NEWS,16. AND 17.05.2013

Pope rails against economic dictatorship

Pope Francis issued a strong call for world financial reform on Thursday, condemning a heartless "dictatorship of the economy" and saying the economic crisis had made life worse for millions in rich and poor countries.
"Money has to serve, not to rule," he told ambassadors in the first major speech about finance since his election in March in which he also urged states to take greater control of their economies and protect the weakest.
The economic crisis had created fear and desperation, diminished joy of life and increased violence and poverty as more people struggled to get by in "undignified" ways, the pope said.
There was a "need for financial reform along ethical lines that would produce in its turn an economic reform to benefit everyone," he added.
"We have created new idols. The worship of the golden calf of old has found a new and heartless image in the cult of money and the dictatorship of an economy which is faceless and lacking any truly humane goal," he said.
The reference was to the Book of Exodus in the bible, when the Israelites worshipped a golden calf while Moses was at the top of Mount Sinai receiving the Ten Commandments.
While Francis' predecessor Benedict also called for changes in economic systems, he did so in often dense intellectual language.
Francis seemed to be expressing very personal views forged from his experience with the poor in Latin America.
Francis, who has said he wants the 1.2 billion-member Catholic Church to defend the poor and be more austere itself, urged more state control over economies.
"While the income of a minority is increasing exponentially, that of the majority is crumbling," he said.
"This imbalance results from ideologies which uphold the absolute autonomy of markets and financial speculation, and thus deny the right of control to states, which are themselves charged with providing for the common good," he added.
Market tyranny
Speaking of financial markets he said: "A new, invisible and at times virtual, tyranny is established, one which unilaterally and irremediably imposes its own laws and rules."
In many cases, the value of people was judged by their ability to consume, he added.
The pope's comments add to growing expressions of concern about a global economic malaise that has left millions out of work or hanging on to insecure, short-term jobs.
Francis, the former Cardinal Jorge Bergoglio of Buenos Aires, said his pontificate would side with the poor on social and economic issues.
"The Pope loves everyone, rich and poor alike, but the Pope has the duty, in Christ's name, to remind the rich to help the poor, to respect them, to promote them," he said.
Francis, who will visit a slum during his trip to Brazil in July, urged "those in power to be truly at the service of the common good of their peoples" financial leaders "to take account of ethics and solidarity".

Pressure too much for some top CEOs

On approaching his 60th birthday this year, long-serving Tullow Oil boss Aidan Heavey told staff he felt "like two 30 year-olds".
A handful of recent shock departures by 50-something chief executives at European blue chip companies - none of them under any obvious pressure to quit - suggest some of his peers either lack that vigour, or want to channel it elsewhere.
Peter Voser is giving up one of the world's most challenging CEO roles at Royal Dutch/Shell next year, before his 55th birthday, in pursuit of a "lifestyle change".
Swiss engineering group ABB's 55-year old boss Joe Hogan is also going, for "private reasons". Pierre-Olivier Beckers, 53, is walking out on Belgian retailer Delhaize , and Paul Walsh, 57, is waving goodbye to drinks multinational Diageo.
All four are about average European CEO age.
While the rising financial rewards of running a modern multinational have been well publicised, executive recruiters say the pressures of the job have also been ratcheted up in recent years, and not just because of the tough economic times.
"The reality is it's gruelling. It's really tough, and there comes a point where you don't want to do it any more," said Ian Butcher, who headhunts board-level and senior executives for MWM Consulting.
"The quarterly reporting, the governance, the regulatory aspects, it just becomes very wearing - the level of scrutiny, the pace at which things are moving, the short-term nature of how people look at any given situation. Even over the past five years these things have made CEO a tougher position to hold, and the travel that people have to undertake in these jobs - it's just something they run out of steam on."
Some recent early retirees, while still well short of traditional retirement age, also got to the top spot early.
"They're still in their early fifties, with energy and a desire to do something, but they want to do something different, something quite significantly different sometimes," says Butcher.
Voser fits that bill. He has no plans to collect well-paid chairmanships and non-executive directorships, as many ex-CEOs have done in the past. Former Tesco chief Terry Leahy has also resisted that gravy train since he left two years ago.
As for the early starters, executive search industry professionals point at people like Andrew Witty, the CEO of GlaxoSmithKline, who took on the job aged 44 in 2008 and would have to stay in harness for another decade to reach 60 in the role.
Blue-chip bosses as young as Witty are still rare, but over a quarter of Europe's current crop have less than two years in the job, and more than half have less than four, according to data from executive search specialists BoardEx.
Median CEO age is 55 years
The BoardEx data, collected for Reuters from 238 companies in the main stock indexes of Germany, Britain, France, Spain, Italy, Belgium, the Netherlands and Denmark, puts the median CEO age at 55, and the median tenure at four years. Only 16 percent of the group have held on for 10 years and more.
The longest serving of them is Martin Gilbert of the British fund Aberdeen Asset Management. Though younger, at 57, Gilbert pips the 28.3-year tenure of Tullow's double thirty year-old Heavey, with 29.8 years at the helm.
There are 17 top European CEOs who have been in the job for less than six months, and the youngest of the 225 in the group for whom ages were available is Vitaly Nesis, 37, who runs Polymetal International, the London-listed Russian precious metals miner.
While the recent spate of quitters are looking for something else to do, there are still some who appear to want nothing but.
In the BoardEx group there are four over 70, and the oldest by eight years is Albert Frere, CEO of Group Bruxelles Lambert .
Perhaps some linger on for fear that the pension pot is still a little light. Frere will have put such qualms behind him long ago. At 87, he is Belgium's richest man.

