Pre-empting A Crisis

The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some $500 billion in bonds expire and risk disrupting markets and the US economic recovery. Though it ended a stimulative asset purchase programme last October, the Fed is still buying mortgage and Treasury bonds to replenish its $4.5-trillion portfolio as holdings mature. The central bank has said it will keep reinvesting until sometime after it begins raising interest rates later this year. Asked publicly and privately about the longer-term strategy, Fed policymakers say they are in no rush to shrink the portfolio, suggesting they will seek to avoid a “cliff” — a disruptive end to reinvestments that might come if bonds are simply allowed to run off through maturity or prepayment.

 

Apple’s move to line up deals with record labels is reportedly under US antitrust scrutiny as the iPhone maker prepares to debut a new version of the Beats Music streaming service. The Federal Trade Commission is examining if Apple is using its position as the top seller of music downloads through its iTunes store to put rival music services like Spotify at a disadvantage. Apple bought Beats last year hoping to win points with the music industry and turn Beats Music into a strong competitor to Spotify and other streaming services. Apple and the trade regulator did not respond to those seeking comments.

 

US technology giant Microsoft has been awarded a patent for smart glasses that allow wearers to detect and interpret emotions of people within their field of vision. The patent for ‘a wearable emotion detection feedback system’ was filed in October 2012, and awarded earlier in May, according to a public filing by the US patent office. The wearer of the glasses can determine who to analyse, whether an individual or a group, without their knowing. Sensors, including depth cameras and a microphone mounted on the nose bridge, will pick up visual and audio information from a subject. This would be processed for things like subtle variations in speech rhythm and amplitude, choice of words, type and speed of gestures, eye focus and body posture.

 

The US Supreme Court has allowed Barclays to claim $4 billion of disputed assets as part of its hurried purchase of much of Lehman Brothers Holdings’ brokerage unit at the height of the 2008 financial crisis. The US top court declined to hear an appeal filed by Lehman’s creditors, leaving intact an August 2014 ruling by the 2nd US Circuit Court of Appeals in New York that went in favour of Barclays. Barclays had control of $3.5 billion of the disputed $4 billion. Trustee James Giddens has been seeking to recoup money for the brokerage’s creditors, including Lehman affiliates and hedge funds. Also in dispute was $1.9 billion of “clearance box” assets used to process securities trades, although that was not part of the Supreme Court appeal.

Cash-strapped Greece scraped together a €200-million repayment to the International Monetary Fund, amid signs its long-stalled bailout negotiations were making some progress. The payment came as Greek government officials continued their whirlwind European tour and Prime Minister Alexis Tsipras spoke to French President Francois Hollande on how to push matters forward. Greece has a much larger commitment of €770 million to make to the IMF. All indications are it will struggle to make that payment as well as meet some pensions and salaries due. A potential Greek debt default could set off a chain reaction that jeopardises its membership in Europe’s joint currency and roils the global economy.

 

The Austrian arms of two of Russia’s biggest banks will undergo stress tests by the European Central Bank, which announced a new round of health checks for nine banks. The ECB said it will carry out stress tests and balance sheet reviews on Sberbank Europe and VTB Bank, the Austrian units of Sberbank and VTB. “Banks have been informed and will work closely with the ECB with a view to completing the exercise end of 2015,” an ECB spokesperson said. Russia has strong ties with Austria although bilateral trade has suffered in the Ukraine crisis.

 

Holcim, a Swiss company, and Lafarge, which is based in Paris, won US antitrust approval to merge after they agreed to divest assets. The companies agreed to divest plants, terminals and a quarry to gain approval of their $25 billion deal, the FTC said. The companies won approval for the deal from EU antitrust enforcers in December. In the US, the two companies agreed that Lafarge would sell a cement plant and quarry in Iowa as well as terminals and distribution centres in Minnesota, Wisconsin, Tennessee and Louisiana. Lafarge said previously that it would sell its Davenport cement plant in Iowa and seven terminals along the Mississippi River to Summit Materials for $450 million in cash plus Summit’s Bettendorf, Iowa, cement terminal.

 

General Motors aims to grab at least 5 per cent market share in India within the next decade, as it sees that market overtaking Japan as the world’s third-biggest with projected annual sales of 8 million vehicles by 2025. The Detroit carmaker, which is losing money in India even after 18 years there, will unleash a product blitz aimed at reviving sagging sales, and will make India a new global manufacturing and export hub, taking some of the strain off South Korea, where labour costs have ballooned in recent years.

China has put in place rules to protect private investors and expand opportunities in infrastructure and utility projects, the country’s top planning agency said, as the government seeks help to revitalise a stuttering economy. To encourage private investors, the National Development and Reform Commission (NDRC) has opened up a number of major infrastructure projects that had previously been off-limits, officials said.

 

(This story was published in BW | Businessworld Issue Dated 01-06-2015)