Aurelia Butler

DUBLIN (Reuters) – Lessors with hundreds of jets stuck in Russia are preparing for what one said would be a “vigorous” pursuit of insurance claims while maintaining discreet contact with some customers after Moscow blocked the jets from leaving.The loss of over 400 leased planes worth almost $10 billion since Western countries sanctioned Russia has led to a string of lessors writing down hundreds of millions of dollars in recent weeks. But the lessors, speaking at a major industry conference in Dublin, said they may have to wait years to find out how much they will secure from unpredictable battles with insurers. In the meantime they face much higher insurance bills. “Practically speaking, I don’t think anyone’s expecting to get their planes back anytime soon … mentally we’re moving past it,” said the head of U.S. lessor Aircastle, which has booked $252 million in impairment charges.”That doesn’t mean our teams aren’t still working and chasing, preparing for what we expect to be contested discussions with our insurance carriers,” CEO Michael Inglese told the Airline Economics conference.Steven Udvar-Hazy, founder of Air Lease (NYSE:AL) Corp, which has booked an impairment of $802.4 million, said it was pursuing “vigorous” insurance claims.The largest claim has been made by AerCap, the world’s biggest aircraft lessor, which has submitted a $3.5 billion insurance claim for more than 100 jets.Chief Executive Aengus Kelly acknowledged his firm was on the “wrong side” of the default, with the industry’s largest Russia exposure, but said “the insurance companies will have to settle” at some point as he shrugged off higher premiums.”Costs are going to go up, but I’m not going to listen to what the insurance companies are saying because they’re going to face competition themselves at some point,” he said. The head of Ireland’s Genesis, Karl Griffin, said it was one of the first lessors to renew insurance after Western sanctions halted all Russian leases – adding it was “not a pretty sight.”Few can say how the looming battle between lessors and insurers will play out. S&P Global (NYSE:SPGI) has forecast a huge range of aviation insurance losses of $6-15 billion.”No one knows exactly where it will land,” said Niels Jensen, co-head of aviation finance at Vinson & Elkins law firm, who said it will come down to the specific policy wording.Lawyers say the most heated issue involves the number of “occurrences” or trigger events involved in Russia’s default. That judgment could sway the value of settlements dramatically.In London, multiple leading law firms have been lined up to do battle over the implications of that single, sparse term.Dubai-based lessor DAE Capital, which described its $538 million write-off as “manageable”, said it expected to collect on insurance. “It will just takes time,” Chief Executive Firoz Tarapore told the conference. ‘WE DIDN’T STEAL’Even as many write off assets and pursue claims, a number of lessors said they were keeping some contact with private Russian airlines, which have in recent years relied heavily on Western lessors and have been good at paying bills.All said they were adhering strictly to sanctions.”We’re all pursuing the same strategy, making insurance claims, talking to the airlines, private airlines… but there is not much they are allowed to do,” said Dan Coulcher, Chief Commercial Officer of Willis Lease Finance, which on Monday took a $20.4 million impairment on two engines left in Russia. The Russian airlines who leased the planes were a lucrative market before the invasion. Lessors say the carriers want to avoid closing the door completely to future business, but are under heavy pressure from Moscow to cut ties. Russian President Vladimir Putin has said lessors from “unfriendly countries” violated their contractual obligations.”We have many of them basically tell us on the phone: ‘look we’re not crooks. We didn’t steal your airplanes. We hope you get paid for your airplanes, but we’re both stuck’,” said John Plueger, chief executive of Air Lease Corp .Some airline officials have shied away from cellphones, with some adopting ‘burner’ phones or meeting away from base.”Obviously their concern (is) we don’t know who’s listening. And that fear … escalated as the crisis went” on, Plueger said. Dialogue continues but is “much more guarded” he added.Russia makes up a modest 4% of global traffic but experts worry the claims battle could sour attitude to risk in general.”I think the bigger thing is could we see the same thing happening in a much, much bigger country starting with a ‘C’ in Asia,” said Marc Iarchy, a partner at World Star Aviation.”It will be a much bigger shock to the system. But it’s entirely possible,” he warned. More