China steps up inspection of meat trade

China has begun a crackdown on the sales of fake, diseased and tainted meat products after a series of scandals that have further dented public confidence in the food industry, the official Xinhua news agency said on Thursday.

It said the State Council, China's cabinet, recently ordered local government departments to step up checks on meat and processed meat products, and carry out detailed inspections of rural factories, workshops and warehouses as well as private slaughterhouses. 

"The current water-injected meat, fake beef and mutton, dead livestock and other types of toxic and hazardous meat has aroused widespread concern," said the report.

"Local governments at all levels should strengthen their organisation and leadership, to severely crack down on fake beef and mutton and other illegal and criminal activities."

Pork and poultry prices have suffered this year as a result of a series of food safety scandals, a bird flu outbreak and crackdown on expensive government banquets. 

China has long been plagued by poor food safety standards, but many of the recent scares have involved its meat trade.

Earlier this month, the police said it had uncovered a crime ring that passed off more than $1m rat and small mammal meat as mutton. 

It came after pictures of thousands of dead pigs dumped in rivers supplying Shanghai caused widespread outrage. 

A media report last year uncovered excessive levels of hormones and antiviral drugs in chicken meat supplied to KFC, whose parent company is Yum Brands, and McDonald's. 

Beijing has repeatedly called for greater inspection of food processing facilities to tackle food safety problems, but such actions appear to have done little to improve standards.

The latest clampdown will encourages local governments to offer rewards to people who inform on illegal activities.

The government also called for implementation of measures for the proper disposal of livestock that had died from disease.

Tycoon: Mining firms treated as ATMs

Australia's richest person Gina Rinehart on Friday accused the government of using the mining industry as an ATM, warning of an unhealthy reliance on the sector and unsustainable debt levels.

In a speech to be delivered at the Australian Mines and Metals Association conference, the outspoken tycoon, chairman of Hancock Prospecting, cautioned that without reform Australia risked the debt problems faced by countries like Greece.

"Let's not be too proud to admit that we're really just a large island with a small population with record debt," she said, according to extracts of the pre-recorded speech.

"Plenty of Australians know this in a casual way.

"What few seem to properly understand even people in government  is that miners and other resources industries aren't just ATMs (cash machines) for everyone else to draw from without that money first having to be earned and, before that, giant investments are made."

Australia's economy has been driven by the mining industry but the boom is approaching an investment peak and a bumpy transformation lies ahead as alternative sources of growth are sought.

Mining projects have faced headwinds from depressed conditions in Europe and the United States, softening growth in China and increased competition from other producers as well as falling commodity prices.

Earlier this week, the government revealed a significant plunge in revenues due to sluggish corporate tax earnings and announced an $18bn budget deficit for 2013/14, having previously forecast a surplus.

Rinehart said the government had been complacent in managing the commodities boom and its debt levels which are forecast to peak in 2014/2015 at 11.4 percent of GDP were unsustainable.

"It is incredible that after the last six years of record commodity boom times, we now find the once lucky country in record debt, with the budget tipped to deliver yet another deficit, to further increase our record debt," she said.

"Without mining and its related companies this country has no hope of repaying our record debt without facing the problems Greece and other countries faced with overspending and consequent debt traumas."

Rinehart has been a fierce critic of the government's mining and carbon taxes, saying that along with red tape and high wages it had made Australia "cost uncompetitive".

According to the Australian Financial Review, she was also to use her speech to urge Australia to borrow from the economic policies of Singapore, using low taxes to encourage investment and development.

