Ahmed Elbatrawy

Spanish banking woes threaten Europe

Problems at Bankia and other Spanish banks could force a European bailout of the Spanish banking system.

Problems at Bankia and other Spanish banks could force a European bailout of the Spanish banking system.

NEW YORK (CNNMoney) — The Spanish banking system has taken center stage in the ongoing European debt crisis drama.

The bursting of a housing bubble that was formed by the combination of cheap credit and Spain’s attractive climate has left Spain’s banking system teetering under a mountain of bad loans.

Spain’s central bank has identified about €300 billion in problem loans at the nation’s banks.

Massive bank bailouts are clearly on the way.

Late Friday, Spain’s fourth-largest bank, Bankia, asked the nation’s central bank for €19 billion to recapitalize itself. Spain’s central bank essentially nationalized Bankia earlier this month.

Also Friday, Standard Poor’s also cut its ratings of five Spanish, including Bankia, and said it is weighing further downgrades for another five major banks in the country. SP had downgraded 9 out of the 10 banks just last month.

The ratings agency also upped its estimate of the underlying economic risks across Spain’s entire banking industry due to Spain falling into a double-dip recession.

Bankia was formed in 2010 by combining seven major savings banks, which turned out to be among the hardest hit by the housing crisis.

Spain’s banking problem might quickly become yet another thorn in Europe’s side.

With Spain struggling with record high unemployment of close to 25% and government deficits that have driven borrowing costs above the 6% mark, it’s not clear if the Spanish government can afford to bail out the banking system on its own.

“The situation facing Spanish banks is extremely important for the European outlook,” said Andrew Milligan, head of global strategy for Standard Life Investments. “There is still quite a debate whether the Spanish government on its own can provide the necessary injection.”

Spain announced another round of banking reforms earlier this month to try to shore up the banks, including a plan to have banks dump their foreclosed real estate loans into a separate independent company. But investors were not convinced and Moody’s downgraded 16 major Spanish banks on May 17, including Banco Santander (STD) and BBVA (BBVA), the nation’s two largest banks.

If Spain can’t contain the problems in the banking system itself, it could spread across the entire European financial sector, hitting weaker banking systems such as Italy first, and eventually impacting major banks in healthier countries like Germany and France.

That fear could drive banks across Europe to pull back on lending, which could spark a deep European-wide recession and spread economic pain around the globe.

Milligan estimates the size of a Spanish bank bailout could range from €50 billion to €100 billion. The upper end of that would nearly double the size, as a percentage of gross domestic product, of the U.S. bank bailout under the Troubled Asset Relief Program in 2008.

That’s why Milligan and others think that Spanish banks might need a European bailout even before Spain’s sovereign debt does.

“Everyone fully understands why the markets are obsessed with Greece,” he said. “But with Spain we are talking about the fourth-largest economy in the eurozone. The figures being talked about are much more significant.”

Milligan said an indepedent review of Spanish banks’ financial health ordered by the Spanish government earlier this month is crucial to restoring confidence in the banks. The bad real estate loans will likely have to be spun-off into some kind of “bad bank” to isolate them from the banking system.

He said Europeans are also moving closer to providing some kind of continent-wide deposit insurance system to restore the faith of customers of Spanish banks, to make sure they don’t start making massive withdrawals that would further weaken the banks’ cash position.

Greek customer have already started making large withdrawals there, creating what some are calling a “bank jog,” adding to problems for that nation’s fragile financial system.

“The last thing you want is a bank run to develop,” Milligan said. “This sort of (deposit insurance) protection can stop a bank run from developing.” To top of page

Dimon asked to testify before Senate panel on June 7

The Senate Banking Committee said Friday that it had invited JPMorgan Chase CEO Jamie Dimon to testify on June 7 regarding the $2 billion trading loss his bank announced earlier this month.

JPMorgan Chase CEO Jamie Dimon has been invited to appear before a Senate panel on June 7.

NEW YORK (CNNMoney) — JPMorgan Chase CEO Jamie Dimon has been invited to testify before the Senate Banking Committee on June 7 regarding the $2 billion trading loss his bank announced earlier this month.

