Year: 2011

President Obama has announced that senior Republican and Democrat party members have agreed a proposal to limit US debt by $2.4bn in order to avoid deault or downgrading from the nation’s triple A rating.

Making the announcement on Sunday, Obama said the agreement will cut spending by about $1trn over the next decade.

Votes in both houses are expected shortly, as many believe the deal is still set to meet resistance from Republican Tea Party members and certain sections of the Democrat party.

The deal would also put in place a new Congressional committee dedicated to recommending a further deficit reduction proposal by November.

Swiss banking group Credit Suisse on Thursday announced a 2Q11 net earnings drop of 52 percent year-on-year to SFr768m amid weak trading activity and currency exchange effects of the Swiss franc.

The group’s wealth management division reported a pre-tax profit of SFr843m, down four per cent from 2Q10 due to “challenging” market conditions, a statement said.

Credit Suisse plans to cut four percent of its global headcount, an estimated 2,000 jobs, as part of a cost savings programme that is expected to reduce expenses by SFr1bn annually starting in 2012.

CEO, Brady Dougan, said: “Asset management showed a strong performance in the quarter, and private banking recorded solid results despite significant market headwinds and maintained its strength in gathering net new assets. However, our performance in investment banking was below our expectations.”

Commenting on the planned cost savings, he said: “In order to ensure attractive returns in the face of an uncertain and challenging economic and market environment, we continue to be proactive about seeking cost efficiencies across the bank.”

The bank said that its Switzerland boss, Hans-Ulrich Meister, will also take over the CEO role in the private banking division starting in August. The current CEO, Walter Berchtold, will become chairman of private banking, the group said.

Swiss bank UBS said on Tuesday it plans major job cuts to reduce costs of up to $2.5bn over the next two to three years. The announcement came as it reported a 49 percent 2Q11 decrease in net profit to CHF1.01bn from CHF2bn during the same period in 2010.

Group revenues were down 14 percent for the quarter to CHF7.2bn due to lower client activity, while the drop in quarterly profit was blamed on the high value of the Swiss currency and weaker trading, according to a bank statement.

The company said: “New capital and regulatory requirements, combined with a weakening economic outlook, are likely to weigh on future returns, constraining growth prospects for the industry. While we believe we will deliver higher profitability, our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe of three to five years. Over the next two to three years, UBS will eliminate costs of CHF1.5bn to CHF2bn, while remaining committed to investing in growth areas.”

Group CEO, Oswald Grübel, said: “We are responding to this changed environment and the weakening economic outlook by adapting our business and increasing efficiency. While our target for pre-tax profit set in 2009 is unlikely to be achieved in the original timeframe, our strong competitive positioning and our capital strength give us confidence for the future.”
 
Meanwhile, Deutsche Bank’s 2Q11 net profits failed to reach market expectations as it rose only six percent year-on-year to €1.23bn.

The bank also warned that it may miss its target of generating €6.4bn from its investment banking division due to the European debt crisis, according to a statement.

In other news Deutsche Bank named Anshu Jain, the head of its investment division, and European business head, Juergen Fitschen, as co-chief executives with immediate effect.

Bank of Ireland, which has been struggling to ward off government control through capital restructuring and rights issues, has received a boost from a group of Canadian and US investors who have agreed to buy up to €1.12bn worth of its shares.

The deal comes as the lender was preparing for a €1.9bn rights issue completion that would have seen the government gain control of the bank by increasing its 36 percent stake to around 70 percent.

The investment is widely perceived to be a significant vote of confidence for both the Bank of Ireland and the Irish economy.

Moody’s Investors Service on Monday cut Greece’s sovereign debt by three notches to Ca from Caa1, warning the second bailout of Greece is likely to result in a default and weaken the credit ratings of the stronger European nations.

The rating agency warned in a statement that it is inevitable that Greece will be deemed in default as “the support package incorporates participation of private sector holders of debt who are now virtually certain to incur credit losses. If and when the debt exchanges occur, we would define this as a default by the Greek government on its public debt.”

The €109bn support package for Greece announced after last Thursday’s summit in Brussels benefits all euro area sovereigns by containing the contagion risk that would likely have followed a disorderly payment default on existing Greek debt, Moody’s said.

“However, the credit implications of the announcement for creditors of individual countries depend on the balance of the positive market-stabilising elements of the plan and the negative precedent set by the endorsement of distressed exchanges between Greek creditors and the sovereign,” it added.

Moody’s said it will reassess Greece’s ratings once any proposed debt exchanges have taken place.

It said: “Once the distressed exchange has been completed, Moody’s will reassess Greece’s rating to ensure that it reflects the risk associated with the country’s new credit profile, including the potential for further debt restructurings. While the rating agency believes that the overall package carries a number of benefits for Greece, a slightly reduced debt trajectory, lower debt-servicing costs, as well as reduced reliance on financial markets for years to come, the impact on Greece’s debt burden is limited.”

European heads of state at the emergency summit in Brussels agreed late on Thursday a new €109bn bailout package for Greece.

The deal includes a reduced interest rate of 3.5 percent and a time extension to between 15 and 30 years from the previous 7.5 years. “The new programme is designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece,” the EC statement said.

There will also be a net contribution of the private sector of an estimated €37bn. The figure agreed by European leaders will take into account the cost of credit enhancements for the period 2011-2014. The statement stressed several times that contributions by the private sector will be voluntary and will not form part of any possible future bailouts for other nations.