NEWS,17.09.2012

Billionaires score over millionaires

Many millionaires got poorer in the last year, but billionaires did just fine, using their heavyweight money management teams to ride out market and economic turmoil that hit the lesser rich, research company Wealth-X said on Monday.The ranks of people with at least $30m edged up to 187 380 but their total wealth fell 1.8% to $25.8 trillion - still a sum bigger than the combined size of the US and Chinese economies, Wealth-X said in a report.Hardest hit globally were those in the $200m to $499m range, whose numbers dropped 9.9% and whose fortunes shrank 11.4%, the World Ultra Wealth Report said, using data for the year through July 31.But the really, really rich got even richer as the number of billionaires rose 9.4% to 2 160 people and their wealth grew 14% to $6.2 trillion."Even at a billion or two billion, they have a much larger entourage, they have much more in the way of investment advice. They certainly get the attention of every major bank," Mykolas Rambus, Wealth-X's chief executive officer, told Reuters. "This was the issue about that mid tier, the $100m to $500m risk land. I don't think it appears these guys employ enough talent to help their own portfolios plus their holding companies to be successful."As Europe struggles and the US economy recovers fitfully, the affluent are shifting away from speculative investments into private companies, commodities and property, said Wealth-X, a Singapore-based firm that provides intelligence on the ultra-rich to banks, fundraisers and luxury retailers.Asia suffered the worst regional loss of wealth, with a fall of 6.8% to $6.25 trillion due to weaker equity markets and lower export demand from the West, it said.While wealth also shrank in Europe, Latin America and the Middle East, the rich saw their fortunes grow in North America (up 2.8% to $8.88 trillion) and Oceania (up 4.4% to $475bn) - much of that in Australia.But Asia's rich cannot be discounted, Wealth-X said, as the fall in wealth in Japan, China and India - home to 75% of ultra high net worth (UHNW) Asians - will reverse, based on the strength of the region's financial systems and economies."Total Asian UHNW wealth is forecast to surpass the US combined wealth by 2020," it said.

Private banks target the super rich

 

What do you get the client who has everything? An evening at a sleep school to get tips on how to beat insomnia? A chance to play cricket with former England star Andrew Flintoff? Advice on finding the right school?These are just some of the services offered by Barclays in its "Little Book of Wonders," underscoring the lengths to which the bank is prepared to go to win the custom of the super-wealthy at a time when its traditional businesses are struggling with weak economies and tougher regulators."There is more to wealth than managing one's assets," said David Hughes, Head of Affinity Partnerships at Barclays, which oversees the Little Book of Wonders. "This is a complement to the financial advice we give clients and a recognition of the world in which our clients exist."Attracting the business of wealthy clients, worth an estimated $42 trillion globally, is critical for banks seeking not only to maintain their profitability, but also to diversify their sources of funding and reduce their reliance on capital markets."Private banking, given the relatively lower capital requirements and the fee based nature of revenue is an area of growth and competition which is expected to increase," Jill Zucker, a partner at McKinsey's, told Reuters.Private clients pay on average 1 percent of assets under management in fees to their wealth managers each year, estimates specialist wealth management consultant Scorpio Partnership.Banks are keen to attract such fees as profits remain squeezed in other parts of their business, from high street lending to commercial and investment banking.For example, Barclays reported a 38 percent rise in adjusted pre-tax profit in its wealth and investment management division in the first 6 months of the year compared with a 15 percent rise in its retail and business banking and 11 percent rise in corporate and investment banking.Coutts, the 300-year old British bank which counts Britain's Queen Elizabeth among its clientele, is beefing up its non-financial services to hold onto elite customers.Ian Ewart, head of product, services & marketing, said the bank still loved to whisk away clients on horseracing jaunts and to a welter of events hosted in the social calendar of the glitterati - including the Cowes Quarter Ton sailing regatta and annual British Academy of Film and Television Arts awards bash.But as entrepreneur clients start to outnumber heirs and heiresses, who tend to have a different outlook, Coutts is spending more time, effort and money satisfying a thirst for intellectual "entertainment" and high-level networking in a business world where success increasingly depends as much on 'who you know' as 'what you know'.A new thought leadership series called Futurescope has been designed to help the bank's entrepreneurial customers analyse future macroeconomic issues and identify moneymaking opportunities in this decade and the next."Our clients can buy whatever they want for the most part. What they cannot buy - which is also what they really need - is to connect with people like them, to hear new ideas. The experience is far (more) important than a luxury freebie," he said.Tale of two millionaires But in expanding the breadth and depth of services offered, private banks will have to make sure the extra cost is worth their while as profit margins in wealth management buckle under the increasing cost of regulation, compliance and technology.The global wealth management industry is now paying $8 to generate every $10 of income, calculates Scorpio Partnership in its closely watched annual health check of the global private banking sector in July."The question of how you can continue to cater for clients that might be less profitable for you in the future is a difficult one," Coutts' Ewart said.In the case of its Little Book of Wonders, Barclays declined to disclose the cost of building and maintaining the online portal, saying it was part of its overall investment in its wealth management platform.In an attempt to offset the costs of providing the service, the bank has offered the luxury brands the opportunity to advertise, for a fee, on its Little Book of Wonders portal.Banks will pitch services such as Futurescope or the Little Book of Wonders to a select set of clients depending on their wealth and how they've made their money rather than offering blanket invites, to preserve the exclusivity of the offers.But as clients question the fees they pay, especially in an environment where investment assets are delivering lacklustre returns due to ongoing economic uncertainty, additional services not seen as essential to business needs might raise eyebrows."If there are fancy chandeliers and teacups, some clients might assume they are paying too much in fees," said Zucker.Such services are often tailored to the ultra high net worth individuals, with assets greater than $25 million, who are not only costing the banks more but are also not necessarily the most profitable.So-called 'Core Millionaires', with assets of between $1 million and $10 million, generate investment revenue margins on average two to three times higher than their wealthier counterparts, making greater use of more profitable banking and lending products, a survey by McKinsey estimates.These Core Millionaires are also projected to generate 60 percent of asset growth amongst all households with more than $1 million in assets by 2015."They're a bit of a lost set of clients," said Zucker. "Banks need to tailor their offering so there is growth in different market segments."So, where does this leave the Little Book of Wonders?A junior member of one of Britain's most successful entrepreneurial families, whose mother recently switched private banking allegiance, was sceptical that affluent individuals would be tempted to change banks based on free offers."Would clients be impressed by that? No way," said the family member, who declined to be named. "They just want to make sure that their banking is done, that their transfers happen, that they can speak to someone when they need to," he said.