“I expect Mr. Dimon to come prepared to provide the committee a better understanding of this massive trading loss so we can take the implications into account as we continue to conduct our robust oversight over the full implementation of Wall Street reform,” Banking Committee chairman Tim Johnson said in a statement.

JPMorgan (JPM, Fortune 500) spokeswoman Jennifer Zuccarelli declined to say whether Dimon would appear on June 7.

“Jamie will of course be available to testify next month,” Zuccarelli said. “We are working with the House and Senate to determine a timeframe that will work for both chambers in June and allow us to provide the most thorough testimony.”

JPMorgan’s surprise loss resulted from trades that were originally designed to hedge against risk, but grew in size and complexity. The FBI and federal regulators have since begun investigating the matter.

Sources have told CNNMoney that the losses on JPMorgan’s trading could rise toas much as $7 billion. Dimon has called his bank’s actions “stupid,” but says the losses were “an isolated event.”

The House Financial Services Committee is also planning a hearing on JPMorgan’s loss, though a date for that hearing has not been set. To top of page

Summer gas prices

The average price of a gallon of regular gas has fallen steadily since early April.

The average price of a gallon of regular gas has fallen steadily since early April.

NEW YORK (CNNMoney) — As the summer driving season kicks off this holiday weekend, most Americans are enjoying lower gas prices than they might have expected when the spring began.

But prices, while well off their 2012 peak set in early April, are still higher than they’ve been at the start of most summers.

Gasoline prices and taxes by state

The current national average price of $3.666 for a gallon of unleaded is down 12 cents from a year ago, and 27 cents from this year’s peak, according to readings from AAA. But it’s still the third-highest price on record for a Memorial Day weekend, behind only 2011 and 2008.

And experts say that despite oil futures recently falling to below $90 a barrel for the first time since November recently, the steady slide in gas prices might not extend much further.

“We might move a little lower, we might move a little higher,” said Tom Kloza, chief oil analyst of the Oil Price Information Service, the firm that compiles the pump price averages for AAA.

While Kloza said there won’t be dynamic moves in any direction, a sharp worsening of the economic situation in Europe might cut the demand outlook, which could bring some additional price relief.

A deal between Western powers and Iran on its nuclear program could also help push prices lower by cutting the “fear premium” being built into oil futures as traders worry about the effect of sanctions on Iran and disruptions in other Middle East supplies.

But for the most part, the 7% drop in gas prices since the start of April is probably most of the relief that drivers can hope for.

Not all drivers are seeing the break on prices that the national average would suggest. West Coast drivers are still paying close to the same price as two months ago. Tight inventories west of the Rocky Mountains have kept prices out there high — $4.302 in California, $4.221 in Oregon, and $4.242 in Washington State.

The highest prices are in Hawaii, where drivers are paying $4.539, and Alaska, which doesn’t have any refineries despite all of its oil. Drivers there are paying $4.518.

But other than those Western states, no other state has drivers paying $4 a gallon going into the summer.

For the cheapest gas, go south. South Carolina has the lowest average at $3.30 a gallon. Alabama’s is close, at $3.36. Drivers in Arkansas and Tennessee are paying $3.37 on average, and those in Mississippi only have to pay a penny more. To top of page

Facebook sees modest gains

facebook stock shares

Click on chart to track Facebook

NEW YORK (CNNMoney) — Facebook’s stock made modest gains on Thursday, but it’s still down at least 15% from the price of its initial public offering.

Facebook (FB) was trading slightly above $32 a share in afternoon trading Thursday. Despite minor gains Wednesday, it’s still far from $38 — the price of its Friday IPO. The stock closed its first day at $38.23.

This was one of the most highly anticipating IPOs in recent history — setting a record for trading volume — but it was also one of the most disappointing. It has quickly become clear to investors that the underwriters — a consortium of 33 led by Morgan Stanley (MS, Fortune 500) — were too ambitious with the pricing.

The social media site is also mired in scandal from allegations that Morgan Stanley shared privileged information with certain institutional investors.

The allegations prompted a class-action lawsuit from three investors, filed in the U.S. District Court for the Southern District of New York in Manhattan on Wednesday.

