Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


US workers’ poverty reaches 50-year high
By Robin Harding in Washington
Copyright The Financial Times Limited 2010
Published: September 16 2010 18:21 | Last updated: September 16 2010 18:21
http://www.ft.com/cms/s/0/2c34e206-c1b4-11df-9d90-00144feab49a.html


Poverty among the working-age population of the US rose to the highest level for almost 50 years in 2009, as the human cost of the deepest economic downturn since the Great Depression was laid bare in new census data.

Poverty among those aged 18 to 64 rose by 1.3 percentage points to 12.9 per cent – the highest level since the early 1960s, prior to then-president Lyndon Johnson’s “War on Poverty”. The overall poverty rate rose by 1.1 percentage points to 14.3 per cent, the highest since 1994.

The rise in working age poverty was driven by the jump in the unemployment rate to 10 per cent during 2009. It is a bitter blow to Barack Obama, US president, who campaigned on a promise to cut poverty, and the data may further harm the already difficult prospects for Democrats in November’s mid-term elections to Congress.

“The overall message is that we’ve erased all of the gains in poverty that were made in the 1990s,” said Elise Gould of the Economic Policy Institute, a left-of-centre Washington think tank.

“Even before the recession hit, middle class incomes had been stagnant and the number of people living in poverty in America was unacceptably high, and today’s numbers make it clear that our work is just beginning”, Mr Obama said on Thursday.

The Census Bureau said that 43.6m people were living below the poverty line in 2009, the highest number in 51 years of data, although the overall poverty rate is still 8.1 percentage points lower than it was in 1959.

The rise in poverty was worse than in any other recession since 1969 save that of 1980-82, when the rate jumped by 3.9 percentage points.

Elderly people were shielded from the effects of the recession by social security and Medicare, however, with poverty among people over 65 dropping by 0.8 percentage points to 8.9 per cent.

By race, the poverty rate rose above 25 per cent for black and Hispanic people, more than double the 12.3 per cent rate among white people.

The Census Bureau uses an absolute measure of poverty that compares a household’s income to the cost of a basket of goods such as food and clothing. A family of two adults and two children is defined as poor if its income is less than $21,756.

That definition is often criticised because it does not reflect the cost of goods with higher than average inflation, such as education, healthcare and housing.

One way families have responded to the recession is by moving in together: there was an 11.6 per cent increase in multi-family households, and the number of adult children living with their parents rose sharply. “There is evidence that the number of families sharing households has risen over the past two years,” said David Johnson of the Census Bureau.

The data also showed the number of Americans without health insurance rose to a record 50.7m as people losing work also lost their health benefits. In 2009, 16.7 per cent of the population had no health insurance in 2009 – the highest since the series began in 1987.

The healthcare reforms passed this year are unlikely to do much to lower that rate until 2014, when some of the main provisions come into effect.

Median household income fell by 0.7 per cent to $49,777. The Gini coefficient for income inequality rose slightly to 0.468.

“The steady erosion of employer-sponsored insurance in the 2000s became a landslide in 2009 when the unemployment rate took its largest one-year jump on record.” said Ms Gould.




Impact of bank rules likely to be 30% tougher
By Brooke Masters
Copyright The Financial Times Limited 2010
Published: September 16 2010 23:01 | Last updated: September 16 2010 23:01
http://www.ft.com/cms/s/0/37fcd1b8-c1bc-11df-9d90-00144feab49a.html


The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data.

The data model the impact of earlier rule changes approved by the Basel Committee on Banking Supervision narrowing the definition of what banks can count towards core tier one capital ratio. On Sunday, the committee ordered banks to raise their minimum core tier one capital from 2 per cent to 7 per cent of their risk weighted assets by 2019 or face restrictions on pay and bonuses. That more than tripled the old requirement of 2 per cent to force banks to hold more top quality capital against potential losses.

But the banks will also have to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings. The aim is to make this key measure of capital reflect the equity that would be available to absorb losses in a crisis.

The data submitted to the committee suggest the real impact of the change could be equivalent to raising the minimum capital requirement from 2 per cent to 10 per cent for many banks.

The deductions are likely to cut many banks’ equity totals by between 30 per cent and 40 per cent, according to people who have seen the data.

That compares with estimates of 10-15 per cent projected by many banking analysts based on publicly available data. The difference lies in the fact that many banks do not break out some statistics critical for calculating the full impact of the deductions.

Most big international banks can meet the 8 per cent standard with relative ease, but an effective 10 per cent ratio is much more of a stretch for some institutions.

“The deductions are definitely the iceberg here. The impact is going to vary colossally from country to country and bank to bank,” said Bob Penn, attorney at Allen & Overy, who has not seen the data.

Regulators were sufficiently concerned that they will wait until 2014 to start imposing the deductions and will phase them in over four years.




US banks braced for further bad news
By Justin Baer and Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: September 16 2010 23:00 | Last updated: September 16 2010 23:27
http://www.ft.com/cms/s/0/6655a4b8-c1bc-11df-9d90-00144feab49a.html


Big US banks are nearing the end of another disappointing quarter for their trading businesses that has deepened fears over job losses on Wall Street.