AMELIA ISLAND, Fla. (Reuters) – If the Federal Reserve sells any of its holdings of mortgage backed securities it may have to do so at a loss, Cleveland Federal Reserve bank President Loretta Mester said Tuesday, a potentially difficult problem for the central bank, at least politically, since it remits its annual profits to the U.S. Treasury.”A potential drawback of sales is that, depending on the interest rate path, they could result in realized market-to-market losses,” Mester said in comments to an Atlanta Fed conference. “Such losses would not entail any operational challenges for the Fed in setting monetary policy. However, they would pose communication challenges that would need to be appropriately addressed.” The Fed has faced persistent questions from some members of Congress on the risks it was taking in amassing its giant stockpile of bonds and mortgage securities. The assets were purchased to stabilizing key financial markets during the onset of the pandemic in 2020, but part of the Fed’s current fight against inflation involves lowering its presence in those same markets.Assets that are held to maturity pose no risk of loss, but sales would depend on the market prices and interest rates of the day.An ICE (NYSE:ICE) index of mortgage backed securities is down about 9% on the year.Mester’s comments do not reflect the likelihood of sales. But Fed officials do want their balance sheet to consist mainly of Treasury securities, and to get rid of most if not all of the $2.7 trillion in mortgage securities the central bank currently holds.Fed officials plan to begin reducing their nearly $9 trillion balance sheet next month initially by taking the proceeds of maturing Treasury Securities or repaid mortgage securities and, instead of reinvesting the proceeds, pulling that much cash out of the financial system. By this fall the reductions will be as much as $60 billion per month for Treasury securities, a limit the Fed expects to meet each month, and as much as $30 billion in mortgage securities.Because of the slower repayments expected on home mortgages, the Fed does not expect to meet that cap each month, and has mentioned possible active sales of MBS to reach it. Sales of MBS would “speed the return or our portfolio’s composition” to mostly Treasury issued securities.Because home mortgage interest rates have been rising, the sale price of those mortgage securities may well have fallen since buyers would demand a discount to accept mortgages based on a smaller stream of payments.That “would lower the Fed’s remittances to the Treasury,” Mester said.She said that in determining how far the balance sheet will shrink the Fed, as it did in a similar exercise from 2017 to 2019, will “be monitoring developments in money markets to determine the appropriate level.” More

AMELIA ISLAND, Fla. (Reuters) – Inflation will need to show a “compelling” slowdown before the Federal Reserve can consider pausing its interest rate increases, Cleveland Federal Reserve President Loretta Mester said Tuesday, with the risks currently pointed towards a tougher fight to bring the pace of price increases under control.”I would need to see monthly numbers coming down in a compelling way before I would want to conclude we could now rest,” Mester said in an interview with Reuters on the sidelines of an Atlanta Federal Reserve bank conference.Between the Ukraine war, continued coronavirus lockdowns in China, and other factors “the risks to inflation are skewed to the upside and the cost of allowing that inflation to continue is high,” Mester said, an argument for the Fed “doing more upfront rather than waiting.”The Fed is expected to approve half point increases to its short-term policy rate in June and July, “then we have to see,” how inflation is behaving and debate how much higher rates may have to move, Mester said.New government data on Wednesday is expected to show consumer prices continued rising more than 8% on a year over year basis last month, but may have slowed a bit compared to March – a possible sign that inflation has hit a peak. Fed policymakers have set a 2% inflation target using a separate measure that is running about three times the target level. They began raising interest rates in March to try to cool consumer spending and bring the demand for goods and services more closely into line with what a stretched economy can produce.Mester’s comments point to a debate still to come over how different policymakers will evaluate incoming data, how much progress they will need to see on inflation to slow or pause further rate increases, and how much of a slowdown in the rest of the economy may be needed to cool the strongest price increases in 40 years.Other Fed officials this week cautioned that demand could fall off fast as interest rates rise, a reason to be careful in raising rates.Mester said she was open to the possibility that “excess demand” falls off faster than expected, or that world supply chains improve more quickly. But at this point she said she expects the Fed’s policy rate will have to move beyond the 2.5% level she regards as “neutral,” and to a level that would begin to restrict the economy and likely cause the unemployment rate to rise from the current low level of 3.6%.Even then, she said, she did not expect the Fed to fully win its fight over inflation this year or next, only to get back on the right path.”I don’t think it will get back to 2% next year. But it will be well on its way, in the range of two and half percent but moving in the right direction,” she said. “And given where the economy is and all the factors affecting inflation that are outside of our realm, that is acceptable to me.” More

“It’s time to raise rates now when the economy can take it,” Waller told the Economic Club of Minnesota. “Front-load it, get it done, and then we can judge how the economy is proceeding later, and if we have to do more, we’re going to do more.” The U.S. central bank last week raised interest rates by half a percentage point and Fed Chair Jerome Powell signaled similar-sized rate hikes were likely at the next two policy meetings. Waller was asked why, if inflation is as high as it is, the Fed isn’t raising rates even faster.”It’s not a shock-and-awe Volcker moment,” Waller said, referring to former Fed Chair Paul Volcker, whose battle with inflation in the early 1980s involved sharp and unexpected rate increases of as much as four percentage points at a time, and sent the economy into a sharp recession.Back then, Waller said, inflation had been building for years and the public and financial markets had little faith in the Fed’s ability to control it. The current bout of inflation has only been running too high for about a year, he said.”We are on it already, and there’s no backing off,” Waller said. “And the other advantage is the labor market, as I said, is so strong, the economy is doing so well, this is the time to hit it.” More

