Rumors: RBS may sell Citizens

After UK government took over 58% of stakes of Royal Bank of Scotland Group (RBS) on November 28, now there are rumors RBS will be shrinking its assets to focus only on local market rather than international market. This speculation issue is based on concerning of UK government to local market. As the major holder, UK government will be much more seeing RBS focus on being a UK company.

Citizens which RBS acquired in 1988, has a network of branches that stretches from the Northeast through the Midwest and does not have the kind of overhang from troubled mortgages that National City did. According to Robert Maneri, an analyst at KeyCorp's Victory Capital Management, Citizens is certainly saleable.

If RBS sell Citizens, it will likely retain Greenwich because RBS will still need to access US Bond Market. Morgan Stanley, M&T Bank Corp., or Toronto-Dominion Bank may become Citizens buyers.

Related Posts :

UK takes over 58% of RBS shares

Sources :

IDD Magazine: RBS Woes Renew Talk Of US Asset Sale, December 3, 2008

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Nouriel Roubini: How to avoid the horrors of ‘stag-deflation’

Nouriel Roubini, A Professor at New York University and known as Dr. Doom, wrote how dangerous a deadly combination of economic stagnation/recession and deflation is; and how to avoid it. Here is from FT.com:

By Nouriel Roubini

Published: December 2 2008 19:53

The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation.

A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labour costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation.

Deflation is dangerous as it leads to a liquidity trap, a deflation trap and a debt deflation trap: nominal policy rates cannot fall below zero and thus monetary policy becomes ineffective. We are already in this liquidity trap since the Fed funds target rate is still 1 per cent but the effective one is close to zero as the Federal Reserve has flooded the financial system with liquidity; and by early 2009 the target Fed funds rate will formally hit 0 per cent. Also, in deflation the fall in prices means the real cost of capital is high – despite policy rates close to zero – leading to further falls in consumption and investment. This fall in demand and prices leads to a vicious circle: incomes and jobs are cut, leading to further falls in demand and prices (a deflation trap); and the real value of nominal debts rises (a debt deflation trap) making debtors’ problems more severe and leading to a rising risk of corporate and household defaults that will exacerbate credit losses of financial institutions.

As traditional monetary policy becomes ineffective, other unorthodox policies have be used: massive provision of liquidity to financial institutions to unclog the liquidity crunch and reduce the spread between short-term market rates and policy rates; quasi-fiscal policies to bail out investors, lenders and borrowers. And even more unorthodox “crazy” policy actions become necessary to reduce the rising spread between long-term interest rates on government bonds and policy rates and the high spread of short-term and long-term market rates (mortgage rates, commercial paper, consumer credit) relative to short-term and long-term government bonds.

To reduce the former spread the central bank needs to commit to maintain policy rates close to zero for a long time and/or start outright purchases of government bonds; to reduce the latter it needs to spread massive liquidity, such as by direct purchases of commercial paper, mortgages, mortgage-backed securities (MBS) and other asset-backed securities. The Fed has already crossed that bridge with facilities that are aimed at reducing short-term market rates, such as Libor spreads; it has now moved to influence long-term mortgage rates by buying MBSs.

Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.

The financial crisis has already become global as financial links transmitted US shocks globally. The overall credit losses are likely to be close to a staggering $2,000bn. Thus, unless financial institutions are rapidly recapitalised by governments the credit crunch will become even more severe as losses mount faster than recapitalisation.

But with governments and central banks bringing private sector losses on to their balance sheets, fiscal deficits will top $1,000bn for the US in the next two years. The Fed and the Treasury are taking a massive amount of credit risk, endangering the long-term solvency of the US government.

In the next few months, the flow of macroeconomic and earnings news will be much worse than expected. The credit crunch will get worse, with de­leveraging continuing as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, leading to further cascading falls in prices, other insolvent financial institutions going bust and a few emerging market economies entering a full-blown financial crisis.

