Debt crisis shrinks global demand for euro

The euro’s share among currency reserves held globally by central banks fell to 23.9 per cent. International use of the euro slipped last year because of the debt crisis in Europe, while the US dollar held its own as the world’s leading currency for reserves held by central banks. Currencies not traditionally used as reserves, such as the Canadian and Australian dollars, gained in favour as those countries enjoyed steady growth and lower debt than major economies. The European Central Bank (ECB) said Tuesday that the euro’s share among currency reserves held globally by central banks fell to 23.9 per cent in 2012 from 25.1 per cent the previous year. The dollar’s share was little changed at 61.9 per cent. The ECB said the financial crisis that has afflicted the 17-country eurozone was a factor discouraging use of the euro for reserves, which are often held in the form of government bonds. Lending across borders in the eurozone has dropped, diminishing the liquidity that reserve holders like to see. Lower liquidity means there are fewer buyers and sellers readily found. The eurozone countries have struggled with heavy levels of public debt – Greece, Portugal, Ireland and Cyprus have needed financial rescue. Even larger economies like Spain and Italy have worryingly high debt. Concern over that debt eased only after the European Central Bank came up with a plan to buy the government bonds issued by countries that promise to reform. Less borrowing in euros In its annual report on international use of the euro, the ECB also found that there was less borrowing in euros internationally by companies because they could get lower interest rates by selling bonds denominated in US dollars. Countries hold reserves of foreign currency to help backstop their own currencies’ value in case of a financial crisis and for trade purposes. The country issuing the reserve currency can benefit because demand from abroad supports its exchange rate and can mean lower borrowing costs for the government, as has been the case with the US dollar in its role as the leading reserve currency. Demand for dollars in the form of US Treasury bonds by other countries, such as China, helps keep down the interest rate that the US government pays to borrow. Money that is not spent on interest can be spent on other things, or saved. A key finding of the report was that non-traditional reserve currencies such as the Canadian dollar and the Australian dollar are in greater demand because of their growing economies and better public finances. There have been concerns about government debt not only in Europe but also in the countries that issue the world’s other traditional reserves United States, Japan and Britain. The category of ‘other’ currencies saw its share of officially disclosed reserves increase from 5.7 per cent to 6.1 per cent, ahead of both the yen at 3.9 per cent and the pound sterling at 4.0 per cent. The ECB said that the ‘other’ category’s share is the highest since the early 1970s, when the earlier international currency system set up at the Bretton Woods conference in 1944 collapsed. The ECB said, however, that the use of such non-traditional currencies might slow if major economies start reducing debt and deficits. Such currencies are also of limited use, the ECB said, because they are less liquid there are fewer debt securities and other ways of holding them available, meaning finding a seller or a buyer can be more difficult. The ECB said the Chinese currency, the renminbi, had shown impressive gains in foreign trade, with the share of trade in goods settled in renminbi rising from near zero to almost 10 per cent in 2012. The ECB said the renminbi’s widespread use as a reserve currency was hindered by China’s lack of fully developed financial markets and by its investment and foreign-exchange controls. – AP
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Jimmy Haslam Debt Put at $4 Billion; NFL Browns Not Affected, Yet

In the last few weeks, however, several asset sales have been announced and there has been progress towards more – a sign that the emirate is able to make some of the tough commercial decisions required by the restructuring plans. Instability in the global debt markets during this period has blocked any further rally in Dubai debt prices, but they may gain support from news of the asset disposals. “The fact that concrete action is being taken, and being managed with relatively little visible turbulence, is seen as a positive by the investment community,” said Biswajit Dasgupta, head of treasury and trading at Abu Dhabi asset manager Invest AD. “The debt burden will come down as a result of these. But equally, there is a sense of greater discipline going forward in that projects will be subjected to more rigorous scrutiny for commercial viability.” STRATEGY Dubai’s state-linked conglomerates snapped up a spectacular array of assets around the world, from stakes in high-profile companies to real estate, before the global financial crisis of 2008 triggered a crash in the emirate’s property market. Many firms restructured their debt by extending maturities while promising full repayment through asset sales. Chief among these was Dubai World, which in a $25 billion restructuring deal signed in March 2011, set a two-tranche repayment schedule with lenders over five and eight years. The plan depends heavily on asset disposals to raise money; it envisioned the conglomerate raising $1.3-$2.3 billion in this way by 2012. That did not happen and until last month, Dubai World had not actually sold any major assets – a source of some worry to its bankers. Many bankers believed Dubai, hoping to fetch higher prices, was waiting for the global economy to recover further from its crisis before selling assets. This strategy could backfire if the recovery did not materialise. Some worried that Dubai managers might simply be unwilling to let go of their prize assets, for fear of booking losses on those bought at the top of the market; in that case, their stubborness could jeopardise the restructuring programmes. Others feared Dubai’s partial recovery from its property slump might have lulled it into a false sense of complacency. But since last month, several actions have suggested such fears are misplaced. A unit of Toronto-based investment firm Brookfield Asset Management bought logistics warehouse developer Gazeley from Dubai World subsidiary Economic Zones World (EZW), the Canadian firm said. Dubai World had purchased Gazeley from Wal-Mart Stores in 2008 for an estimated 300 to 400 million pounds ($453-604 million).
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Jefferson County Files to End Bankruptcy, Adjust Debt

