Greece’s debt rating may be cut within a month as it struggles to pare the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the euro.
Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. The warnings further complicate the government’s effort to persuade investors that it can slash its fiscal shortfall from last year’s 12.7 percent of gross domestic product.
The euro slumped to a one-year low against the yen, most stocks dropped and the premium on Greek 10-year bonds over German debt widened to the most since Feb. 8 on concern that the country may need EU assistance to avoid missing debt payments. Unions yesterday staged a strike to protest Prime Minister George Papandreou’s drive to slash spending.
“It’s getting more difficult than anticipated for the Greek government to implement the spending cuts it promised,” said Susumu Kato, chief economist in Tokyo at Credit Agricole Securities Asia. Further downgrades “may spread sovereign concerns through other European nations,” he said.
The country’s willingness to keep funding itself in the commercial bond market is key to S&P’s assessment, the company said. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. EU assistance could help if it was likely to lead to a “sustained reduction” in borrowing costs.
Two Grades
“We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement.
Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo today it may act “in a few months” if policy makers appear to be deviating from their deficit-reduction plan. At the same time, Moody’s may stabilize its rating if Greece follows through with its austerity measures, he said.
“We have to let the government implement its plans,” Cailleteau said. “You can’t expect a government to be able to turn around public finances in a few days.”
S&P cut Greece’s rating in December from A- and signaled at the time it may reduce it again from BBB+. Moody’s lowered its rating by one step the same month.
ECB Rules
If Moody’s cuts its credit rating to the same level as the other major ratings companies, it could exacerbate Greece’s financial distress at the end of this year when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it even more difficult for the nation to borrow.
The euro dropped to 120.51 yen as of 11:20 a.m. in London from 122 cash advance america.03 yen in New York yesterday. It earlier touched 120.24 yen, the lowest since Feb. 24, 2009. The single currency has fallen about 6 percent against the dollar this year on concern Greece’s fiscal woes may extend to Spain, Portugal and other European nations seeking to pare budget gaps.
Credit-default swaps protecting the debt of Greece rose 10 basis points to 392, according to CMA DataVision. The spread between 10-year Greek bonds and similar-maturity German debt widened by 13 basis points, or 0.13 percentage point, to 352 basis points.
Tear Gas
Papandreou’s government is running into opposition at home to its strategy. Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job yesterday to protest spending cuts. Police fired tear-gas and clashed with demonstrators in central Athens after a march organized by labor unions.
Greek bonds have slumped, driving up borrowing costs, as investors fear the government will fail to meet its pledge to cut its budget gap to 8.7 percent of GDP this year. It aims to cut the deficit below the EU’s 3 percent limit in 2012.
The premium investors demand to hold Greece’s 10-year securities instead of Germany’s rose to the most in more than two weeks.
The government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of GDP. The yield on the country’s two-year note yesterday rose to the most since Feb. 9.
EU governments are looking for guarantees that Papandreou will slash spending before they spell out what help they may offer. EU and ECB officials visited Athens this week to verify that budget cuts are being implemented.
Additional Measures
Under proposals adopted this month by euro-area finance ministers, the Greek government will have to take additional measures to cut its budget gap if it fails to satisfy the European Commission next month that its current strategy is on track. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said.
“There will be some conditions attached” to European assistance for Greece, Cailleteau said. “I don’t see the evidence that would justify these kinds of assertions that Europe will not help Greece.”
German, French and Greek voters are “in denial” about Greece’s ability to get its deficit under control without external aid, Barry Eichengreen, an economics professor at the University of California at Berkeley and author of a 2006 history of the European economy, said in a Bloomberg Television interview yesterday.
Finance Minister George Papaconstantinou said Feb. 23 that the government will do “everything it needs to meet” its targets and that any decisions on possible new measures will be announced after talks with European governments.
Toyota is planning to suspend production at two U.S. plants as sales lag following the automaker’s massive recall of its vehicles.