NEWS,01.07.2012

Investors' eyes on European Central Bank

The month of June finished on a high note, with investors opting to trust that the most recent agreement by European leaders on dealing with the 2 1/2-year-old sovereign debt crisis will finally stem the bleeding for both the region's and the global economy.The European Central Bank this week might help sustain the momentum of optimism by opting to ease interest rates, already at a record low. Most economists polled by Reuters expect the central bank to lower borrowing costs at its meeting on Thursday.Investors will closely watch for the latest indicators on the strength of the US economy including the Labor Department's report on nonfarm payrolls in June, due on Friday, though expectations are low.Economists forecast an increase of 90,000 jobs and the US unemployment rate holding steady at 8.2%. Estimates in a Bloomberg survey of 59 economists ranged between 35,000 and 165,000 more jobs.Other US data due in the coming days include the Institute for Supply Management's manufacturing index and construction spending on Monday, as well as weekly jobless claims and mortgage data, ADP's private-sector payrolls report and the ISM's services-sector index on Thursday."We really need to see job creation pick up, which is the only thing that's going to get households spending on a sustained basis," Paul Dales, a senior US economist at Capital Economics in London, told Bloomberg News. "The economy isn't going to get exceptionally weak from here, but neither is it going to get much stronger."Wall Street will be closed on Wednesday, the Fourth of July, in observance of Independence Day.In the past five days on Wall Street, the Dow Jones Industrial Average advanced 1.9%, the Standard & Poor's 500 Index gained 2%, while the Nasdaq Composite Index rose 1.5%.For the month of June, the Dow gained 3.9% while the S&P 500 climbed 4% and the Nasdaq added 3.8%. In Europe, the Stoxx 600 Index posted a gain of 1.9% for the week, as national benchmark indexes advanced in all 18 western European markets. London rose 1%, Paris increased 3.4% and Frankfurt moved 2.4% higher in the past five days.Some analysts warned that the optimism and the gains might be short-lived."Investors have to be cautious because the market may be getting ahead of itself. We really don't have any details. The big question is still what direction the ECB takes [this] week," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, told Reuters. On Friday, euro-zone leaders agreed to allow their joint emergency funds to be tapped by the region's banks, aimed at reducing the pressure on sovereign debt. They also pledged to create a single banking supervisor for euro-zone banks based around the ECB in a move toward a European banking union."[The EU deal] is certainly not a silver bullet for the debt crisis, but the market is kind of acting like it is. It may set us up for another push down in the weeks ahead," Esiner said.Others agreed. "People had pretty low expectations of the summit and are a little bit more optimistic now," Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group, told Bloomberg News. "The devil is in the details on most of this stuff."In the coming days, Spain and France will test investors' appetite for their debt again. Spain is set to auction three-year, four-year and 10-year bonds on Thursday, the same day as France who is planning to sell between 7 billion and 8 billion euros in long-term bonds.

