The Wall Street Journal Comments on AIG
February 24, 2009 by Danish FX · Leave a Comment
- Under the plan, the government loan of up to $60B would be repaid with a combination of debt, equity, cash and operating businesses, such as stakes in AIG’s Asian life-insurance unit.
- WSJ adds that AIG and the government have been discussing the changes since Dec and plan to announce them by Monday when the company is expected to report its earnings.
- Under the new structure, AIG’s interest burden on the government money would be reduced.
- AIG currently pays 3% plus Libor.
- AIG also pay a 10% annual dividend on a separate $40B investment by the government.
- The plan may entail AIG continuing to try to sell some assets, but other assets would be transferred to the government in lieu of cash repayment.
- The assets would likely be spun off and may be taken public with the government owning a major stake.
- According to a person close to AIG, the government’s stake in the company is currently about 80% and is unlikely to be substantially changed in the near term.
- One of the restructuring plan’s central goals is to safeguard AIG’s credit rating, which, if cut, would force the company to make billions of dollars in payments to its trading partners.
- The new plan is being structured in close consultation with the major credit-rating agencies.
- WSJ notes that the talks with the government are ongoing and while they are at an advanced stage the deal may still fall apart or change significantly.
- One major sticking point is how to value the assets.
- Says AIG’s total loss for Q4 is likely to top $60B.
- WSJ says inside the Fed, officials have been worried about AIG’s Q4 loss and about the risk that the company will have its credit rating cut.
USD Sells Off Across the Board on WSJ Report
February 22, 2009 by Alex Chernomordin · Leave a Comment
A report from the Wall Street Journal earlier suggesting that Citigroup is in talks with the US Government that could lead to the US owning upto a 40% stake in the company. The USD sold off across the board on this news with the EUR/USD rallying over 120 pips.
“Heard on the Street” Comments on E. Europe, Gold, and UK Banks
February 18, 2009 by Danish FX · Leave a Comment
- Eastern Europe:
- Comments on the concerns that have been raised regarding Eastern Europe’s economies and banking systems.
- Notes that foreign institutions own about half of Central and Eastern European (CEE) banking assets and could face big losses.
- Notes a particular concern about CEE foreign currency loans, which make up much of Western banks’ $1.4T assets in the region.
- Notes how companies and households in the CEE region took advantage of low interest rates and stable foreign-currency loans in euros and Swiss francs.
- In Estonia and Lativia, foreign currency loans make up more than 80% of the total.
- According to Goldman Sachs, in a worst-case scenario, Austrian banks could he hit by €14B of bad debts (5% of Austria’s GDP) from their Eastern European units.
- WSJ notes that the real risk to the euro zone is that Western banks start to pull back from the region as loan losses worsen.
- This could lead to a balance-of-payments crisis similar to Asia’s in the 1990s and Western banks would then face far bigger losses, putting more pressure on the EU financial system.
- Gold:
- Notes that the rising gold price says investors are starting to “freak out” over governments’ responses to the credit crisis.
- Looks at the recent growth of central bank balance sheets.
- Notes that if the monetary responses by central banks overshoot, it could lead to high inflation, thus benefiting gold prices.
- UK Banks:
- WSJ says that two of London’s most long-standing bears, Crispin Odey of Odey Asset Management and Peter Davies of Lansdowne Partners have turned positive on UK banks, according to their latest investor letters.
- With respect to the UK government’s bank rescue plan, the WSJ notes that the Treasury promised details of the plan by the end of Feb, but it’s a sign of just how difficult it is proving to make it work (the plan) in practice that substantive discussions have not even started with most UK banks.
- WSJ says that the likely outcome is a very limited plan that saves political face, but does not tackle the banking sector’s underlying problems.
- The major sticking point concerns the attachment point or first loss threshold for each exposure (the price below which the government will pick up 90% of the losses).