NEW YORK (Reuters) – The global economy is in recession and recent stock market volatility is a sign investors believe that the Federal Reserve’s plan to continue hiking interest rates is too aggressive, star stock picker Cathie Wood said in a webinar on Tuesday.Wood, whose ARK Innovation ETF outperformed all other U.S. equity funds during the pandemic rally in 2020, said slowing economic growth will likely benefit the type of innovative companies that the fund invests in. “There are a lot of indicators to us that we are in a bit of a bear market” because of the Fed’s expected plan to increase rates by 50 basis points at its June and July meetings, Wood said. “The markets are speaking pretty loudly right now and seem to be calling into question the Fed’s strategy.” The benchmark S&P 500 is down approximately 16% for the year to date, near the 20% decline that typically signifies a bear market.At the same time, “innovative” companies are being subject to “incredible” shorting activity, Wood suggested, pushing stock prices lower. “If we are right, then shorts will be forced to cover and we are certainly looking forward to that time,” Wood said. The $7.9 billion ARK Innovation Fund, which gained 2% in Tuesday trading, is down 57.6% for the year to date. Overall, the fund is now down nearly 75% from its record high in February 2021, and close to the low of $34.69 it touched in March 2020 at the start of the coronavirus pandemic. The fund added a position in General Motors Co (NYSE:GM), largely due to signs it is “serious” about its move into electric vehicles, the company said during the webinar Tuesday. Tesla (NASDAQ:TSLA) Inc remains its largest overall position. Despite its losses, ARK Innovation continues to draw the interest of investors. The fund has received positive inflows on net over the last 4 weeks, including $455.7 million in net inflows the week that ended May 4, according to Lipper data. More

US households added $266bn to their debt balances in the first quarter, led by mortgage loans, in the largest single-quarter increase since 2006, according to the Federal Reserve Bank of New York.The borrowing took US household debt to $15.84tn, or $1.7tn above pre-pandemic levels, researchers at the Fed branch said in a report on Tuesday. But consumers’ balance sheets are much stronger than they were before the onset of coronavirus in early 2020.Household credit card balances declined by $15bn in the quarter as borrowers paid down some of last year’s holiday spending. But the seasonal decline was more modest than normal and credit card balances were still $71bn higher than a year before.Bank executives touted credit card balance growth during earnings calls last month as a sign that the economy was headed back towards business as usual.“Households are in very good shape in terms of their net wealth,” New York Fed researchers told reporters on Tuesday. “The outstanding debt is of high quality, meaning most of the debt that was originated went to high credit score borrowers.” Mortgage balances jumped by $250bn in the first quarter compared with the end of last year, as stronger home sales at higher prices pushed homebuyers to take out larger loans. With US interest rates on the rise, people have been rushing to strike deals to avoid even higher financing costs later.Inflation has been eating away at Americans’ purchasing power, but consumer expectations for inflation over the next year fell slightly in April to 6.3 per cent. Households expect to increase spending by an all-time high of 8 per cent, according to a monthly New York Fed consumer survey that was released on Monday.Despite rapidly rising prices, the average US household feels better about their financial situation, the survey found. Low-income households drove a decline in the perceived probability of missing an upcoming debt payment in April. The average household is forecasting a 3.1 per cent increase in income this year.Consumer confidence had been bolstered by a cushion of pandemic-era savings that allowed households to better absorb higher prices and take on debt. But their resilience was likely a factor spooking investors who have bailed out of stock markets this year, said Diane Swonk, chief economist at Grant Thornton.“The good news is that consumers had a cushion to tap into. The bad news is that the more cushion they have, the more resilient the economy is and the more inflation is a problem,” she said. “That’s why you see the dissonance between consumers and financial markets.”Last week, the Fed increased its main interest rate by 0.5 percentage points and signalled that similar increases were imminent as it shifts its focus from propping up markets to reining in inflation. More

