Monti's departure will leave Italy's austerity plan hanging | Obama, Boehner discuss "fiscal cliff" at private meeting | Greece reportedly may give debt buyback another go
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10 December 2012
CFA Institute: Financial NewsBrief
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Monti's departure will leave Italy's austerity plan hanging
Unelected Italian Prime Minister Mario Monti is stepping down, and his disgraced predecessor, Silvio Berlusconi, is waiting in the wings. Berlusconi's party withdrew its support for Monti, who says he cannot now govern. Standard & Poor's rating agency expressed doubt over whether a new government could continue Italy's austerity plan. CNBC (08 Dec.)
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Obama, Boehner discuss "fiscal cliff" at private meeting
President Barack Obama met behind closed doors with U.S. House Speaker John Boehner to discuss a possible deal to avert the impending "fiscal cliff." Spokesmen declined to give any details of the meeting. Economists have warned that if the fiscal cliff is not averted, the economy could go into a sharp contraction and trigger a new recession. Los Angeles Times (tiered subscription model)/Politics Now blog (09 Dec.), The New York Times (tiered subscription model)/The Caucus blog (09 Dec.), CNN (10 Dec.)
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Greece reportedly may give debt buyback another go
Greece may renew its debt buyback program Monday, government sources say. The initial offer to buy back about €30 billion expired Friday, and an official said offers received from holders came to about that total. "I believe that by Monday or Tuesday, I will be able to say with great certainty that things went very well," Prime Minister Antonis Samaras said. CNBC/Reuters (09 Dec.)
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Banks face additional mortgage securities lawsuits
The biggest banks in the U.S. may be forced to pay tens of billions of dollars, on top of what they have paid already, in response to a new round of claims brought against them over mortgage securities. Investors, insurers, regulators and prosecutors have initiated dozens of lawsuits related to losses on more than $1 trillion of securities backed by residential mortgages. The New York Times (tiered subscription model) (09 Dec.)
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Chinese group to buy stake in AIG's aviation leasing unit
American International Group agreed to sell an equity stake of as much as 90% of International Lease Finance Corp., its aircraft leasing arm, to a group of Chinese investors for about $5.28 billion. The investor group, headed by New China Trust Chairman Weng Xianding, will initially acquire 80.1% of the operation for about $4.23 billion, and receive an option to buy an additional 9.9% interest. The New York Times (tiered subscription model)/DealBook blog (09 Dec.), The Washington Post (tiered subscription model)/The Associated Press (09 Dec.)
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Canada OKs $15.1B Nexen takeover by Chinese oil firm
Canada cleared the way for the China National Offshore Oil Corp. to take over Canadian energy firm Nexen for $15.1 billion. Regulators also approved a deal by Malaysian energy company Petronas to acquire Canadian natural gas producer Progress Energy Resources for $6 billion. The Vancouver Sun (British Columbia)/Postmedia News (08 Dec.), MarketWatch (09 Dec.), The Globe and Mail (Toronto) (tiered subscription model) (09 Dec.)
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Analysis: Debt boom isn't necessarily something to celebrate
Debt capital is flowing freely to any U.S. corporation that wants it, but the long-term consequences of this easy money are difficult to anticipate, according to The Economist. "The implicit bet that investors and policymakers are making is that whatever costs come from an eventual increase in interest rates, they will be more than offset by the positive effects of an economy rejuvenated in part by cheap credit," the magazine notes. "It is, in short, a bet on a free lunch, and like most such bets is not without risks." The Economist (free content) (08 Dec.)
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Market ActivityAdvertisement
Asian-Pacific markets advance amid positive data from U.S., China
Asian-Pacific markets rose modestly Monday after China released encouraging industrial production data and the U.S. unemployment rate fell. Hong Kong's Hang Seng Index moved up 0.4%. China's Shanghai Composite rose 1.1%. Japan's Nikkei 225 and Australia's S&P/ASX 200 each edged up 0.1%. South Korea's Kospi was unchanged. India's Sensex was down 0.1% at midafternoon. The Wall Street Journal (tiered subscription model) (10 Dec.), The Economic Times (India) (26 Feb.)
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Deep-pocket investors bet on rental-housing market rebound
Hedge funds and private-equity firms have put billions of dollars into foreclosed houses with the intention of renovating them and putting them back on the market as rental properties. They are counting on the value of the houses soaring as the housing market gets back on its feet. The New York Times (tiered subscription model) (08 Dec.)