- WSJ notes that the Treasury must either force banks to write-down assets before entering the plan or risk handing them a free pass.
TRADE THE NEWS
The Wall Street Journal Reports on Fed’s Balance Sheet
February 12, 2009 by Danish FX · Leave a Comment
WSJ comments on the Fed’s balance sheet in the context of the US’ rescue plans- Notes that a rising number of the dollars the Fed is lending out to revive markets are long-term loans and these commitments could be difficult to pull back when the economy recovers and the Fed wants to drain the financial system of cash to raise interest rates.
- Because the Fed worries about preserving its monetary-policy options, it could be hesitant to push down much further on long-term lending.
- If the Fed sells off its long-term commitments it could disrupt some markets.
- WSJ notes in formulating the latest rescue plan, central-bank officials were reluctant to fund a bank that will buy bad assets from Wall Street firms.
- The Fed might provide bridge financing to help the bank launch, but it would not provide long-term loans.
- The idea of buying Treasuries is still on the table, but having committed to other programs officials are wary of moving quickly on it.
- In testimony to Congress Tuesday, Fed Chairman Bernanke made no mention of the idea, after having raised the possibility on other occasions.
- To improve its flexibility, the Fed wants the Treasury to get permission to borrow money and leave that money on deposit with the central bank.
The Wall Street Journal Notes on Currency Problems in Central Europe
February 11, 2009 by Danish FX · Leave a Comment
WSJ notes that Central Europe has various currency problems
- Comments on the declines in the currencies of Hungary, Poland, the Czech Republic and Romania.
- WSJ says the concern now is that investors will start indiscriminately selling currencies across the region, which would make it more difficut for governments to support their economies.
The Wall Street Journal Reports on the US Recession
February 9, 2009 by Danish FX · Leave a Comment
WSJ comments on the expected length of the US recession
- However, the WSJ notes that just as economists were caught flat-footed by the sharpness of the downturn, history says they would be surprised by the speed and strength of the recovery.
- The article looks at the US economic slowdown of the early 1980s.
- In the 1980s the economy had an abrupt decline after the Fed tightened credit.
- On July 3, 1980, when the Fed removed its credit controls, economist had little hope that a recovery would happen soon.
- However, July was the end of what would be the shortest US recession on record.
- WSJ notes that such rebounds are the norm.
- Of the lat 10 largest quarterly declines in final sales over the past 50 yrs, nine were followed by rebounds the following quarter, with an avg gain of 5.4%.
- WSJ notes that if the government’s stimulus package and bank rescue plan are able to restore confidence in the economy, receover could come surprisingly quickly.
- WSJ says that companies have cut back on new equipment spending to the point that they may no longer be keeping up with the rate of depreciation on their old equipment.
- Once consumers and companies start thinking the worst is behind them, they will have some spending to catch up on.
- Of note the economic expansion that followed the 1980 recession was one of the briefest on record.
The Wall Street Journal Reports on Intervention from the Bank of Mexico
February 5, 2009 by Danish FX · Leave a Comment
WSJ Currency Trading section cites first confirmed intervention by Bank of Mexico in nearly four months
- Article also notes the total of $16.57B in FX reserves spent by monetary authorities since early October in order to defend the peso, including its $400M daily sale operation.
- Banks of Mexico is said to have $83.6B in FX reserves remaining as of the end of Jan., plus a $30B swap facility with the US Fed extended to Apr 30th
Forex News: WSJ report of Morgan Stanley job cuts
February 2, 2009 by Greg Michalowski · Leave a Comment
The WSJ is reporting the Morgan Stanley is looking to lay off 3 to 4% of its staff this month. This has led to some additional dollar selling. GBPUSD has moved above the 100 hour MA, as has the GBPJPY.
The EURUSD (see chart above) has continued to make new highs on the day and looks toward the 100 and 200 hour MA which have converged at the 1.3000 level. This is the target for the pair after reversing off new lows for the most recent move lower.
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