Tag Archives: bond

How could JPMorgan settlement will cost bank closer to $9 billion?

Source: Ruters

Source: Ruters

According to Reuters, JPMorgan Chase & Co’s preliminary $13 billion mortgage settlement with the U.S. government could end up costing the bank closer to $9 billion after taxes, because the majority of the deal is expected to be tax deductible, two sources familiar with the matter said.

The deduction also means the government is getting less than it appears in this deal. Banks can often deduct legal settlements from their taxes, but cannot get tax benefits from penalties for violating laws.

JPMorgan and the U.S. government have been negotiating the tax treatment of the settlement. The outcome could have a dramatic impact on exactly what the deal ends up costing the bank, how it is perceived by the public and whether it becomes a model for resolving government investigations of mortgage deals at other banks.

JPMorgan is negotiating the settlement with a group of government agencies led by the Justice Department, and the deal is expected to include a $2 billion penalty, one source said.

But another $4 billion of the deal, which will go toward aid for struggling mortgage borrowers, is tax deductible, another person familiar with the negotiations said.

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Federal Reserve might slow bond buying

Federal Reserve might slow bond buying

WASHINGTON — The Federal Reserve sketched a brighter economic outlook Wednesday and signaled it’s moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates low.

Chairman Ben Bernanke said the Fed could start scaling back its $85 billion in monthly bond purchases later this year if the U.S. economy continues to improve. He said the reductions would occur in “measured steps” and that the purchases could end by the middle of next year. By then, Bernanke said, he thought unemployment would be about 7 percent.

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Weatherford Says Investors Can’t Rely on Prior Financials

As reported by BEN LEFEBVRE of the Wall Street Journal, Weatherford International Ltd. said Tuesday that accounting errors will mean that investors should no longer rely upon its previously issued financial statements, sending the oil-field-services company’s share price plummeting despite fourth-quarter revenue rising more than expected.

Shares were 11% lower at $15.87 in midday trading as the company said it hasn’t remediated its previously disclosed material weakness in internal controls over financial reporting for income taxes.

As a result, Weatherford expects roughly $225 million to $250 million of net adjustments to previously reported financial results for 2010 and earlier. Two-thirds of the adjustments will be applied to fiscal quarters prior to the end of 2008, the company said.

Houston-based Weatherford said it will file restated financial statements for 2009 and 2010 “as soon as practicable.” The refilings will include information pertaining to its finances in 2007 and 2008, the company said.

After reviewing its internal controls, Weatherford estimates its 2012 tax rate will be 35%. Its expects to pay $490 million to $520 million in taxes for 2011, higher than analysts had expected.

Despite Weatherford’s revenue reaching new highs amid a boom in North American oil-and-gas development, the company’s bottom line has lagged behind rivals because of charges and weakness in its international operations.

“Misstatements/restatements are, once again, a prominent distraction that serve to nullify the positive momentum the company had been building over the past several quarters and a very positive operational fourth quarter,” said Simmons & Co. analyst Bill Herbert.

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Japan Refiners Said to Stall on Iran Deals

As reported by Ramsey Al-Rikabi and Yuji Okada of Bloomberg, Refiners in Japan are holding off from signing oil-supply contracts from Iran, four people with knowledge of the talks said, while China International United Petroleum & Chemical Co. agreed to most terms of a 2012 deal with the Islamic republic, according to three other people.

At least three Japanese refiners that buy crude from the Persian Gulf nation haven’t renewed annual contracts with National Iranian Oil Co., pending direction from the government, according to the people, who declined to be identified because the information is confidential. The contracts are for more than 100,000 barrels a day of crude, about a third of Japan’s imports from Iran, according to data supplied by the people.

The talks underline the contrasting way in which Asian countries, among the largest importers of crude, are managing the need to secure supplies against a backdrop of tightened U.S. and European Union sanctions on OPEC’s second-biggest producer. The measures have strengthened the bargaining position of China, which buys about a fifth of Iran’s crude exports, the International Energy Agency said Feb. 10. Refiners in India are studying an Iranian offer to accept extra shipments on revised terms, three people familiar with the matter said today.

“Make no mistake, the party that’s getting hammered left, right and center at the moment is Iran,” said Praveen Kumar, an analyst at Facts Global Energy in Singapore. “They are sitting on about 400,000 barrels a day of excess crude, and it’s fair to say the Asian buyers have the upper hand at the moment.”

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In Latest Greek Bailout, Warning Signs for Europe

European leaders have approved their latest aid package for Greece, raising hopes that the worst phase of the sovereign debt crisis is over and a persistent source of stress on global markets has been removed.

But Greece’s 130 billion euro ($172 billion) bailout highlights the weaknesses in Europe’s response to the crisis, some analysts say. The worry is that these problems could flare up and undermine recovery efforts in countries like Italy, Spain, Ireland and Portugal.

“I don’t want to be a Cassandra, but the idea that it’s over is an illusion,” said Kenneth S. Rogoff, a professor of economics at Harvard University and co-author of “This Time Is Different: Eight Centuries of Financial Folly.”  “I am amazed by the short-term psychology in the market.”

Throughout the crisis, the European Union’s favored strategy has been to provide tightly controlled financial support to highly indebted countries, in the hope of buying them enough time to implement policies aimed at cutting budget deficits. While such moves can deepen recessions, the goal is to eventually lower debt levels and win back the confidence of the bond markets.

On the margins, investors are becoming more optimistic. The Continent’s stocks and government bonds have rallied sharply this year on the belief that Greece would avoid a disorderly exit from the euro.

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S&P 500 Rises as Earnings Outweigh Greece

As reported by Rita Nazareth of bloomberg, U.S. stocks rose, sending the Standard & Poor’s 500 Index to the highest level since 2008, as earnings from Home Depot Inc. to Macy’s Inc. (M) tempered concern that Greece’s debt crisis will persist even after a bailout.

Home Depot, the world’s largest home-improvement retailer, and Macy’s, the second-biggest U.S. department-store chain, added more than 1.7 percent as profit beat estimates. Alcoa Inc. (AA) and Schlumberger Ltd. (SLB) rose at least 1.9 percent to pace gains in commodity producers. Wal-Mart Stores Inc. (WMT), the biggest retailer, fell 3.9 percent as low prices hurt margins.

The S&P 500 added 0.4 percent to 1,366.51 at 10:41 a.m. New York time. The benchmark index is at the highest level on a closing basis since June 2008. The Dow Jones Industrial Average rose 39.28 points, or 0.3 percent, to 12,989.15.

“The Greek bailout keeps the wheels on the bus,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a phone interview. “The ride is a little smoother, but it doesn’t solve the longer-term issues,” he said. “In addition, the U.S. market got a bit extended. After the run-up we’ve had this year, a little pause wouldn’t surprise me.”

European finance ministers approved 130 billion euros ($173 billion) in aid for Greece by tapping into European Central Bank profits and coaxing investors into providing more debt relief to shield the region from a default. Greece’s debt may still balloon to 160 percent of gross domestic product in a worst-case scenario, analysis by the International Monetary Fund and European officials indicated.

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Greek Rescue Leaves Europe Default Risk Alive

Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years.

Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

Even with investors and central bankers chipping in to relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession, looming elections and social unrest. The upshot could be the removal of aid and renewed debate over the merits of fresh assistance before year-end as policy makers shift toward doing more to inoculate the rest of Europe.

“The bailout bandage is on, but it won’t take much to unravel,” said David Miller, partner at Cheviot Asset Management in London. “The euro zone has done its best to ensure that Greece will deliver on promises, but there is considerable scope for backtracking on deficit reduction.”

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