Washington/Tokyo: Investors breathed a sigh of relief on Friday after the results of stress tests on US banks revealed no nasty surprises and looked ahead to jobs data that may offer further hope the global slump is bottoming out.
In an illustration of the damage inflicted on global trade by the downturn, Toyota Motor Corp, the world’s largest car maker, posted a $6.9 billion loss for the final quarter and forecast increasing losses this financial year.
But there was better news from Germany, hit hard by falling demand for its cars and engineering goods, where exports unexpectedly rose for the first time in six months in March, according to preliminary data on Friday.
US regulators ordered top banks on Thursday to raise nearly $75 billion in capital — less than some analysts had estimated — to bolster their ability to withstand further shocks to the financial system.
“The fears of nationalisation or of failure have more or less disappeared, and now what we’re getting is details of how banks are going to fill in their capital deficiencies,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
In Europe, part-nationalised Royal Bank of Scotland (RBS) reported a small loss for the first quarter after bad debts quadrupled and it took another £2.1 billion writedown on the value of risky assets, while Germany’s Commerzbank posted a bigger-than-expected net loss.
RBS, which posted the biggest loss in British corporate history for 2008, said it made a loss of £44 million ($66 million) for the three months to the end of March, compared with a £479 million profit a year ago.
Commerzbank, battered by writedowns on debt products related to the US residential mortgage market, made a quarterly loss of €861 million ($1.15 billion), worse than the average analysts forecast of €719 million in a Reuters poll.
Eyes on non-farm payrolls
Asian share markets and US stock futures made modest gains in a muted reaction to the stress tests, which had involved 150 officials poring over the books of the 19 largest financial firms. Equities and other riskier assets have rallied in recent weeks as data suggests the dramatic slump in the world economy, which gathered pace after the collapse of Lehman Brothers in September, is finally slowing and a turnaround may be in sight.
Those expectations received a further fillip on Thursday from a drop in new US jobless claims and better German manufacturing data. The US monthly non-farm payrolls report, due at 1230 GMT on Friday, will be closely watched.
“There’s a sense now that the market is starting to search for new trading factors, basically looking to macro indicators for confirmation the global economy is truly on a rising trend,” said Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo.
But trading conditions for many companies remain exceedingly tough.
Toyota, facing a plunge in global demand that forced rival Chrysler into bankruptcy, forecast an operating loss of ¥850 billion for the year to next March, more than double the average forecast in a survey of 20 analysts by Thomson Reuters.
The company, which went from rapid expansion to overcapacity almost overnight as global demand collapsed, also cut its annual dividend for the first time since at least 1994, when it changed its reporting period.
In Australia, a big exporter of commodities, the central bank slashed its forecasts for growth this year, as many of its trading partners remain mired in recession.
The Reserve Bank of Australia’s quarterly statement said the economy would suffer a significant contraction in the first half of the year only a little smaller than the recession of 1991, but saw “reasonable grounds” to expect a recovery later in 2009.
The International Monetary Fund (IMF) said recent economic data from China, the engine of world growth in recent years, showed encouraging signs of a rebound but that it was too early to tell whether it was sustainable.
“In China, we have very encouraging indicators on investment and bank lending, suggesting that the economy is snapping back more vigorously than we previously expected,” said Joshua Felman, assistant director of the IMF’s Asia and Pacific Department.
The worst global recession in decades was triggered by a crisis in the financial industry, with several of the biggest US banks and insurers having to be rescued with government money after booking massive losses tied to a housing market bust.
The unprecedented stress tests found that 10 banks needed additional capital — a total of $74.6 billion — to withstand heavier losses that are likely if the recession worsened.
Bank of America Inc had the largest need at $33.9 billion, Citigroup needed $5.5 billion, Wells Fargo $13.7 billion and GMAC $11.5 billion.
Washington, which has spent hundreds of billions bailing out the banks like Citigroup and BofA, hopes the banks can fill the capital holes with private capital, although Federal Reserve chairman Ben Bernanke said the government would help if needed.
“We’re going to be watching carefully to make sure they give us credible plans for raising capital and becoming privately owned again,” he told journalists.
US shares had fallen earlier in the day, before results of the tests were released, but removal of the uncertainty helped send US stock futures higher in after-hours trade, with the S&P 500 futures index up 0.8%.
The MSCI index of Asian stocks outside Japan rose 0.5%, adding to gains of 8.6% over the previous four sessions, and Japan’s Nikkei edged up by a similar amount to book a six-month closing high.
“The announcement of stress test results came with the best timing after market sentiment had already been improved by a slew of upbeat economic data along with a recovery of stock markets,” said Yoshihisa Kanzaki, a trader at Shinkin Central Bank.