ECB official: Greece must deliver '100 pct'

 

Greece must fulfill the targets of its austerity and reform program "100 percent" to stay in the euro, a top European Central Bank official said Sunday offering little hope of substantial wiggle room for Athens and questioning whether it can be given more time to comply.Greece's new government wants to lower some taxes, freeze public sector layoffs and extend by two years the mid-2014 deadline for austerity measures demanded by creditors in exchange for loans that are keeping the country afloat, conditions that are hugely unpopular in the country.But ECB executive board member Joerg Asmussen told Germany's ARD television that there can be no departure from the aims of consolidating Greece's budget and restoring its competitiveness."The so-called mix of measures in other words, how do I reach the target one can talk about that," he said. But that, he added, means that "if the government intends to lower a tax, it will have to increase another tax by the same amount."Asked whether Greece would get more time to comply, Asmussen replied: "I don't think so." He noted that any extension would lead to a need for more external financial help "that means that the other 16 eurozone states and the IMF would then have to provide more financing."The ECB is part of the so-called "troika" of debt inspectors overseeing the Greek program, along with the European Commission and the International Monetary Fund. On Monday, the inspectors are expected to start their review of the country's finances and meet with the new government. Their conclusions will be critical to whether Greece will be able to renegotiate parts of its international bailout conditions."My preference and the preference of the ECB is very clearly that Greece remain in the eurozone," Asmussen said. "For that, the country must implement 100 percent the program targets that were agreed."An exit, he said, would make things economically difficult not just for the country leaving the eurozone but also for all the others.Other eurozone countries in particular Germany, the bloc's biggest economy have appeared cool to giving Greece much of a break on its targets or timeline."From Germany's point of view, a substantial loosening of the program, of the reform agreements, does not come into consideration," Foreign Minister Guido Westerwelle said Sunday. He insisted that Greece must implement those agreements "step by step, solidly and reliably."At a European Union summit last week, German Chancellor Angela Merkel made concessions to Italy and Spain notably agreeing to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece.But officials insist that help to struggling countries and banks will still come with strings attached, and that Germany has no intention of agreeing to share government debt through jointly issued eurobonds in the foreseeable future. Berlin fears that would cut struggling countries' borrowing costs at its expense and also take pressure off them to get their finances and economies in order.Westerwelle, a member of the pro-market Free Democrats the junior partner in Merkel's coalition insisted Sunday that eurobonds should stay off the table permanently."Too little solidarity endangers Europe, but too much solidarity does not endanger Europe any less," he said."Even if we already lived in a European federal state, I would be strictly against us Germans taking on liability for all debts in all of Europe."

NEWS,16.06.2012

Greece election 'euro versus drachma'

 

Conservative leader Antonis Samaras has told Greeks they face a stark choice between staying in the euro or a "nightmare" return to the drachma in an election that threatens to send shockwaves through the single currency.Samaras's New Democracy party is neck and neck with the radical leftist SYRIZA going into Sunday's pivotal vote, with SYRIZA leader Alexis Tsipras threatening to tear up the punishing terms of the 130 billion euro bailout that is keeping Greece from bankruptcy.Addressing supporters at his final campaign rally, Samaras pledged again to renegotiate the bailout's punishing terms in order to promote growth and jobs, but said that to go head to head with the country's European partners would mean the end of Greece's euro membership."We are going into an election to decide the future of Greece and of our children," Samaras, 61, told the crowd of several thousand waving Greek and EU flags in the capital's central Syntagma square."The first choice the Greek people must make is: euro versus drachma.""There are some outside Greece who want the country to be the black sheep and push it out of the euro. We will not please them," Samaras said, in a speech laced with the anti-immigrant rhetoric on the rise in Greece as the economy flounders.Neither party is expected to win outright, and negotiations will follow to create a pro- or anti-bailout coalition government.Nightmare Euro zone officials have hinted they might give a new Greek government some leeway on how it reaches debt targets set by the EU/IMF bailout package, but there would be no change to the targets themselves.Greece's lenders say they will turn off the taps if the country rejects the bailout. Tsipras says Europe is bluffing - it cannot afford to cut Greece loose and risk the contagion for the much larger economies of Spain and Italy, he argues.Greeks say overwhelmingly that they do not want to leave the euro, but neither do they want the pension, job and wage cuts arising from the bailout which have helped condemn the country to five years of record-breaking recession."I'm optimistic because I hope people will think as Greeks when they vote and not give in to anger," 61-year-old pensioner Anthi Zoitou said during Friday's rally."I voted for another party ... in the previous election," said 32-year-old economist Antonis Kargas, "but will vote for New Democracy now. The dilemma facing Greece is whether it holds onto its European prospects."Sunday's vote is a re-run of a May 6 election that produced stalemate.Tsipras has rejected forming a government of national unity, but Samaras said the country could not afford a third election."We cannot withstand it," he said. "We are in favour of renegotiating (the bailout) for jobs and to remain in the euro; this is what the Greek people want.""Should young people have opportunities to work or will we allow today's incredible unemployment to become a nightmare?"