The suit targets Morgan Stanley as well as Facebook, its CEO and co-founder Mark Zuckerberg, and other underwriters, including JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Barclays Capital and Merrill Lynch, a unit of Bank of America (BAC, Fortune 500).

A Facebook spokesman told CNN the suit was “without merit.” Spokespersons for Morgan Stanley, Goldman Sachs and Barclays declined comment, and the other firms were not available.

The Facebook IPO is also under investigation by the Financial Industry Regulatory Authority, the state of Massachusetts and Congress.

In addition to its legal problems, there are also technical issues being looked at. Nasdaq delayed Facebook’s debut by about half an hour, and many investors complained that their orders were not processed correctly.

“Although I put in an order at 8 a.m. [Friday], I did not get confirmation until Monday and at a price much higher than the opening bell,” wrote one investor to CNNMoney, addressing a problem that was echoed by many others.

Analysts continue to believe the company has promise, considering that it has more than 900 million users, but they are cautious about the company’s valuation, particularly with regards to advertising revenue and its ability to compete with Google (GOOG, Fortune 500).

These fundamentals revenue and competitiveness — are core to Facebook’s potential success on the stock market, according to Tim Jenkinson, a finance professor and IPO expert at the Said Business School at the University of Oxford in England.

He said the ephemeral troubles with its IPO could soon be forgotten if the company proves to be a success.

“I think, over time, the IPO pales into insignificance,” said Jenkinson. “What ultimately matters is that the cash flow takes over from the hype and the story of the company. Over time, the IPO is just an event in the history of the firm.” To top of page

Follow the money … to Singapore

Singapore's more investor friendly rules may allow it and other Asian cities to keep attracting capital from developed markets in the West.

Singapore’s more investor friendly rules may allow it and other Asian cities to keep attracting capital from developed markets in the West.

(StockTwits) — AlphaVN.com is an investing blog focusing on Vietnam and other markets in Southeast Asia. It is written by Peter Pham, a capital market specialist and entrepreneur with expertise in institutional sales and trading.

It’s no secret for anyone who follows markets closely that Southeast Asia, and in particular China, will be the engine of growth for the 21st century. This observation is based on a very simple idea.

Capital flows to where it is treated the best.

If traders would stop and look beyond the U.S. and Europe, they would see what legendary investor (and current Singapore resident) Jim Rogers sees: money is fleeing the West and heading East.

Recently, I came across a statistic that confirmed my personal observations from living in Ho Chi Minh City and traveling around Southeast Asia. According to the Financial Times’ fDiIntelligence division, Singapore (EWS) not only receives more financial foreign investment than any other major financial center in the world, it receives more than New York, London, Frankfurt and Switzerland….combined.

This is because Singapore is actively courting new capital in response to the abuse that is being dished out to investors in the West.

For example, Singapore’s central bank, The Monetary Authority of Singapore, is moving to take advantage of the massive flows of gold and silver. It plans to treat them as currencies — and not commodities — by removing the 7% goods and services tax that was collected on all precious metals transactions.

After October 1, bullion quality gold and silver will be freely exchanged without taxation on Singapore’s exchanges which will only further increase the demand for them. Volumes on the COMEX have fallen dramatically since gold peaked in September at $1,926 per ounce. Discontent among traders is palpable as a growing number of them feel the market is not trading openly.

The increased transparency and volume of bullion trading along an open exchange is just one example of treating investors like royalty. Another is the MAS’ plan to create a clearing house system for over-the-counter derivatives, like credit default swaps.

The trend of investors leaving the dysfunctional New York and London markets to ones where they are treated fairly will accelerate once this change goes into effect. On an open exchange, people legitimately interested in hedging their bond default risk will welcome this evolution like a man coming in from the desert.

Credit default swaps used in this manner are a legitimate market function, especially if they are tied to an underlying asset, i.e. the bond it is insuring. But, naked contracts, trading privately and valued arbitrarily, are a cancer eating away at the heart of Wall Street.

Understanding the evolution of the Southeast Asian markets like Singapore, Hong Kong and Shanghai is an important edge investors need to be aware of. Capital gains can only come from places where capital is being deployed, and not destroyed. To top of page

Google kills 250,000 search links a week


NEW YORK (CNNMoney) — It may surprise you that there is a rapidly growing number of websites Google intentionally hides from you. Google doesn’t want that to be a surprise anymore.