Mike Goss, a Toyota spokesman, said the company will retain all of its workers during the suspensions, which will take place at plants in Kentucky and Texas in the weeks ahead.
The temporary shutdowns are aimed at adjusting production levels following a series of recalls that forced Toyota to halt sales of some of its most popular models.
"We don’t want inventory to build up for our dealers," Goss said. "We can’t keep sending vehicles to dealers until they can start moving those vehicles."
He said the company has used other methods to slow production in the past, such as limiting overtime, but that "elimination days are kind of the final step in that process."
The Kentucky plant, where Toyota’s top-selling Camry is made, will not produce cars on Feb. 26. Goss said the plant could go dark on a few more days the following week, though no official plans have been made.
The Texas plant will halt production the week of March 15 and again in mid April. The plant, where Toyota makes Tundra pickup trucks, will be modified to begin producing Tacoma trucks during the suspension, Goss said.
Toyota has recalled more than 8.1 million vehicles worldwide for problems related to sudden acceleration and unresponsive break pedals, among other things. The company has apologized for the safety lapses and pledged to repair the recalled vehicles quickly.
Meanwhile, the number of customer complaints filed with federal safety regulators has spiked in recent weeks. According to the National Highway Traffic Safety Administration, there have been a total of 34 Toyota complaints alleging fatalities since 2000.
The widely publicized safety issues have taken a toll on sales. Earlier this month, Toyota said January sales fell 16% from a year earlier, worse than a forecast of a 12% year-over-year decline from sales tracker Edmunds.com.
To help revive sales, the automaker is considering a variety of incentive options aimed at drawing customers back into its showrooms.
At the same time, Toyota has launched a public relations campaign aimed at salvaging the company’s once-sterling reputation.
Toyota’s president, Akio Toyoda, and other company executives will take questions about the recall efforts Wednesday at a press conference in Tokyo.
The company has been ramping up lobbying, consulting and attorney teams ahead of appearances on Capitol Hill. Toyota is scheduled to go before two House committees next week and a Senate committee next month.
Google Inc. has again tinkered with its new Buzz social networking service in the face of continued privacy concerns.
The company (NASDAQ:GOOG) said on a blog Saturday that it will stop automaticly subscribing users to follow the postings of their close Gmail contacts. Now it will only suggest users follow people from their Gmail contacts and leave it up them to do so.
Privacy advocates criticized Google for this automatic following feature, saying it spread the names and contact information of people around without their permission.
This is the second time in Buzz's first week that Google has had to adjust the service in the face of negative postings on Twitter, blogs and on the Buzz service itself business card. On Thursday, the company made it easier for users to keep photos and other information from public view.
"We quickly realized that we didn't get everything quite right," product manager Todd Jackson wrote on Saturday's blog posting. "We're very sorry for the concern we've caused and have been working hard ever since to improve things based on your feedback. We'll continue to do so."
Mexico’s economy may expand more than expected in 2010 as the nation recovers from last year’s global slump, central bank Deputy Governor Manuel Sanchez Gonzalez said in an interview yesterday.
“Everything points towards the direction of a recovery,” Sanchez said in Sydney. While the central bank forecasts growth of 3.2 percent to 4.2 percent this year, “I’m ready to be surprised as to the results of the economic recovery,” he said.
Mexico’s $1.09 trillion economy was the worst performer in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter from a year earlier. Gross domestic product may expand “slightly” more than the government’s current 3 percent estimate this year, Deputy Finance Minister Alejandro Werner said Feb. 5.
Sanchez is among policy makers visiting Sydney this week to attend a symposium organized by the Reserve Bank of Australia to celebrate its 50th anniversary. The Basel, Switzerland-based Bank for International Settlements is also hosting a meeting of central bank officials in Sydney.
Global policy makers have to be “very careful” about how quickly they withdraw stimulus measures after cutting interest rates and boosting public spending to counter the deepest global recession since World War II, Sanchez said yesterday.
