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Posts tagged ‘Deutsche Bank’

Leftist German Protesters Clash with Police.

FRANKFURT, Germany  — German police used pepper spray and batons against thousands of anti-capitalist demonstrators from the Blockupy movement on Saturday during a second day of protests in Frankfurt against Europe’s austerity policies.

Planned rallies in struggling euro zone members Spain and Portugal drew fewer people than expected, but in Germany‘s financial capital around 7,000 protesters marched with signs reading “Make love, not war” and “IMF – get out of Greece”.

The protest was initially peaceful but small groups of masked protesters then hurled stones and smoke bombs at the police who responded with force.

Several protesters and police officers were hurt before the action died down later in the evening. Police at the scene said several arrests had been made, but could not say how many.

A first day of protests on Friday in Frankfurt succeeded in paralyzing some of the city’s financial institutions, cutting off access to the ECB’s iconic tower office building and Deutsche Bank’s headquarters.

Police angered marchers on Saturday by halting them before they could pass close to the ECB building after protesters let off firecrackers.

In a statement, Blockupy accused the police of wanting to “escalate” tensions and of blocking a legitimate protest.

“This is scandalous,” spokeswoman Ani Diesselmann said. “The (original) route was approved by several legal institutions.”

Police said officers had been repeatedly attacked by the small group of demonstrators, making it necessary for them to use force and pepper spray.

Protests against the “troika” of international lenders that has bailed out struggling euro zone states — the International Monetary Fund, the European Central Bank (ECB) and the European Union – were planned in several countries on Saturday.

Reuters witnesses said several thousand Spaniards gathered at the peak of Saturday’s protest in central Madrid, but this was fewer than similar events had attracted in the recent past.

One thousand or fewer took to the streets in Lisbon, while only a few dozen rallied in austerity-weary Athens, where attendance at protests has dwindled in the absence of much noticeable impact on policy.

A march in the southern French city of Toulouse attracted 3,000 people, according to police.

Former leftist presidential candidate Jean-Pierre Melenchon told French television the protests across Europe proved people had a “a European consciousness, a political consciousness.”

Europe’s Blockupy movement was formed after the Occupy Wall Street movement in 2011. They blame the budget cuts and labor market reforms supported by the ECB, the IMF and European financial and political leaders for driving the continent into a recession that has left more than a quarter of Greeks and Spaniards out of work and millions of Europe’s poor worse off.

“This is a good opportunity (to protest). Youth unemployment is so important right now,” said Antonia Proka, 25, a Greek who now lives in the Netherlands.

“I have lots of German friends who don’t find jobs so the problems are the same, we are on the same side,” she said.

While more than half of Spaniards and Greeks under the age of 25 are unemployed, only 8 percent of Germans and Austrians from the same age group are out of work.

Governments struggling with large debt burdens have cut spending and raised taxes, deepening recession across the euro zone, while many families are deep in debt or have lost their homes after property bubbles burst.

Germany’s own economy has been fairly resilient to the crisis and many in Europe’s struggling southern states blame Chancellor Angela Merkel for enforcing the painful policies in exchange for EU funds which largely come from Germany.

As well as the ECB, on Friday the Blockupy demonstrators targeted several large commercial banks, stores and Frankfurt airport.

© 2013 Thomson/Reuters. All rights reserved.

German Watchdogs Warn US on Go-it-Alone Bank Rules.

Germany‘s financial watchdogs warned that plans by the United States to introduce its own rules relating to foreign banks could undermine a global consensus to improve security in the wake of the financial crisis.

Market regulator Bafin said it was in talks with U.S. regulators about their plan to tighten oversight of foreign banks by asking them to hold more capital against the risk of a financial market downturn.

The move by the United States would be “a step in the wrong direction,” Bafin President Elke Koenig told the regulator’s annual news conference in Bonn.

International regulators agreed to introduce stricter bank safety rules by the end of 2018 that would insist banks build up capital and liquidity in order to be able to absorb potential losses in a crisis.

But countries have found it difficult to agree on introducing precisely the same rules, leading to concerns that new regulation will be fragmented and thus less effective.

Bundesbank Vice President Sabine Lautenschlaeger said on Tuesday unilateral action by U.S. regulators would make managing big banks more difficult and also make it harder to wind down globally active banks that run into trouble.

