UPDATE 1-S.Korea's Lee says economy may shrink in H1 2009

[Sir X]

UPDATE 1-S.Korea's Lee says economy may shrink in H1 2009

Sat Dec 27, 2008 7:23am GMT
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By Kim Yeon-hee
SEOUL, Dec 27 (Reuters) - South Korea looks headed for its first economic contraction in a decade, the country's president warned, reinforcing expectations of further interest rate cuts and fiscal stimulus to boost Asia's fourth largest economy.
The comments by Lee Myung-bak were more pessimistic than the central bank's forecast and follow a series of weak economic indicators that suggested the global downturn, which has sent much of the developed world into recession, was deepening.
"The first and second quarters of next year are seen as the trough (of the economic cycle)," President Lee Myung-bak was quoted as saying on Saturday when two government ministries reported their new year policies.
"Given the difficulty in the world economy and South Korea's high dependence on outside markets, we are at a critical moment which may see negative growth in the first and second quarters although the annual number may be positive."
South Korean officials usually refer to annual rates when speaking about economic growth.
An analyst said Lee's comments, carried by a pool report, reinforced views that authorities were likely to take further measures to help the rapidly slowing economy from slipping into its first recession since the 1997/1998 Asian crisis.
"Lee's comments indicated the government has accepted the fact that the economic difficulty was more serious than had been thought," said Jun Min-kyoo, an economist of Korea Investment & Securities. Continued...

[Sir X]