“There is a tradeoff between sustaining the stimulus measures and having some risks as to maintaining those,” he said. “You have a risk of withdrawing too quickly, of leaving those measures too rapidly, so that this recovery may be interrupted. You want to be very careful to maintain those stimulus measures for the right time.”
Inflation Outlook
Central banks also have to remain watchful of inflation and maintain price stability, he said.
“Every country has different situations as to the inflation prospects, but I’m confident also that the inflation pressures will continue to be relatively subdued in the near future,” Sanchez said.
Mexico’s inflation in December was 3.57 percent, the slowest since 2006.
The central bank kept the benchmark interest rate unchanged at 4.5 percent in January for a fifth straight meeting and warned that higher costs for state-controlled goods such as gasoline may fuel broader price increases. The latest monetary policy position is consistent with the central bank’s growth forecasts, Sanchez said.
The region’s second-largest economy probably shrank about 7 percent in 2009, the most since 1932, the central bank estimates.
“I’m very optimistic about the prospects of the Mexican economy in the short term and long term,” Sanchez said. “We had a very harsh recession last year. We’re going to have a very important improvement relative to the base we had last year.”
The fourth quarter probably showed “very good dynamism of economic activity” and the unemployment rate has declined, Sanchez said.
As Toyota’s mass recall threatens the leading automaker’s reputation, several rivals are rolling out incentives to reel in Toyota customers looking to get rid of their cars.
General Motors is offering incentives of $1,000 and low financing rates specifically for Toyota customers worried about their recalled vehicles.
"We decided to make this offer after receiving many e-mails and calls from our dealers, who have been approached by Toyota customers asking for help," GM said in a statement. The offers will run through the end of February.
Starting Wednesday, GM started offering $1,000 rebates or up to $1,000 to help pay off current leases on Toyota products. The automaker is also offering 0% financing on most models for Toyota customers. The offers apply to 2009 and 2010 model year cars.
Hyundai said it is offering a $1,000 rebate for anyone who trades in a Toyota from Thursday to February 1. Customers who trade in their Toyotas with the trade incentive can purchase one of three models only: a Hyundai Sonata, Elantra or Elantra Touring.
Ford is offering $1,000 to customers trading in Toyota Motor Co. products. The offer began Wednesday but a Ford spokeswoman said the offers are not targeted at Toyota’s recall problems. Customers are also being offered the same $1,000 on Honda products.
Chrysler is offering an additional $1,000 to customers who trade in their Toyota Tundra, Tacoma or Sienna and purchase or lease a new Chrysler, Jeep, Dodge car or Ram truck. It is also offering $1,000 in bonus cash to drivers who want to turn in a leased Toyota to buy or lease a Chrysler product.
Such "conquest incentives" — incentives targeted at owners of other manufacturers’ vehicles — are common in the industry, GM spokesman Tom Henderson said.
However, some of the incentives are designed to take advantage of Toyota owners’ worries at a time when they’re concerned about the safety and quality of their cars.
Toyota announced last week that it was recalling 2.3 million cars, SUVs and trucks for a problem with a potentially sticky gas pedal. This was after the company recalled 4.2 million vehicles — many of them the same as last week’s recall — for a problem in which the gas pedal could become stuck on the floormat.
Toyota recently announced that will temporarily stop selling models affected by the most recent recall, including some of their most popular products like the Camry sedan and the Rav4 small SUV.
For its part, Honda said the recall "has no impact whatsoever on Honda or Acura customers" and that it "will not undertake any sales activities that expressly target Toyota customers."
The problem plays to GM’s current strengths, said James Bell, an analyst with Kelley Blue Book’s KBB.com. Some of GM’s strongest products, like the Chevrolet Malibu sedan and Chevrolet Equinox SUV, are strong competitors to products Toyota is now not selling.
"The Equinox is the obvious buy over a Rav4," he said.
