blamed its outdated fleet of inefficient planes for cutting into profits. But that’s not the complete picture; international export volume increased by 4% during the quarter, and executives said in a conference call that all their planes were full of cargo. So what’s really going on?
Despite a global economic slowdown and prolonged weakness in Europe—which the US not long ago overtook as the largest buyer of Chinese exports—China’s economy is still plugging along. Indeed, China and Southeast Asia form one of the brighter spots for the global economy right now. We’ve argued before that Asian producers are taking advantage of newly empowered Asian consumers, even as consumer demand from abroad starts to shrink.
Cypriot pensioners can breathe a little easier. Jeroen Dijsselbloem, president of the Eurogroup (the euro zone finance ministers), announced in a teleconference late on Monday (March 18) that the troika will give Cyprus more leeway to determine the tax levied on depositors with less than €100,000 ($130,000) in the bank, paring back the most controversial piece of a bailout plan for the country that was announced on March 16. At that time, European leaders had decided that depositors would pay a 6.75% tax on their holdings up to €100,000, and then 9.9% on every euro thereafter. They hope this plan will raise €5.8 billion, alongside €10 billion of European financing, to help put the country’s failing banks on a more solid footing.
Although Cyprus may be a tiny country and an offshore Russian tax haven, the implications for the rest of the euro area of the plan to bail out its banks by imposing a levy on depositors are very real.
The US Securities Exchange Commission (SEC) has just announced that hedge-fund advisory firm CR Intrinsic—an affiliate of SAC Capital—has agreed to cough up $614 million in order to settle an allegation that it organized an insider trading scheme. That’s the largest insider trading settlement that’s ever been handed down from the SEC.
This post has been corrected.
The Federal Reserve wants to make sure Goldman Sachs and JP Morgan don’t bite off more than they can chew.
The US Treasury imposed sanctions today against Greek shipping magnate Dimitris Cambis, president of Impire Shipping Limited, who’s accused of purchasing oil tankers using funds from Iran. He also allegedly concealed the fact that those ships were used to traffic Iranian oil, passing it off as oil from somewhere else in the world. Since the US doesn’t do business with Iran— or anyone who does business with Iran—such actions would clearly be illegal.
The recent spate of hacking attacks alleged to have originated from China’s military has taken many world governments, business leaders and individuals largely by surprise.
Germany has been the continuing bright spot in an otherwise dim euro zone economic outlook. As my colleague Matt Phillips pointed out last week, however, there are signs that the German economy is flagging: German industrial production was down by 1.3% in January from the year before. That’s little surprise, since 57% of Germany’s exports go to other states in the European Union.
“Central bank president” is one of the many top jobs dominated by men. So it’s worth noting Russian president Vladimir Putin’s decision today to name Elvira Nabiullina to head the Central Bank of Russia. Nabiullina, who previously served as economy minister, will all but assuredly become the first female central banker in Russia’s history, the first in the G8, and one of only 13 other female central bankers around the world (as of late last year).
It’s hard to look at recent headlines and come away feeling optimistic about China’s housing market. Tightening credit conditions, a fresh round of property-sale restrictions and renewed talk of “ghost cities” suggest the much-discussed China housing bubble may be nearing “pop” levels once again.