The first two weeks of September failed to deliver a meaningful pick-up in trading activity on markets, hitting bank profits at a time when they are already under pressure from a sluggish economy.

Trading desks remain the critical source of revenue at investment banks Goldman Sachs and Morgan Stanley, and can still make or break a quarter at big lenders such as JPMorgan Chase and Bank of America.

Analysts’ expectations have started to reflect the more difficult conditions. The average earnings estimate for Goldman and Morgan Stanley have each slipped 2 cents a share in the past month, according to data compiled by Bloomberg.

“The third quarter is shaping up to be another very slow period for client activity across most markets,” Richard Staite, an analyst with Atlantic Equities, wrote in a client note this month as he slashed his earnings estimates on Goldman and Morgan Stanley. “July and August were particularly weak and September is unlikely to make up for the shortfall.”

A surge in bond market volume, as measured by Finra’s Trace data, has not materialised. Daily trading on the New York Stock Exchange has slowed since late August.

In a presentation to investors this week, Jamie Dimon, JPMorgan chief executive, said trading “has been fairly stable for us”, and “not that dissimilar” to the second quarter, when the bank reported a drop in revenue from a year earlier.

Wall Street’s trading results this quarter may look meagre again when they are placed alongside last year’s third period, before doubts about the world’s economies and the effects of regulatory reforms began to sap confidence among hedge funds and other institutional investors.

Senior bankers said the third-quarter showing, coming after poor trading results in the previous three months, underlined how the boom of a year ago was unlikely to be repeated. At the time, banks capitalised on pent-up investor demand following the crisis and higher prices due to less competition.

Although issuance of investment grade and high-yield debt had been robust during the quarter, the increase in new deals would not be enough to compensate for lacklustre trading activity, one banker said.

“It’s going to be another mediocre quarter because the secondary markets have been subdued,” he said. “It is just another sign that the boom of 2009 was an aberration.”

Meredith Whitney, a bank analyst, predicted recently that the securities industry might shed as many as 80,000 jobs globally in the next 18 months amid a prolonged revenue slump.

Some banks said they had talked to some analysts about trimming estimates but stressed it was not a wide-ranging effort to get Wall Street to slash its forecasts for the quarter.

Mr Staite predicted that Morgan Stanley’s fixed-income, currencies and commodities revenue would total $2.1bn in the third quarter, down 10 per cent from the period ending in June. He added equity trading would fall 15 per cent to $1.2bn.

Goldman’s fixed-income desks would produce $4.2bn in revenue, a 4 per cent drop from the second quarter, while its equity trading revenue would climb 32 per cent to $1.6bn, according to Mr Staite.

Big US banks are nearing the end of another disappointing quarter for their trading businesses that has deepened fears over job losses on Wall Street.

The first two weeks of September failed to deliver a meaningful pick-up in trading activity on markets, hitting bank profits at a time when they are already under pressure from a sluggish economy.

Trading desks remain the critical source of revenue at investment banks Goldman Sachs and Morgan Stanley, and can still make or break a quarter at big lenders such as JPMorgan Chase and Bank of America.

Analysts’ expectations have started to reflect the more difficult conditions. The average earnings estimate for Goldman and Morgan Stanley have each slipped 2 cents a share in the past month, according to data compiled by Bloomberg.

“The third quarter is shaping up to be another very slow period for client activity across most markets,” Richard Staite, an analyst with Atlantic Equities, wrote in a client note this month as he slashed his earnings estimates on Goldman and Morgan Stanley. “July and August were particularly weak and September is unlikely to make up for the shortfall.”

A surge in bond market volume, as measured by Finra’s Trace data, has not materialised. And daily trading on the New York Stock Exchange has slowed since late August.

In a presentation to investors this week, Jamie Dimon, JPMorgan chief executive, said trading “has been fairly stable for us”, and “not that dissimilar” to the second quarter, when the bank reported a drop in revenue from a year earlier.

Wall Street’s trading results this quarter may look meagre again when they are placed alongside last year’s third period, before doubts about the world’s economies and the effects of regulatory reforms began to sap confidence among hedge funds and other institutional investors.

Senior bankers said the third-quarter showing, coming after poor trading results in the previous three months, underlined how the boom of a year ago was unlikely to be repeated. At the time, banks capitalised on pent-up investor demand following the crisis and higher prices due to less competition.

Although issuance of investment grade and high-yield debt had been robust during the quarter, the increase in new deals would not be enough to compensate for lacklustre trading activity, one banker said.

“It’s going to be another mediocre quarter because the secondary markets have been subdued,” he said. “It is just another sign that the boom of 2009 was an aberration.”

Meredith Whitney, a bank analyst, predicted recently that the securities industry might shed as many as 80,000 jobs globally in the next 18 months amid a prolonged revenue slump.

Some banks said they had talked to some analysts about trimming estimates but stressed it was not a wide-ranging effort to get Wall Street to slash its forecasts for the quarter.

Mr Staite predicted that Morgan Stanley’s fixed-income, currencies and commodities revenue would total $2.1bn in the third quarter, down 10 per cent from the period ending in June. He added equity trading would fall 15 per cent to $1.2bn.

