Greece pressured to close down banks
The European Commission is
pressing Greece to wind down certain banks, possibly including its
fifth-largest lender ATEbank, EU sources said.Although it is the responsibility
of Greece's central bank to close a struggling lender, the EU's executive also
has a say under state-aid rules, which allow it to refuse a request to rescue a
bank if the Commission considers it too costly to save - effectively forcing
the bank to be wound up.Throughout the crisis, the Commission has rarely used
the full extent of its state-aid powers and few European banks have been
closed. If it were to use them in Greece, it would mark a more aggressive
stance in tackling weak European banks at the heart of the crisis. It could use
the same powers to wind up banks in Spain and Portugal, one of the sources said."We
are moving into a new phase with Greece, Portugal and Spain," said one of the sources, who
spoke on condition of anonymity because of the sensitivity of the matter.
"Some banks are going to be squeezed. Some are going to be closed
down."It is always a balance," the source said, explaining that if a
bank is central to a country's financial stability it might need rescuing, but
otherwise it may have to be let go."If you have a financial stability
component, then you could be prepared to rescue a bank, but we are beyond that
point now in a number of countries," the official said. "ATEbank will
have to be closed or wound down over time."ATEbank, the Greek central bank
and the Greek finance ministry all declined to comment. ATEbank management has
in the past proposed merging all state-controlled banks, including the Hellenic
Postbank, into one.If ATEbank were shuttered, meanwhile, it would not mean that
the whole of Greece's banking system was collapsing.
Other key Greek banks are not the same danger and could benefit from any
refocused capital.No decision will be taken until after Greece holds elections on June 17. The
outcome of the vote, which polls suggest could be won by a far-left coalition opposed
to Greece's EU/IMF bailout, could fundamentally change Greece's ties to the
EU.Last month, Greece's four biggest banks, National Bank , Alpha, Eurobank and
Piraeus Bank , received 18 billion euros in capital under the joint EU/IMF
bailout, a 130-billion-euro programme that involved writing down the value of
Greece's privately-owned debt, including sovereign bonds held by Greek
banks.ATEbank, a state-owned agricultural lender founded in 1929, did not get
money under the bailout after failing to present a plan for its own longer-term
commercial viability and is now the focus of concern, the sources said.The
Greek authorities have started to make early preparations to wind down ATEbank,
a process of liquidation that would not mean immediate closure but which is
expected to begin in the second half of the year, one of the sources said.A
Greek government source said shutting down the bank was a likely scenario, but
reiterated the importance of the elections and said it would be some time
before a decision was taken.A spokesman for Joaquin Almunia, the EU's
competition commissioner, said a restructuring plan for ATEbank, approved last
year, envisaged further steps to restore the bank to health. This could include
recapitalisation measures."We expect new aid measures to be notified to
the Commission. When this is the case we will assess the situation of the
bank," the spokesman said.Under any winding up, depositors, who had more
than 17 billion euros at the bank as of September last year, would be protected
by the country's deposit guarantee scheme, which protects the first 100,000
euros of any deposit.The resources to pay for the winding down, which could
include setting up a bad bank for risky loans, would come from the Hellenic
Financial Stability Fund, at least in part. The Hellenic Stability Fund was set
up in July 2010 to help restabilise Greece's banking system.Any closure of a
bank in Greece, whose future could determine the
survival of the euro, would be highly sensitive. None of the country's major
banks were wound up in the crisis.But officials believe the money left in the
country's aid programme - around 7 billion euros currently, with the
possibility of 25 billion more from the EU/IMF bailout funds - is insufficient
to recapitalise all banks and that some must be sacrificed to secure the most
important lenders.Dire situation Greek banks suffered heavy losses on
the government bonds they own when the country negotiated a writedown of its
debt, known as private sector involvement (PSI), earlier this year."This
is such a dire situation," said another source. "PSI left Greek banks
with huge writedowns and many have negative capital as a result. We cannot
recapitalise all the banks."Some in the Greek administration fear that
closing a bank could send an unwelcome signal."At this particular moment,
you have the issue that the closing of a bank can trigger higher depression
because of the perception," said one Greek official. "They are going
to create even more destabilisation in the economy."ATEbank, which failed
a pan-European stress test last July, had customer loans of more than 20
billion euros in September 2011, the most recent records available. The bank,
which expanded beyond its agricultural roots into mainstream commercial banking
between 2000 and 2009, racked up heavy losses on bad loans to farmers and
consumers and suffered a large writedown in the value of its Greek government
bond holdings.In the absence of a pan-EU framework to wind down banks, the
Commission's power under the state-aid regime, has made it the bloc's de facto
resolution authority for troubled lenders.Winding up a bank in Greece would be
left chiefly to the country's central bank and the European Central Bank.While
the United States has closed hundreds of banks since the subprime mortgage
crisis, European countries have been reluctant but there has been a gradual
shift in this thinking."In Europe, weak banks one way or another have been taken
over by bigger banks," said a central bank source."However, I think
there are some cases where this is difficult because the condition of the banks
is such that it doesn't make sense to keep the bank alive."Ireland's Anglo Irish Bank and Germany's WestLB are among the rare
examples of banks that were shuttered in the crisis. Denmark also closed a number of small
lenders.
UK retail bosses take bonus cuts
The chief executives of
major British retailers J Sainsbury and Marks & Spencer have both taken
cuts in their bonuses after failing to meet targets and as recession forces
them to scale back growth plans.Philip Clarke, head of rival Tesco, last month
forewent his annual bonus, paying the price for a weak performance in the UK
and heading off an outcry by investors increasingly critical of excessive
executive pay.Marks & Spencer's (M&S) annual report published yesterday
showed that Chief Executive Marc Bolland has taken the biggest pay cut to date
among Britain's leading retailers.M&S, Britain's biggest clothing retailer,
said Bolland's total pay and bonus package of just under 1.7 million pounds ($2.6
million) last year was over 60% below the 4.4 million pounds he received the
year before.On top of a basic salary of 975,000 pounds, pension contributions
and perks such as a car and driver, Bolland received a bonus of 663,000 pounds
last year which was roughly a third of his full entitlement of up to 200% of
salary.Sixty% of his full bonus entitlement is dependent on profit before tax
and he received nothing in relation to this performance measure after a 1.2%
drop - the first fall in three years.The cut comes amidst a round of high
profile shareholder revolts overexecutive pay at companies like Barclays,
Inmarsat and Prudential in a phenomenon dubbed the "shareholder
spring".Investor resistance to big pay rises at underperforming firms have
also led some executives such as Aviva boss Andrew Moss, and Sly Bailey, head
of newspaper group Trinity Mirror, to quit.Even at companies managing to
outperform some executives have chosen to err on the side of caution.Sainsbury
said Chief Executive Justin King had taken a 9% cut in his overall package,
despite the fact Britain's No.3 grocer last month posted 7% rise in full-year
profit that came in at the top end of expectations.King's basic salary rose to
920,000 pounds from 900,000 a year earlier but his annual cash bonus, share
awards and long-term incentive plan all received haircuts, reducing his total
package to just under 3.4 million pounds from 3.7 million a year ago.King had
been entitled to a cash bonus of up to 125% of salary but received 55.9% after
the remuneration committee at Sainsbury judged that while profit came in on
target, sales had been "below threshold".Many of Britain's retailers
are struggling as shoppers grapple with higher prices, muted wage growth and
government cutbacks; with confidence further undermined by worries over job
security, a shaky housing market and the euro zone crisis.