The worst is not behind us: 2009 will be a painful year of a global recession, deflation and bankruptcies. Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.

The writer is professor of economics at the Stern School of Business, New York University, and chairman of RGE Monitor, an economic consultancy

Related Posts :

Nouriel Roubini: the coming global stagnation, recession plus deflation

Sources :

FT.com: How to avoid the horrors of ‘stag-deflation’, December 2 2008 19:53

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Global imbalance is a real danger

Caricature courtesy of FT.com
According to FT.com, if the surplus countries do not expand domestic demand relative to potential output, the open world economy may even break down. As in the 1930s, this is now a real danger.

According to forecasts from the International Monetary Fund, the aggregate excess of savings over investment in surplus countries will be just over US $2 trillion (see chart).

We are all in the world economy together. Surplus countries must willingly accommodate necessary adjustments by deficit countries. If they decide to sit on the sidelines, while insisting that deficit countries deserve what is happening to them, they must prepare for dire results.

The economy must be rebalanced, with stronger external balances as the counterpart of smaller domestic deficits.

The following charts present Largest current account surpluses, Largest current account deficit and US sectoral financial balances as a percentage of GDP:

Chart courtesy of FT.com
Sources :

FT.com: Global imbalances threaten the survival of liberal trade, December 2 2008 19:53

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

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RIMM cut its third-quarter profit outlook

According to Reuters today, BlackBerry smartphone maker, Research In Motion Ltd (RIMM), cut its third-quarter profit and revenue outlook well below Wall Street expectations, pointing to slower subscriber growth, weaker margins and sharp currency swings.

Here is the news:

In a surprise announcement on Tuesday night, RIM said it expected fiscal third-quarter revenue of US$2.75-$2.78 billion -- 9 percent below the midpoint of analysts' forecasts, which ranged from $2.77 to $3.10 billion.

Adjusted earnings are now expected to be 81 cents to 83 cents per share, compared with the 89 cents to 97 cents per share the company had initially forecast for its third quarter, which ended November 29.

Analysts, on average, had expected third-quarter earnings of 89 cents a share on revenue of $2.92 billion, according to Reuters Estimates.

"Product launch timing, general economic conditions and foreign exchange volatility have tempered our results in the third quarter," Co-Chief Executive Jim Balsillie said in a statement.

It was a sharp contrast to the bullish tone he had taken just two months ago when the company reported strong second-quarter results in late-September.

Research in Motion was widely considered one of the leading stocks of the last tech investment cycle along with Apple Inc, Google Inc and Amazon Inc, which collectively were dubbed the Four Horsemen of Tech.

"Profits are being impacted by exchange rates but the fact that subscriber additions and shipments both look set to fall below expectations is tangible evidence that the market is slowing considerably in Q4," said analyst Geoff Blaber at CCS Insight.

"Whilst smartphones will be a growing segment in a shrinking market next year, this is further evidence that growth looks set to slow considerably compared with 2008."

The revised earnings forecast excludes the negative effect on RIM's tax rate from the depreciation of the Canadian dollar relative to the U.S. dollar, RIM said. Third-quarter tax rates will range from 40 to 42 percent, a sharp hike from 29 to 30 percent rate in the second quarter.

The expected number of net new BlackBerry subscriber accounts added in the quarter would be about 2.6 million, 10 percent below its previous forecast for 2.9 million, RIM said.

But despite the lower results, the company said it had "experienced particularly strong momentum in recent weeks," which had continued into its fourth quarter.

RIM enjoyed a record number of weekly net new subscribers in the final week of November following the U.S. release of its hit Blackberry Storm device.

The Waterloo, Ontario-based company said it planned to report final third-quarter results and issue an outlook for its fiscal fourth quarter on December 18.

Related Posts :

Good news and bad news for RIMM

Sources :

Reuters: RIM hit as subscriber growth slows, December 3, 2008 8:26am EST

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.