“National special rules don’t fit in a world of internationally active banks,” she told a separate conference organised by the Bundesbank.

European bankers have been lobbying the Federal Reserve, and Fed board member Daniel Tarullo in particular, to try to beat back proposed new rules that would force foreign banks to lump all their U.S. subsidiaries under a single holding company.

The Fed said when it proposed the new rules in December that the goal was to crack down on risks to U.S. markets posed by big banks that do business globally.

Speaking at a separate banking conference in Frankfurt on Tuesday, Anshu Jain, co-chief executive of Germany’s biggest lender Deutsche Bank, said, in relation to the U.S. proposals: “My biggest worry is a Balkanization of regulation.”

His words were echoed by Commerzbank Chief Executive Martin Blessing, who told the Bundesbank conference that he was seeing an increasing tendency toward regulatory fragmentation that particularly affected cross-border banks.


The Bundesbank’s Lautenschlaeger also warned against rewording global agreements on how banks extend their debt.

UK and US policymakers have said the 3 percent leverage ratio being brought in under new banking rules called Basel III is too weak to rein in overly large and risky balance sheets. A 3 percent ratio means a bank’s leverage should be no more than 33 times assets.

But focusing on the ratio is a mistake since it involves vastly different accounting rules in different countries and is of limited help to regulators seeking to compare banks, Lautenschlaeger said, adding: “An apparently simple rule is being glorified as a panacea for banking supervision problems.”

Separately, the German regulators said that country’s banks had made progress in raising their own capital levels.

Bafin calculated that major lenders in Europe’s largest economy still needed an extra 14 billion euros ($18.1 billion) in capital to fulfil stricter bank safety rules.

But thanks to capital increases and the sale of risky assets, German lenders have reduced their capital shortfall from 32 billion euros and now have regulatory core capital of between 10 percent and 18 percent of risk-weighted assets.

Banks need to have a core tier one capital ratio of 7 percent by 2019. The Basel III rules are being phased in over six years from January 2013.

Lautenschlaeger said she backed the establishment of a European bank resolution authority to wind down wayward banks but said the move would require a change in the EU Treaty.

“It does not make long-term sense to supervise banks at a European level but wind them down under national rules,” she said.

© 2013 Thomson/Reuters. All rights reserved.
Source: MoneyNews.

Gold Futures Post Longest Slump Since February on ETF Decline.

Gold futures fell, capping the longest slump in almost three months, as assets in exchange-traded products backed by the metal extended a slump to the lowest since July 2011.

ETP holdings have tumbled 15 percent this year to 2,225.9 metric tons, after climbing every year since the first product was listed in 2003, data compiled by Bloomberg show. Assets in the SPDR Gold Trust, the biggest product, will probably drop by an additional 2 million to 4 million ounces after slumping 9.7 million ounces since mid-December, Deutsche Bank said today.

ETF selling continues to weigh on prices,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “The overall trend remains bearish.”

Gold futures for June delivery fell 0.7 percent to settle at $1,424.50 an ounce at 1:44 p.m. on the Comex in New York. The price dropped for the fourth straight session, the longest slump since Feb. 20.

The commodity has dropped 15 percent this year, entering a bear market last month as some investors lost faith in the metal as a store of value. The decline spurred demand for bars, coins and jewelry, and futures have climbed 7.8 percent from a 26-month low of $1,321.50 on April 16.

Physical Buyers

“Physical buyers backed off when prices neared $1,500, and we expect some of them to come back to the market after the recent price decline,” said Huang Fulong, an analyst at CITICS Futures Co., a unit of China’s largest listed brokerage. “Any rally will be capped if ETF selling continues.”

Silver futures for July delivery fell 1.3 percent to $23.379 an ounce on the Comex, the biggest decline for a most-active contract since May 1.

On the New York Mercantile Exchange, palladium futures for June delivery advanced 1.2 percent to $727.15 an ounce. Earlier, the price reached $733.80, the highest since April 11. Trading was more than double the average in the past 100 days, according to Bloomberg data.

Platinum futures for July delivery jumped 1.2 percent to $1,501.90 an ounce.

The platinum market last year swung to the biggest deficit since 2002 as supplies fell to a 12-year low because of strikes and work stoppages in South Africa, the world’s biggest producer, according to Johnson Matthey Plc. The palladium shortfall was the largest since 2000, said the London-based metal refiner and producer of pollution-control devices for vehicles.

