Big judgement: 9.30am tomorrow. The full Federal Court’s decision on CSR’s appeal against Justice Margaret Stone’s order declining to approve the demerging of the company’s sugar and renewable energy business. The Justice Stone decision was a very big deal because it harked back to the James Hardie case in the NSW Supreme Court almost a decade ago, which approved the departure of that company for overseas, leaving behind what turned out to be inadequate resources to cover asbestos-related diseases claims against Hardie. CSR has huge asbestos liabilities from its Wittenoom Mining (Blue Sky Mining) days and its building products division. A negative decision will be bad for CSR and have a dramatic impact on corporate deals, especially via schemes of arrangement.
It’s a date: Write May 19 in your calendar, diary, phone or whatever — that’s when the souvlaki is due to hit the spit when Greece has to repay or rollover 8.5 billion euros of 10-year bonds. Also write May 9 in as well: that’s when regional elections are held in Germany. Once those elections are out of the way the German parliament will be ‘free’ to debate and vote on any aid to Greece. It could be done next week, but the Merkel Government, knowing that polls show a big majority of Germans oppose helping the Greeks, doesn’t want to do anything before the state poll that would damage the Government’s chances. The election is the big one, in North Rhine-Westphalia, Germany’s largest state. Greek media reckon the country will ask for aid on May 15, just in time to settle markets looming at the May 19 rollover or redemption date.
Greek reality: Unemployment rose to 11.3% in January — the highest jobless level for six years. And it won’t be the last report of this kind we will hear. The IMF gave no joy in its latest forecast: not only will the economy continuing shrinking, but unemployment will rise to 12% by the end of this year and 13% in 2011. As the talks started in Athens overnight, the yields on Greek debt hit a new high for the second day in a row as markets fretted. In a sign markets are desperate for Athens to ask for assistance the yield on 10-year government bonds climbed 0.42% to 8.28%, or 4.73% above the yield on 10-year German bonds. Yields on Portugal’s 10-year government debt hit a new high of 4.78% overnight. Greece reckons it will take 10 days to reach agreement with the IMF, ECB and EC, that puts an agreement around the first weekend in May.
Growth slump: No Greek unemployment will rise. The economy will shrink anything from 1% (the Government forecast) to 5% (the gloomy markets). The IMF said overnight the economy will shrink by 2% this year and 1.1% next year. Inflation will fall to 1% or less, so there won’t be any growth in income, taxes, etc. In fact nominal economic growth will shrink noticeably. The rising unemployment will mean less spending, taxes and national income (but the Greeks will still have their ‘black money’ to survive on). In 2011 the same will happen, but the fall in nominal GDP could be greater. To achieve all the savings and produce a surplus before interest payments, Greece will have to cut spending, and cut wages, either directly or via deflation. The Government doesn’t seem to have any ambitions to real, lasting structural changes to the economy, itself or the country as a whole reform — just shove up taxes and hope for the best.
Squidettes to defend The Squid: While making a date for Greece in your calendars, also enter April 27 — that’s next Tuesday — because that’s when the chief Squid, Lloyd Bankfeinm, will be joined at the witness table in the US Senate’s special investigations committee by the mystery man of global finance. We’re talking about the Fabulous Fab, AKA Fabrice Tourre, the Goldman’s banker at the centre of Abacus 2007-AC1, the synthetic CDO security parcel that is at the heart of the fraud charges against Goldman Sachs (AKA the Vampire Squid). US media reports this morning said Fab would be joining his boss in testifying before the Senate committee that gets really serious about the things it investigates. They are well briefed and ask serious questions. It will be standing room only and then more on Tuesday night, our time. Fab has been on gardening leave for the past couple of days, away from his desk in London. He will be interviewed by committee investigators before appearing.
