JP Morgan Chase

owns and losses from the credit crisis among European competitors, and had to turn to the Swiss government a year ago for a 6 billion-franc capital injection to help it spin off risky assets into a Swiss National Bank fund. The bank reported a net loss of 21.3 billion francs last year, a record in Swiss corporate history.
“The pressure is now mounting to demonstrate that the group is turning around, specifically with respect to the private banking franchise,” JPMorgan Chase & Co. analysts led by Kian Abouhossein said in a note yesterday. They have a “neutral” rating on UBS.
Shrinking Margins
UBS is not only seeing clients withdraw funds from its wealth management unit, the bank is also earning less on the remaining 1.68 trillion francs of assets under management, the earnings release showed.
“The dash-to-cash hit UBS’s margins harder than any other private banking division we cover,” van Steenis, a London-based analyst at Morgan Stanley with an “equal-weight” rating on UBS, said in a note yesterday.
The gross margin on business with international clients, which shows how much revenue the bank makes compared with assets under management, fell to 83 basis points in the third quarter from 102 basis points two years ago. A basis point is a hundredth of a percentage point.
“We consider the wealth management business to be facing significant challenges,” Dirk Hoffmann-Becking, a London-based analyst at Sanford C. Bernstein, who has an “underperform” rating on UBS, said in a note after earnings.
The following is a table of the 10 largest European banks by market value, with the percentage of buy ratings, their price-to-earnings ratios, and year-to-date stock performance, as of the close of trading on Nov. 4.

U.S. Federal Reserve

Nov. 5 (Bloomberg) -- The Bank of England may increase its bond-purchase plan by 50 billion pounds ($83 billion) today as central bankers and politicians scramble to shore up Britain’s banking system and drag the economy out of the recession. Governor Mervyn King’s nine-member Monetary Policy Committee will expand the asset-buying program to 225 billion pounds at 12 p.m. in London, the median of 48 forecasts in a Bloomberg News survey shows. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of two of the nation’s biggest banks. Any increase in the Bank of England’s emergency program would be the third since King unveiled the plan in March. Brown’s first bank bailout, the government’s fiscal stimulus measures and an injection of 175 billion pounds in newly printed central-bank money have so far failed to end Britain’s longest recession on record. “They’ve got to throw money at it,” said Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official. “The fact of the matter is that the U.K. economy is lagging behind. As to whether quantitative easing is working, the jury is still out.” The central bank will keep its benchmark interest rate at a record low of 0.5 percent, according to all 60 economists in a Bloomberg survey. The European Central Bank, which also meets today, will maintain its main rate at 1 percent at 1:45 p.m. in Frankfurt, a separate survey showed. ‘Exceptionally Low’ The U.S. Federal Reserve yesterday left its target for the overnight interbank lending rate unchanged at a range of zero to 0.25 percent. Policy makers restated a pledge to keep rates “exceptionally low” for an “extended period.” The Bank of England’s bond plan already split the rate panel once this year when King’s push to increase the program to 200 billion pounds was defeated in August. While he argued that being too cautious was less of a risk than spending too much, Chief Economist Spencer Dale says that there is a danger of stoking asset prices too much. “It is a lot of money, but if it does restart the economy and gets it moving again then it’s worth it,” said George Buckley, an economist at Deutsche Bank AG in London. “It’s very difficult to say if quantitative easing is working, but it is doing something.” Service industries showed the fastest pace of expansion since August 2007 in October in a survey by Markit Economics released yesterday, while Nationwide Building Society said consumer confidence held at the highest level in 1 1/2 years. ‘Full Impact’ Some economists say the pickup may have more to do with record-low interest rates than the bank’s bond purchases. “When you have a 500-basis-point cut in interest rates, that is bound to impact the economy with a bit of a lag and that lag is coming to an end and we’re seeing the full impact now,” former U.K. policy maker DeAnne Julius said in a Bloomberg Television interview this week. While the Bank of England says that one of the aims of the bond purchases is to increase the amount of money in the economy, a gauge of money supply favored by the bank fell an annualized 1.7 percent in the third quarter, the weakest reading on record. “If reviving bank lending and in turn money-supply growth is the objective, it’s clearly not working,” VTB’s Mackinnon said. “The evidence for any upturn in lending is still very tentative.” Britain’s Recession Gross domestic product shrank 0.4 percent in the three months through September, dragging Britain’s recession into a record sixth quarter. By contrast, the U.S., German and French economies have all returned to growth. Marks & Spencer Group Plc, the nation’s largest clothing retailer, said yesterday that it is “cautious” about the outlook for the next year. HSBC Holdings Plc, Europe’s largest bank, said this week that it will cut 1,700 jobs in the U.K. Brown is seeking to revive the banking system and the economy in preparation for an election due by June. He pledged this week to inject 31.2 billion pounds into Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, allowing the institutions to scale back dependence on state guarantees for their most toxic assets. The government also promised up to 8 billion pounds for RBS to use “in exceptional circumstances.” “Every effort must be made to bring the recession to an end,” David Kern, economic adviser at the British Chambers of Commerce, said today. “The current economic situation -- in which our economy is still declining while other countries are already growing -- entails serious dangers and must not be allowed to continue.”