MILAN (Reuters) -Pirelli said on Tuesday it had sought alternative suppliers, increased stocks and shifted production since March to mitigate the impact of Russia’s invasion of Ukraine.Russia, where the Italian tyremaker operates two plants, accounts for around 3% of Pirelli’s revenues and around 11% of its total car tyre capacity, especially in the standard segment, with about half of that intended for export.Pirelli, which on Tuesday said its operating profit grew 35% in the first quarter, said previously it had halted investments in Russia, excluding those linked to security, and activities at its plants were being progressively limited and set just for the local market.Among the measures to counter the effects of sanctions over what Moscow describes as a “special military operation”, Pirelli said it had relocated production of standard tyres for European export to low cost plants in Romania and Turkey.Measures also included a new credit line with a local bank to ensure financial continuity for its operations in Russia and a diversification of logistic service providers.Despite an outlook darkened by geopolitical tensions, inflation and falling demand in China due to lockdown measures, Pirelli’s adjusted earnings before interest and tax (EBIT) were 228.5 million euros ($241 million) for January-March, exceeding a company-provided analyst consensus of 217 million euros.”Outlook for 2022 remains positive despite the war in Ukraine exacerbating raw material pressures,” Chief Executive Marco Tronchetti Provera told analysts.Pirelli said that increasing inflation and raw material costs were more than offset by price-mix and efficiencies, while a lockdown-led drop in Chinese demand was partly offset by a better business performance expected in North and South America.But the manufacturer of tyres for Formula One and high-end carmakers such as BMW and Audi, trimmed its forecast for this year’s margin on its adjusted EBIT to around 15%, after previously guiding between around 16%-16.5%. “Further actions are being planned to improve this profitability target,” it said.However Pirelli slightly raised its forecast for its full-year revenues, allowing it to confirm a target first given three months ago for adjusted EBIT of 890 million euros. ($1 = 0.9489 euros) More

Anti-government protesters angry over power blackouts, shortages of basic goods and rising prices demand that President Gotabaya Rajapaksa steps down, but the retired military officer has invoked emergency powers in an attempt to maintain control.The violence and political chaos gripping the island nation of 22 million comes 13 years after a brutal civil war ended in a bloody denouement in which tens of thousands of people were killed.India, Sri Lanka’s northern neighbour, has extended billions of dollars in loans to help the country pay for vital supplies.China, which has invested heavily in infrastructure projects in recent years in what analysts say is an attempt to extend its influence across Asia, has intervened less publicly but said it supported efforts for the island nation to restructure its debt.Sri Lanka’s vital negotiations with the International Monetary Fund (IMF) over a rescue plan, as well as plans to restructure its sovereign debt, could be thrown into disarray.HOW DID IT COME TO THIS?Analysts say that economic mismanagement by successive governments weakened Sri Lanka’s public finances, leaving national expenditure in excess of its income and the production of tradable goods and services at inadequate levels.The situation was exacerbated by deep tax cuts enacted by the Rajapaksa government soon after it took office in 2019. Months later, the COVID-19 pandemic struck.That wiped out much of Sri Lanka’s revenue base, most notably from the lucrative tourism industry, while remittances from nationals working abroad dropped and were further sapped by an inflexible foreign exchange rate.Rating agencies, concerned about government finances and its inability to repay large foreign debt, downgraded Sri Lanka’s credit ratings from 2020 onwards, eventually locking the country out of international financial markets.To keep the economy afloat, the government leaned heavily on its foreign exchange reserves, eroding them by more than 70% in two years.WHAT DID THE GOVERNMENT DO?Despite the rapidly deteriorating economic environment, the Rajapaksa government initially held off talks with the IMF.For months, opposition leaders and some financial experts urged the government to act, but it held its ground, hoping for tourism to bounce back and remittances to recover.Eventually, aware of the scale of the brewing crisis, the government did seek help from countries including India and China, regional superpowers who have traditionally jostled for influence over the strategically located island.In all, New Delhi says it has provided support worth over $3.5 billion this year.Earlier in 2022, President Rajapaksa asked China to restructure repayments on around $3.5 billion of debt owed to Beijing, which in late 2021 also provided Sri Lanka with a $1.5 billion yuan-denominated swap.Sri Lanka eventually opened talks with the IMF.Despite outside support, fuel shortages have caused long queues at filling stations as well as frequent blackouts, and some crucial medicines have run low.WHAT HAPPENS NEXT?President Rajapaksa has sought support from all political parties in parliament to form a unity government, an offer that many, including the ruling alliance’s allies, have declined.On Monday, Prime Minister Mahinda Rajapaksa, the president’s older brother, wrote in his resignation letter that he was quitting so that an interim, all-party government could be formed.The president plans to meet opposition politicians with the expectation of forming a new government within days, according to a cabinet spokesman.But thousands of protesters, some of whom have camped out on the streets for weeks to the chants of “Gota(baya) go home”, also want the president to step down.Pro- and anti-government demonstrators clashed on Monday in the commercial capital Colombo in an escalation of violence, and houses and cars have been torched in other parts of the country.Some Sri Lankan business groups are leaning on the country’s politicians to quickly find a solution.In a statement on Tuesday, the Joint Apparel Association Forum, which represents Sri Lanka’s vital apparel industry, said it was “critical” for a new government to take charge. More