Investors seek shelter before Greek vote

Traders and investors are taking all bets off the table before this weekend’s Greek elections, which may decide whether Athens stays in the eurozone. Greece votes on Sunday in a second attempt to choose a government that will decide whether to back the terms of its international bailout. G20 officials say central banks are ready to act to calm markets if needed. But investors are not taking any chances. “People are just totally hands off, they don’t want to know. Why would anyone want to deal this side of the weekend?” said Steve Larkins, head of sales trading at Seymour Pierce. “With the Greek elections coming up, Monday morning could be a disaster for someone taking a big bet over the weekend.” Hedge funds, typically among the most aggressive market players, are also wary, taking on only 10%-30% of their maximum permitted bets on risky assets, said Gerry Fowler, global head of equity and derivative strategy at BNP Paribas. “There are so many risks that just can’t be modelled... it really creates a market where no one can do anything with conviction and it’s a matter of wait and see,” he said. Global fund managers’ cash balances have jumped to 5.3% this month, their third-highest level on record, according to a Bank of America Merrill Lynch survey. Equities investors have been reluctant to roll over, or replace, options contracts which expire on Friday, as they opt for neutral positions. Some 1.4 million futures contracts on Euro STOXX 50 index of eurozone blue chips are yet to be rolled over, according to Eurex data. Shake out The shaking out of positions has led to high volumes. Monday was the Euro STOXX 50 index’s most active day of 2012 and this has been one of the year’s most active weeks. In currency markets, the euro has rallied versus the dollar  - arguably a counter-intuitive move given the eurozone crisis. Traders say the rebound has been driven by investors’ desire to unwind the large number of net short bets built up in the single currency. “As far as the euro/dollar is concerned, I am going square into the Greek elections. I have a feeling, either way, things will drag on for a while and that gives us enough reaction time,” Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners. Position squaring was a factors behind a selloff this week in safe haven German government debt, which had been a favourite place for investors to sit out the crisis, even if that meant paying Berlin for the privilege. “Positioning is pretty square,” said one London-based bond trader. “People might still be a little bit long in longer-dated bonds but that’s probably because they haven’t been able to get out... A lot of bets have come off the table.” Another trader said the moves in the Bund futures signalled “that a lot of desks are either taking less risks themselves or have been told (to) stop taking risk until after the election”. Most sellers of insurance against a default on Greek government debt, known as credit default swaps (CDS), declined to quote before the weekend, dealers said. “I’d be surprised if anyone would want to dive in before the election with (Greek) bonds trading at 10 cents on the euro. "If we get some stability with the election then we’d expect trading to pick up again,” said one head of European credit trading at a major US bank. Ready for rollercoaster Investor nervousness is evident in the big gap between actual volatility on the Euro STOXX 50, which has fallen to two-month lows below 20, and the implied volatility as measured by the VSTOXX which has stayed stubbornly high around 32. “The spread between realised and implied volatility has gone up in a way that would explain the market is pricing in some Greek weekend risk,” said Abhinandan Deb, European head of equity derivatives research at Bank of America Merrill Lynch. Implied volatility reflects options pricing and is a measure of expected price swings. In the currency market, one-week implied volatilities have jumped to around 15.40%, the highest in six months and almost double the level of realised volatility. “Expect a rollercoaster in the markets,” said Stefan Angele, head of investment management, Swiss & Global Asset Management, although he advised keeping some positions, such as an "underweight" stance on the financial sector. With so much nervousness and so much money off the table, the markets could be poised for wild swings come Monday morning. “There is a gigantic number of shorts in euro/dollar so any headline that comes out over the weekend that indicates that Europe is safe will create the scope for a massive squeeze up on Monday,” said Jeremy Batstone-Carr, director of private client research investment strategy at Charles Stanley.

NEWS, 11.06.2012.

Spain's 'shortsighted crisis management' - Swedish PM

 