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Economics
BIS cautions over rising assets when outlook is less than rosy
Noting the glow on markets worldwide even as the economic outlook darkens, the Bank for International Settlements is raising the possibility that asset prices may once again be over-inflated. Market gains also appear to defy recent profit warnings in the U.S. and Europe. "Unusually, equity and fixed income gains coincided with a weakening of the global economic outlook. In the past, falling growth forecasts have usually been associated with rising expected default rates and higher bond yields," the BIS said in its quarterly report. The Telegraph (London) (tiered subscription model) (09 Dec.)
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Jobless rate hits 4-year low as 350,000 workers give up job hunt
The unemployment rate in the U.S. fell to 7.7%, its lowest level since 2008, but economists said that was largely because many workers gave up their efforts to find employment. The official jobless rate dropped because 350,000 Americans disappeared from the workforce and no longer were counted as unemployed. The Christian Science Monitor (07 Dec.), Reuters (07 Dec.)
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Consumer borrowing accelerates in U.S. for third straight month
Economists were caught off guard by the sharp increase in U.S. consumer borrowing in October. The Federal Reserve said consumer credit jumped $14.2 billion in October, marking the third consecutive monthly expansion. Economists surveyed by Reuters and Bloomberg expected the October figure to rise by $10 billion. Reuters (07 Dec.), Bloomberg (07 Dec.)
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Chinese factory output, retail sales, investment post gains
Several reports from China indicated that the Chinese economy is returning to strong growth. The National Bureau of Statistics said industrial production jumped 10.1% in November, compared with the previous month. Retail spending rose 14.9% last month from October. For the first 11 months of this year, investment in fixed assets was up 20.72%. IndustryWeek/Agence France-Presse (09 Dec.), South China Morning Post (Hong Kong) (free registration) (10 Dec.)
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Japan officially falls into recession based on latest data
Japan's economic slowdown officially became a recession with the release of economic data by the Cabinet Office. Gross domestic product declined 3.5% in the third quarter and revised figures indicated the economy contracted 0.1% in Q2. Less than a week ahead of national elections, opposition leader Shinzo Abe, who is leading in the polls, called for "unlimited" monetary easing. Bloomberg (10 Dec.), Market News International (09 Dec.), NHK World (Japan) (10 Dec.)
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Geopolitical/Regulatory
U.K., U.S. offer joint plan for "too big to fail" banks
For the first time, U.S. and British regulators have made public their common view of how to cope with financial institutions considered "too big to fail". The US Federal Deposit Insurance Corp. and the Bank of England discussed the problem in a joint paper. "We believe that, for many [global systemically important financial institutions], this strategy holds the best possibility of preserving stability while removing taxpayer support," Martin Gruenberg, chairman of the FDIC, and Paul Tucker, deputy governor for financial stability for the Bank of England, write in the Financial Times. "It holds shareholders, creditors and management in a failed GSifi accountable for its losses." The Telegraph (London) (tiered subscription model) (10 Dec.), Financial Times (tiered subscription model) (10 Dec.)
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Financial advisers' reforms are delayed by House, Senate changes
Action on far-reaching reforms that could change the way financial advisers do business will likely be delayed by changes in the leadership of two key U.S. Congressional committees. The House Financial Services Committee and the Senate Banking, Housing and Urban Affairs Committee will have new chairmen when Congress returns to Washington in 2013. Reuters (07 Dec.)
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Financial Products
Fidelity, Arden launch mutual fund run by hedge fund managers
Fidelity Investments and Arden Asset Management brought to the retail market a mutual fund advised by nine prominent hedge fund managers, including Babson Capital, Chilton Investment, Jana Partners and York Registered Holdings. The fund aims for returns ranging from the high single-digits to the low double-digits over a three-to-five-year hold. The expense ratio is 2.3%. Financial Advisor online (07 Dec.), FINalternatives (07 Dec.)
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Ethics
U.K. weighs closer scrutiny for financial officials tied to scandals
A panel independent of the U.K.'s Financial Services Authority and its successors may be in store as the Parliamentary Commission on Banking Standards considers recommendations on how to deal with financial officials involved in future collapses or scandals. The objective would be to prevent such individuals from continuing as authorized employees. The Telegraph (London) (tiered subscription model) (09 Dec.)
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