Reuters News - Fed sent record $88.4 billion profit to Treasury last year

By Jonathan Spicer

Fri Mar 15, 2013 12:36pm EDT

(Reuters) - The Federal Reserve sent a record $88.4 billion in profits to the Treasury last year, audited results showed on Friday, a big payday for the government thanks to the central bank's massive bond purchases.

The income came mostly from $80.5 billion in interest on Treasury bonds and mortgage-backed securities, according to the annual financial statements audited by Deloitte. Total Fed bank assets stood at $2.9 trillion at the end of last year.

Preliminary results released in January showed profits of $88.9 billion in 2012, a year in which U.S. government bond prices hit record highs.

The central bank has in the last few years snapped up some $2.5 trillion in assets to help drag the U.S. economy from the 2007-2009 recession; unsatisfied with slow economic growth and high unemployment, it now buys $85 billion in bonds per month.

The Fed regularly transfers its profits, known as remittances, to the Treasury in what amounts to payments to U.S. taxpayers. Those profits could turn to losses in the years ahead, however, if the Fed sells assets as interest rates rise.

Central bank researchers warned in January that the Fed could miss payments to the Treasury for up to four years, and that the loss could spike as high as $125 billion in 2019, under a scenario in which securities were sold and rates were higher than expected.

While the Fed has never missed an annual payment, some policymakers fear portfolio losses in the years ahead could expose it to attacks from critics in Congress and could possibly harm its independence. The Fed could decide not to sell the assets and simply let them mature, allowing it to avoid realizing the losses.

On Friday, Fed officials said the 2012 financial statements told a positive story, and demonstrate that the central bank remains a responsible steward of taxpayer resources.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Sky News - Cyprus Bailout: Savings Tax Could Be Cut

Officials in Cyprus are reportedly trying to renegotiate a eurozone bailout deal in order to soften the impact of a levy on smaller savers.

Authorities had planned a 6.7% tax on deposits under 100,000 euros (£85,454), triggering queues at cash machines as people in Cyprus rushed to withdraw their money.

But the country's government is thought to be discussing cutting the tax rate to 3% while raising the rate for deposits over 100,000 euros from 9.9% to 12.5%.

In exchange for the levy, Cyprus will receive 10bn euros (£8.54bn) in aid to help recapitalise banks.

Cypriot President Nicos Anastasiades, who was elected just three weeks ago, said the island had to accept a painful compromise or face bankruptcy.

In a televised address, he said the bailout "will eventually stabilise the economy and lead it to recovery".

Monday is a national holiday in Cyprus and measures need to be approved before banks open again on Tuesday.

Depositors in the eurozone's weaker economies have been unnerved by the levy, with investors fearing it will set a precedent that could reignite market turmoil.

Their uncertainty could be reflected when European markets open later, with the euro having already seen sharp falls in Asia.

British government and military personnel in Cyprus will be protected from any levy on their bank deposits.

Foreign Secretary William Hague told Sky News that Britain had been "separated" from contributing towards the bailout, adding that 3,000 Britons in the country would not suffer in the proposed raid on bank savings.

The tax on deposits in Cyprus, which accounts for only 0.2% of the eurozone's economy, is expected to raise up to 6bn euros (£5bn).

Savers have queued to withdraw their money from cash machines across Cyprus

Those affected will include rich Russians with deposits in Cyprus and Europeans who have retired to the island, as well as Cypriots themselves.

The size of foreign deposits in Cyprus - estimated at 37% of the total - was one reason the eurozone agreed to the tax on savings.

It will apply to all deposits held in banks within Cyprus, including an estimated 2bn euros (£1.75bn) of British money, according to the European Central Bank.

It will not affect deposits held in the UK branches of Cypriot banks, such as Bank of Cyprus, whose UK subsidiary is regulated by the Financial Services Authority.

However, Laiki Bank UK said on its website: "Your eligible deposits with Laiki Bank UK are protected up to a total of 100,000 euro (£87,000) by the Cyprus Deposit Protection Scheme and are not protected by the UK Financial Services Compensation Scheme.

"Any deposits you hold above the 100,000 euro limit are not covered."

Cypriot banks lost 4.5bn euros (£3.8bn) - equal to a quarter of the island's gross domestic product - when eurozone leaders decided to write off Greek debt last year.

As part of its bailout deal, corporate tax will rise from 10% to 12.5%, while state assets will be sold off to help balance the public finances.

Cuts to government worker salaries and pensions have already been approved.

