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Money markets interbank rates extend slide but activity tame

Benchmark interbank lending rates maintained their downward trek on Wednesday driven by the huge cash boost from the European Central Bank but activity remained subdued as banks looked for gains in higher-yielding assets. Most measures of money market stress were stable as the one trillion euros of low-cost three-year liquidity the ECB has pumped into the banking system over the last two months provided a shield from ongoing uncertainty over the outcome of Greece's debt swap deal with private creditors. The hefty cash infusion has driven the rates at which banks lend to each other to their lowest levels in 17 months and lessened the urgency for banks to raise money in the open market."Liquidly is available in large sizes. However, there's not a lot of additional volume going through he interbank market yet. I guess people who are long cash might be investing in European sovereign debt as the yield is more attractive than interbank rates," a money markets trader said."As we go along I would expect some improvement. For now in the short end no-one needs to raise anything so volume is down and in the terms everyone may be trying to get better yield in other asset classes than interbank trading."

Peripheral euro zone bond markets, notably Spain and Italy, have benefited from the cash injection as their banks have used the cheap loans to buy sovereign bonds, driving yields especially on shorter-dated debt to multi-month lows. Banks took 530 billion euros in the second dose of cheap central bank money last week after gorging on 489 billion euros in December, and the liquidity is expected to push bank-to-bank lending rates close to the record low of 0.634 percent seen in March 2010. Three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending, fell to 0.911 percent from 0.920 percent, the lowest level since September 2010. Equivalent Libor rates fixed by a smaller panel of banks also fell.

The three-year cash injection from the ECB has pushed excess liquidity in the money market to 803 billion euros according to Reuters calculations. Shorter-term one-week rates, the most heavily influenced by the level of cash in the system, ticked down to 0.320 percent from 0.323 percent, while overnight rates fell to 0.342 percent from 0.351 percent the previous day.

The three-month lending rates have already dropped by over a third since the ECB announced plans to lend banks three-year money back in December, but are still well above the low of 0.634 percent they hit in early 2010. But the market believes that rates may fall even further than in 2010 as banks are awash with cash, and will be for a long time."With so much excess liquidity in the system, we expect EONIA to continue to trade at an approximate 10 basis point spread to the (ECB) deposit facility and for Euribor fixings to continue drifting lower as tail funding risks have receded," said Elaine Lin, a rate strategist at Morgan Stanley. The glut of cash is keeping short-term market rates well below the ECB's main 1 percent policy rate. Instead the bank's 0.25 percent overnight deposit rate is acting as a floor for market rates. Euribor futures showed markets were anticipating three-month rates to fall to 0.705 percent by June, with a further drop to 0.655 percent by September.

Q&a how to keep a 127 year old family business alive

As a preteen, Howard Kahn could not have had less interest in his family business - the Kahn Lucas girls' dress company, founded in 1889. He was not a customer. He had no interest in fashion. And he did not work on the factory floor in Lancaster, Pennsylvania during summer vacations. But when Kahn was 24 and working for Walmart in Bentonville, Arkansas, his dad offered him a job, and he could not resist. Now 47, Kahn is a fourth-generation leader of the company, which includes the fashion lines Emily West, Bloome and Sweet Heart Rose, as well as Dollie & Me and the Madame Alexander Doll Company. Kahn spoke with Reuters about keeping a family business thriving, generation after generation. Q: If the family business did not influence your passion, who in your family did? A: At a young age, I did a lot of mock investing. My grandmother, Beverly Kahn - my dad's mom - was a big influence for me. She was well known on Wall Street as one of the first women to have a significant job. She was an institutional broker. Q: What was it like when you joined the family business?

A: When I graduated from college, I was interested in tech information systems. I got a bunch of job offers, and the best offer was from Walmart. First they put me through the store manager training program in a town of 2,000 people, so I could learn the business from the stores. Then I moved to Bentonville. I learned a lot. When it looked like I was really enjoying myself, my parents got concerned I was going to live in Arkansas permanently. At the same time, the family business was having difficulty. The 90s were challenging. So my dad called me up and asked me to come work there. When your best friend calls and asks you to come work with him, you think about it. That was in the beginning of 1994. I worked on some factory floors, learning from the ground up. There was very little nepotism. I was abused by everyone. Q: What have you learned about what makes a successful family business? A: A family business has to be run as a meritocracy and as a business, not a 'family' business. Lot of companies have failed because it becomes a home for taking care of non-performing family members. We did the opposite. My younger brother and sister are both brilliant, and they have other careers. I bought everyone out.

Q: What have you learned from your mistakes? A: On a strategic level, one of the things that has kept us successful for 127 years is that we are very agile. I'm comfortable being uncomfortable. Right now, we're undergoing radical changes in how we are approaching our business. The industry that we're in is under incredible pressure. and companies are evaporating left and right. We are really flexible and not married to anything. Q: You worked with your dad for years before you took over the company. But what did your mother teach you about money?

A: My mom is very humble and she has always impressed upon me - as has my dad - the importance of living within my means. And that is an important lesson. Q: Your family foundation mixes with the philanthropy of the company. How do you decide what to get involved with? A: We're very involved with a bunch of organizations. One is K. I. D. S./Fashion Delivers; the industry gives $155 million in new product to girls around the world. We created a neat project with the global charity, CARE, called Patterns for Progress. It is a kit to give parents what they need to create an outfit for a girl, with instructions. I was in Liberia in refugee camps when Ebola hit. On those cards they make you fill out about travel, it asks have you been in certain counties - for a while, I had to say yes. Q: What values about philanthropy do you want to pass along to your three children?A: My dad always led by example. I see a lot of times where philanthropy is forced on kids. That's not really my wife's and my style. We want to lead by example. So far it has been pretty effective.