Anglo American Platinum Ltd., the top platinum producer, said last week it will idle three shafts in South Africa’s Rustenburg region with production capacity to be cut by as much as 350,000 ounces.

Lonmin Plc, the third-largest producer, said operations at its Marikana mine in South Africa were halted after workers refused to go underground.

© Copyright 2013 Bloomberg News. All rights reserved.

Netherlands nationalizes SNS Reaal at cost of $5 billion.


  • Dutch Finance Minister Jeroen Dijsselbloem speaks at a news conference in The Hague February 1, 2013. REUTERS/Bart MaatView PhotoDutch Finance Minister Jeroen Dijsselbloem …
  • Dutch Finance Minister Jeroen Dijsselbloem arrives at a news conference in The Hague February 1, 2013. REUTERS/Bart MaatView PhotoDutch Finance Minister Jeroen Dijsselbloem …

THE HAGUE/AMSTERDAM (Reuters) – The Netherlands nationalized bank and insurance group SNS Reaal at a cost of 3.7 billion euros ($5 billion) on Friday to shore up confidence in the financial sector after a private investor-led rescue collapsed.

Another state rescue of a financial group will lead to a worsening in the Dutch budget deficit this year – which is already forecast to exceed European Union targets – and is likely to prompt a public outcry given the billions of euros of budget cuts and austerity measures in recent years.

It is also a sign of how many European banks, five years on from the height of the global financial crisis, are struggling to turn a corner amid weak economies and tougher regulations. French bank Credit Agricole announced over $5 billion of charges on Friday, a day after Deutsche Bank also unveiled big writedowns.

The Dutch government paid out nearly 40 billion euros to rescue the domestic financial sector in 2008 when it provided capital injections for ING , Aegon and SNS Reaal, as well as nationalizing ABN AMRO .

SNS Reaal, the fourth-biggest financial institution in the Netherlands with about 134 billion euros in assets last year, was hit by losses at its property unit and has been trying for months to sell assets and secure additional funding.

The emergency bailout was necessary after SNS Reaal failed to meet a January 31 deadline to come up with a rescue, Finance Minister Jeroen Dijsselbloem told a press conference.

Its collapse “would have unacceptably large and undesirable consequences for financial stability, the Dutch economy and the Dutch tax payer,” Dijsselbloem wrote in a letter to parliament.

“I have studied all the alternative solutions in detail. But last night I found there was no acceptable solution. Therefore we have to nationalize,” he added in a statement.

SNS Reaal will receive a capital injection of 2.2 billion euros, 1.1 billion euros in loans, and 5 billion euros in state guarantees. Dutch banks will contribute an additional, one-off charge of 1 billion euros to the rescue in 2014.

“I can understand the reluctance that many will feel again because a large amount of public money is required. Therefore I want the private sector to contribute as much as possible to help pay for the rescue of SNS Reaal,” Dijsselbloem said.

SNS Reaal, which received 750 million euros of state aid in 2008, said its top executives – chairman Rob Zwartendijk, chief executive Ronald Latenstein and finance chief Ference Lamp – had resigned, as they still wanted to find a private sector solution.

SNS Reaal’s property finance exposure, including commercial real estate loans to small and medium-sized companies, stood at 9.8 billion euros at the end of September, of which 2.3 billion euros were non-performing loans.

It has booked more than 1.3 billion euros of net losses on its property loans since 2009.

Dutch media reported on Thursday that a consortium led by private equity firm CVC Capital Partners was in talks to pump up to 1.8 billion euros into SNS Reaal, but a source familiar with the matter said talks with private investors had not worked out.

(Writing by Sara Webb; Editing by Hans-Juergen Peters and Mark Potter)


By Thomas Escritt and Anthony Deutsch | Reuters

US jobless aid applications fall to 5-year low.

