Two of the best-known business dynasties in Europe and the US will come together after Lord Jacob Rothschild’s listed investment trust and Rockefeller Financial Services agreed to form a strategic partnership. RIT Capital Partners is to buy a 37 per cent stake in the Rockefeller’s wealth advisory and asset management group for an undisclosed sum, giving Lord Rothschild’s London-listed trust a much sought-after foothold in the US. The transatlantic union brings together David Rockefeller, 96, and Lord Rothschild, 76 – two family patriarchs whose personal relationship spans five decades. http://www.ft.com/intl/cms/s/0/efe93494-a9a3-11e1-a6a7-00144feabdc0.html#axzz1w8XyzKzt
A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said. News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early. Madrid had floated the unorthodox idea over the weekend of recapitalising Bankia by injecting €19bn of sovereign bonds into its parent company, which could then be swapped for cash at the ECB’s three-month refinancing window, avoiding the need to raise the money on bond markets. http://www.ft.com/intl/cms/s/0/7730ca10-a9b4-11e1-9772-00144feabdc0.html#axzz1w8XyzKzt
The decline in Facebook’s market value since its initial public offering earlier this month increased to 24 per cent as the social network’s shares dropped a further 9.6 per cent on Tuesday to a new low of $28.84. Facebook’s stock options, which traded for the first time on Tuesday, indicated that the stock’s volatility is expected to continue. The stock options were already among the most heavily traded in the US market, demonstrating the frenzy around the eight-year-old company and its May 18 IPO. http://www.ft.com/intl/cms/s/0/6769765c-a9a2-11e1-a6a7-00144feabdc0.html#axzz1w8XyzKzt
The technocratic government of Mario Monti has made significant progress towards overhauling Italy’s economy since it came to office last year, but has not done enough to combat tax evasion and the country’s sizeable black economy, an EU finding to be released this week has determined. The European Commission report, which is still in draft form and was obtained by the Financial Times before its publication on Wednesday, carries significant weight under new EU rules that give Brussels the right to fine and sanction eurozone countries that do not follow its recommendations.http://www.ft.com/intl/cms/s/0/960e4250-a7f2-11e1-b8a9-00144feabdc0.html#axzz1w8XyzKzt
In a country where wealth matters more than most – if only because of its extreme shortage – being a teacher once meant making a decent living. However, as salaries for corporates ector jobs have soared and those for professors have stagnated, the respect afforded to academics – and the subsequent desire of students to become them – seems to have done the same. A government panel said recently that India’s shortage of faculty staff could be “significantly higher” than the 40 per cent widely estimated. While the prestigious Indian Institutes of Management and Indian Institutes of Technology – which cater to less than 40,000 of India’s roughly 16m college students – are largely immune to the overall shortage, even they have come under fire for lacking top-quality professors.http://www.ft.com/intl/cms/s/2/6e5725ee-7cd0-11e1-9d8f-00144feab49a.html#axzz1w8XyzKzt
Newedge, a leading broker, is abandoning the Greek stock market in a sign of mounting concern over the country’s future in the eurozone. The broker has told clients that it will process only sell orders, and stop extending margin loans for existing positions in Greek securities, according to a memo obtained by the Financial Times. A list of securities subject to the new restrictions include foreign-listed shares and American depositary receipts for Greek companies including Alpha Bank, Coca-Cola Hellenic Bottling and Paragon Shipping, a New York-listed shipowner that is headquartered in Greece. http://www.ft.com/intl/cms/s/0/a2123114-a690-11e1-aef2-00144feabdc0.html#axzz1w8XyzKzt
With twitter feeds exploding over the Euro breaching the 1.25 level, and rumors of French banks preparing for a Grexit, let’s review what central planners balance sheets look like. Via Macroblog (Atlanta Fed).
Relative to before the financial crisis, the Federal Reserve’s asset holdings are currently about 3.3 times larger. Initially, the source of that increase was the collateral associated with various temporary lending facilities that the Fed used to address the financial panic. Those assets were then replaced on net by purchases under the first large-scale asset purchase program in 2009. Then in late 2010, asset holdings increased further as a result of a second large-scale asset purchase program.
Of course, size isn’t everything. While it might be tempting to try and interpret the change in the size of the central bank’s balance sheet as a summary statistic of the degree of monetary policy accommodation, as Dave Altig’s post points out, that interpretation is not so straightforward. Increasing the size of the balance sheet is not the only thing a central bank can do to ease monetary policy when short-term interest rates are very low. For example, in late 2011 the Fed began a maturity extension program that changed the composition of the assets on the balance sheet, but this program did not materially alter the size of the balance sheet.
With this caveat in mind, the following chart compares the proportionate changes in the size of asset holdings of five central banks over the period from the first quarter of 2007 through the first quarter of 2012: the Federal Reserve (FR), the Bank of England (BE), the European Central Bank (ECB), the Bank of Canada (BC), and the Bank of Japan (BJ).
JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office. The futures of the trading unit – a subset of the CIO that incurred the losses – and people who work there are under question, with departures possible in the next 24 hours, people familiar with the matter said.http://www.ft.com/intl/cms/s/0/adc55f24-9d06-11e1-9327-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fproduct#axzz1uofkmjQk
Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. http://www.ft.com/intl/cms/s/0/680d8532-9d11-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority. The vote for the CDU slumped to just 26 per cent, according to the first exit polls, by far its worst result in the state in the post-war period, and a serious setback for the German chancellor. http://www.ft.com/intl/cms/s/0/8edb6b32-9d18-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
All you need to read and some more below.
As Spain’s finance minister, De Gunidos, comments are crossing the wires; “Budget cuts and economic growth are incompatible”, maybe it is time to recall what austerity really means. More austerity, more misery. From Azizonomics:
I noted yesterday that anything the government gives you, the government can take away, and that dependency on government services — which might be withdrawn — leaves citizens weak and unfree.
One cause for the withdrawal of government that I neglected to mention (intentionally, as I hoped someone would pick it up in comments) was the matter of austerity. While the example I was bouncing my ideas off — of denying treatment to smokers or the obese — remains theoretical, the withdrawal of government services and spending as a result of austerity is very much a reality, especially in Europe.
Spanish economy slipped back into recession in the first quarter of 2012, making the government’s job of meeting the deficit targets even tougher amid the public anger against the deepening austerity and record-high unemployment.
Gross domestic product contracted 0.3 percent quarter-on-quarter in the first quarter, the statistical office INE said Monday. This followed a 0.3 percent fall in the fourth quarter of 2011, which was the first decline in activity since the final three months of 2009.
The country is now in a technical recession, which is commonly defined as two consecutive quarters of economic contraction.
However, the latest result was better than the 0.4 percent decline estimated by the Bank of Spain last week. Economists had expected a 0.5 percent drop.
Annually, the GDP fell 0.4 percent following a 0.3 percent expansion in the previous quarter. Economists had forecast a 0.6 percent fall. Bank of Spain had estimated a 0.5 percent annual fall in GDP. ( full reading here.)
Meanwhile, Mr Rajoy warns of new reforms to be announced every Friday, as the economy is in such a bad shape. Truly extreme measures are needed if the Spanish economy is to be saved. From El Pais.