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U.S. bank crisis deepens as ECB rate cut expected |
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Thursday, 15 January 2009Bank of America and Citigroup faced fresh turmoil as investors questioned if they had the capital strength to cope with a global crisis that is set to push the European Central Bank to cut rates later on Thursday.
Data across the developed world pointing to a deepening recession and fears that more public money in the United States may be needed to keep banks afloat weighed on financial markets.
Asian equities followed European and U.S. markets to fall to multi-week lows. Tokyo's Nikkei average slipped close to 5 percent after news that Japan's core machinery orders fell at a record pace in November.
Shares in Bank of America and Citigroup, two of America's biggest banks, fell as they faced a fresh crisis of confidence over whether they have enough capital to cover haemorrhaging losses from toxic assets and the struggling global economy.
"The large banks in the U.S. are not lending, and they're desperate to conserve capital," said Dan Alpert at Westwood Capital in New York. "Banks only remain going concerns because the federal government is topping up their equity."
The financial crisis began in credit markets in 2007, when bank lending dried up in the face huge losses in the U.S. housing market. The global economy has deteriorated relentlessly since, pushing the biggest developed countries into recession and raising alarm bells over rising job losses.
Citigroup, whose shares dived 23 percent Wednesday, plans to report quarterly results six days ahead of schedule on Friday and analysts are looking for a fifth straight multibillion-dollar loss.
The bank was also widely expected to provide details of a reorganisation of the company designed to ensure its survival.
Bank of America is close to receiving billions of dollars of support from the U.S. government, a source familiar with the matter said, as it tries to digest Merrill Lynch & Co Inc, the investment bank and brokerage it bought on January 1.
Merrill has billions in troubled assets -- ranging from commercial real estate to subprime mortgages -- that suffered during a brutal fourth quarter.
Citigroup has already been propped up with $45 billion (31 billion pounds) in government funds from the Troubled Asset Relief Program (TARP), while Bank of America and Merrill have received $25 billion.
"You'd think the news on banks is baked in, but there's still a lot of headwinds," said Rich Parker, head of trading at Stanford Group in New York, after Citigroup shares fell below $5 for the first time since a government rescue in November.
And there is no relief in sight, warned Jamie Dimon, chief executive of rival JPMorgan Chase & Co.
"The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009," he told the Financial Times. "In terms of our sector, we expect consumer loans and credit cards to continue to get worse."
EUROZONE RATE CUT
Euro zone policymakers have been slower than their counterparts in the United States, Japan and Britain to slash interest rates in the face of the economic storm.
But news the German economy contracted sharply in last year's final quarter and euro zone industrial output plunged in November boosted expectations it will make a big cut.
"Verbal guidance has been less clear over the past few weeks," said Dresdner Kleinwort economist Rainer Guntermann, who sees a 50 basis point cut. "We have to look beyond the verbal guidance and at the facts -- the data flow does tell a fairly consistent picture, which is unfortunately very downbeat."
The current benchmark, 2.5 percent, is relatively low in the decade-long history of the ECB, and pales alongside near-zero borrowing costs in the United States and Japan.
Japanese data showed core machinery orders fell a record 16.2 percent in November to a two-decade low, providing the latest sign that the global crisis has stalled capital investment.
Other data showed wholesale inflation in the world's second-biggest economy hit a four-year low, pointing to the risk of deflation, a condition that can be debilitating for an economy because buyers hold off from making purchases in anticipation of yet lower prices.
The global slowdown has hit Japanese factories hard, with big firms such as car maker Toyota Motor Corp and electronics firm Sony Corp slashing production and cutting jobs as export orders dry up.
Nissan Motor Co the country's third-largest car maker, is set to post an annual operating loss, a company source said. The company had forecast a profit.
The Japanese numbers followed poor U.S. retail sales data Wednesday that suggested the year-long recession was deepening and could be the longest since 1981.
European bond markets were spooked Wednesday when Standard & Poor's cut its credit rating on Greek sovereign debt, stoking fears downgrades to other members of the 16-country eurozone could follow.
Showing the global scope of the crisis, South Korea's president called Thursday for emergency steps to create jobs after a warning growth in Asia's fourth-largest economy could fall below the central bank's 2 percent forecast.
Unemployment has been rising as the downturn bites. Motorola said Wednesday it was shedding 4,000 jobs, on top of cuts last year. Even the archetypal growth company Google Inc said it was laying off 100 full-time recruiters.
Companies continued to buckle in the crisis too. Canada's Nortel Networks Corp, North America's biggest telephone equipment maker, filed for bankruptcy.
(Additional reporting by Hideyuki Sano in Tokyo, Lucia Mutikani in Washington and Dan Wilchens and Jonathan Stempel in New York; Writing by Alex Richardson; Editing by Neil Fullick)
By Sakari Suoninen and Tetsushi Kajimoto |
Thursday, 15 January 2009
Swissinfo
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