The search giant said Thursday it would begin chronicling the thousands of requests it receives daily to take down search results that link to copyrighted material. Google (GOOG, Fortune 500) said it receives upwards of 250,000 requests to remove links to pirated content each week.

When Google receives notifications from copyright holders that it is linking to a website that violates their copyright, Google undergoes a process that usually results in the removal of search results that link to that website.

The number of requests to take down links has soared in recent years. In fact, Google said it is now receiving more removal requests each week than it received in all of 2009. Last month, Google got 1.2 million such requests from 1,000 copyright holders to remove links from 23,000 websites.

For the first time, the company added all of the removal requests for search since July 2011 on its online transparency report. The two-year old report initially just displayed government requests to take down content from Google’s servers. But it now includes copyright holders’ requests, which dwarf the number of take-down requests from governments.

It’s a lot to keep track of, but Google has good reason to want the public to know about removal requests for pirated search links.

In January, the company fought hard — and won — against two congressional bills that would have cracked down on copyright infringement by forcing companies such as Google to refrain from linking to those sites.

The current U.S. anti-infringement law, the Digital Millennium Copyright Act, puts the onus on copyright holders to notify Google when it is displaying or linking to pirated material. The controversial Stop Online Piracy Act and Protect Intellectual Property Act would have shifted that onus to Google, putting it on the hook for content that it links to.

Google is trying to demonstrate that the current system works just fine. Despite the incredible ramp-up in requests, its average turnaround time for removing content that infringes on copyrights is 11 hours.

“We believe that the time-tested ‘notice-and-takedown’ process for copyright strikes the right balance between the needs of copyright owners, the interests of users and our efforts to provide a useful Google Search experience,” said Fred von Lohmann, Google’s senior copyright counsel.

When copyright holders believe there is content Google is linking to that violates their copyright, they first fill out a form on Google’s website. Google’s computers will then try to determine whether the claim is legitimate. After an automated review, a human will take a look at the request as well.

Google said it ultimately approves about 97% of the requests. But the company insists that it is working hard to weed out illegitimate claims.

For instance, Google said it recently rejected a request from a major entertainment company that asked the search leader to remove a result that linked to a newspaper’s negative review of a TV show.

Determining what’s kosher and what’s not puts Google’s team of copyright lawyers in a difficult position, especially as the requests grow astronomically. But the group, based in its Silicon Valley headquarters, would rather maintain the status quo than face government intervention.

“We’ve been working with copyright owners for years to make this an efficient process,” said van Lohmann. “As policy makers look at potential copyright law changes, we want to make sure they have the benefit of actual data.” To top of page

Investors sue Facebook, Morgan Stanley

facebook zuckerberg ipo morgan stanley

Investors have filed suit against Facebook CEO Mark Zuckerberg and underwriters of the IPO, including Morgan Stanley.

NEW YORK (CNNMoney) — Three investors sued Facebook and chief executive Mark Zuckerberg on Wednesday, along with lead underwriter Morgan Stanley and a host of other underwriters, accusing them of withholding negative information about the social network’s initial public offering.

“It appears as though material information was not disclosed,” said Robert Weiser, one of the plaintiff lawyers in the class action suit. “We believe that the offering was conducted unfairly and it harmed public stockholders.”

The suit was filed in the U.S. District Court for the Southern District of New York in Manhattan.

According to a report published by Reuters, Morgan Stanley (MS, Fortune 500) shared a negative assessment of the social network with major clients ahead of Facebook’s (FB) IPO, which debuted last week.

The lawsuit states that “certain of the underwriter defendants” estimates for how Facebook would perform in the second quarter and for the full year.

The “revisions were material information which was not shared with all Facebook investors, but rather, was selectively disclosed by defendants to certain preferred investors and omitted from the registration statement and/or prospectus,” the plaintiffs claim.

A spokesman for Morgan Stanley declined to comment.

“We believe the lawsuit is without merit and will defend ourselves vigorously,” said a Facebook spokesperson to CNN.