Financial market euphoria over an EU bailout for Spain's troubled banks faded today as investors sounded the alarm over its impact on public debt and worried whether Greek elections will deepen the euro zone crisis.Madrid insisted it would stick to its borrowing plans this year after the European Union agreed to the bailout of up to 100 billion euros ($125 billion), which is aimed at rescuing banks battered by a property market collapse and recession rather than helping the Spanish state finance its budget deficit.But yields on Spanish government debt rose as Sunday's deal failed to calm concerns that Madrid may end up locked out of funding markets like the three other euro zone countries already forced into bailouts - Greece, Ireland and Portugal.With this weekend's Greek elections overshadowing that country's future in the euro zone, EU officials said they had discussed limiting the size of withdrawals from cash machines, imposing border checks and introducing capital controls as a worst-case scenario should Athens leave the bloc.Underlining how problems in one euro state can rapidly spread to others, Cyprus strongly hinted today it may become the fifth member of the bloc to apply for an international bailout before the end of this month to help its banks, which are heavily exposed to Greece."Short-sighted" Swedish Prime Minister Fredrik Reinfeldt, whose country remains outside the euro zone, said Europe was still not doing enough to tackle the fundamental causes of its economic stress."Spain and many other countries have a lot of reforms they need to do to become competitive, to get order in public finances, to recapitalise and get a sound banking sector, and if they don't do this, you can never solve it through shortsighted crisis management,".The European Commission's top economic official, Olli Rehn, told that the pre-emptive action to support Spain "is critical for calming down market turbulence in Europe and (ensuring) the proper functioning of the financial system in Spain".However, European stocks ended flat after leaping to a four-week high earlier in the day, while yields on the bonds of fellow euro zone struggler Italy rose sharply with Spain's."The bailout for Spain is a good short-term fix, not a long-term solution," Nicola Marinelli, portfolio manager at Glendevon King, said. "In this environment of short-term plasters, there are going to be periods of rallies and panic."An early rally in Spanish debt petered out, and 10-year bond yields ended the day 25 basis points higher at 6.5 percent - on course for their worst day since early April and within 30 basis points of euro-era highs.The Spanish Treasury said it would continue with regular debt auctions after Saturday's deal. While bailout funds should cover the cost of rescuing the banks, Madrid still has 37 billion euros to raise this year for its budget."Accepting aid for recapitalisation of the banking sector means it will have to finance itself on capital markets for its deficit and it's getting harder with yields climbing," said Viola Julien, a strategist at Helaba Landesbank Hesse-Thueringen.Fitch Ratings cut the long-term credit ratings for Spain's two biggest banks, Banco Santander and Banco Bilbao Vizcaya Argentaria to BBB-plus from A. However, neither is expected to take bailout funds which will go instead to weaker institutions, and Monday's announcement was a technical move following Fitch's three-notch cut Spain's sovereign rating last week.Bondholders are worried that the rescue will weigh on Spain's fast-rising public debt. They also fear that if the euro zone's future permanent bailout fund, the European Stability Mechanism, is used for the rescue, they will be subordinate to official creditors and face losses in any debt restructuring.However, a senior euro zone official said the euro zone's temporary EFSF bailout fund could be used to allay these worries.Supervision Greece's general election next Sunday, the second in as many months, could further sour markets if radical leftists hostile to the austerity terms of the country'sEU/IMF bailout outperform the mainstream conservative and centre-left parties that signed the deal, or the vote ends in another deadlock.European finance officials have held a series of conference calls in recent weeks on contingency plans should Greece leave the euro, officials said. However, they emphasised this was merely about being prepared for any eventuality rather than planning for something they expect to happen."It is sensible planning, that is all, planning for the worst-case scenario," one source said.The Bank of Greece said it was not aware of any plans such as for capital controls in the euro zone.Spanish Prime Minister Rajoy said on Sunday Madrid had scored a victory by securing aid from euro zone partners without having to submit to a full state rescue programme, saying Spain's rescue had "nothing to do" with the procedures imposed on Greece, Ireland and Portugal.But EU Competition Commissioner Joaquin Almunia and German Finance Minister Wolfgang Schaeuble said that as in those other bailouts, a "troika" of officials from the International Monetary Fund, the European Commission and the European Central Bank would oversee the financial assistance."Of course there will be conditions," Almunia told Spain's Cadena Ser radio. "Whoever gives money never gives it away for free."Schaeuble told Deutschlandfunk radio: "The Spanish state is taking the loans, Spain will be responsible for them ... There will likewise be a troika. There will of course be supervision to ensure that the programme is being complied with, but this refers only to the restructuring of the banks."Under surveillance Spanish state finances are already under European Commission surveillance under the EU's excessive deficit procedure.The bank rescue package will add up to 10 percentage points to Spain's debt-to-gross-domestic-product level, taking it close to 90 percent, while the country faces a grinding recession, with nearly one worker in four unemployed.Some economists believe Spain will eventually need a full state bailout, and that Italy may be next in line because of a similar combination of high debt and no economic growth, despite reforms initiated by Prime Minister Mario Monti.Italian Industry Minister Corrado Passera dismissed the idea that Rome might need external help at some point."Italy has done what was necessary to save itself in past months," Passera, a former banker, told reporters in Milan, saying austerity measures taken so far had positioned Italy as "among countries better placed to deal with the financial turmoil Europe finds itself in".China, to which Europe has looked largely unsuccessfully for financial support, said on Monday that the euro zone deal for Spain was a useful short-term fix, but urged the bloc to take more decisive action to safeguard longer term stability."This can be of great use in controlling short-term risk," Vice Finance Minister Zhu Ghuangyao told a news conference. "But, in the interests of mid- or long-term stability, we hope the euro zone will improve consensus and take more decisive action."The Chinese critique of Europe's slow-moving steps mirrored comments by US officials worried that the euro zone debt crisis is hurting world economic recovery and President Barack Obama's prospects of re-election in November.US Treasury Secretary Timothy Geithner welcomed the euro zone support for the recapitalisation of Spanish banks as "concrete steps on the path to financial union, which is vital to the resilience of the euro area".European Union leaders will discuss longer-term plans for deeper euro zone fiscal and banking union at a summit on June 28-29, as well as measures to revive growth. The more ambitious reforms would require treaty change that would take months, if not years, to approve and implement.