“We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. We needed a credible package, and now we have a credible package. For the first time in the crisis, politics and markets are coming together,” President Barroso said.

The president of the European Commission, José Manuel Durão Barroso, warned ahead of Thursday’s Euro area summit that “nobody should be under any illusion because the situation is very serious.”

Barroso urged European leaders to “show the ethics of European responsibility.” In a statement he outlined the key issues to be dealt with at the summit, saying: “The minimum we must do is to provide clarity on measures to ensure the sustainability of Greek public finances and the feasibility and limits of private sector involvement.”

He mentioned the importance of tackling “the scope for more flexible action through the European Financial Stability Facility, the repair of the banking sector, and measures to ensure the provision of liquidity to the European banking system.” He also announced that the Commission has created a “Task Force for Greece” to help bring growth back to the country.

On financial regulation, the EC is the first jurisdiction to adopt the proposal for the transposition of the Basel III agreement on bank capital requirements. The guidelines are globally agreed standards created to allow banks to hold larger levels of capital while simultaneously protecting itself from a 2008 financial crisis recurrence.
“Once again, with this, Europe will be the first mover.” Barroso added.

Goldman Sachs announced late on Tuesday that it will lay off around three percent of its workforce, an estimated 1,000 staff, amid disappointing 2Q11 results.

The news by the investment bank comes following lower than anticipated 2Q11 net earnings of $1.09bn after fixed income revenue dropped significantly due to a fall in trading activity.

The bank reported its biggest slump in the currency, commodities and fixed income division with $1.6bn, a 53 percent decrease year-on-year.

New York-based Goldman Sachs said that net income climbed 77 percent to $1.09bn, or $1.85 per share, from $613m, or 78 cents, during the same period in 2010.

Goldman’s CEO, Lloyd Blankfein, said: “Certain of our businesses had disappointing results as we reduced our market risk in response to attempting to manage fluctuations in prices and market liquidity.”

IBM reported growth in all of its key product areas and raised its income guidance for 2011 as net earnings for 2Q11 increased by eight percent to $3.7bn compared to $3.4bn in 2010, the company said late on Monday.

The technology giant, which lifted its full 2011 year forecast to $13.25 a share following results, beat analysts’ predictions by $1.35bn with revenues of $26.7bn.

Software revenue increased 17 percent compared with the same period of last year, to $6.2bn.

Samuel Palmisano, CEO and chairman, said: “In the second quarter our long term strategic investments in the company’s growth initiatives again helped drive strong revenue performance. Hardware, software and services revenue grew at double digits, and we achieved strong profit and free cash flow growth.”

“Given our strong start to 2011, we are raising our full year operating earnings per share expectations to at least $13.25,” he added.

Banking giant Credit Suisse said Friday it had received notice that it is being investigated by the US Department of Justice and other authorities regarding private banking services provided on a cross-border basis to US taxpayers.

The bank said in a statement it will continue to cooperate with US authorities to resolve these matters, and has “already been responding to requests for information, including subpoenas.”

The Credit Suisse statement comes five months after four Credit Suisse employees from the private banking division were indicted by the US on charges they had conspired to assist clients to evade taxes in the US.

Meanwhile, officials in Switzerland are in talks with the US to deal with allegations that several other Swiss banks helped clients evade taxes through hidden offshore bank accounts.

US treasuries futures fell late on Wednesday after Moody’s Investors Services placed the US government on review for a possible downgrade, which could see it stripped of its AAA rating.

The ratings agency upped the likelihood of the US defaulting on loan obligations, saying that the possibility was higher than a month ago when it first warned the government.

The Moody’s statement said: “The review of the US government’s bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes. As such, there is a small but rising risk of a short-lived default.”

Meanwhile, negotiations over raising the debt limit stalled last night between President Obama and Republicans. The limit currently stands at $14.3trn and needs to be raised by the August 2 deadline.

The IMF urged the Italian government late on Tuesday to “continue pursuing fiscal consolidation”, stressing that it should cut its budget deficit to below three percent of GDP by 2012 through “decisive implementation”.

Italy is hoping to approve a €40bn austerity plan by Sunday in an attempt to stabilise its budget and restore confidence in markets.

The statement by the IMF comes as concerns continue to mount that Italy could become the next European country to be affected by the debt crisis after both Portugal and Greece required a bailout from the IMF, ECB and EU.

The fund stated in its annual assessment of Italy’s economy: “Decisive implementation of the package is key and a number of IMF directors felt that more frontloaded spending measures would have a positive effect on market sentiments.”

The UK’s Department of Energy and Climate Change declared in its White Paper late on Tuesday that energy bills will rise by around £160 a year by 2030 to fund a planned shake-up of the country’s power supply market. The figure relies on households cutting their energy use by 30 percent over the same period, something that consumers may find difficult to achieve.

Regulator Ofgem calculates that the plans will cost more than £200bn by 2020 and indicated an estimated 52 percent rise in bills, equivalent to about £600 per year.

Energy Secretary Chris Huhne outlined measures which encourage energy companies to make extensive investments of up to £110bn into both nuclear and renewable energy at the expense of soaring energy bills to consumers.

The change in the way Britain will organise its new electricity production is an attempt to combat climate change, ensure security of energy supply and reduce high bills for consumers in the long-term, said the government.

The plan is to move away from fossil fuels to aid carbon emissions reduction, and to meet both UK and EU emissions targets. As part of the plan the White Paper outlined the construction of new wind turbines, tidal power stations and new nuclear plants to substitute existing ones.