Bloomberg News - Knot Says ECB to Keep Easy Policy

By Corina Ruhe & Jurjen van de Pol - 2013-03-14T14:12:42Z

European Central Bank council member Klaas Knot said the euro’s exchange rate won’t affect the ECB’s economic forecasts and he expects the bank to maintain its accommodative monetary policy.

“The euro is, according to us, rather close to what the fundamentals would predict” and “surprisingly stable” in light of the unrest the region has been through, Knot, who heads the Dutch central bank, said today in Amsterdam. “So I see no special impact of the euro exchange rate on the predictions we made before.”

Knot’s comments echo those of ECB President Mario Draghi, who last week said that the euro is broadly in line with its long-term average. The ECB cut its forecasts on March 7 and now expects the 17-nation euro-area economy to contract 0.5 percent this year before growing 1 percent in 2014.

While ECB officials discussed cutting borrowing costs last week, the “prevailing consensus” was to leave the benchmark rate unchanged at a record low of 0.75 percent, Draghi said.

“Our monetary policy stance is very accommodative, has been accommodative for a long time and my expectation is that the sort of benign inflation environment for the coming months will allow us to maintain this accommodative stance,” Knot said at the presentation of the Dutch central bank’s annual report.

The ECB’s announcement of its Outright Monetary Transactions program has reduced bond-yield spreads in the region, “so that is also a marked improvement in the monetary transmission process,” Knot said.

Inflation Outlook

The ECB forecasts that inflation will slow to 1.3 percent next year, well below its 2 percent limit. Knot today dismissed fears of deflation risks in the euro area, saying the “inflation outlook is in line with our mandate.”

“There is for instance still sufficient price pressure in the production chain,” he said. “There is still the prospect of governments consolidating public finances also by VAT increases, leading to a sort of indirect inflation. We have absolutely no fear of deflation in the euro zone yet.”

The far-reaching measures taken by the ECB have increased the financial risks for the euro system, including for the Dutch central bank, Knot wrote in the annual report, noting the increase in the euro system’s balance sheet.

“At the same time, the money market is still rigid, market sentiment is still vulnerable, while the underlying tensions have not been solved and can easily increase,” Knot said.

Bond Purchases

The so-far-unused Outright Monetary Transaction program allows the ECB to buy bonds of member nations that request assistance and meet certain criteria.

“I think we have been crystal clear about the circumstances under which OMT can be activated. I don’t want to speculate on any specific case,” Knot said today. “It is clear if you communicate that certain circumstances are fulfilled, then the ECB should be ready for activation.”

The unconventional monetary measures the ECB has taken have worked out well, Knot wrote. “In general terms it can be concluded that inflation expectations have been anchored within theeuro zone, while the fragmentation of the financial markets have been reduced,” he said. “A destructive scenario of deflation has been evaded.”

A two-day Brussels summit of European leaders starting today will endorse plans for “structural” assessments of national budgets, according to a draft statement, suggesting countries such as France, Spain and Portugal will be granted extra time to bring down deficits.

Knot said southern European countries need to stick “as much as possible” to a deficit-reduction path. “Only when the economy becomes worse than mentioned in the predictions, at a certain moment you reach a point on which you say that, at this specific moment, the effects can be more damaging than the positive effects,” he said.

To contact the reporters on this story: Corina Ruhe in Amsterdam at cruhe@bloomberg.net; Jurjen van de Pol in Frankfurt at jvandepol@bloomberg.net

BBC News - Australia adds 71,500 jobs, the biggest jump since 2000

Australia added 71,500 jobs in February, a huge jump and the biggest rise in total employment in more than a decade.

The central bank had been easing monetary policy since late 2011, in an attempt to stoke growth

Full-time employment jumped by 17,800 and part-time employment was up by 53,700, said the Bureau of Statistics.

There was also a rise in the total workforce, which comprises those in work plus those looking for it. The unemployment rate remained at 5.4%.

Analysts said the data was a sign that economic conditions were improving.

"It's spectacular employment growth," said Brian Redican, a senior economist at Macquarie. Most analysts expected only about 9,000 jobs to be added in February.

"With that kind of employment growth, obviously policymakers would be feeling pretty comfortable with the current policy settings," added Redican.

Easing cycle

Central Bank Governor Glenn Stevens had been easing monetary policy since late 2011, in an attempt to stoke growth.

Many analysts have predicted that the resources mining boom, which has helped Australia through the global economic slowdown, could be coming to an end.

However, since December Mr Stevens has held interest rates at 3%.

Analysts said it seems that the previous rate cuts are beginning to have a positive effect on the economy.

