July 12, 2010
The New York Times
By: Jack Ewing
The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.
Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
“There is a cliff we are racing toward — it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”
Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.
U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households.
The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods.
The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.
Government bank guarantees extended in response to the crisis also inadvertently encouraged short-term lending. The guarantees were typically only for several years, and banks issued bonds to match.
Other banks took advantage of the gap between short-term and long-term rates, borrowing cheaply from money markets or central banks and lending to their customers at higher, long-term rates.
A study in November by Moody’s Investors Service found that new bond issues by banks during the past five years matured in an average of 4.7 years — the shortest average in 30 years.
Since then, worries about Greek and Spanish debt and whether Europe is headed for another recession have caused new problems. Investors are unsure which institutions are in good shape and which are sitting on piles of bad loans and potentially tainted government bonds.
Bond issuance by financial institutions in Europe plunged to $10.7 billion in May, compared with $106 billion in January and $95 billion in May 2009, according to Dealogic, a data provider. New issues have recovered somewhat since, to $42 billion in June and $19 billion so far in July.
Bank stress tests being conducted by European regulators could help if they succeed in convincing markets that most banks are healthy. Bank regulators plan to release results of the tests, covering 91 large banks, on July 23.
Sandeep Agarwal, head of financial institutions debt capital markets in Europe at Credit Suisse, predicted that the market could be separated into haves and have-nots, with the healthy banks raising money fairly easily but weaker banks required to pay a premium. “There is cash at the right price for many institutions, not all institutions,” Mr. Agarwal said.
That could add pressure on the weakest banks to merge, seek government help, or scale back their activities. Some might even fold. The Landesbanks in Germany, savings banks in Spain or other institutions that have struggled may be forced to confront difficult choices.
A shortage of bank finance also could create quandaries for the European Central Bank, which appears anxious to wean banks from the cheap cash that it began providing in the heat of the global financial crisis.
If institutions are unable to raise the money that they need on the open market, the European Central Bank would have to decide whether to continue to prop them up.
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July 2, 2009
New York Times
by Gardiner Harris & Duff Wilson
WASHINGTON — Federal drug regulators warned Wednesday that patients taking two popular drugs to stop smoking should be watched closely for signs of serious mental illness, as reports mount of suicides among the drugs’ users.
But officials emphasized that fear should not stop patients from taking the smoking-cessation medicines, Chantix, made by Pfizer, and Zyban, made by GlaxoSmithKline, which also sells it under the brand name Wellbutrin, for depression.
“Stopping smoking is a goal we should all be working towards,” said Dr. Curtis J. Rosebraugh, director of a drug evaluation office at the Food and Drug Administration. “We don’t want to scare people off from trying a medication that could help them achieve this goal. You should just be careful.”
Pfizer will add a so-called black box warning — the F.D.A.’s most serious caution — to the packaging information for Chantix.
The Pfizer drug, introduced in 2006, has about 90 percent of the market for prescription smoking-cessation drugs, according to IMS Health, a health care information company. Even so, Chantix sales — $846 million in 2008 — had been less than Pfizer had hoped because of previous warnings of its side effects.
Glaxo will expand its existing black box warning on Wellbutrin, citing suicidal thoughts by patients who use it for depression, to include Zyban, which has had only modest sales in the smoking cessation market.
Both companies will also be required to conduct clinical trials to assess the mental health risks associated with the drugs’ uses. Pfizer is already enrolling schizophrenia patients in a trial.
Because smokers and people trying to quit are statistically more likely to be depressed and suicidal, officials for both companies said it was difficult to identify the specific impact of the drugs on those risks. “Nicotine withdrawal itself can be very difficult for people to endure,” Dr. Steve Romano, a Pfizer vice president, said Wednesday.
Analysts said the F.D.A. action would have little effect on sales because of previous indications of the drugs’ psychiatric risks.
“I think the market and physicians have already been sensitized to this,” said Catherine J. Arnold, an analyst for Credit Suisse.
“I’m not panicking,” said Jami Rubin, an analyst for Goldman Sachs, “Sales are already down a lot. It is and will remain a small niche product.”
Chantix had already experienced a slight sales decline last year from the $883 million achieved in 2007. And this year’s first-quarter sales of $177 million were 36 percent below the corresponding period last year.
Ms. Arnold predicted that sales would probably continue falling to around $740 million for all of 2009, but that demand for smoking-cessation treatments would enable it to grow modestly after that — to perhaps half of the $2 billion in annual sales Pfizer had originally hoped for the drug.
European officials first alerted the F.D.A. in 2007 to problems associated with Chantix. In September of that year, Jeffrey Carter Albrecht, a keyboard player from the pop-music group Edie Brickell and New Bohemians, was killed by a neighbor who had complained that Mr. Albrecht was banging on his door, ranting. Mr. Albrecht’s girlfriend blamed Chantix, which she said had made him hostile.
The widely publicized event led to a cascade of similar reports and scrutiny by F.D.A. safety officials, who have now received 98 reports of suicides and 188 reports of suicide attempts among those taking Chantix.
As officials looked more closely, they found to their surprise that Zyban has similar associated risks. The agency received 14 reports of suicides and 17 reports of suicide attempts among those taking Zyban.
No one knows why the drugs are associated with mental problems. In some cases, patients could be experiencing nicotine withdrawal, but some of the reports involved patients who had yet to stop smoking. And many of the events happened just as patients began or stopped therapy, officials said.
“If this is nicotine withdrawal, it really doesn’t matter,” said Dr. Robert Temple, an F.D.A. official. “You need to pay attention to them.”
The agency’s action requires the drugs’ makers to mention the risk of suicide in advertising, and it prevents the companies from using “reminder” ads, during which consumers are encouraged to talk to their doctors about a health issue but the product’s name is not mentioned.
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