  • In this Thursday, Jan. 10, 2013, photo, Target human resources executives Will Castro, left, and Rachel Ferguson, middle, screen hundreds of prospective candidates awaiting their turn to apply for job openings at a Target job fair in Los Angeles. The number of Americans seeking unemployment aid fell to a five-year low last week, a hopeful sign the job market is healing. But much of the decline reflects seasonal volatility in the data. (AP Photo/Damian Dovarganes)

    View Photo

    Associated Press/Damian Dovarganes – In this Thursday, Jan. 10, 2013, photo, Target human resources executives Will Castro, left, and Rachel Ferguson, middle, screen hundreds of prospective candidates awaiting …more 

WASHINGTON (AP) — The number of Americans seeking unemployment aid plummeted to a five-year low last week, a hopeful sign the job market may be improving. But much of the decline reflects seasonal volatility in the data.

Weekly unemployment benefit applications fell 37,000 to a seasonally adjusted 335,000, the Labor Department said Thursday. That’s the lowest level since January 2008, just after the recession began.

The four-week average, a less volatile measure, fell to 359,250.

The applications data can be uneven in January. Job cuts typically spike in the second week of the month as retailers, restaurants and other companies lay off temporary workers hired for the winter holidays.

The department seasonally adjusts the numbers to account for such trends, but the data can still be choppy.

Last week, the layoffs weren’t as large as expected, a department spokesman said. That caused a steep drop in the seasonally adjusted data.

The broader trend will become clearer in the coming weeks. Applications were declining slightly at the end of last year, pushing the four-week average to a four-year low in the last week of December.

The applications figures “suggest the labor market is getting better, the issue remains the extent of the improvement,” said Joseph LaVorgna, an economist at Deutsche Bank.

Applications are a proxy for layoffs. Overall, applications remain at a level that suggests employers are hiring at a slow but steady pace. Applications fluctuated between 360,000 and 390,000 for most of last year. At the same time, employers added an average of 153,000 jobs a month.

That’s just been enough to slowly push down the unemployment rate, which fell 0.7 percentage points last year to 7.8 percent.

Employers added 155,000 jobs last month, nearly matching the average for the year. December’s steady job gain suggests employers didn’t cut back on hiring in the midst of the debate over the tax and spending changes known as the fiscal cliff. Many economists feared that the prospect of higher taxes and steep cuts in federal spending would cause a slowdown in job gains.

That’s a good sign, since more budget showdowns are expected. Congress must vote to raise the government’s $16.4 trillion borrowing limit by sometime between mid-February and early March. If not, the government risks defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.

More than 5.8 million people received unemployment aid in the week ended Dec. 29, the latest data available. That’s about 465,000 more than the previous week. The figure includes about 2 million people who receive extended benefits paid for by the federal government. The rest receive aid under state unemployment programs, which usually last 26 weeks.

The overall economy grew at an annual rate of 3.1 percent in the July-September quarter. But economists believe activity slowed considerably in the October-December quarter to a rate below 2 percent or less, in part because companies cut back on restocking.


By CHRISTOPHER S. RUGABER | Associated Press

ECB to hold fire as euro zone economy shows glimmers of hope.

  • An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach

    Enlarge PhotoReuters/Reuters – An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach

FRANKFURT (Reuters) – The European Central Bank is expected to keep interest rates at a record low of 0.75 percent on Thursday, refraining from a cut as the euro zone economy shows some signs of stabilising and inflation still tops its target.

The 17-country euro zone is in recession, but recent data points to some stabilisation, and ECB President Mario Draghi could strike a slightly more positive tone in the news conference that follows the rate decision.

“Rates are definitely on hold. Nothing has been spectacular enough in recent data to force the ECB to any action,” Deutsche Bank economist Gilles Moec said.

“There is a recession, but no further deterioration. Lending is weak, but also not deteriorating further, so the ECB is not compelled to act.”

The 23-man Governing Council will find some comfort from improving business morale as well as a survey of purchasing managers, which gave tentative signs that the worst of the downturn may have passed.

“Since the December meeting key figures have generally surprised on the upside,” Nordea analyst Anders Svendsen said in a note to investors.

While the ECB had, in Draghi’s words, “a wide discussion” on reducing rates last month, the grounds for such a move have not grown and Executive Board members have argued against a cut.

Yves Mersch said last month he did not see the logic of a debate about the ECB cutting its main rate and Peter Praet said there was little room to cut.

Another cut of the refinancing rate would raise the question of whether the ECB would also lower its deposit rate – currently at zero – by the same amount, which would push it into negative territory, essentially charging a fee, for the first time.