The Obama administration’s effort to end the Middle East conflict has suffered a setback

Nov. 5 (Bloomberg) -- The Obama administration’s effort to end the Middle East conflict has suffered a setback, the Arab League said at the United Nations after Secretary of State Hillary Clinton assured Egyptian leaders of the U.S. commitment.
“He is a good man and his intentions are good, but we are back to square one,” Arab League Ambassador Yahya Mahmassani said of President Barack Obama’s bid during his first year in office to make headway toward Israeli-Palestinian peace talks and a state for Palestinians. “His words have not led to actions so far.”
Clinton returned from five days of crisscrossing the region yesterday, after adding a stop in Cairo to try to ease Arab anger over her statements Oct. 31 in Jerusalem. She came under fire for hailing as “unprecedented” Israeli Prime Minister Benjamin Netanyahu’s proposal to restrict, rather than halt, settlement construction in the West Bank.
The outcry from Arab governments overshadowed Clinton’s Mideast tour and came as Arabs pressed at the UN for prosecution of Israeli officials for alleged war crimes during the December- January offensive in the Gaza Strip. Israel has said it won’t resume peace talks while facing possible war-crimes charges.
For three days starting at a meeting of Arab leaders in Morocco Nov. 2, Clinton insisted that U.S. policy on Israeli settlements hasn’t changed.
“We do not accept the legitimacy of settlement activity,” she said in Cairo.
Talks in Egypt
Clinton and her Mideast advisers were upbeat yesterday about the reception they got from Egyptian President Hosni Mubarak, who wields influence with both Israel and the Palestinians, for U.S. calls for a swift return to negotiations for a two-state solution. U.S. officials billed it as a comeback, just days after Clinton was battered for a perceived softening of American opposition to Israeli settlements.
“You heard an Egyptian statement of policy which has moved a lot closer to our position about wanting to focus on the endgame than what you might have heard from Arab leaders a week ago,” said Jeffrey Feltman, the assistant secretary of state, who handles the Middle East.
There is a lack of “clarity” in Clinton’s statements on the issue, according to Jonathan Spyer, a political scientist at the Interdisciplinary Center Herzliya in Israel.
“There were various statements made by Hillary, almost comically, being generous to Netanyahu in Jerusalem, then quickly trying to backtrack when speaking in an Arab context,” Spyer said in an interview. “This phase of Obama Middle East policy is over and what comes next we don’t yet know.”
Back to Talks
Clinton’s trip was intended to get Israel and the Palestinian Authority back into broad talks on forming a Palestinian state. Negotiations broke down in December when Israel began a military operation in the Gaza Strip to stop the firing of rockets on Israeli communities by Hamas, designated a terrorist group by the U.S.
“What we should focus on is the endgame, the end of the road, and not waste time in holding onto this issue or that issue as a starting point before negotiations,” Egyptian Foreign Minister Ahmed Aboul Gheit said at a joint press conference with Clinton, according to an unofficial translation.
Aboul Gheit said he and Mubarak were convinced after their talks with Clinton yesterday that the U.S. hasn’t changed its position that Israel should freeze the building of Jewish settlements. The Palestinians say the development of Israeli communities in the West Bank is an obstacle to creating a state on the territory and are demanding a total settlement freeze as a precursor to renewing peace talks.
Upbeat Note
Clinton sounded an upbeat note as she ended her trip, which included a three-day visit in Pakistan and a stop in Israel.
“I carry with me a personal conviction that nothing can be allowed to interfere with our determination and our resolve and our conviction,” she told a news conference in Cairo.
American officials said the gap between Israel and the Palestinians is requiring considerable energy to keep the diplomatic effort alive.
“There is no reason to have any positive feelings about what is going to happen,” Hani Sabra, Mideast analyst for the Eurasia Group, a New York-based political-risk analysis firm, said in an interview. “The Clinton trip was a failure. It is time to step back for now. Nothing is going to happen in the next few months.”
In the West Bank city of Ramallah, negotiator Saeb Erakat said Palestinians are facing a “moment of truth” and may give up on peace talks if Israel doesn’t stop building housing.
“Israel has a choice: settlements or peace,” Erakat said.
No Preconditions
The Israeli government has called for the immediate resumption of negotiations and without preconditions. “We have already wasted more than half a year because of preconditions the Palestinians put on the talks and we think it’s a mistake,” Mark Regev, a spokesman for Netanyahu, said in a phone interview.
Clinton said the settlement dispute may not be resolved until talks start on the core issues of the conflict.
“What we’re looking at here is recognition that getting into final-status issues will allow us to bring an end to settlement activity,” she said.
Those major issues include borders and the status of Jerusalem, where Palestinians want to put their capital.
Last May, Clinton said only a construction halt in the West Bank would be acceptable. In September, after meeting Abbas and Netanyahu at the UN, Obama referred only to a “restraint” on settlements.
“Netanyahu won this round,” Mkhaimar Abusada, a political scientist at Al-Azhar University in Gaza, said in an interview. “Clinton is now asking the Palestinians to go back to the negotiating table without freezing settlements. There are deep contradictions in her position.”

