BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Archive | November, 2016

Deutsche Bank maintains its momentum

Posted on 30 April 2013 by

Deutsche Bank continued to rally on Tuesday as investors digested news of the German lender’s €2.8bn share issue and its first-quarter results.

The country’s biggest bank by assets reported plans to place 90m shares with institutions overnight. It also gave better-than-expected first-quarter results.

    Nomura, RBC, JPMorgan, Credit Suisse, Natixis and S&P all raised their targets and outlooks on the shares following the news.

    “It is unclear to us why this action has been taken now, and we think this could be the result of additional German regulatory demands, but this still should give the group more strategic flexibility going forwards,” analysts at Credit Suisse said.

    The shares jumped 6.1 per cent to €34.91, against a 0.5 per cent gain on Frankfurt’s benchmark Xetra Dax index to 7,913.71.

    Elsewhere markets slipped into negative territory after hitting multi-session highs. The FTSE Eurofirst 300 fell 0.2 per cent to 1,200.66.

    UBS was another bright spot after the Swiss bank beat expectations for the first quarter, bringing in net profits of SFr988m. While profits fell 4.5 per cent compared with the same period last year, they surpassed analysts’ expectations for SFr601m. Deutsche Bank, raised its target on the shares from SFr15.71 to SFr19 with a “buy” rating.

    The shares rallied 5.7 per cent to SFr16.60.

    In Denmark medical supplies specialist Coloplast jumped after it announced plans to pay a special dividend. It also said earnings before interest and tax increased to DKr859m, short of expectations for DKr882m.

    The shares closed 4 per cent higher at DKr308.

    A disappointing outlook for the European truck market from Fiat Industrial sent its shares falling 5.3 per cent to €8.57.

    The group said it expected truck sales from Europe to fall by between 5 and 10 per cent over 2013 and pared back its forecast for Latin America.

    The shares fell 5.3 per cent to €8.57, against a 1 per cent fall on the benchmark FTSE MIB to 16,767.66.

    Saudi output capacity to remain constant

    Posted on 30 April 2013 by

    Saudi Arabia does not plan to increase its oil production capacity in the next 30 years as new sources of supply, from US shale to resurgent Iraqi output, fill the demand gap, according to Ali Naimi, the country’s oil minister.

    Mr Naimi said Saudi Arabia, the world’s largest crude exporter, did not expect demand for its oil to increase significantly before 2040 from current levels.

      “We don’t really see a need to build capacity to beyond what we have today,” he said at the Center for Strategic and International Studies in Washington.

      His comments highlight the sea change under way in global oil production. Only five years ago energy policy makers were expecting Riyadh to boost production capacity substantially over the next decades by investing billions of dollars in new oilfields. But the development of shale oil in the US over the past three years, together with expected increases in output from Iraq, Brazil and the Caspian basin mean that extra Saudi pumping capacity may no longer be required.

      As the main source of spare production capacity in the global oil market, Riyadh’s production plans are closely watched. Last week Prince Turki al-Faisal, a former Saudi intelligence chief, said the country planned to increase capacity to 15m barrels a day by 2020 from current levels of 12.5m b/d.

      Mr Naimi said the country does have sufficient reserves to produce at 15 mb/d, but under current forecasts, including Riyadh’s own, demand for Saudi oil is not expected to top 11.5 mb/d before 2040. On Prince Turki’s comments, he said: “We have no plans, nothing like that today, nor do I see it….We will be lucky to [see demand] go past 9 [m b/d] by 2020.”

      Saudi is currently producing at 9.3m barrels a day, down from a thirty year high of just over 10m b/d last summer, according to the International Energy Agency, which has a slightly lower estimate for Saudi capacity of 12m b/d.

      Mr Naimi welcomed the surge in US shale oil production, but dismissed the notion that this could lead to energy independence for the US.

      “I welcome these new supplies into the global oil market….[but] I believe this talk of ending reliance [on the Middle East for imports] is a naive and rather simplistic view,” he said.

