US & World News

European banks including Societe Generale and Dexia still suffer from their bad loans, but also another evil, more discreet: their dependence on debt markets to finance their operations.

Unlike some U.S. banks such as JPMorgan Chase and Wells Fargo, which finance a larger share of loans with the deposits of their customers, private banks in Europe generally depend more on their loans in capital markets in the short term.

This exposes them to the whims of investors, may require a sudden interest rates higher for their money, or even remove it from the market place and the banks to thank you for a government bailout.

The sudden increases observed in recent weeks on the rates of short-term loan of some European banks in this respect revived memories of the 2008 financial crisis, when Bear Stearns and Lehman Brothers collapsed in a liquidity shortage .

The recent turmoil highlighted the need for the European banks most vulnerable, to adjust their loan commitments that can actually pay their deposits.

"The European banking system must be redesigned and re-capitalized," said one institutional investor this money markets and based in New York, speaking on condition of anonymity to avoid offending customers.

Many banks have sought since the 2008 crisis, to raise their levels of deposits, with some difficulty.

In Europe, public banks and savings banks enjoy tax benefits because they can maintain their stranglehold on the market, said Rocco Huang, a professor at the University of Michigan.

The race then draws customers to higher costs, so that some institutions are turning to overseas, such as the Franco-Belgian bank Dexia, which recently expanded its network in Turkey.

FINANCING RISK

Fears about the financial health of European banks is easily exacerbated by their lack of transparency about their cash reserves, analysts said.Lack of clear data, investors resort to inadequate instruments, such as loan-deposit ratios ("loan-to-deposit ').

Dexia loans represent 2.5 times the sum of its deposits, according to data compiled by Keefe, Bruyette and Woods.For Societe Generale, the ratio "loan-to-deposit" is 1.2.

By comparison, loans JPMorgan use only two-thirds of it are lists of deposits under its customers.

To make up the difference, European banks therefore depend heavily on capital markets, including money market short-term, which can be risky in the current environment of distrust of investors.

The credit default swaps (CDS) – which measure the cost of insurance on default of payment – General Corporation has more than doubled in less than three months, reaching 303 basis points (bps) on August 19 against 138 bps on May 31, according to Markit.

At the same time, the share of the Company generally has lost about 49% of its value.For comparison, the CDS JPMorgan rose 75 bps to 125 bps, and the action has lost 21%.

This movement took place when a strong seller that major U.S. investment funds have withdrawn money market billions of dollars they previously injected in European banks through short-term loans.

In June and July, according to Fitch Ratings, the top ten funds have pulled 70 billion dollars (48.38 billion euros) or 18.4% of the money they had lent to banks Europe.

Finance is increasingly global, many of these funds have explained to need this cash if their investors wanted their money out of fear of failure to pay the United States.

This sudden loss of funding has forced banks to seek their dollars elsewhere, taking their rising borrowing costs in a way that seemed to indicate that they were in need of funding, said Mark Pawlak, strategist and vice president of Keefe, Bruyette & Woods.

Societe Generale then attempted to allay fears about its financial strength by providing investors with details on its balance sheet during a presentation on August 3.

"The bank has no liquidity problems, its activity is healthy and its investment capabilities are intact," he said last weekend Oudéa Frederick, CEO of Societe Generale, in an interview with Journal du Dimanche.

Neither Dexia nor Societe Generale have wished to comment during this analysis.

Japan is considering a new intervention on the foreign exchange market to stem the rising yen, which reached a record high Friday against the dollar, the daily Nikkei reported Saturday.

If the yen continues to rise, the Japanese authorities will once again intervene in the market to slow the progression of the yen, the newspaper said without citing its sources.

Faced with the volatility of world markets, investors preferred safe haven on Friday as the yen. The dollar fell below 76.25 yen before rebounding.

The Japanese economy contracted less than expected from April to June thanks to the quick restoration of supply chains after the earthquake of March, but the soaring yen and slower global growth darken the hopes of recovery.

Economists expect the third world economy sketch a rebound from July to September, with probably the growth rate the highest in developed countries, as exports and industrial production will return to their levels before the earthquake and tsunami that devastated the north.

According to official figures released Monday, the gross domestic product (GDP) fell 0.3% in the second quarter, after 0.9% from January to March.Economists on average had expected a contraction of 0.7%.

On an annualized basis, the economy contracted by 1.3%, while economists expected a decline of 2.6%.

These figures better than expected boosted the Tokyo Stock Exchange, which in turn took the road to recovery from the European and U.S. markets late last week with a gain of 1.37% for the Nikkei.

