CommStock Israel Investor
Insights Newsletter
Sunday, January 18th, 2009
1) Britain readies bank rescue package Gordon
Brown says financial institutions must reveal true scale of
their bad assets and calls for international response.
Last Updated: January 17, 2009: 1:47 PM ET
LONDON (Reuters) -- The global recession could deepen unless countries
unite to try to solve the worst economic crisis in decades and
banks resist "financial isolationism", British Prime Minister Gordon
Brown said on Saturday.
The former finance minister, who hosts a London summit
of G20 leading industrial states in April, told the Financial
Times that a joint international effort would provide the
key to unlocking the credit markets and kick start the recovery.
"The greatest risk after the events of the last few
months is a retreat into what I would call financial isolationism," he
said in an interview with the newspaper. "A lot will depend on
the degree of international cooperation."
Confidence in the credit markets will only return if
banks reveal the true scale of their bad assets and avoid the temptation
to retreat into their domestic markets, he added.
"One of the necessary elements for the next stage is
for people to have a clear understanding that bad assets have been
written off," Brown told the newspaper.
"We have got to be clear that where we have got clearly
bad assets, I expect them to be dealt with."
Despite a multi-billion pound bank bailout last year
and a series of record rate cuts, banks remain unwilling to increase
lending as they try to boost their coffers and avoid risk.
Financial stocks battered
Worries about the fate of the banking sector sent financial
shares tumbling around the world on Friday.
In the United States, Bank of America shares closed
down 13.7%, while Citigroup fell 8.6%.
Citigroup said it planned to split into two units, while
Bank of America took $20 billion in government aid. Both banks
suffered huge quarterly losses from the credit crisis.
British banks were also hit. Barclays was the worst
casualty: Its shares plunged in a frenzied last hour of dealing,
closing down 25% to their lowest level since 1993.
After initially refusing to comment, the bank's board
took the extraordinary step of trying to reassure markets with
a statement about its 2008 profits.
Last year's pre-tax profits are expected to be "well
ahead" of analysts' forecast, it said. The bank is not due to report
its annual results until Feb. 17.
The surprise statement helped reassure skittish U.S.
investors, lifting financial stocks and cutting Barclays' U.S.
share price losses in half.
Boost expected
After a turbulent week, investors are now eagerly awaiting
an announcement early next week from the British government on
new measures to boost bank lending.
Finance Minister Alistair Darling and government officials
were meeting bank executives for talks on Saturday.
"Work that has been ongoing for a number of weeks is
continuing and announcements are expected soon," a U.K. Treasury
spokesman said.
The latest rescue plan could include state guarantees
of home loan-backed securities, said a Treasury source, but cautioned
the deal would not be on the same scale as last year's rescue package.
The taxpayer may end up underwriting $298.3 billion
of bad banking debt, the Daily Telegraph newspaper reported
on Saturday, citing unnamed sources.
Brown wants to get banks to increase lending to businesses
and households after a series of bleak figures on trade, unemployment
and the housing market.
With an election due before May next year, he is under
pressure to prove he is the right leader to handle the crisis.
Although his poll ratings rose in the early days of
the turmoil, he has recently lost more ground to the opposition
Conservative Party.
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U.S. Economy
The U.S. Labor Department said that consumer prices were down .7%
in December, helped by a drop in gasoline prices. For all of
2008, prices were up .1%, the smallest gain since 1954. Excluding
food and energy costs, prices were up 1.8% from a year ago. The
December eurodollars closed up .07 at 98.805.
The Federal Reserve, U.S. Treasury, and FDIC all agreed
to provide Bank of America with a total of $20 billion in capital
and also to guarantee $118 billion of assets. Also, Merrill Lynch
said that it lost $15.3 billion in the fourth quarter.
The March S&P 500 is steady to higher with some
encouragement from the federal government's response to Bank of
America.
It was a tough quarter for the big banks. Citigroup
said that it lost $8.3 billion in the fourth quarter and that it
will be reorganizing into two separate companies. One will be a
traditional bank and the other will be an investment firm. Also,
JPMorgan Chase said that they earned $702 million in the fourth
quarter after taking $2.8 billion in various losses.
The University of Michigan's index of consumer sentiment
increased from 60.1 to 61.9 in January, better than expected.
The Federal Reserve said that industrial production
was down 2.0% in December and down 7.8% from a year ago, weaker
than expected.
Grains and Cotton
Dow Jones Newswires is reporting that the weather forecast for
Argentina remains dry while Brazil's crops are getting some rain.
The USDA said that 125,000 tons of U.S. soybeans were
sold to unknown destinations and 116,000 tons were sold to China.
March soybeans finished up 25.5 cents at $10.20, the highest close
this week.
March corn forgot about Monday's bearish report and
closed up 26.25 cents at $3.915 with concerns about South America's
dry crops.
Coffee
Brazil's coffee producers are asking their government to buy 3
million bags of coffee in an effort to support prices. March
coffee ended up 1.90 cents at $1.1580.
Cocoa
According to Bloomberg news, an official with the International
Cocoa Organization will predict a world production deficit in
cocoa next month, but the size of the deficit is not yet known.
March cocoa closed up $96 at $2,463.
Orange juice
Patches of frost may have been found in central Florida this morning,
but no significant damage to the citrus crop is expected either
today or tomorrow. March orange juice ended up 1.15 cents at
72.10.
Energies
The Great Lakes Region is getting hammered with sub-zero temperatures
again today, but warmer weather is on the way. March natural
gas ended down 2.9 cents at $4.813.
Currencies
The March euro closed up .0077 at $1.3216, helped by the U.S. government's
willingness to act to keep markets liquid.
The Canadian Real Estate Association said that there
were 434,477 existing home sales in 2008, down 17% from the previous
year.
Mona Liss
CommStock Trading Ltd
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Jerusalem 91077
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