If the Chevrolet dealers were still selling last year’s Equinox, before the new, completely redesigned model was introduced, GM’s position wouldn’t have been as strong, he said.
Independent Bank Corp., the parent of Rockland Trust Co., said net income in the fourth quarter increased 33 percent to $9.1 million from the previous three months as the bank saw a strong upswing in wealth-management revenue.
Net income was up more than 200 percent when compared with the year-ago quarter, or before the bank acquired Benjamin Franklin Bancorp Inc.
For the year ended Dec. 31, Rockland Trust’s (Nasdaq: INDB) net income was $23 million compared with $24 million in 2008.
Total assets increased by $48 million, or 1.1 percent, to $4 us fast cash.5 billion in the fourth quarter, compared with the previous quarter.
The company recorded non-interest income of $10 million during the fourth quarter, an increase of $5.6 million when compared with the quarter ended Sept. 30. The change in non-interest income included a wealth management revenue increase of $451,000, or 19.8 percent, because of general stock market appreciation and strong sales results. Assets under management in the wealth management division were $1.3 billion at the end of December.
Midtown Manhattan office rents fell 33 percent in 2009 as New York’s financial industry cut staff and relinquished space, commercial property broker FirstService Williams said in a report.
Rents in the nation’s most expensive office district dropped to $59.31 a square foot in the fourth quarter and are down almost 50 percent when concessions including temporary free rent are included, the New York-based broker said today.
Financial companies occupy more New York office space than any other non-governmental employer. They cut 25,200 local jobs in the 12 months through November, helping push the city’s unemployment rate to 10 percent, according to the New York State Department of Labor.
“Employment is not going to trend up with any alacrity,” FirstService Williams Executive Chairman Robert Freedman said in an interview. “We’re going to see a very, very modest uptick in demand” for offices.
The percentage of available space in Midtown climbed to 14.9 percent from 11.9 percent a year ago, FirstService Williams said. The rate applies to office space between 34th Street and Central Park in Manhattan.
The decline in neighborhood rents showed signs of leveling off as more than 1 million square feet along Park Avenue, Fifth Avenue and Avenue of the Americas were leased in the fourth quarter, FirstService said. Landlords stopped increasing incentives to lure tenants, the broker said.
Wall Street Area
Downtown rents declined 22 percent in 2009 to $38.60 a square foot and availability jumped to 13 percent from 10.5 percent at the end of 2008. Most of the available space downtown was added in the fourth quarter.
Between 8 percent and 10 percent of downtown leases signed in 2009 were for financial tenants, according to FirstService’s preliminary numbers. About 30 percent of the New York City office market is already occupied by the industry.
“With the financial sector still a major driving force in the downtown market, recovery in lower Manhattan may be slower than expected,” Freedman said.
In Manhattan’s Midtown South area, roughly located between 34th and Canal streets, office availability climb to 11.7 percent from 8.5 percent at the end of last year. Asking rents averaged $39.73 a square foot, down 28 percent from a year ago.
Bank of America said late Wednesday it planned to return the entire $45 billion in bailout money it received from the government over the past year.
The move would allow Bank of America, the nation’s largest lender, to wriggle free from a variety of government restrictions it has had to abide by, including pay caps for its top executives.
It could also smooth what has been a difficult search for a new chief executive.
Outgoing CEO Ken Lewis is scheduled to depart by year end. Bank of America’s board of directors originally hoped to select a successor by Thanksgiving.
"We believe that this is good news, not only for the U.S. taxpayer and our company, but for the country as it is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover," Lewis said in a statement.
The payback would be made largely through the sale of $18.8 billion of securities that would convert into common stock, according to the company. The stock sale will be put to a shareholder vote in coming months.
In addition, the bank said it would supplement the $18.8 billion with $26.2 billion in cash.
Last fall, as the government tried to stabilize the financial markets, Bank of America received $25 billion in aid under the Troubled Asset Relief Program, or TARP.