Fewer Bank Failures than Expected in 2008, but Likely to Rise in 2009

American Banker


By Joe Adler
December 29, 2008
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It was a year that saw the fall of Washington Mutual Inc., the largest bank failure in history, the collapse of IndyMac Bank, the most expensive failure in 20 years, and more bank closures than at any time since the savings and loan crisis.
Still, many observers are asking: Why wasn't it worse?
Despite dire predictions and a financial crisis unlike anything faced in the past seven decades, only 25 banks failed - well short of the hundreds some had predicted at the beginning of the year.
Observers offer a range of reasons, from the government's direct investment in healthy institutions - which spurred some banks to buy troubled ones - to its efforts to back bank debt and guarantee liquidity. They also cite a lagging business cycle that has yet to finish off some troubled institutions, regulators that are stretching out the timetable for failures to conserve resources and prevent panic, and other factors.
Though observers agree 2008 was not as bad as expected, most continue to have a bleak outlook for next year. They say the pace of failures - which accelerated dramatically since IndyMac failed July 11 - is liable to increase.
"Next year will probably look much like the second half of this year," said Robert DeYoung, a finance professor at the University of Kansas' School of Business. "This process crosses the year, and failures tend to lag business activity. Even though we're way below what some people expected, we should continue to see banks become insolvent as we go forward."
The Federal Deposit Insurance Corp. is clearly anticipating as much. It nearly doubled its budget for next year, to $2.24 billion, with the vast majority of the money going to its resolution and receiverships division. That division is expected to add more than 800 employees to keep up with the pace of failures.
There were 171 institutions on the troubled-bank list, holding $115.6 billion of assets, at the end of the third quarter. Most experts said they expect that list to grow.
But several industry watchers said some of the government's actions have prevented the failure tally from reaching the expected triple digits. The Treasury Department has pledged $250 billion to invest directly into banks, and has distributed all but $80 billion of that.
Though Treasury officials said the money would not go to ailing banks, some troubled institutions have clearly benefited from it. Central Pacific Bank in Honolulu said Dec. 9 that it had received $135 million from the Treasury's Troubled Asset Relief Program - the same day it announced a memorandum of understanding with federal and state regulators. The $5.4 billion-asset bank said it planned to use the money to increase its capital ratio to 9% within six months.
Other institutions have used the extra capital to buy failing banks. Analysts said they doubted National City Corp. could have survived on its own without PNC Financial Services Group Inc.'s offer to buy the Cleveland banking company. Also some large insurers have struck deals to acquire troubled thrifts in order to have access to Treasury capital.
"Absent the intervention, there would be more bank failures," Prof. DeYoung said.
"More capital reduces the probability that a bank is going to become insolvent. Clearly the injection of about $250 billion of capital at this point will reduce the number of bank failures. For banks that were going to fail and maybe still will fail, it'll slow down the process."
Randy Dennis, the president of DD&F Consulting Group in Little Rock, said the bailout money available through Tarp may prevent some failures next year.
"Nobody is going to acquire the really sick banks," he said. "But to acquire marginal banks - banks that aren't doing well that might be a failure at the end of next year if they can't get capital - they can be good targets and the Tarp money can certainly be used for that."
Though the decision to fail a bank ultimately resides with the chartering agency, not the FDIC, some said the agency has also been managing the pace of failures this year to avoid a resource crunch and prevent further deposit panic.
"The agency is always going to manage a failure schedule not only for their own resources, but most importantly for the public," said Robert Hartheimer, a special adviser at Promontory Financial Group LLC and a former director of resolutions at the FDIC. "If there were more than two or three failures on a weekend, I think it logistically would be very difficult for depositors and stakeholders of those institutions," and "it probably sends a more drastic message than the situation really is."
But the agency's handling of certain failures has been both praised and criticized for departing from ordinary practice.
The most notable case was IndyMac, which failed after its mortgage portfolio became toxic and Sen. Charles Schumer, D-N.Y., went public with letters that expressed concern about the thrift's condition and may have hastened its collapse.
Without any buyers, and needing a vehicle for managing IndyMac's operations, the agency held the institution under a newly chartered conservatorship.
The result was a shower of news coverage, some of it erroneous, that panicked many depositors. Lines of insured and uninsured depositors - not familiar with the ramifications of an FDIC takeover - crowded IndyMac branches, many demanding their money. It was the first known bank run to occur after an institution had already collapsed.
The failure hurt other banks in Southern California, whose depositors withdrew funds as a result, and other institutions suddenly faced new questions from anxious customers.
The IndyMac collapse cost an estimated $8.9 billion - one of the most expensive failures since the savings and loan crisis.
Observers said that experience influenced the way the FDIC handled the subsequent 20 failures.
"It's fair to say that the FDIC did not want another IndyMac," Mr. Dennis said. "They do not want CNN panning crowds lined up to try and get their deposits before the bank opens in the morning."
Since then the vast majority of the FDIC's receiverships have covered uninsured depositors, preventing the kind of fallout that results from customers losing money. Of the 20 banks that failed after IndyMac, 16 of the transactions fully covered uninsured customers.
Some observers raised questions that the FDIC had violated its statutory mandate to find the least costly resolution, arguing that while protecting all depositors may be in the public interest, it is not the law.
"The statute doesn't say anything about public confidence," said Bert Ely, an independent consultant based in Virginia and a critic of the agency. "I don't have a problem with protecting all depositors, but there ought to be an open debate about it."
But FDIC officials said protecting depositors was not their idea, but the result of the bidding process. Some observers said banks are more likely after IndyMac to seek to protect deposits for fear of starting a panic.
"If the bidders are willing to pay enough traditional money to pay the uninsured, then they're protected," said Art Murton, the director of the FDIC's division of insurance and research. "That's not something really we control. It's really a function of the value of the franchise, and how the bidders view it."
It is clear, however, that the FDIC has responded to failures more creatively since IndyMac.
The prime example was the Sept. 25 takeover of Washington Mutual.
The largest failure in history took down two thrift charters and involved $307 billion of assets and $188 billion of deposits, but it cost the Deposit Insurance Fund nothing.
The agency negotiated a deal to have all of Wamu's banking operations transferred to JPMorgan Chase & Co. and make all depositors whole. JPMorgan Chase paid $1.9 billion.
The agency has explored tactics beyond traditional failed-bank transactions to resolve other institutions, including coordinated closings and loss-sharing agreements with acquiring institutions.
On Nov. 21 regulators closed the $12.8 billion-asset Downey Savings and Loan and the $3.7 billion-asset PFF Bank and Trust, both Southern California thrifts, and maneuvered their sale to one bidder, U.S. Bancorp of Minneapolis. Under the deal, all depositors were covered. U.S. Bancorp's main subsidiary agreed to assume the first $1.6 billion of losses from loans tied to the deal, with the agency sharing in future losses.
Observers lauded the FDIC's strategies as failures have picked up, saying the agency has thought outside the box and allayed the fears of the banking public.
"As bad as everyone perceives the crisis, and it is horrible, if you surgically look at how the FDIC has handled the failures ... the system works, and it works in the way it's supposed to work," said Frank C. Bonaventure Jr., a principal at Ober Kaler in Baltimore. "The FDIC has managed it pretty well, because the goal here is to keep public confidence up."
Prof. DeYoung agreed the FDIC has "become a lot more artful and flexible in the method in which they resolve insolvent banks."

[Sir X]

Forecasts of economic woe just seem to get gloomier every day








Are we heading for a depression like the one in 30s? Picture: Hulton/Getty







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Published Date: 27 December 2008
By Jane Bradley Business reporter


TWO of the gloomiest forecasts yet for the UK economy were released yesterday as experts predicted a further decline in consumer spending and a slump in business investment.

Independent think-tank the Centre for Economics and Business Research (CEBR) forecasts that GDP will shrink by 2.9 per cent in real terms in 2009 in the starkest warning yet for the economy.

Economists from the group said business investment was set to plummet by 15 per cent as companies scale back their spending and get further squeezed by the banks.

And IHS Global Insight downgraded its expectations, saying it expected GDP to drop by 2.7 per cent next year – with a risk of a 3 per cent fall – and added that a zero per cent interest rate was "very possible".

The figures far exceed official Treasury forecasts that the economy will shrink by between 0.75 per cent and 1.25 per cent next year, with the UK returning to growth in the second half of 2009 – and forecasts earlier this week from Capital Economics which expects GDP to drop by 2.5 per cent. Even that scale of decline would mark the worst annualised decrease since official records began in 1948.

The latest estimates also cast gloom upon the housing market, employment levels and exports.