      Saudi Arabia is taking steps to exploit its own shale reserves, with plans to drill seven wells this year, according to Mr Naimi.

      Mr Naimi also said that Saudi Arabia was seeking to diversify away from oil, but when asked about plans to develop solar and nuclear energy, he ignored the latter.

      “I didn’t mention nuclear,” he said, before adding that he was in favour of solar energy.

      This likely reflected divisions within the government over whether or not it should be developing nuclear power, said Tom Lippman, an expert on Saudi Arabia at the Middle East Institute: “I think he ignored this because the oil ministry does not favour the nuclear programme and he doesn’t want to promote it.”

      Itaú Unibanco beats profit estimates

      Posted on 30 April 2013 by

      Itaú Unibanco, Latin America’s biggest lender by market value, beat profit estimates in the first quarter after the bank reduced its exposure to bad loans and cut costs to protect itself from the sector’s recent downturn.

      The São Paulo-based bank on Tuesday reported recurring net income, which excludes one-off charges, of R$3.51bn ($1.74bn), 0.3 per cent more than during the previous three months. Analysts polled by Reuters had forecast recurring net profit of R$3.45bn.

        After reporting the highest banking profits in Brazil’s history in 2011, the country’s large banks have since suffered from government pressure to cut lending costs and a slowdown in borrowing among indebted consumers.

        Overall, Itaú’s loan book expanded 9.2 per cent to R$456.2bn from a year earlier – below the bank’s forecast for credit growth this year of 11-14 per cent.

        Although its first-quarter net profit rose from the previous quarter, it still represented a slight decrease from the R$3.54bn reported in the same three months of last year.

        Roberto Setúbal, Itaú’s chief executive and descendant of the bank’s founding family, has responded to pressures in the sector with a more cautious approach to lending and measures to make the bank more cost-efficient.

        Itaú cut bad-loan provisions by 12.1 per cent to R$4.42bn and forecast total provisions of between R$19bn and R$22bn this year. Loans at the bank overdue by more than 90 days reached 4.5 per cent of outstanding loans in the first quarter, down from 4.8 per cent in December and 5.1 per cent a year earlier, it said.

        The bank reduced its operating expenses by 2.5 per cent in the quarter to R$8.28bn.

        Fed weighs tighter cap on bank leverage

        Posted on 30 April 2013 by

        Federal Reserve officials are weighing a stricter cap on bank leverage

        , a move that would respond to increasing demands to constrain the riskiness of large lenders.

        According to people familiar with the matter, Fed officials have discussed increasing the amount of equity capital banks are required to hold, setting the bar higher than the 3 per cent of assets level agreed internationally.

          The move is being considered amid growing scepticism about the Basel III capital accords, which impose higher capital requirements on banks around the world but allow them to vary the amount depending on the riskiness of individual assets. Officials are concerned that some banks are gaming the system.

          However, critics of a higher leverage ratio argue that it is a blunt tool that makes no distinction between safe securities, such as US Treasuries, and risky assets such as leveraged loans, and could result in banks taking on more risk.

          In Congress, a proposal to impose a 15 per cent leverage ratio on the largest banks has secured bipartisan support. Analysts calculate it would require the likes of JPMorgan Chase and Bank of America to forego dividends for years to retain a total of $1.2tn of equity.

          Few regulators want to go so far, with many believing it would harm the financial sector and curb lending. Any increase would also reduce profitability.

          But some senior Fed officials believe a higher ratio could be justified as a backstop to the risk-based Basel requirements.

          Tom Hoenig, vice-chairman of the Federal Deposit Insurance Corporation, has said 10 per cent would be a “reasonable” leverage ratio. A policy group, whose members include Paul Volcker, former Fed chairman, and Sheila Bair, the previous head of the FDIC, has urged the Fed to set a leverage ratio of 8 per cent.

          In the UK, Andy Haldane, executive director for financial stability at the Bank of England, has advocated a leverage ratio of 4-7 per cent.