Goldman’s fixed-income desks would produce $4.2bn in revenue, a 4 per cent drop from the second quarter, while its equity trading revenue would climb 32 per cent to $1.6bn, he said.




US turns up heat over renminbi
By Alan Beattie in Washington
Copyright The Financial Times Limited 2010
Published: September 16 2010 19:06 | Last updated: September 17 2010 01:07
http://www.ft.com/cms/s/0/62c46d8e-c1bc-11df-9d90-00144feab49a.html


Tim Geithner, US Treasury secretary, encouraged the US Congress to pile pressure on China to force it to allow its currency to rise and said the administration was examining a range of tools to urge Beijing to act.

But during his appearance in front of Senate and House of Representatives committees on Thursday, Mr Geithner stopped short of promising to impose any of the aggressive legal or administrative measures demanded by US lawmakers.

His comments came in response to renewed anger in Congress about the effects on the US economy of China’s intervention to hold down the renminbi. Ahead of the hearing, Beijing hit back at criticism. Jiang Yu, spokeswoman at the Chinese foreign ministry, said: “I would point out that appreciation of the renminbi will not solve the US deficit and unemployment problems.”

On Wednesday, Japan intervened in the foreign exchange markets to hold down the yen for the first time in six years after expressing concern about the effects of Chinese market intervention. Naoto Kan, Japan’s prime minister, warned on Thursday that Tokyo stood ready to repeat the exercise. “We will absolutely not permit precipitous moves in the yen,” Mr Kan said.

Mr Geithner credited pressure from Congress for China’s recent concessions on the currency. Beijing unpegged the renminbi in June following two years in which it was held constant against the dollar. But, since then, it has allowed the currency to rise by less than 2 per cent. “I think it’s important for people to understand how strong the sentiment is here on both sides of the aisle,” he said. “It’s important for them to remember it’s bipartisan.”

Two congressmen have proposed a bill to declare Chinese currency manipulation an illegal export subsidy, thus increasing the emergency tariffs the US can impose on imports it deems subsidised. Mr Geithner said he was studying the proposal but that it was a “complicated question”. Sander Levin, chairman of the House ways and means committee, said he would decide by early next week whether to push ahead with the bill. He has also suggested taking a case to the World Trade Organisation.

But Mr Geithner resisted a third means of pressing Beijing – naming China as a currency manipulator in a twice-yearly foreign exchange report. The next version of the publication is due in mid-October, shortly before the G20 heads of government summit in Seoul.

Charles Schumer, a member of the Senate banking committee, criticised Mr Geithner. “I’m increasingly coming to the conclusion that the only person in this room who believes that China is not manipulating its currency is you,” he said.





Oracle earnings soothe fears for tech sector
By Chris Nuttall in San Francisco
Copyright The Financial Times Limited 2010
Published: September 17 2010 00:33 | Last updated: September 17 2010 00:33
http://www.ft.com/cms/s/2/d2d575fc-c1e7-11df-9d90-00144feab49a.html


Oracle eased anxieties in the technology sector with forecast-beating first-quarter earnings as its software business grew strongly in all regions and its hardware arm grew faster than expected.

Intel had caused jitters three weeks ago with its warning of a revenue shortfall of about $500m in third-quarter sales as weaker-than-expected demand for consumer computers suggested a stalling recovery.

Oracle, in contrast, reported strong sales of its database, storage and server products to its business customers.

“Customers are buying from us and are buying more,” said Safra Catz, co-president, referring to Oracle’s growing market share and larger deals in the quarter.

In the three months to the end of August, Oracle reported sales of $7.59bn, up 50 per cent on a year earlier and ahead of an analyst consensus of $7.32bn. Earnings of 42 cents a share were up 38 per cent and beat the Wall Street forecast of 37 cents.

Oracle shares rose 4 per cent in extended trading in New York to $26.40.

Mark Hurd took part in the earnings presentation, despite HP filing a lawsuit this month to try to block its former chief executive from taking up his new role as co-president at Oracle.

Mr Hurd, who resigned last month over code of conduct breaches at HP, said he had joined Oracle because of its “clear growth opportunities” and the “sheer size” of its research and development investments, totalling more than $4bn this year.

“I don’t believe there is any other company in the industry better positioned than Oracle,” he said.

Larry Ellison, chief executive, said that Oracle would beat its rival SAP to market with “in-memory database” technology, which he had described as “whacko, ridiculous, complete nonsense” when SAP acquired Sybase for $5.8bn in May.

“I never said we didn’t believe in in-memory database,” he said on Thursday. “I said I thought it was peculiar that SAP would choose to compete with us in the arena of database technology.”

Mr Ellison said Oracle had also achieved its aim of profitability at Sun Microsystems, which it acquired in January for $7.3bn. “We think we can double the size of [Sun’s server] hardware business and we think we have to go out and aggressively take share from IBM and our other hardware competitors,” he said.

●Shares in Texas Instruments rose more than 3 per cent in extended trading after its board approved a $7.5bn share buy-back and a 1 cent rise in its quarterly cash dividend to 13 cents. The chipmaker has reduced the number of its shares by 31 per cent over the past six years through repurchases.