Howard Archer, chief UK economist at IHS Global Insight, warned that he expected house prices to slump by a further 15 per cent over the course of next year. He added that business investment would "decline substantially", while he expected consumer spending to drop by 2 per cent.

He said: "We consider there to be significant downside risks to these forecasts as the global economy is facing its most serious recession since the Second World War.

" Indeed, it is possible that the UK economy could contract by more than 3 per cent in 2009 and see further contraction overall in 2010."

But Archer added that he thought interest rates could slip to 0.5 per cent, from the current 2 per cent, and said that while the pound will continue to lose value in the short term, it was near to "bottoming out".

And he said that the UK was likely to experience a period of deflation in 2009, despite November's inflation figure registering 4.1 per cent – twice the Bank of England's target level.

Economist Charles Davis, one of the authors of CEBR's United Kingdom Prospects Report, said that, while consumer spending in 2009 was likely to fall by 1.8 per cent, it was business investment which would take the worst hit.

He said: "The United Kingdom economy has deteriorated significantly in the second half of 2008 but 2009 is where we are likely to see the real economic pain, with output falling by 1.3 per cent in the second quarter and a full-year contraction of 2.9 per cent.

"The economy is facing a painful readjustment away from debt from external financing that has allowed a huge gap between United Kingdom bank lending and deposits to open up. With bank lending not returning to anything approaching normality until mid-2010, (business] investment will fall by 15.2 per cent in 2009."

WHAT NEXT

Five forecasts of where the UK economy is going in the next year, all showing contraction – but by widely differing amounts.

0.75-1.25%
UK Treasury

1.7%
CBI

2.5%
Capital Economics

2.7%
IHS Global Insight

2.9%
CEBR


The full article contains 588 words and appears in The Scotsman newspaper.
Page 1 of 1

• Last Updated: 26 December 2008 8:14 PM
• Source: The Scotsman
• Location: Edinburgh
• Related Topics: Economic indicators

[Sir X]

Economy 'on knife-edge' as Japan faces deflation fear



Leo Lewis, Asia Business Correspondent


div#related-article-links p a, div#related-article-links p a:visited {color:#06c;}Japan’s economy — the second-largest in the world and a barometer of global consumer demand — was described yesterday as being “on a knife-edge” amid fears that it might plum- met into deflation within months.
The warnings, which come from senior private sector economists and from the Japanese Government, follow a Boxing Day release of dismal industrial, consumer and employment data.
Within hours of passing a record 88 trillion yen (£660 billion) budget, senior government sources told The Times that Japan would “inevitably” be forced to adopt new measures to halt the meltdown. The country’s spiraling economic crisis arises primarily from the sudden halt in American consumption and the acute slowdown in the flow of components and goods throughout Asia. The strong yen has savaged the competitiveness of Japanese goods such as cars and electronics at a critical moment.
A record-breaking fall in industrial output figures for November showed that the country’s huge manufacturing economy is collapsing far more rapidly and painfully than even the bleakest market forecasts believed possible. The 8.1 per cent month-on-month slide — a dramatic collapse from the 3.1 per cent decline logged in October, stunned many economists. Richard Jerram, of Macquarie Securities, said that the pace of collapse had almost gone beyond the point of sensible analysis.
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Employment is on track to fall rapidly as companies retrench at a pace not seen even during the worst days of Japan’s “lost decade”. Economists at Nomura said that even though the employment figures suggested a measure of stability, deterioration is “unavoidable” as companies retract job offers and lay off temporary workers.
The rate of consumer price growth dropped at its fastest pace since 1981: as commodity and energy prices nosedive on global markets, food is now the only component of the Japanese consumer price index that is still in positive territory.
Kyohei Morita, senior economist at Barclays Capital in Tokyo, yesterday brought forward to May his forecast of when Japan will once again confront deflation — a rare economic malaise that crippled the nation during the late 1990s.
He pointed to the growing number of retailers — from luxury goods boutiques to family restaurants — which are passing the benefits of the strengthening yen on to customers in “strong yen sales”. These have in turn pushed consumer prices lower more quickly than anyone predicted.
Reflecting growing panic within the Japanese Government, and the darkening prospects for immediate recovery, Kaoru Yosano, the Economy and Fiscal Policy Minister, said that “both Japan and the world will be on knife’s edge for some time.”

• Have your say

Dan from Chino - the US is finished.$11 trillion of national debt will not go away.

Mike, Guildford, UK

humankind has been ripped of f since the battle of Woterloo by the same people . Periodicly. until people wake up to this theft nothing will change. It will only increase each time.

Paul, Mackay, Australia

TO Dan from Chino! YOu represent the ultimate parasitic nation -up to now gobbling about 25% of the world's goods and energy resources- now that your boys on Wall street decided to screw your neighborhood and then the rest of the world, you will end up by eating the feces of that neighbor.

D Weymarn, Outremont, Canada

[Sir X]

I am waiting for the day when the US media will be honest with its citizens and declare a contraction instead of the B.S "things will turn around in the last quarter of 09 "! O.K so what about the 1st quarter , people want to know.