Daily Market Commentary for February 7, 2012
The Labor Department reported Tuesday that the number of job openings rose to 3.38 million in December from 3.12 million in November.
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Spain’s three largest banks said Tuesday that they would set aside EUR7.5 billion in additional provisions for property risk this year and another EUR3.9 billion in an extra buffer to comply with a new government plan to clean up the country’s financial sector. The government last week approved regulations that force banks to increase the coverage of losses on their real estate holdings by a total of EUR50 billion over the course of this year. Spain’s largest bank by market value, said it will increase its provisions by EUR2.3 billion this year to meet the requirements. The lender was found to need EUR6.1 billion in additional provisions, but already front-loaded a EUR1.8 billion property-related charge on its 2011 results. Lender additionally said it will use EUR2 billion in existing excess capital to fill a so-called capital 'add-on buffer' against potential future losses on property assets. Santander is earmarking EUR900 million in capital gains from the sale of Banco Santander Colombia, to secure the EUR2.3 billion. The rest it would obtain from capital gains from other possible deals and operating profit this year. The country’s second-largest bank Banco Bilbao Vizcaya Argentaria SA said it would set aside a total of EUR2.8 billion in additional provisions in 2012. The company’s executives said they would try to set aside the provisions in 'one shot' in the first half of this year, and would not need to raise new capital in 2012 to meet European Banking Authority requirements. BBVA additionally said it will put EUR1.2 billion into the capital add-on buffer, likely in Q4 of this year. “We consider that these haircuts on the portfolio are extremely tough as you have seen, and extremely painful,” Chief Financial Officer Manuel Gonzalez Cid said. Now “everybody will have recognized this problem on their balance sheet,” he added. BBVA said the added provisions would result in a EUR1.36 billion hit to 2012 earnings. CaixaBank SA, the No. 3 lender by market value, said it would set aside EUR2.44 billion for provisions and EUR745 million as a capital add-on buffer. Profit and buffers will suffice to cover the new provisions, the Barcelona bank said in a regulatory filing. CaixaBank’s parent company, La Caixa, said that it would set aside an additional EUR730 million to raise the provisioning levels on properties held by its holding company ServiHabitat.
The Reserve Bank of Australia surprised traders by leaving its key policy rate unchanged at 4.25%, defying forecasts for another cut.
Exposing deep divisions between Democrats and Republicans about how to fund the soon-to-expire break stirred opposition to a pay freeze for federal workers tripped up talks about extending a payroll-tax cut Tuesday. Democrats - including Senator Ben Cardin of Maryland and Rep. Chris Van Hollen of Maryland, whose state is home to large numbers of federal workers, objected to freezing U.S. government employees’ wages in order to pay for a 10-month extension of the two-percentage-point cut. Federal workers should not be “singled out as a piggy bank,” Van Hollen told members of a 20-person conference committee charged with finding a way to extend the tax cut past its scheduled February 29 expiration date. If Congress does not act by February 29, the payroll tax will revert to 6.2% from 4.2%. Additionally, jobless benefits for workers would also be scaled back to 26 weeks from 99 weeks. Doctors reimbursed by Medicare will receive lower payments. Republicans on the committee pointed to a recent Congressional Budget Office study showing that federal workers earn about 16% more than their private-sector counterparts, saying that government employees had to pitch in to pay for the tax-cut extension and other programs. “Federal employees on average make a whole lot more than people in the private sector,” said Sen. Jon Kyl, an Arizona Republican. “I think it’s fair to ask federal employees to make a sacrifice as well.” Van Hollen said federal employees recognize they have to be 'part of the solution' but there are discrepancies in studies about compensation. Senator Bob Casey (D., Pa.) floated the idea of a 1% surcharge on incomes of $1 million or above to pay for the tax cut however, Republicans quickly shot down that proposal. Rep. Dave Camp, a Michigan Republican on the panel who also chairs the tax-writing Ways and Means Committee said the legislation would cost between $150 billion to $160 billion. Both sides are eager to avoid adding to the U.S. deficit, projected to top $1 trillion for the fourth consecutive year in 2012 however; demand for U.S. government debt is quickly rising.
If you’ve been holding out with an underwater mortgage, banks are offering an incentive: a cash bonus of up to $35,000 to do a deal. The bonuses are being given out to borrowers who agree to a 'short sale' - selling the house for less than is owed on the existing mortgage. Banks have been unwilling to agree to short sales, because the losses they take on the mortgages can't be recovered. Changing economics of the mortgage market has made many banks, impatient. One out of every three homes facing foreclosure is a short sale, up from one in four a year ago. Though no one wants to lose their home or the money they’ve pumped into it, short sales offer a new lease on a borrower’s financial life.
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