Should the plan win final court approval, the county will refinance its sewer-related debt, raise sewer rates and exit bankruptcy. Hedge Funds Hedge funds owed about $872 million will collect more than 80 cents on the dollar, according to the agreements. The hedge funds will also help backstop the refinancing to ensure that the county can raise all of the money it needs. The funds include Brigade Capital Management LLC, Claren Road Asset Management LLC, Fundamental Advisors LP and Monarch Capital Master Partners LP, according to court records. Insurers, including Assured Guaranty Municipal Corp., Syncora Guarantee Inc. and Financial Guaranty Insurance Co., will get $165 million. They claimed to be owed $315 million. The county will also pay as much as $25 million in any claims filed against the insurers by creditors seeking to recover losses, according to the agreements. Under the plan, the county will raise sewer rates 7.4 percent annually for four years. Those rates may go slightly higher if interest rates rise before the refinancing is completed. Warrant holders who are owed more than $500 million arent part of the deal. They will have a choice of collecting 65 cents on every dollar they are owed, or 80 cents on the dollar if they give up their right to collect money from the insurers. Political Corruption The bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan agreed to a settlement with the U.S. debt management Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business. JPMorgan, based in New York , paid the county $75 million in that settlement and has given up more than $657 million in swaps claims it held. Jefferson County supplanted Orange County, California , as the largest municipal bankruptcy. Orange County entered court protection in 1994 after losing $1.7 billion on interest-rate bets. While its petition initially listed more debt than Jefferson County, much of that liability was reduced in the early weeks of the case. Thanks partly to lawsuits against the financial firms, Orange County creditors were paid in full. The case is In re Jefferson County, 11-bk-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net ; Dawn McCarty in Wilmington, Delaware, at dmccarty@bloomberg.net To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net Jefferson County Files to End Bankruptcy, Adjust Sewer Debt Butch Dill/Bloomberg Residents stand outside the Jefferson County Courthouse in Birmingham, Alabama. Jefferson County supplanted Orange County, California, as the largest municipal bankruptcy.
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MIDEAST DEBT-Dubai steps up asset sales to cut debt pile

Cleveland Plain Dealer sports columnist Terry Pluto noted the Wall Street Journal report in a story on Sunday, as some are now wondering if Haslam’s ownership of the NFL teams may now be in jeopardy. Editor’s Note: Do You Support Obamacare? Vote in Urgent National Poll “Standard and Poor’s Corp. is a financial services company that provides research on stocks and bonds,” Pluto wrote. “Yes, nearly every NFL owner turns a profit every year, and that may be true of the Browns. But all that debt? It is indeed ‘significant,’ as reported by Standard and Poor’s.” Pluto said it appears the problems with the investigation of Pilot Flying J have not affected the Browns yet. “He does have veteran NFL executive Joe Banner to run the teams daily operations, and that helps,” Pluto wrote. “Banner has hired a strong coaching staff, especially the experienced coordinators to help rookie head coach Rob Chudzinski. In the short term, Haslams problems have no impact on the football team. But long term, who knows?” In June, two regional sales managers and a sales representative reached plea agreements and pleaded guilty to mail fraud, while two other employees pleaded guilty in separate hearings, according to Cleveland’s WEWS-TV . Those employees have agreed to cooperate in FBI investigation into conspiracy, mail fraud and wire fraud, former federal prosecutor Subodh Chandra told WEWS-TV. “From a business standpoint, this is not good news for Mr. Haslam or his organization,” Chandra told the television station. “What remains to be seen is this is just how high up did the alleged corruption go?” Editor’s Note: Get the Navy SEALs Cap Celebrate Our Heroes Pilot Flying J has been trying to save face at each stage of the investigation, saying it has taken steps to correct a gas rebate problem, which is at the heart of the investigation, the television station said. We are disappointed in the actions of these employees towards our customers,” said a Pilot Flying J statement after the June plea deals. “We assure our customers that our five-step plan to correct any wrongdoing and to make certain these actions do not happen again is ongoing.” Related stories:
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Comb: Student debt crisis goes beyond interest rates

