Tag Archives: Norges Bank

The Fight Against Currency War

G20 pledges to avoid weakening currencies to boost exports and to let markets increasingly set foreign exchange values, after the weekend summit. The risk of a of currency war seems to have abated somewhat, and the USD is now at a 15-year low.

“The terms on currency policy are relatively vague and may be interpreted differently by each country. It remains to be seen whether actual practises will be changed.”

Camilla Viland


As expected, currencies were discussed at the G20 meeting over the weekend. The finance ministers of the group now pledges to avoid further weakening of currencies, to boost exports and to let markets increasingly set foreign exchange values. This could be interesting…

First of all; there was no decision on the US proposal for current account targets, and this debate will be continued at next months G20 meeting in Seoul.

And second; the terms on currency policy are relatively vague and may be interpreted differently by each country. It remains to be seen whether actual practises will be changed.

“However, it is very positive that they have come up with a joint statement on currencies,” analyst Camilla Viland at DnB NOR Markets writes in Monday’s Morning Report.

Previously this has been avoided in fear of alienating China, she points out.

USD At 15-Year Low

The USD weakened after the G20 meeting, as the risk of tensions in the currency market has abated, according to DnB NOR Markets.

Camilla Viland

“The dollar has, among others, weakened versus Asian currencies on the prospect nations in the region will refrain from intervening in foreign exchange markets,” Ms. Viland  writes.

Expectations of the Federal Reserve announcing another round of quantitative easing next week also helps in bringing the dollar down.

Another currency which has weakened over the weekend is the Swiss franc.

“The currency is normally seen as a safe haven in the currency market and the weakening may be a result of lower risk of a currency war,” the Norwegian analyst says.

 

Biggest Strauss Kahn Statement – Ever?

Dominique Strauss Kahn

The G20 financial leaders also decided that Europe will surrender two seats in the IMF’s executive board to emerging nations, like China, India and Brazil with the intent to give these countries more power.

IMF-chief Dominique Strauss Kahn said that this was the “biggest IMF reform ever.”

Yeah, right!

Mr. Strauss Kahn is about to get a reputation for distributing pompous – and not very well founded – statements.

See also: In The Brigh Minds Of IMF

 

German Economy Still Flying

The German IFO index rose from 106.8 in September to 107.6 in October.

German Economy Recover

This is the highest outcome since May 2007, and better than consensus’ estimate of 106.5 and the outcome signals solid growth for the locomotive of European economy.

However, it is worth noting that this month’s improvement was not only due to better current conditions, but also due to a rise in business expectations.

“The latest developments in the German economy have been positive. However, we do not expect this to last. Due to sluggish international growth and a strong euro, growth will abate going forward. Fiscal tightening will also weigh on German growth,” Camilla Viland at DnB NOR Markets writes.

And Now; The US Housing Market

From the US, figures for existing home sales in September will be released Monday.

The Pending home sales index, which is an indicator for actual home sales, has risen over the last two months.

Mr. Housing Market

And we may see a rise in existing home sales this month, too. (Consensus expects 4.3 million houses to have been sold in September, up from 4.1 million sales in August.)

“Such an outcome is positive. Nevertheless, the levels of monthly house sales are very low seen in a historical context,” Camilla Viland notes.

And yet to come; the impact of the foreclosure scandal…

Scandic Updates

Here in Scandinavia several important events are on the agenda this week.

In the Norwegian, Norges Bank‘s interest rate meeting and the release of a new monetary policy report, will probably get most attention.

“Both we and consensus expect the interest rate to be left on hold at this meeting,” Ms. Viland writes.

In fact, a survey by the financial news agency, TDN Finans, shows that out of 17 participating analysts, no one expects the Norwegian Central Bank to rise its key rate.

(But wouldn’t it be fun if governor Svein Gjedrem pulled one last stunt before he retires in December?)

Anyway – the central banks new interest rate path (a prediction of the key rate level going forward) will probably be the most interesting thing for Mr. Gjedrem & Co.