U.S. central bank decided

SINGAPORE (AP) -- World stock markets dropped Thursday as the U.S. Federal Reserve failed to reassure investors that a lasting recovery in the global economy was taking hold.
The U.S. central bank decided Wednesday to keep a key interest rate at a record low and said cheap credit would continue for an "extended period" as the world's largest economy struggles to regain its footing after its worst downturn in decades.
For many investors, the news raised doubts about whether the turnaround under way in many economies was strong enough to extend a powerful eight-month rally in global markets. A key U.S. unemployment report due Friday, which could yield clues about the ailing U.S. consumer and demand for Asian exports, also kept traders on edge.
"Around these levels, it's hard to have conviction positions," said Jan Lambregts, head of research of Rabobank in Hong Kong. "There's a big question on investor confidence given issues about the sustainability of the global recovery once stimulus policies fade."
As trading got under way in Europe, benchmarks in Britain and Germany dropped 0.9 percent, while France's market fell 0.7 percent.
Earlier, Japanese shares helped lead Asian stocks lower, with the Nikkei 225 stock average falling 126.87 points, or 1.3 percent, to 9,717.44, as the strengthening yen undermined the competitiveness of the country's exports.
"The Japanese export sector is being killed by the yen, and I think yen strength is here for quite a while," Lambregts said.
South Korea's market pulled back 1.8 percent to 1,552.24, while Hong Kong's Hang Seng was down 0.6 percent at 21,479.08 and India's market shed 0.2 percent. Markets in Indonesia, Singapore and Australia also slid. Chinese shares, though, bucked the downward trend to gain modestly.
Among stocks, Japan's Nissan Motor Co. edged up 0.3 percent after returning to a profit last quarter and predicting a narrower loss for the fiscal year with the help of stronger demand in China.
Wall Street traded largely sideways on Wednesday.
The Dow rose 17.53, or 0.3 percent, to 9,802.14. The broader Standard & Poor's 500 index rose 1.09, or 0.1 percent, to 1,046.50.
U.S. futures augured a lower open on Thursday. Dow futures shed 23 points, or 0.2 percent, to 9,762, while S&P futures lost 3.50, or 0.3 percent, to 1,043.50.
Oil prices fell in Asia, with benchmark crude for December delivery down 57 cents to $79.83 a barrel. The contract gained 80 cents overnight.
Gold, meanwhile, rose $1, or about 0.1 percent, to $1,088.40 an ounce.
The dollar slipped to 90.27 yen from 90.77 yen. The euro fell to $1.4826 from $1.4872.