Even though Draghi has said the bank was “operationally ready” for such a step, it has grown increasingly wary of the idea over the past couple of months, a source with knowledge of the ECB’s thinking said.

Negative deposit rates could deal a hefty blow to money market funds, which have already seen cash outflows since the ECB cut the deposit rate to zero in July. The rate is a peg for short-dated money market rates and at zero it is already almost impossible for funds to generate a return for their investors.

Executive Board member Joerg Asmussen said last month he would be “very reluctant” about the ECB cutting the deposit rate any further, adding that “our (monetary) policy is very accommodative”.


ECB staff projections published last month saw inflation at about 1.4 percent in 2014, which would usually justify another interest rate cut.

The central bank also sees inflation falling below 2 percent this year with underlying price pressures remaining moderate.

But inflation has eased more slowly than the ECB initially expected and as long as it misses the target – it has been above 2 percent for more than 2 years – a cut could be difficult to justify.

Furthermore, in the euro zone’s largest economy, Germany, prices rose faster in December than in the previous month.

In addition to gauging whether the ECB is entertaining another cut or not, Draghi will be pressed on what other options the ECB has, especially to improve lacklustre bank lending.

ECB data showed last week that bank lending to the private sector fell at an annual rate of 0.8 percent in November.

At his December news conference, Draghi attributed the drop mainly to demand factors, but added that in a number of countries, credit supply is restricted.

A move by global regulators to give banks more time and flexibility to build up cash reserves is expected to do little to support a recovery in Europe, where recession-hit firms and households have scant appetite for more debt.

“One thing the ECB needs to engineer is recovery in lending,” Rabobank economist Elwin de Groot said.

(Reporting by Sakari Suoninen. Editing by Jeremy Gaunt.)


By Sakari Suoninen and Eva Kuehnen | Reuters

Italy Won’t Let Vatican Use Credit Cards.

atm machine
A source close to the Bank of Italy said the central bank in December denied a permit for Deutsche Bank Italy, the Vatican’s previous provider of electronic payment services, because the Holy See was seen as lacking anti-money laundering controls and oversight. (hashashin / Alberto)

Italy has blocked the use of debit and credit cards in the Vatican because of concerns over lack of transparency, in a major obstacle to one of the tiny city state’s biggest sources of income, financial sources said on Thursday.

A source close to the Bank of Italy said the central bank in December denied a permit for Deutsche Bank Italy, the Vatican’s previous provider of electronic payment services, because the Holy See was seen as lacking anti-money laundering controls and oversight.

“The Bank of Italy could not give the authorisation because the Vatican, apart from not respecting money laundering regulation, did not have the legal prerequisites. That is, it lacked banking and financial legislation and proper supervision,” the source said.

Deutsche Bank’s Italian operation needs approval from the Bank of Italy to provide the credit card service under Italian banking regulations.

The Vatican has struggled to shake off a reputation for a lack of financial transparency that dates back to 1982, when Roberto Calvi, an Italian known as “God’s banker” because of his links to the Vatican, was found hanged under London’s Blackfriars Bridge.

In 2012 report by Moneyval, a Council of Europe-backed committee, found serious failings in the Vatican bank, or Institute for Works of Religion, and urged it to strengthen measures to prevent money laundering and increase transparency.

“The Bank of Italy did not approve Deutsche Bank’s request for a licence because Italy does not see the Vatican as a fully compliant country under money-laundering norms,” another source close to the matter told Reuters.

A Vatican statement said only that its agreement with a bank that previously supported point-of-sale payments had expired. It said talks were under way with other service providers and the interruption to electronic payments was expected to be “of brief duration”.

No further comment was immediately available from the Vatican.

Deutsche Bank and the Bank of Italy also did not respond to requests for a statement on the matter.

The sale of postage stamps, memorabilia and admission tickets to the Vatican Museums, home to art treasures including Michelangelo’s Sistine Chapel, constitutes the Holy See’s main source of income apart from donations and investments.

In 2011, 5 million museum visitors brought in 91.3 million euros according to the city state’s annual financial report, in which it posted its worst budget deficit in more than a decade. The report did not state what percentage income came through card payments.

A notice posted on the Vatican Museums website said it was not possible to take electronic payments within the Vatican from January 1 “for reasons beyond the control of the Directorate of the Museums”. However, the site’s online ticket and souvenir payment system appeared to be unaffected.