Housing market conditions have also shown signs of improvement.

However, the strength of the Australian dollar remains a source of concern, as it hurts manufacturing and other sectors.

The Australian dollar jumped by more than half a cent to $1.036, as traders became less hopeful that another interest rate cut was on the way.

BBC News - EU backs rules for consumer disputes to curb costs

The EU has adopted new standard rules to settle disputes between consumers and traders out of court.

The measure is aimed at improving the EU single market

The 27 member states will have to provideAlternative Dispute Resolution (ADR) bodies for all business sectors, including impartial dispute mediators.

Euro MPs approved the ADR regulation on Tuesday, as well as a regulation for disputes over online purchases.

The rules say any dispute should be resolved within 90 days. They are to take effect in two years' time.

Some EU countries already have such mechanisms for aggrieved shoppers, but the idea is to standardise the complaints procedure in Europe, as people are increasingly making cross-border purchases of goods and services.

MEPs backed the regulations overwhelmingly. They included provisions to make the arbitration either free of charge or costing only a minimal fee. The idea is to avoid costly court cases.

The rules will not replace existing customer complaint systems run by companies.

Reuters News - Wall Street looks for Fed to continue asset purchase through 2013: Reuters poll

A Wall Street sign is seen in front of the New York Stock Exchange in New York's financial district, March 4, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK | Fri Mar 8, 2013 4:32pm EST

(Reuters) - Wall Street expects the Federal Reserve to continue its program of debt purchases through 2013 in an effort to prop up the economy despite evidence of an improved job market, according to a Reuters poll conducted on Friday.

All of 15 primary dealers - the large financial institutions that deal directly with the Fed - said they expect the central bank to continue buying debt until at least late this year, and nine of the 15 expect the buying to continue into 2014.

The poll was conducted on Friday after government data showing U.S. employers added a larger-than-expected 236,000 workers to their payrolls in February and the jobless rate fell to a four-year low of 7.7 percent.

The median of forecasts from the 15 primary dealers was for the Fed to buy a total of $1 trillion of assets under its latest stimulus program. Currently the central bank is buying about $85 billion of mortgage-backed securities and Treasuries per month under the open-ended program.

Forecasts for the size of the program ranged from $750 billion to $2.3 trillion.

Of the 15 primary dealers who answered the poll, 13 expect U.S. unemployment to dip to the Fed's target level of 6.5 percent in 2015, while two expect it to reach that level in the fourth quarter of 2014.

The median of forecasts from the 15 primary dealers was for the automatic government spending cuts that began on March 1, known as "sequestration," to subtract 0.5 percentage from gross domestic product this year. Estimates ranged from 0.2 percent to 0.55 percent.

(Reporting by Chris Reese; additional reporting by Richard Leong, Karen Brettell, Ellen Freilich, Luciana Lopez and Pam Niimi; Editing by Chizu Nomiyama)

SKY News - Pound Falls To Another Low Against Dollar

Sterling - which has been one of the worst performing major currencies this year - falls to a new low against the dollar.

The US economy appears to be faring better than the UK's

The pound has continued to fall against the dollar, hitting a level last seen in the early days of the Coalition.

It fell to $1.4868 on Monday, after slipping below $1.49 for the first time in more than two and a half years on Friday.

The last time it was at this level was around the time of the General Election in 2010, and during the recession of 2008/2009.

The slide highlights the differing fortunes of two of the world's largest economies.

Last week, the US economy was given a boost when its jobless rate fell to 7.7% - the lowest since December 2008.

But concerns that the UK is heading for a triple dip recession remain, following a string of weak economic data and the downgrading of its credit rating by Moody's.

Sterling has been one of the worst performing major currencies this year, falling by around 8.5% against the dollar and 7% against the euro to date.

It also lost ground against the euro on Monday, which was up 0.3% against sterling at 87.34p.

Market analyst Nawaz Ali from Western Union said the falls come as investors prepare themselves for next week's Budget.

"The overriding concern is that the Government is giving little indication that it will take its foot off austerity which is hurting economic growth," he said.

He said speculation is also mounting that Chancellor George Osborne may announce a review of the Bank of England's remit.

"Investors are eyeing a change to the bank's inflation targeting, which may give Governor King and the incoming Mark Carney more room to explore new monetary stimulus," he added.

More quantitative easing is likely to hit sterling further because it increases its supply and drives its exchange value lower.

The currency movements came the day before industrial and manufacturing data for January, both of which are expected to show little or no growth over the month.