          A majority of officials at both the FDIC board and the Office of the Comptroller of the Currency, another bank regulator, are also in favour of going further, according to people familiar with discussions.

          Jeremy Stein, Fed governor, said this month that if present capital rules turn out not to deliver “much of a change in the size and complexity of the largest of banks”, then perhaps the requirements “should be ratcheted up”.

          The talks come as Republicans and Democrats call for big banks to be forcibly restructured or meet much higher capital requirements.

          Jeb Hensarling, House financial services committee chairman, said he favoured simpler rules governing capital, as opposed to the current risk-weighting scheme which benefits larger banking groups with significant trading operations that rely on internal models.

          “Balance sheets are going to have to become far less opaque in order to reinstate market discipline,” he said.

          Japanese shoppers loosen purse strings

          Posted on 30 April 2013 by

          Customers browse inside Fast Retailing Co.'s g.u. store in the Ginza district of Tokyo, Japan©Bloomberg

          Five months after Shinzo Abe, Japan’s prime minister, launched “Abenomics”, his push to boost growth is being felt in stores across the nation.

          Sonoko Yoshimura, a 61-year-old housewife, says she plans to spend about Y1m ($10,200) on curtains, while Hidekazu Otake, 60, a sales manager at a construction company, wants to swap his 46-inch television for a 50-inch model.

            Both shoppers have been cheered by the fall in the yen sparked by Mr Abe’s aggressive measures to return Japan to growth.

            Since the previous government called an election in mid-November, share prices of the biggest Japanese companies have risen more than 60 per cent.

            “My stocks had been performing badly for so long. Now I feel like buying things,” said Mr Otake, who expects to spend another Y1m or so on a trip to Hawaii this year.

            He is not alone. Many Japanese consumers share the urge to splurge. Data released on Tuesday showed that household spending rose 5.2 per cent in March, its highest year-on-year growth in nine years.

            The figure was included in mostly bright economic data published on Tuesday. Excluding the effects of a tax increase in 1997 and the 2011 earthquake, sales at large retailers posted their biggest gain in 20 years, rising 2.4 per cent.

            Last week, the Bank of Japan said the economy had “stopped weakening”, partly on the back of “improvements in household sentiment and the elderly’s large appetite for spending”.

            Economists reckon consumer spending will contribute about three-quarters of the expected 2.1 per cent growth in Japan’s economy in the first quarter when the government reports the figures.

            Hajime Takata, chief economist at the Mizuho Research Institute in Tokyo, said more active consumers are a vital part of the “launch phase” of Mr Abe’s campaign.

            For the first time, everyone gets the sense that something is happening

            – Kazunori Fuke, Ma Mere

            According to Mr Takata, money hoarded, rather than spent, has been a big contributor to Japan’s stop-start growth and persistent deflation of the past 15 years.

            “In a deflationary environment, delaying spending was wise. Now, people are starting to think that things will no longer get cheaper,” he said.

            While consumer spending appears to be rebounding, signals from elsewhere in the economy are more mixed. Industrial production expanded 1.9 per cent between January and March from the previous quarter, halting three quarters of declines, with particularly strong performances from chemicals companies and suppliers of electronics parts.

            Inventories have also been whittled down, but fragile demand outside Japan means that manufacturers’ forecasts continue to overshoot production.

            Analysts note that while the weaker yen has improved accounting profits, it may take another month or two to feed through to orders.


            Abenomics and the Japanese Economy

            The Japanese Economy

            The FT explains the state of the Japanese economy and outlines the key principles of Abenomics

            “Changing production contracts can be difficult for customers, and takes time,” said Azusa Kato, an economist at BNP Paribas.

            Meanwhile, a fall in overall retail sales – down 1.4 per cent in March from February – suggests that the wealth effect of Abenomics is being felt most keenly by richer people, or those with savings to tap.

            Four-fifths of Japanese households have never held any securities and 88 per cent have never invested in a mutual fund, according to a survey last year by the Japan Securities Dealers Association.