U.S. economy to row against austerity tide in 2013.

WASHINGTON (Reuters) – Washington has steered clear of severe austerity measures for now, reducing the risk of recession, but a clutch of U.S. tax hikes will nevertheless be a drag on economic growth this year.

The U.S. Congress approved a deal late on Tuesday to scale back some $600 billion in scheduled tax hikes and government spending cuts known as the “fiscal cliff.”

Analysts said the package at least marked a temporary reprieve for the economy, and investors charged into U.S. stocks, pushing the Standard & Poor’s 500 up 2.5 percent on Wednesday.

However, the legislation, which is expected to be signed into law soon by President Barack Obama, will raise taxes on most Americans through a hike in the payroll tax used to fund Social Security pensions for the elderly.

Economists say the U.S. economy would likely grow much more quickly if the government was not raising taxes.

The payroll tax hike alone – which comes from the expiration of stimulus measures enacted to fight the 2007-09 recession – could push the average household tax bill up by about $700 this year, according to estimates from the Tax Policy Center, a Washington think tank.

That will likely reduce consumer spending and subtract about three quarters of a percentage point from economic growth, said Joseph LaVorgna, an economist at Deutsche Bank in New York.

The package will also raise income tax rates for households making over $450,000 a year, although rates will remain at 2012 levels for everyone else.

The other modest tax hikes, including a tax on wealthy households to help pay for Obama’s 2010 healthcare reform law, could shave another quarter of a point from growth.

“We are still getting some fiscal drag this year,” LaVorgna said.

Even so, the tenor of the deal was widely anticipated by economists in financial centers like Wall Street, and appears to support forecasts for economic growth of around 2 percent this year.

Barclays Capital said it was holding its growth forecast for this year at 2.1 percent.

A Reuters poll of analysts in December produced a median forecast for 1.9 percent U.S. economic growth in 2013.

“There seems to be a collective sigh of relief,” strategists at Brown Brothers Harriman wrote in a note to clients. “The full force of the U.S. fiscal cliff – (which) could have dragged the world’s largesteconomy into a recession – has been averted.”

The Congressional Budget Office had estimated that completely running over the fiscal cliff would have caused the economy to contract 0.5 percent this year. The full brunt of the cliff would have hit the average U.S. household with about an additional $3,500 in taxes this year, according to the Tax Policy Center.

Still, U.S. lawmakers only agreed to delay scheduled cuts on government spending on the military, education and other areas for another two months.

Many economists think ongoing talks in Congress will eventually lead these spending cuts to be put off until next year, presumably once lawmakers reach a deal to reduce spending over the longer term while granting the government authority to increase the national debt.

Then again, they might not reach a deal, and the planned spending cuts would then cut deeply into economic growth in the second half of the year.

“While we retain our 2013 GDP forecast, we also retain the view that fiscal policy presents downside risks to growth,” analysts at Barclays said in a research note.

Some economists noted that tax policy now looks more stable for the majority of Americans, removing some of the uncertainty that may have held back spending by consumers and business in recent months.

At the same time, with an axe still hanging above billions of dollars in government spending, many businesses are likely to remain cautious.

Analysts say financial markets are likely to remain on tenterhooks until Congress raises the nation’s $16.4 trillion debt ceiling, which the U.S. Treasury confirmed had been reached on Monday.

The government likely will need to raise the debt ceiling by February or March to remove the risk albeit remote, of the country defaulting on its debt. Such an extreme scenario would likely make it more expensive for governments and companies alike to borrow money, hurting the economy.

“We have some more certainty, but there are still quite a few questions left to be resolved,” said Dana Saporta, an economist at Credit Suisse.

(Additional reporting by Jonathan Spicer in New York; Editing by Leslie Adler)


By Jason Lange | Reuters

Analysis: Economy would dodge bullet for now under fiscal deal.

WASHINGTON (Reuters) – A deal worked out by Senate leaders to avoid the “fiscal cliff” was far from any “grand bargain” of deficit reduction measures.

But if approved by the House of Representatives, it could help the country steer clear of recession, although enough austerity would remain in place to likely keep the economy growing at a lackluster pace.

The Senate approved a last-minute deal early Tuesday morning to scale back $600 billion in scheduled tax hikes and government spending cuts that economists widely agree would tip the economy into recession.