That number grew to $45 billion in the following months as the bank sought to cover losses it absorbed through its purchase of Merrill Lynch at the height of the crisis in September 2008 payday loan online.
There had been speculation earlier this fall that the company was exploring options to pay back part of the money it had received from the government.
But many believed that it would be at least several more months before the Charlotte, N.C.-based lender could get completely out from under the government’s thumb.
The move, of course, will save Bank of America from having to make any further dividend payments on aid it received from the government. So far this year, the company has paid out $2.54 billion to the Treasury Department.
But exiting TARP won’t come without a cost. The company said it would reduce its fourth-quarter results by $4.1 billion as a result. The company is expected to report a loss of $524 million in the current quarter.
Bank of America noted however, it did not plan to exercise its right to repurchase warrants, or rights to purchase company shares, owned by the government.
Bank of America (BAC, Fortune 500) shares finished more than 1% lower in regular trading Wednesday, but jumped more than 3% on the news after the bell.
Gulf markets dropped again on Tuesday, taking little comfort from Dubai World’s plan to restructure about $26 billion of debt and despite reassurances on economic resilience from the rulers of Abu Dhabi and Dubai.
Dubai stocks fell a further 5.6 percent and the Abu Dhabi bourse lost 3.6 percent on their second trading day since Dubai last week asked creditors of Dubai World and its property arm Nakheel for a six-month delay on debt repayments. Qatar’s bourse was also more than 8 percent lower.
State-controlled Dubai World, which led the emirate’s transformation into a regional hub for finance, investment and tourism, unveiled details late on Monday of the restructuring and which parts of its empire were affected. The process will focus on $26 billion of debt owed by its main property firms, Nakheel and Limitless.
Dubai World said it had appointed Moelis & Co, the investment bank created by former UBS president Ken Moelis, to advise on the restructuring while Rothschild would continue to be its investment adviser.
Global markets took a pounding when news broke last week that Dubai World was unable to pay its debts, although on Tuesday, Asian and European stocks were up, following the lead from Wall Street overnight as fears of contagion eased.
Dubai’s ruler Sheikh Mohammed bin Rashid al-Maktoum, who is also the United Arab Emirates’ vice president, prime minister and defense minister, said the global reaction had shown “a lack of understanding.”
“We have the determination and will power to face all challenges, including the ill-intentioned media challenges,” Sheikh Mohammed said, according to a statement from his office.
John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh, said the Dubai ruler’s remarks “although very broad, should be welcomed by global markets at a time when they are thirsty for clarity, reassurance and information.”
Sheikh Khalifa bin Zayed al-Nahayan, president of the UAE and ruler of Abu Dhabi, said the UAE economy was showing signs of gradual growth in the fourth quarter.
Dubai’s troubles could shift political power in the UAE, a seven-emirate federation celebrating 38 years of unity on Wednesday, toward oil-producing Abu Dhabi and away from its exuberant neighbor.
The Dubai World group, whose total liabilities are estimated at nearly $60 billion, said the restructuring would exclude “financially stable” units such as Infinity World Holding, Istithmar World and Ports & Free Zone World, which includes DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone.
Dubai World would look at options for cutting its debt, including asset sales, it added.
But the group may not be able to keep revenue-generating assets such as port operator DP World and Istithmar’s 2.7 percent stake in Standard Chartered, while selling its battered property firms.
“I don’t think they’re in a position to choose,” Khuram Maqsood, managing director of Emirates Capital and a former director at Istithmar.
“Dubai World desperately needs cash. Everything is for sale. I don’t think anything is sacred in the current environment.”
The yen’s surge to a 14-year high and renewed deflation may prompt Japanese Prime Minister Yukio Hatoyama to press the central bank to take further steps to support growth.
Hatoyama, 62, will meet Bank of Japan Governor Masaaki Shirakawa “soon,” Chief Cabinet Secretary Hirofumi Hirano told reporters yesterday. Hirano said the leaders will discuss quantitative easing policies in addition to falling prices and the stronger currency.