However, the impact of the debt crisis in the euro zone on global growth might deprive Japan of export opportunities they need to start from the front, while pushing up the yen, safe haven, which will complicate doubling the equation for exporting companies.

"The economy will show a recovery in the shape of 'V' between July and September when supply chains are recovering and will help boost exports," notes Yoshiki Shinkai, economist at Dai-ichi Life Research Institute.

"But the momentum will weaken from October to December with the slowdown in the pace of recovery in external demand, even if (GDP) will not fall back into contraction.In fact, it is even possible that the global economy begins to sputter. "

Restocking AND PUBLIC INVESTMENT

In this context, the Japanese Minister of Economy Kaoru Yosano urged the Bank of Japan (BoJ) to help save the recovery by maintaining its strong liquidity injections and ultra-accommodative policy.

"We will closely monitor the impact that Japan's economy on the rise in the yen and the increasing uncertainty about global growth," he told reporters.

The yen, buoyed by the weak dollar, has appreciated by about 5% in just one month, approaching its historic high of 76.25 yen to the dollar, a level not taken into account by companies Japanese to build their profit forecasts.Around 0930 GMT Monday, the greenback was trading at 76.85 yen.

In the second quarter, the Japanese economy has performed better than expected thanks to the restocking of business and higher public investment, since the first six quarters, as part of the reconstruction effort.

Consumer spending, which accounts for 60% of the economy, fell 0.1% from April to June, down less than expected in favor of special items such as the transition to digital television that fueled TV sales.

But external demand – net exports – have reduced GDP by 0.8 percentage point, the disaster of March 11 that prevented some manufacturers deliver their products outside the archipelago.

And some analysts see the slow growth in business investment spending (+0.2% against 0.5% expected) a sign of their distrust of uncertainties about the economy.

The rumor of a deterioration in the rating of France has prompted a new collapse of the entire stock market. "This is completely untrue," says the entourage of Baroin. View of the Ministry of Economy and Finance at Bercy.

Bercy has "formally" denied rumors Wednesday of degradation of the French debt rating by a rating agency that led to a new collapse of the entire stock market. "These rumors are totally unfounded and the three agencies Standard and Poor's, Fitch and Moody's have confirmed that there was no risk of degradation," it was stated in the entourage of the Minister of Finance Baroin.

Rating agencies Moody's Investors Service Inc.., Standard and Poor's Corp.. Fitch Ratings and have in fact all three confirmed Wednesday the sovereign debt rating of triple A with a stable outlook they attribute to France.Fitch confirmed the note on May 31 and S & P, December 23. Moody's does not usually confirms his notes.

"It's totally false", it was stressed the same source, when asked about the rumors, which also claimed that this is why French President Nicolas Sarkozy interrupted his holiday to hold a crisis meeting at the Elysee Palace . After the meeting, the Head of State said that new measures to reduce the deficit will be announced on August 24.

European shares are down sharply divided Wednesday, two hours before the close, led by falling bank stocks as a result of new concerns fueled also by the situation in Greece and the decline of Wall Street opening. The New York Stock Exchange opened sharply down Wednesday also unable to continue the strong rebound yesterday.In Paris the CAC-40 plunged almost 5% hit by bank stocks.

The European Central Bank (ECB) decided on Sunday night if it buys Italian bonds to contain the new onset of fever that gripped the euro area, it was learned from sources close to the institution.

The ECB President Jean-Claude Trichet wants his board of governors to take a final decision on the takeover of Italian paper after the announcements made Friday by the Italian Prime Minister Silvio Berlusconi on accelerating reforms to reduce the public deficit Italian, said a source close to the ECB.

The reaction of the ECB is further expected that the clock may be difficult Monday morning in European markets as investors draw conclusions from the lower by Standard & Poor's rating of U.S. sovereign debt to AA +.

According to one source, the Governing Council will meet from 17:00 GMT to make a decision. If he decides to take over Italian bonds, the ECB and central banks in the euro area will come into action on Monday morning at the opening of the markets.

Another source close to the ECB said that the Governing Council could also consider the implementation of emergency measures.It could, for example, provide liquidity to prevent a freeze in money markets.

A third source, also close to the ECB, said that the meeting was postponed in the evening to allow time for governors to analyze the measures that could be announced by Washington after the S & P lowered the debt rating sovereign.

Thursday the ECB has reactivated its share repurchase program of sovereign debt in order to calm soaring interest rates of some countries in the euro area bond markets but has so far bought only small quantities of Irish debt and Portuguese, while speculation is focused on Italy and Spain.