The deal would hike taxes permanently for household incomes over $450,000 a year, but keep existing lower rates in force for everyone else.

It would make permanent the alternative minimum tax “patch” that was set to expire, protecting middle-income Americans from being taxed as if they were rich.

Scheduled cuts in defense and non-defense spending were simply postponed for two months.

Economists said that if the emerging package were to become law, it would represent at least a temporary reprieve for the economy. “This keeps us out of recession for now,” said Menzie Chinn, an economist at the University of Wisconsin-Madison.

The contours of the deal suggest that roughly one-third of the scheduled fiscal tightening could still take place, said Brett Ryan, an economist at Deutsche Bank in New York.

That is in line with what many financial firms on Wall Street and around the world have been expecting, suggesting forecasts for economic growth of around 1.9 percent for 2013 would likely hold.

At midnight Monday, low tax rates enacted under then-President George W. Bush in 2001 and 2003 expired. If the House agrees with the Senate – and there remained considerable doubt on that score – the new rates would be extended retroactively.

Otherwise, together with other planned tax hikes, the average household would pay an estimated $3,500 more in taxes, according to the Tax Policy Center, a Washington think tank. Budget experts expect the economy would take a hit as families cut back on spending.

Provisions in the Senate bill would avoid scheduled cuts to jobless benefits and to payments to doctors under a federal health insurance program.


Like the consensus of economists from Wall Street and beyond, Deutsche Bank has been forecasting enough fiscal drag to hold back growth to roughly 1.9 percent in 2013. Ryan said the details of the deal appeared to support that forecast.

That would be much better than the 0.5 percent contraction predicted by the Congressional Budget Office if the entirety of the fiscal cliff took hold, but it would fall short of what is needed to quickly heal the labor market, which is still smarting from the 2007-09 recession.

“We continue to anticipate a significant economic slowdown at the start of the year in response to fiscal drag and a contentious fiscal debate,” economists at Nomura said in a research note.

In particular, analysts say financial markets are likely to remain on tenterhooks until Congress raises the nation’s $16.4 trillion debt ceiling, which the U.S. Treasury confirmed had been reached on Monday.

While the Bush tax cuts would be made permanent for many Americans under the budget deal, a two-year-long payroll tax holiday enacted to give the economy an extra boost would expire. The Tax Policy Center estimates this could push the average household tax bill up by about $700 next year.

The suspension of spending cuts sets up a smaller fiscal cliff later in the year which still could be enough to send the economy into recession, said Chinn.

He warned that ongoing worries about the possibility of recession could keep businesses from investing, which would hinder economic growth.

“You retain the uncertainty,” Chinn said.

(Reporting by Jason Lange; Editing by Eric Walsh)

(This story was refiled to remove extraneous punctuation in the first paragraph)


By Jason Lange | Reuters

Factbox: Verdict due in Italian banking trial.

MILAN (Reuters) – An Italian court is expected to rule on Wednesday on whether four foreign banks missold derivatives to the city of Milan in a case seen as a litmus test for hundreds of local governments facing big losses from complex financial contracts.

Following are details about the case, the first criminal trial of this kind in Italy.

Deutsche Bank , JP Morgan , UBS and Depfa Bank have been charged with aggravated fraud and accused of making up to 100 million euros ($132 million) in illicit profits from the sale of an interest-rate swap on a bond issued by the city of Milan in 2005. The banks, which also face possible fines of 1.5 million euros each and an order to pay back 72 million euros, deny any wrongdoing.

* Thirteen people – 11 bank employees and two former Milan city employees, are on trial. Prosecutor Alfredo Robledo has requested jail terms of up to 12 months for nine bankers, and the acquittal of four people.

* The case stems from an interest-rate swap contract on a 1.68 billion euro, 30-year bond the city of Milan issued in 2005. The derivatives contract swapped a fixed rate of interest on the bond for a variable rate and had a “collar” agreement which protected the city of Milan if rates rose but also meant it would lose money if they fell below a certain limit.

* Earlier this year, Milan and the four banks reached a deal under which the interest rate swapcontract was canceled and the city council pocketed 455 million euros, agreeing in turn to drop a civil suit. That has no bearing on the criminal trial.

(Reporting By Silvia Aloisi; Editing by Erica Billingham)



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