The government has stepped up calls on the central bank to prop up growth since it declared the economy was in deflation on Nov. 20. Shirakawa, who yesterday pledged to act “promptly and decisively,” has few options given that the key overnight lending rate is at 0.1 percent and the bank is already purchasing government bonds and corporate debt.
“We’re not in a situation where the BOJ will act just because the government is pressuring it to,” said Junko Nishioka, a chief economist at RBS Securities Japan Ltd. in Tokyo. “There’s an election next year, so the government wants to show how much it has already done.”
Nishioka said she didn’t expect any policies to be announced from the central bank after this week’s meeting with Hatoyama, given that it’s common for policy makers to meet and discuss the economy and financial markets.
Deflation can undermine economic growth by making debt burdens heavier, eroding corporate profit margins and deterring capital investment and consumer spending. Japanese prices excluding fresh food slid 2.2 percent in October from a year earlier, a near record drop, and the government’s declaration of deflation was its first in more than three years.
‘Promptly and Decisively’
“The bank is always prepared to act promptly and decisively if judged necessary to ensure the stability of financial markets,” Shirakawa said yesterday in Nagoya, central Japan. “The bank will do its utmost to overcome deflation both in terms of monetary easing and ensuring the stability of the financial markets.”
Reports yesterday showed Japan’s recovery from its worst postwar recession may be weakening. Industrial output grew at the slowest pace in eight months in October as manufacturers including Toyota Motor Corp. pared production at home. Wages tumbled 1.7 percent, extending their longest losing streak in six years.
Hatoyama championed the Bank of Japan’s independence after he took power in September following his Democratic Party of Japan’s landslide August election victory. Hirano reiterated yesterday that the government respects the bank’s autonomy.
Testing BOJ
Other Cabinet members haven’t been shy in testing the central bank. Deputy Prime Minister Naoto Kan said on TV Asahi last week that he’d “like to see monetary policy work just a little harder” to battle deflation. Financial Services Minister Shizuka Kamei said in October that the bank “sometimes sounds like it’s talking in its sleep.”
“Hatoyama’s Cabinet seems to think that the BOJ isn’t playing a big enough role in fighting deflation,” said Susumu Kato, an economist in Tokyo at Calyon Securities. “The government may ask the BOJ to increase the amount of its government bond purchases” to around 2 trillion yen ($23 billion) a month from 1.8 trillion yen, Kato said.
The government may be looking for monetary policy measures to combat prices and the yen because it has the highest debt burden in the industrialized world, limiting the scope of fiscal policy. Nevertheless, Finance Minister Hirohisa Fujii said yesterday that he is compiling an extra budget of more than 2.7 trillion yen, the amount of money frozen from the previous administration’s budget, to spur growth.
Quantitative Easing
The BOJ introduced quantitative easing steps in March 2001 before suspending those policies in March 2006. Shirakawa has said the policy of flooding the economy with cash had a limited impact on economic growth.
Hatoyama and Shirakawa are also likely to discuss the yen, which rose to a 14-month high of 84.83 to the dollar on Nov. 27, setting off a chorus of complaints from Japanese manufacturers. Canon Chief Executive Officer Fujio Mitarai said Japan is “standing on the edge of a cliff.”
Shirakawa said yesterday the government will decide whether to intervene, adding that the central bank will “closely watch these developments and their effects with great interest.”
Canon Inc. would lose 4.4 billion yen in sales and 2.5 billion yen in operating profit this quarter for every 1 yen drop in the dollar compared with its forecast of 90 yen, the company said on Oct. 27.
Japan last intervened in the currency market in March 2004, when the yen traded around 109 per dollar. The central bank sold 14.8 trillion yen in the first three months of that year.
“We’re paying close attention to whether the BOJ will go along with intervening in the market,” said Shinichi Ichikawa, chief market strategist at Credit Suisse Securities Japan. “Intervention would stop the bleeding for now, so it’s important.”
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