The interest path rate has been lowered a few times already this year, and the interest rate is currently set to be raised around New Year.

“Given the latest developments we do not see this as likely. Foreign swap rates have fallen markedly since the previous report was released in June and inflation has been lower than anticipated. This indicates that the interest rate path will be lowered,” DnB NOR Markets says.

Adding: “We expect that the new interest rate path will indicate that the next rate hike will not be until March or May 2011.”

Also the Swedish Riksbank meets this week, holding their monetary policy meeting on Tuesday.

“The Swedish economy has performed strongly lately and this is one reason why the Riksbank has raises rates by 50 bps since the bottom. The Riksbank has signalled that more is to come and both we and consensus expect them to raise the interest rate by 25 basis points, to 1.00%, at tomorrows meeting,” the Norwegian money market specialist says.

More from DnB NOR Markets:

OSE Share recommendations. 25 – 29 October 2010.

Weekly FX Update.

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Citigroup Sued by Norway's Central Bank

Norway’s central bank have sued Citigroup Inc along with Chief Executive Officer Vikram Pandit and Chairman Richard Parsons over a $835 million loss in Citigroup stock and bonds.

“The complaint is based largely on the ongoing class action lawsuit against Citigroup.”

Bunny Nooryani


Citigroup misrepresented its financial condition and failed to disclose material information, leading Norges Bank to buy Citigroup stock and bonds at inflated prices between January 2007 and January 2009, the Norwegian central bank says in the lawsuit filed at the US District Court in Manhattan.

“Citi’s near-demise had its genesis in the company’s increasing willingness to take on risk for the sake of profit, without regard for – and without disclosing  – the magnitude of the downside exposure it faced if those risks materialized,” the central bank writes in the complaint, labeled “Norges Bank v. Citigroup; 10-cv-07202”.

The Pension Fund (Again)

Through its investment arm, the Norwegian Government Pension Fund Global (NBIM), the world’s second-biggest sovereign wealth fund, posted a record 633 billion kroner ($107.6 billion) loss in 2008, wiping out gains since the fund started investing the country’s oil revenue in 1996.

The so-called oil fund had a 26 percent return last year.

The central bank’s lawsuit names 20 of Citigroup’s current and former directors and executives, including former CEO Charles “Chuck” Prince.

The Norwegian Pension Fund is about to become famous for its controversial investment strategy – being one of the largest shareholders in the ruined oil company BP, and have lately invested large sums in Greek bonds.

Best Served In Court

– We confirm that Norges Bank has filed an individual claim against Citigroup in federal court in New York. The complaint is based largely on the ongoing class action lawsuit against Citigroup,” Bunny Nooryani, communications manger at NBIM says, according to the website DN.no.

The Norwegian central bank also confirms the size of the loss.

“Norges Bank’s complaint tracks, in large part, the complaint filed in the securities class action lawsuit currently pending against Citigroup, but Norges Bank believes it will be better served by pursuing its own direct action,” she says in a telephone interview with Bloomberg.

The central bank is also a plaintiff in the class-action lawsuit, Ms.  Nooryani adds.

The lawsuit adds to a group of other pending complaints against Citigroup for losses suffered by investors.

The New York-based bank, today the fourth-largest U.S. bank by deposits, announced “significant declines” in its $55 billion of subprime holdings on November 4th, 2007, and reported a $9.8 billion loss for the last quarter of 2007, compared with a $5.1 billion net profit the previous year.

The bank had a net loss of $27.7 billion in 2008 and received a $45 billion bailout from US taxpayers.

The Securities and Exchange Commission sued Citigroup in a separate case in July, claiming that the bank, now 18 percent- owned by U.S. taxpayers, had misled investors by not disclosing over $40 billion in subprime-related holdings during 2007.

Citigroup agreed to a $75 million fine in a settlement that was approved by a federal judge Friday.

Four Small Towns Went Bankrupt

In the aftermath of the US subprime crises, four small Norwegian towns practically went bankrupt after investing in subprime-related financial instruments issued by Citygroup.