Student borrowers who fall behind on student loan payments by 90 days or more – 30 percent of all student loan borrowers today, according to the Federal Reserve – face an uphill battle acquiring additional credit. Meanwhile, even those who manage to stay current on their student loan payments may be denied credit due to prohibitive debt-to-income ratios. For the first time in a decade, individuals under age 30 with student debt are less likely than individuals with no student debt to have mortgages and car loans. Thats bad news for a nation dependent on consumer spending to sustain our economic recovery. The sadder news is that it should never have gotten to this point. Although hard to imagine now, amid the current partisan bickering thats brought most policymaking to a standstill, Congress in years past actually did an outstanding job of creating flexible options to assist federal student loans borrowers throughout the repayment process. Unfortunately, these options often go unknown and underutilized. As the President of the National Association of Student Financial Aid Administrators recently stated in testimony before Congress, nearly all of those who default on their federal student loans could have avoided it through the governments deferment, forbearance, and income contingent options. In my organizations day-to-day work helping student borrowers, the most heartbreaking phrase we encounter is I wish I had known there were ways to avoid late fees, accrued interest, damaged credit, etc. The student loan industry is heavily regulated and in some cases overly complicated, making it difficult for borrowers to even understand what their options are or to recognize if their account is being serviced properly. For example, there are currently no less than five income related repayment options, with similar names and terms but very different outcomesand no one available to really help the consumer weigh their decisions. The clock is ticking on efforts to stop the doubling of interest rates on federal student loans for the neediest students. On July 1, unless Congress can come to agreement, the interest rate on newly originated subsidized Stafford Loans will rise from 3.4 percent to 6.8 percent. With the average student today leaving college just shy of $30,000 in debt, its imperative that lawmakers do all they can to ease the financial burden for the next generation of college-goers. But controlling interest rates for future borrower is only part of the solution to the student loan problem. Thirty-seven million Americans are already struggling under the yoke of existing student loan debt and our nations economy is paying the price. Student borrowers who fall behind on student loan payments by 90 days or more – 30 percent of all student loan borrowers today, according to the Federal Reserve – face an uphill battle acquiring additional credit. Meanwhile, even those who manage to stay current on their student loan payments may be denied credit due to prohibitive debt-to-income ratios. For the first time in a decade, individuals under age 30 with student debt are less likely than individuals with no student debt to have mortgages and car loans. Thats bad news for a nation dependent on consumer spending to sustain our economic recovery. The sadder news is that it should never have gotten to this point. Although hard to imagine now, amid the current partisan bickering thats brought most policymaking to a standstill, Congress in years past actually did an outstanding job of creating flexible options to assist federal student loans borrowers throughout the repayment process. Unfortunately, these options often go unknown and underutilized. As the President of the National Association of Student Financial Aid Administrators recently stated in testimony before Congress, nearly all of those who default on their federal student loans could have avoided it through the governments deferment, forbearance, and income contingent options. In my organizations day-to-day work helping student borrowers, the most heartbreaking phrase we encounter is I wish I had known there were ways to avoid late fees, accrued interest, damaged credit, etc. The student loan industry is heavily regulated and in some cases overly complicated, making it difficult for borrowers to even understand what their options are or to recognize if their account is being serviced properly. For example, there are currently no less than five income related repayment options, with similar names and terms but very different outcomesand no one available to really help the consumer weigh their decisions. We launched our Face the Red campaign to spread the word that student loans dont have to be scary; taking control of the debt is possible when you have the right information at the right time to make the best repayment decisions. The silver lining in the student debt mess, then, is that averting a meltdown wont require major changes in legislation or creation of a sweeping new program; it simply requires finding mechanisms to help borrowers navigate the solutions that already exist. What students and graduates desperately need are information and counseling programs, delivered one borrower at a time if necessary, that help them borrow wisely and manage education debt without limiting their educational aspirations or crippling their long-term financial outlook.
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