Other underwriters targeted by the lawsuit include Barclays Capital, Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Merrill Lynch, a unit of Bank of America (BAC, Fortune 500).

Spokespersons for Goldman Sachs and Barclays Capital declined to comment. Spokespersons for the other firms were not immediately available.

Weiser and his colleagues are representing Facebook investors Brian Roffe, Jacob Salzmann and Dennis Palkon.

Weiser said that more plaintiffs may join the class action lawsuit. He said that monetary damages have yet to be specified.

Facebook’s stock price finally rose Wednesday for the first time since its Nasdaq launch on Friday.

Facebook was one of the most anticipated — but also disappointing — IPOs in recent history. On Friday, the first full trading day, the stock closed at $38.23 per share, just a hair above its IPO price of $38. To top of page

Hide from Europe’s mess with dividend stocks

dividend, yields, verizon, SP

Safer stocks with big dividend yields like Verizon have outperformed the broader market since Europe fears resurfaced about a month ago.

NEW YORK (CNNMoney) — Europe’s debt woes got you down? Looking for a safe place to hide in this increasingly ugly market?

Treasuries may be stable. But with the 10-year yielding a paltry 1.71% — barely above the all-time low from last year — your income gets eaten up by even the currently meager rate of inflation. Gold? It’s tanked along with stocks. And so much for Facebook (FB) being a ‘can’t miss investment.’


But investors willing to play some defense and move money to blue chip, dividend paying stocks may be rewarded. They already have been for the past few weeks.

ATT (T, Fortune 500) and Verizon (VZ, Fortune 500) have been among the better performers in the market since stocks hit their peak for the year in early April. It’s no coincidence that both companies pay dividends that yield around 5%.

It’s also worth nothing that the Dow Jones Utility Average (DJU) has gained ground since the start of April, even as the broader market has fallen. Big electric companies like Consolidated Edison (ED, Fortune 500), Duke Energy (DUK, Fortune 500) and Dominion Resources (D, Fortune 500) all have dividends that yield more than 4%.

“It’s a challenge to invest with macro concerns playing such a part in dictating the daily swings of the market,” said John Carey, manager of the Pioneer Equity Income Fund (PEQIX) in Boston. “Utilities were under pressure earlier this year when people went back into ‘risk-on’ mode. But lately, it’s been more of a ‘risk-off’ market.”

Carey’s fund owns Duke and ConEd, according to the fund’s most recent filings. Carey said he also thinks there are attractive opportunities in health care — another sector known for high yields. The fund owns big pharmaceutical funds Pfizer (PFE, Fortune 500) and Merck (MRK, Fortune 500).

He added that even some banks (yes, banks) could be attractive for their dividend. But Carey said that investors should stick to the more conservative financial firms.

Along those lines, one of his fund’s top holdings is U.S. Bancorp (USB, Fortune 500). That bank is widely acknowledged as one of the best-run of the major regional banks. It’s a favorite of Warren Buffett’s Berkshire Hathaway (BRKB) too and pays a dividend that yields 2.5%.

The shift to income is likely to continue as long as fears of a Greek exit from the eurozone remain in the headlines.

“Dividend stocks are more attractive than Treasuries right now. And with the increased market volatility, more money may gravitate that way,” said Chip Cobb, senior vice president and portfolio manager at Bryn Mawr Trust in Bryn Mawr, Pa.

Cobb noted though that dividends don’t have to be synonymous with stodgy, defensive industries. He said his firm owns big dividend payers in the tech sector like Microsoft (MSFT, Fortune 500) and Intel (INTC, Fortune 500). And he added that once Apple (AAPL, Fortune 500) begins to pay a dividend later this year, its yield will be nearly 2% (based on current market prices.

Craig Callahan, co-founder and president of ICON Advisers in Denver, added that another positive for dividend payers is that shares of many companies that pay dividends lagged the broader market at the start of 2012 when investors were pushing the riskiest stocks higher.

So many high-yielding stocks, like consumer companies McDonald’s (MCD, Fortune 500) and Coca-Cola (KO, Fortune 500) for example, may now be good values, in addition to offering a secure quarterly payout.