            Still, Mr Abe has challenged broad expectations of the country’s continuing stagnation. “Now, for the first time, everyone gets the sense that something is happening,” said Kazunori Fuke, chief operating officer of Ma Mere, a chain of boutiques selling imported children’s clothes.

            Will it work? Mr Fuke smiles and cocks his head. “I don’t know. But it will be impossible to solve our debt situation without an improving economy.”

            Additional reporting by Mitsuko Matsutani

            BBVA issues $1.5bn perpetual bond

            Posted on 30 April 2013 by

            BBVA has issued an innovative $1.5bn bond to boost an important measure of its financial health, promising a bumper coupon to attract yield-hungry investors to the unusual structure.

            The perpetual bond can be called after five years, but would convert into equity in certain stressed scenarios, and will therefore count towards BBVA’s tier one capital, a common gauge of a bank’s solidity. To entice investors, BBVA promised a coupon of 9 per cent.

              Bankers working on the deal said it was the first deal to comply with the EU’s Capital Requirements Directive IV, which was formally passed last week. CRD IV, which could come into effect by next year, mandates that banks should set aside more and higher quality capital as a cushion against future crises.

              “This establishes the fact that traditional fixed income investors will be perpetual, Basel III, loss-absorbing capital, a point which had been questioned in the past,” said Barry Donlon, a banker at UBS who worked on the deal.

              Banks across Europe have been boosting measures of their financial health ahead of stricter new regulations. These have ranged from raising fresh equity, the best form of capital, to selling so-called CoCos – or contingent convertible bonds.

              Some CoCos convert into equity, as the BBVA bond does, while others are dubbed “wipeout bonds”, as investors can lose all their money if a bank runs into trouble.

              Several banks have issued CoCos and writedown bonds, but BBVA is the first to issue bonds that comply with the EU’s CRD IV. Bank of America Merrill Lynch, Goldman Sachs, UBS and BBVA itself were lead managers on the offering.

              The coupon payments are “fully discretionary”, but the deal still attracted orders of over $9bn, mostly from investors in Asia and the UK. The Spanish lender is likely to presage a wider flurry of similar deals, according to analysts.

              “We’re close to the tipping point where we could see a lot of deals like this,” said Matt King, a senior strategist at Citigroup. “Encouraged by central banks, investors are desperate for yield, so they are willing to go into riskier areas.”

              BBVA estimates that on a pro forma basis its core capital ratio will be lifted to 11.5 per cent, compared to 11.2 per cent in March.

              “We have substantially strengthened our capital base and we have led the market,” Manuel González Cid, chief financial officer of BBVA, said in a statement.

              Still, some analysts noted that the bond had primarily been marketed in Singapore, Hong Kong, London and Zurich, where there are many private banks with rich, return-hungry clients, while institutional investors appeared to have stayed away.

              “It’s probably gone to retail investors that are less discerning, and hedge funds,” said Suki Mann, a strategist at Société Générale.

              The European Central Bank’s promise to back embattled currency area members that request help has led to a dramatic turn in sentiment towards the European periphery. Coupled by easy monetary conditions, it has nurtured a desperate hunt for returns that has subdued the borrowing costs for virtually every borrower.

              Even European banks, shunned by many investors due to concerns over their exposure to sovereign debt, are now able to fund themselves comfortably and raise more capital from investors.

              The yield of a €2.25bn senior secured BBVA bond has tumbled to 2.07 per cent, down from a peak of 5.65 per cent last June, while shares in the Spanish bank have rallied by almost two-thirds over that period.

              Slovenia downgraded to junk by Moody’s

              Posted on 30 April 2013 by

              Slovenia’s credit rating was on Tuesday downgraded to junk by Moody’s rating agency, forcing the tiny eurozone state, which is battling to avoid an emergency bail out, to stall plans for raising debt in US dollar markets.

              Moody’s said it was lowering the Alpine country’s rating from Baa2 to Ba1 because of the weak state of its banking system, deteriorating public finances and increased chance of requiring an international rescue. It kept the country on “negative outlook”, meaning a further downgrade is possible.