The European press is reluctant Sunday between disbelief and apocalyptic messages after the decision of S & P.

Germany's Welt Am Sonntag as "Der Crash" (the crash) and writes: "Nobody could have foreseen the spectacular crash, and now we need a healthy dose of gallows humor to handle such a situation."

Der Spiegel asked: "U.S. debt, euro crisis, chaos on the stock exchanges: the world will he go bankrupt?".

Also in France, the abatement is required. Le Journal du Dimanche as "The world on the edge of the crash."

The U.S. economy created more jobs than expected in July and the unemployment rate fell slightly, according to official statistics released Friday.

Last month, 117,000 non-agricultural jobs were created, according to the Labor Department.

Economists on average had forecast 85,000 jobs created.

Statistics disappointing June (18,000 births) was revised to 46,000.That of May was also revised upwards from 25,000 initially to 53,000.

Overall, the private sector has created 154,000 jobs, against 115,000 expected.

The unemployment rate retreated slightly to 9.1%, while analysts expected the same from one month to the other at 9.2%.

In July, 24,000 manufacturing jobs were created, while 11,000 were expected.

The public sector has in turn eliminated 37,000 jobs, after having destroyed 39,000 in June.

The European Central Bank has sought Thursday to come to the rescue of the euro area by buying government bonds Portuguese and Irish, and providing a new measure of liquidity for banks.

After the decision of the ECB to leave rates unchanged three – the main refinancing rate is maintained at 1.5% – its president Jean-Claude Trichet, said the buyback program obligations of the bank, dormant since March, continued.

Traders reported observing market purchases from the ECB, even though the president was speaking to the press.These speakers discussed including the acquisitions of Portuguese and Irish debt on secondary markets, but not Spanish or Italian debt.

Jean-Claude Trichet suggested the hint that the operation was actually in progress. "I will not be surprised if you were watching before the end of this conference," he said.

Investors were disappointed with the purchase of paper non-Italian and Spanish: the performance gap between the obligation to ten years Spanish and German Bund reference widened to 400 points against 386 points Wednesday closing while spread the obligation Italian / German rose to 392 points, the highest since the introduction of the euro.

"Trichet said in a hurry the recovery of bond purchases.There was no statement from the ECB, but just a vague answer to a question. We can doubt the seriousness of the ECB on this point, "said Holger Schmieding, Bank of Berenberg.

"The ECB may have missed an opportunity to act more convincingly.The key now is to see if the ECB intervenes in the Italian and Spanish bond markets, and to what extent, "he added.

RATES MAY CONTINUE TO MOUNT

Jean-Claude Trichet has acknowledged that the Executive Board of the ECB, unanimous on interest rates and measures of monetary support, was divided on the issue bonds.

"We are not unanimous, but the overwhelming majority of bond buyback operation," he said during his press conference.

At midday, the President of the European Commission Jose Manuel Barroso called for increasing the capacity of EFSF.

The ECB was called upon to act against the rapidly deteriorating situation in Spain and Italy, where crises similar to those countries already bailed out would have consequences far more serious.

Jean-Claude Trichet said the ECB would conduct an operation for six months to strengthen bank liquidity by providing facilities for short-term financing until at least January 2012.

Many banks Greek, Portuguese and Irish have more access to capital markets, and some in Spain and Italy also depend on the support of the ECB.

"Given the renewed tensions in some financial markets (ECB) has also decided to conduct an additional refinancing operation with a maturity of approximately six months (…)", submissions being paid in full, said Jean-Claude Trichet.

But despite this return mode response to the crisis, the ECB president hinted that interest rates were likely to continue to increase.Central banks in Switzerland and Japan are in contrast to the easing in order to prevent excessive inflation of their currencies.

"We will continue to monitor very closely all developments related to the increasing risks to price stability," said Jean-Claude Trichet, using a formula already used after the rate hike last month.

Before the press conference, economists believed that the use of this phrase would mean another rate hike before the end of the year.

The creation of a European rating agency, may reduce the influence of Standard & Poor's, Moody's and Fitch, would cost about 300 million euros, the German monthly Capital reported in an article to be published Thursday.

The magazine quotes about Markus Krall, a member of the consulting firm Roland Berger, who is campaigning to governments and EU companies to collect the necessary support to launch a new credit rating agency.

"By the end of 2011, we formed a consortium of more than 25 participants, and each will invest 10 million euros," said Markus Krall in an article in Capital.