The local administrations in these Norwegian small town have already tried to sue Citygroup over their losses, but have gotten nowhere, and are now a part of the ongoing class action suit against the global giant.

Vigorous Defense

“We believe the suit has no merit and will defend ourselves vigorously,” Citigroup spokeswoman Danielle Romero- Apsilos says in a statement.

“We believe that such lawsuits are baseless and will defend ourselves intensely,” Citigroup spokesman Jeffrey French writes in an email to DN.no.

Citigroup executives repeatedly stated in conferences calls in 2007 that the bank had reduced its subprime exposure by 45 percent to $13 billion.

The figure omitted “super-senior” tranches of collateralized debt obligations and financial guarantees called liquidity puts that added more than $40 billion in subprime exposure, according to the SEC’s complaint.

Gary Crittenden, 57, the bank’s chief financial officer, agreed to pay $100,000 in a separate settlement with the SEC. Arthur Tildesley, former head of Citigroup’s investor relations, paid $88,000.

Crittenden is named as a defendant in Norges Bank’s lawsuit.

Citigroup’s shares fell 93 percent over the period during which the Norwegian central bank claimed the bank made its misleading disclosures, closing at $3.83 on Jan. 15, 2009, compared with $54.50 two years previously.

Citigroup’s 5.85 percent bonds sold in August 2006 and maturing 10 years later lost 0.8 percent during that period.

The Norwegian spokeswoman, Bunny Nooryani, declined to give further details on the amount sought in compensation or why the bank believes it will be better served pursuing its own lawsuit.

Related by the Econotwist:

Norway’s Government Pension Fund Takes $25bn Hit

Norway’s Oil Fund Among BP’s Largest Shareholders As Bankruptcy Rumors Hit Market

Norwegian Pensioners Enter Bear Market

Here’s The REAL Norwegian PIIGS Exposure

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Norway's Government Pension Fund Takes $25bn Hit

Norway’s Government Pension Fund Global returned -5.4% (NOK -155 billion/USD -25 billion) in the second quarter of 2010, pulled down by a decline in global equity markets – especially by BP where the fund is the fourth largest shareholder.

“The spill put the spotlight on safety standards in the oil industry.”

Yngve Slyngstad


“The biggest stock market drop was in Europe, where the fund has about half its equity investments. The decline was largely driven by concern over high sovereign debt in some European countries, funding challenges for banks and fears of a new economic slowdown,” says Yngve Slyngstad, Chief Executive Officer of Norges Bank Investment Management (NBIM).

The fund’s investments consisted of 59.6 percent equities and 40.4 percent fixed-income securities at the end of the quarter. These had a second-quarter return of -9.2 percent and 1 percent, respectively, measured in international currency.

The fund’s return was in line with the return on its benchmark portfolio, NBIM says.

Yngve Slyngstad

The market value of the fund rose 29 billion kroner to 2,792 billion kroner.

A decline in the krone exchange rate added 149 billion kroner to the market value, which was also increased by 35 billion kroner in capital inflows from the government.

This was partially offset by the negative quarterly return of 155 billion kroner.

The single worst-performing investment was in oil producer BP. The company’s oil spill in the Gulf of Mexico in April was the largest in U.S. history and BP’s share price halved in the second quarter.

“The spill put the spotlight on safety standards in the oil industry,” says Slyngstad. “NBIM supports the board of BP’s commitment to ensure that safe and reliable operations top the company’s set of priorities. We also seek a wider industry effort that should be led by the largest companies to improve.”

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Here’s a copy of the full Q2 report by NBIM.

Related by the Econotwist:

Here’s The REAL Norwegian PIIGS Exposure

Norwegian Pensioners Enter Bear Market

Norway At The End Of An Era

Norway’s Oil Fund Among BP’s Largest Shareholders As Bankruptcy Rumors Hit Market

Norway’s Foggy Outlook

Statoil May Buy BP Assets, Expert Says

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