                “There is increased probability that external support, external assistance will be required,” warned Yves Lemay, managing director for European sovereigns at Moody’s.

                Despite its small size – its population is just 2m – Slovenia has attracted the attention of financial markets amid fears that the country will become the sixth eurozone member to require European financial support.

                Moody’s announcement interrupted an investor roadshow for a planned issue of US dollar denominated bonds, which Slovenia’s newly-elected government hopes will avoid the country having to seek external help.

                However, Slovenia’s fundraising may not be blown off course by Moody’s as the kind of investors interested in the country’s debt are less likely to be influenced by rating actions and will treat the country as similar to emerging market debt. The country’s escalating financial difficulties were also well-known.

                Mr Lemay said: “While the government may continue to be successful in tapping the market, the rating action today is influenced by concern that there is an increased probability that at some time, funding will be more difficult in the market.”

                Moody’s said asset quality at Slovenia’s banks “deteriorated considerably” in 2012 and was expected “to continue to deteriorate given the weak economic environment”. The country’s economy contracted by 2.3 per cent last year as a result of the banking crisis, and Moody’s is forecasting a further 1.9 per cent contraction in 2013.

                The rating agency warned that delays addressing problems in the banking sector “suggest that the sovereign remains heavily exposed to contingent liabilities”. Bank recapitalisation costs were put at between 8 per cent and 11 per cent of gross domestic product.

                Slovenia’s fiscal debt burden remained among the lowest in the eurozone but “the level at which debt metrics for Slovenia will peak is very uncertain and will depend in part on whether the government will need to provide further assistance to the banking system,” said Moody’s.

                It added: “Risks to bondholders have increased and the sovereign’s cost of funding is likely to be prone to volatility.”

                Slovenia has mandated Deutsche Bank, JPMorgan and BNP Paribas to arrange its investor roadshow, which started last month (April) in Washington.

                Why the Baltic states are no model

                Posted on 30 April 2013 by

                The idea that suffering is good for both the soul and the economy is widely held. To “austerians”, a financial crisis is a mark of moral turpitude, to be redeemed only by suffering. But an economy exists on earth, not in the afterlife. Those who advocate the path of austerity need to show that it is not just moral, but effective. How is this to be done? By pointing to successful examples. In Europe, that example is often the Baltics and, above all, Latvia, a crisis-hit country that was rescued and is now – we are told – blooming. Is it? And, if it is, does this bring lessons for others? The answer to both questions is: only up to a point.

                All three small Baltic states – Estonia (population 1.3m), Latvia (population 2m) and Lithuania (population 3m) – enjoyed credit-driven booms prior to the financial crisis. In 2007, Latvia’s current account deficit was 22 per cent of gross domestic product, Estonia’s was 16 per cent and Lithuania’s 14 per cent. The domestic counterparts of the capital inflows were huge private sector financial deficits: 23 per cent of GDP in Latvia, 19 per cent in Estonia and 13 per cent in Lithuania. As usual, the booms flattered fiscal positions: Estonia’s net public debt was minus 4 per cent of GDP in 2007, Latvia’s 5 per cent and Lithuania’s 11 per cent.

                The Baltic experience

                The Baltic experience

                  Then came the four horsemen of financial crises: “sudden stops” in capital inflows, asset price collapses, recessions and fiscal deficits. In reply, the Baltics decided to stick to currency pegs and embrace austerity.

                  A substantial rescue package was also negotiated for Latvia in late 2008, with generous support from the European Union, the International Monetary Fund, the Nordic countries and others. Yet some doubted whether the programme would work. Olivier Blanchard, the IMF’s economic counsellor, stated last June that “many, including me, believed that keeping the peg was likely to be a recipe for disaster, for a long and painful adjustment at best, or more likely, the eventual abandonment of the peg when failure became obvious.” He has been proved wrong.