The magazine said that the new agency would charge its credit ratings to companies three times less than the three main existing agencies, and that the costs would be settled not by the issuers of debt, but by investors.

Last week, Handelsblatt reported that Rainer Brüderle, leader of the parliamentary group of ruling Liberal Democratic Party (FDP), proposed to found a new rating agency, arguing, according to the German newspaper, implicitly initiative Roland Berger.

In addition, three sources familiar with the situation told Reuters that wealthy German families were ready to support another project, that of creating a rating agency based in Switzerland, in order to ensure greater political independence.

The new agency would be content at first to note the credit companies, the sources said.

Consequence of the new wiretapping scandal, Rebekah Brooks resigned from his position as CEO of News International, British subsidiary of News Corp., said Friday the group of Rupert Murdoch, that weakens the case for both sides of the Atlantic.

The Director of the UK arm of News Corp, which is 43 years old, in turn pays the price of illegal wiretapping scandal practiced by News of the World, the weekly tabloid that the ultimate issue was published Sunday.

US-Australian tycoon media, which has already had to abandon its proposed acquisition of the total BSkyB satellite platform, has nevertheless tried to protect her in the storm, to the point of presenting it as his first priority when he arrived Sunday last in London in an attempt to extinguish the fire.

But the situation became untenable: Brooks, considered one of his closest advisors and protected, was editor of News of the World were made when practices denounced the most serious since the beginning of the scandal.

Many journalists who have suddenly lost their jobs due to the closure of NoW claim that the decision to end their week was only intended to protect Brooks.

In the political class, several elected officials, the majority and the opposition demanded his departure. Even the Prime Minister, David Cameron, estimated this week that his resignation was justified."He thinks he is the right decision," responded his spokesman after the announcement of the departure of Brooks.

Friend of the former executive director and her husband, the head of government is itself in trouble in this case to be hired as director of its communication adviser at Downing Street and a former editor of News of the World, Andy Coulson, who has since resigned and been prosecuted.

"WE apologize to the nation"

"My desire to remain on deck has made me a central point in the debate.This diverts the attention to this honest effort we made to solve the problems of the past, "writes Rebekah Brooks in a message to employees of News International.

"Therefore, I resigned to Rupert Murdoch and James," she says before expressing "a deep sense of responsibility towards the people we encountered."

Rebekah Brooks, who spent more than twenty years in the Murdoch press group, will be replaced by Tom Mockridge, who served as CEO of Sky Italia.

"I think Tom is the best person to know the company a bright future," said James Murdoch, Rupert Murdoch's son who runs News Corp's activities outside the United States.

"We apologize to the nation for what happened," he also noted the son Murdoch.

The scandal involves accusations of piracy, by News of the World and with the help of private investigators, telephone messaging of thousands of people – the protagonists of news items, celebrities, relatives of soldiers killed in Afghanistan and even Perhaps, the police officials – and bribing police to get scoops.

The investigation began in 2005 with the publication in the News of the World of an article on a knee injury of Prince William.The royal family had then suspected of wiretapping and the police investigation had resulted in the imposition of prison sentences in January 2007, the correspondent in charge of the NoW royal events and a private investigator.

But new revelations have revived the case, which also affects the United States, where the Murdoch group, listed on Wall Street, is located (it has such as Fox, the Wall Street Journal and the tabloid New York Post) .

The FBI said Thursday it was investigating possible hacking of telephone messaging victims of the September 11 attacks.

The Paris Bourse falling off again in early trade Thursday, the rating agencies have struck again sovereign debt, and this time, on both sides of the Atlantic.

Around 9:15, the CAC 40 index lost 0.79% to 3763.27 points at the start of the day a national holiday in France that could be very active, stakeholders who have opted for a long weekend.

Moody's warned late Wednesday it may lower the rating of "Aaa" – the best – the United States if President Obama and the Republican opposition failed to agree on raising the federal debt ceiling to time wanted to avoid a default.Discussions between the President and the Republican leaders have been strained Wednesday, and do not seem on the verge of success.

Fitch, for its part, S & P as a month ago, degraded to "CCC" the note of Greece.

The banking and technology are among the largest declines the CAC 40, while Lafarge, which has entered the active phase of sale of its gypsum in Europe and South America, is the only value of the CAC 40 in green (1.69%).

Alcatel-Lucent (-2.44%) and Capgemini (-2.0%) recorded the largest declines in the index.

Company lost 0.75%, 0.49% Credit Agricole and BNP Paribas 0.2% after opening down more than 1.5%.

London was down 0.58% from 0.32% and Frankfurt.