The rot starts for the Squid: The decision to appear next week seems to be part of a decision by The Squid to go on the attack. But the rot has started with the first known client to defect appearing. It’s Bayerische Landesbank, Germany’s second-biggest government-owned lender. It ended its relationship with Goldman Sachs after the firm was sued for fraud by the SEC last Friday. Reuters said a spokesman confirmed a report in the Handelsblatt newspaper, but declined to provide further details. The paper said Goldman Sachs had been advising the Munich-based bank (it’s controlled by the Bavarian Government) on its capital structure and the separation of risky assets. A day earlier, a senior member of the Bavarian wing of the Merkel Government (the CDU) had called for all business ties with Goldman Sachs to be ended. Watch the UK where the FSA, the financial regulator, has opened a probe and a similar call has been issued by a couple of high-profile pollies.
Jobless in Britain: And in the UK, unemployment rose unexpectedly in the three months to February to hit 2.5 million — the highest level in more than 15 years, according to The Times, which is owned by Rupert Murdoch and not predisposed to the UK Labour Government. The Financial Times reported the figures the same way. The number of people out of work increased by 43,000 between December and February, according to the Office for National Statistics. However, the number of people on jobless benefits dropped by 32,900 last month to 1.54 million, which was due to the number of people in new training schemes, helping young people stay off the dole.
There’s quite a few: By the ILO method, unemployment was 8%, up from 7.8%. The number of people employed fell 89,000 to 28.82 million in the three months to February, the lowest total since 2005. The number of people classed as economically inactive rose 110,000 to 8.16 million, the highest since records began in 1971. That represented an inactivity rate of 21.5% of the workforce, the highest since 2004 and a real sign of the damage being done to Britain by the crunch and recession. The IMF reckons Britain’s unemployment will rise to 8.3% by the end of this year, before easing to 7.9% in 2011.
More profitable that the Squid: That’s the US Fed which has just paid the Treasury a record $US47.4 billion for 2009. That’s the ‘profit’ or surplus the Fed generated from all those support programs for the US economy and financial system last year. The increase in income was primarily due to interest earnings on mortgage-backed securities issued by government supported mortgage finance agencies, the Fed said. It’s money left over after the 12 Fed regional banks transfer their profits to the Treasury after paying dividends to member banks and retaining some of their surpluses. The Fed said the payment to the Treasury was up 50%, or $US15.7 billion over 2008. The previous record was $US34.6 billion paid in 2007, and around $US20 billion in “normal years”. The money comes from interest charges and fees on its various assistance programs, many of which have now finished, so the 2010 amount will be smaller.
Mini-Madoff: The US Sec has found another big Ponzi scheme, not in the Bernie Madoff class, but at an estimated $US900 million, enough to draw attention. In a statement the Commission said it had charged a Miami Beach, Florida philanthropist named Nevin K. Shapiro with fraud. He was a major donor to the University of Miami’s sports program and, according to the complaint, sold investors securities that he claimed would fund his Capitol Investments firm’s grocery business and claimed annual returns as high as 26%. The SEC said that in reality Shapiro repurposed funds (great phrase that), making extravagant donations to charities and running a Ponzi scheme where he used funds from new investors to pay the principal and interest to earlier investors. The 41-year-old Shapiro surrendered to authorities Wednesday morning in New Jersey.
Doing a Bernie: Nev seems to have followed a similar route to Bernie, conning investors in and around New York (New Jersey) and around Palm Beach. According to the SEC, more than 60 investors, many of them in New Jersey, sent Shapiro more than $US880 million, and suffered losses of at least $US80 million. He apparently promised the 60 investors the absurdly high 26% annual returns. His grocery business was supposed to be buying low-cost groceries in certain regions and reselling them at higher prices in other more expensive areas. But in reality it had had problems around 2004 and stopped normal operations and operated as a Ponzi scheme until 2009, paying investors with funds from other investors. The SEC said Shapiro paid himself $US38 million to live well, a $US5 million Miami beach home, $US1 million boat and all those donations to the University of Miami Sports department for the football team. The SEC also closed another fraudulent investment scheme in New York State on Tuesday that that had involved $US120 million or so invested with a fake investment group and tipster.