                  According to the IMF, Latvia tightened its cyclically adjusted general government deficit by 5.3 per cent of potential GDP between 2008 and 2012, to achieve a small surplus of 0.8 per cent in the latter year. Over the same period, Lithuania tightened its cyclically adjusted deficit by 3.3 per cent of potential GDP. (The IMF does not provide these data for Estonia.) But Greece’s tightening was 15 per cent of potential GDP between 2009 and 2012.

                  How has the strategy worked? Defenders point to recent rapid growth. Latvia’s economy, for example, grew by 16 per cent between its trough, in the third quarter of 2009, and the fourth quarter of 2012. But it shrank by 25 per cent between the fourth quarter of 2007 and its trough. In the fourth quarter of 2012, Latvian GDP was still 12 per cent below its pre-crisis peak. This is worse than in Ireland, Italy, Portugal and Spain. The other two Baltic states have done better, though also after huge slumps.

                  These huge recessions do matter. For Latvia, the cumulative loss from 2008 to 2012 adds up to 77 per cent of the country’s pre-crisis annual output. On the same basis, the loss was 44 per cent for Lithuania and 43 per cent for Estonia. In the fourth quarter of 2012, Latvian GDP was 41 per cent below where it would have been if the 2000-7 trend had continued. Estonian and Lithuanian GDPs were 34 per cent below trend. Unemployment has been falling, but it was still 14 per cent of the Latvian labour force in December 2012, as it was in Ireland.

                  In brief, Latvia, worst-hit of the Baltic countries, suffered one of the biggest depressions in history. It is recovering. But it has not yet fully recovered. Are its policies a model for others? In a word, no.

                  These states have four huge advantages in pursuing the strategy of expansionary-contraction.

                  First, according to Eurostat, Latvian labour costs per hour, in 2012, were a quarter of those of the eurozone as whole, 30 per cent of those in Spain and half those of Portugal. Given the potential for further rapid rises in productivity, the country did not need a big real depreciation to become competitive.

                  Second, these are very small and open economies. The more open the economy the larger is the portion of output not dependent on recession-hit domestic spending. This makes, external adjustment a more potent alternative to domestic stimulus than in larger economies. Between 2007 and 2012, Latvia’s current account deficit shrank by 21 per cent of GDP. The same adjustment would be just 0.3 per cent of Italian GDP. Its trade partners hardly notice Latvia’s adjustment. But they would notice a comparably large Italian one. Again, Latvia’s population shrank by 7.6 per cent and Lithuania’s by 10.1 per cent between 2007 and 2012. That has to flatter the unemployment picture. If Spain and Italy had lost the same proportion, it would have been 11m.

                  Third, foreign-owned banks play a central role in these economies. For the eurozone, this is the alternative to a banking union: let banks with fiscally strong host governments take over the weaker financial systems.

                  Finally, the Baltic states have embraced their European destiny as an alternative to falling back into Russia’s orbit. Their peoples have reason to prefer painful adjustment to displaying any wavering in this political commitment. Other crisis-hit countries also have reasons for the commitment to Europe, but to a far smaller extent. That makes their acceptance of austerity weaker.

                  Are the Baltic states and, particularly, crisis-hit Latvia a model of expansionary contraction? In the short run, the answer was surely no: the contraction was contractionary. Subsequently, they were able to combine a huge external adjustment with restoration of growth, though, in Latvia, output is still well below its starting point, joblessness is very high and emigration was huge.

                  Is Latvia a plausible model for others, particularly for far bigger countries? Of course not. What is possible for very small and open economies is close to impossible, economically – and so socially and politically – for large and relatively closed economies. The idea that we should view every economy, let alone many economies taken together, asif they were small open economies that do not interact with one another is an intellectual disease. It is why eurozone policymakers seem happy to ignore demand. It is also why the adjustment process has been so grim. One can argue that Latvia is a model for tiny countries. But it is simply crazy to think it a model for Europe.