“I much prefer equities with dividends over bonds and growth stocks at this point,” he said. “Health care and consumer staples stocks look like the best bargains and may become market leaders.”

But one word of caution when looking at dividends. You should only invest in dividend payers that are also growing and have a strong enough cash position to keep paying it.

A high yield can be a sign of trouble since a yield will rise when a stock price is falling. And a nice yield is meaningless if a company decides to kill the dividend. That’s exactly what struggling retailer J.C. Penney (JCP, Fortune 500) did last week.

“There are a lot of companies where the yield is only going up because the stock is down so much,” said Cobb. “Fortunately, there are plenty of companies with terrific balance sheets with yields far above Treasuries.”

The Buzz is moving! CNNMoney is launching a brand new Investing section! And as part of that, The Buzz is morphing into a blog.

I will still write a daily column in the blog as well as several shorter posts, including a standalone that will highlight the Best of StockTwits. But what’s most exciting about the new Buzz is that it will also feature blog posts from all my colleagues on our Investing team about what’s moving in the markets.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks. To top of page

Senate panel looking at Facebook IPO deal

WASHINGTON (CNNMoney) — The Senate Banking Committee is looking into the controversial launch of Facebook’s initial public offering.

The committee will hold staff briefings with regulators, officials from Facebook, regulators and “other stakeholders,” to find out more about the deal, according to an aide to the Democratic majority on the committee.

Lawmakers on the panel haven’t yet launched a full-on investigation into Facebook, which could include subpoenas and depositions.

Facebook has lost more than 16% of its value since it went public last Friday.

The IPO was one of the most anticipated of all time. It was priced at $38 a share on Thursday by a consortium of 33 underwriters led by Morgan Stanley (MS, Fortune 500) and also including JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500).

But the launch was flawed. Nasdaq delayed trading, causing confusion among investors.

On Wednesday, three investors sued Facebook, CEO Mark Zuckerberg and the underwriters, accusing them of withholding negative information. A report from Reuters said Morgan Stanley shared a negative assessment of the social network with major clients

Analysts say the company’s stock has promise, considering that Facebook has more than 900 million members. But its future hinged on its ability to glean advertising revenue from its legions of users. To top of page

Home sales surge in April

Home sales surge 10% year-over-year in another indication of a housing market recovery.

Home sales surge 10% year-over-year in another indication of a housing market recovery.

NEW YORK (CNNMoney) — The housing market surged in April, with home affordability at record levels.

Sales hit 4.62 million homes during the month on an annualized basis, a rise of 3.4% compared with a month earlier and up 10% from April 2011, according to the National Association of Realtors.

NAR reported that the median price for homes sold during the month was $177,400. That’s a jump of more than 10% compared with a year earlier.

The housing market’s improvement was widespread, as all four regions in the nation recorded gains. That’s a good indication that there is a sustainable recovery afoot, according to Gus Faucher, a senior economist for PNC Financial.

“The fundamentals for a recovery have been in place for a while,” he said. “Only confidence was lacking.”

A decline in the proportion of distressed property sales — homes either in default or already repossessed by lenders — helped boost home prices. These properties normally sell at big discounts to conventional sales and drag down the overall median price.

In April, distressed properties accounted for 28% of sales, down from 37% 12 months earlier.

Pat Newport, a housing market analyst at IHS Global Insight, said he thinks the market is turning but that it will be a slow process.

“The market won’t pick up much steam this year,” he said. “The key issue is credit: It’s still tight both for mortgage borrowers and for home builders.”

There’s no sign that credit will loosen up anytime soon, but the fact that interest rates are at record lows does make financing easier for buyers.

NAR chief economist Lawrence Yun notes that it’s no longer just investors who are jumping into the market. “A return to normal home buying for occupancy is helping home sales across all price points,” he said.

As prices stabilize, homeowners may be encouraged to put their homes on the market. Inventory rose 9.5% to 2.54 million homes in April, which is common in the spring, as sellers try to capitalize on the selling season.

Overall, the supply of homes for sale has dropped more than 20% from 12 months ago and is well down from the record high of 4.04 million in July 2007.  To top of page

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Ahmed Elbatrawy