Spanish banks queue up to tap European rescue funds

 

Seven former savings banks in Spain, already patched up with state aid, will be first in line to tap European rescue funds requested by the country, though the queue for financing could grow to include all but the very biggest banks.Spain's banks lent heavily to real estate developers during a decade-long property boom which ended in 2008, leaving creditors with bad loans to housebuilders, unfinished apartment complexes and brownfield sites.The euro zone's fourth largest economy is unable to raise funds on the international markets to cover these losses at reasonable prices and had to ask on Saturday for up to 100 billion euros ($125 billion) from the euro zone to shore up its financial system.The International Monetary Fund said in a report on Friday that the most troubled former savings banks, accounting for around 22 percent of the country's financial system, faced the biggest challenge due to their high real estate exposure.The IMF did not name the entities, but seven savings banks have received state help to cope with losses and absorb mergers. Spain now has around 10 savings banks, less than a quarter of their number two years ago after the government forced a programme of consolidation.The seven banks are Catalunya Caixa; Unnim - now part of BBVA ; Espana-Duero - merged with Unicaja; NovaCaixaGalicia; Bankia ; Banco Mare Nostrum; and Banca Civica - which belongs to CaixaBank.Of those, the most problematic are fourth-biggest lender Bankia, nationalised in a 23.5 billion euro ($29.3 billion)rescue last month, and the two former savings banks struggling with capital shortfalls - mid-sized NovaCaixaGalicia and CatalunyaCaixa.Both these banks were created by combining savings banks in autonomous regions - Galicia and Catalonia - partly to placate local politicians. The state took them over last year when it became clear they could not handle their losses.These two lenders require around 9 billion euros to cover the latest government demands for capital to cushion against real estate loan defaults, the Bank of Spain told a closed-door parliamentary committee hearing, according to a political source present at the briefing.Small listed lender Banco de Valencia is another potential black spot. It was also taken over by the government with an intent to auction it off with guarantees against future losses.The lender is based in the region of Valencia, home to savings bank CAM which was called the 'worst of the worst' by a former central bank governor after losses began to soar when exposure to real estate at the bank was properly recognised.Along with its fellow Valencian lenders - CAM and Bancaja, which ended up as part of Bankia - Banco de Valencia lent unsustainably to property developers who threw up block after block of holiday apartments along Spain's Mediterranean coast.Grandiose projects The savings banks or cajas were originally set up to provide loans to people suffering in the aftermath of the Peninsular War with Napoleonic France in the early nineteenth century. Often founded by the Roman Catholic Church, they aimed to give farmers loans at reasonable interest rates during times of poor harvest.However, having a savings bank in fiercely regional Spain became a sign of autonomy. Many got hijacked by local governments who put politicians on their boards and hived off funds to pay for grandiose construction projects.Nowhere was this more evident than in the eastern region of Valencia, where the cajas bankrolled huge loss-making projects aimed at increasing the status of the region such as art centres, film studios and airports.Reports that former directors at NovaCaixaGalicia and Alicante-based CAM had awarded themselves handsome severance pay packages after they were taken over by the state provoked public outrage last year.Now Spain could even be considering folding all its rescued banks into one nationalised bank if planned auctions were not successful, a senior Economy Ministry source has said.Some mergers and sales are still happening. Former savings banks Ibercaja and Caja 3 are beginning a three-way merger with Liberbank. Together they hold toxic real estate assets of around 11.8 billion euros, around a quarter of the amount held by Bankia and parent company BFA.Beyond real estate woes There are also concerns about the mid-sized and small listed lenders, with the IMF saying these entities could record losses in 2012 due to increased provisioning requirements against performing real estate loans.Citi forecasts 2012 losses for Popular, CaixaBank and Banesto as a result of the extra provisioning.Popular has high exposure to real estate loans. It said on Wednesday it would set aside more capital to cover potential losses beyond real estate, on mortgages and loans to businesses - something other banks may have to contend with too after an independent audit of the sector is completed this summer.A recession in Spain threatens to deepen the problems for the troubled lenders."Unless the government maintains its current spending, incomes in Spain will fall and the sustainability of the private sector debts will be undermined," said analysts at CreditSights, pointing out that at the same time Spain was trying to cut its big budget deficit.Standard &Poor's downgraded mid-sized bank Sabadell , buyer of CAM, to junk status in April.