                  Auctions hammer home luxury property prices

                  Posted on 30 April 2013 by

                  Just three months after placing his $10m Virginia equestrian estate on the market, Miami home builder Sergio Pino decided to forego the traditional American housing sales route – instead putting the property under the hammer of an auctioneer.

                  “We tried putting it on the market, but that only caters to people in the local area,” says Mr Pino, who chose the New York-based Concierge Auctions to market the property internationally.

                    “We had some offers but decided not to accept – I believe auctioneers will get us top dollar,” Mr Pino said, adding that it is not a distressed sale.

                    Mr Pino is not alone. American sellers of luxury estates are skipping the listing process through brokers altogether and instead hiring auction firms.

                    While luxury estates have been put to auction in Europe for many years, the US market has only experienced the trend more recently due to the stigma of home auctions signifying a bank foreclosure, according to J. Murph Yule, an expert for Gerson Lehrman Group, a luxury consultancy.

                    “We still fight, on an everyday basis, the connotation of auctions,” says Mr Yule.

                    But sellers are being drawn to auctions in search of the best possible sale price for their property in a market that is moving rapidly, at the same time as cashed-up buyers are looking for a quick and efficient purchase.

                    “Prospective buyers favour the auction process because it allows the transparency of the market to determine the price,” says Scott Kirk, executive vice-president of Grand Estates Auctions.

                    Sellers are also attracted by the likelihood that once potential buyers are at auction, they are usually in a financial position to buy and have been vetted by the auction firms.

                    “With auctions, sellers know that the buyers have already done their due diligence,” says Todd Wohl, senior partner at Premiere Estates Auctions.

                    In the past three years there has been a 30 per cent increase in properties registered for auction in the US, particularly in resort areas like Aspen, Hawaii and Southern Florida, Mr Yule says.

                    In the UK, auctions were popular for the sale of country estates historically, but in recent years had dwindled to the western and southern areas of the country, mainly for lower priced properties.

                    That trend could also be changing, says Will Kerton, who leads the Worcester office of Knight Frank, the London-based property consultancy. “Auctions offer a fixed period of marketing, and where competition develops, a good sale price can be achieved. It is starting to be considered by more and more sellers.”

                    Demand for $10m-plus resort properties in the US has grown as a result of interest from international buyers who have become wary of making similar-sized investments in Europe given the uncertain economic climate.

                    Since 2010, sales of second and third vacation homes via auction has also boomed, according to Grand Estates Auctions. It says its buyer campaign responses have more than doubled since the market crash in 2008.

                    Even before the market had crashed, resort area real estate activity had slowed considerably. “Then the residential real estate market crashed and that brought everything to standstill,” says Mr Yule. The subprime mortgage crisis, combined with the weak and volatile economy, diffused all confidence in the market.

                    “But after those markets bottomed out, people started to regain confidence – and since interest rates have been kept low and people are in agreement on market value, sales are climbing,” he says.

                    Sellers benefit from working with the auction firms as they build a global marketing campaign to attract the most appropriate buyers to the auction. Buyers of multimillion dollar estates are usually chief executives or finance industry executives, with a smattering of celebrities.

                    The auction firms expand on traditional property marketing techniques, advertising nationally and internationally in print or via broadcast, and through direct marketing as well as online, social and mobile media platforms.

                    “Sellers demand that their properties are exposed creatively, and that’s something most agents just aren’t capable of doing,” says Mr. Wohl. “Once appropriate buyers are found, the auction takes care of itself.”

                    “An auction creates a sense of urgency,” says Mr Yule. An average accelerated marketing campaign will last 60-90 days.

                    “A property might be on the market for awhile, without any decent offers. Then it goes up for auction and all of a sudden you have multiple people trying to outbid each other.”

                    Letta urges determination to spur growth

                    Posted on 30 April 2013 by

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                    Europe must show the same determination to promote growth as it does to maintain sound public finances, Italy’s prime minister said in Berlin on Tuesday at the start of a tour of European capitals.

                    Speaking at a press conference with Chancellor Angela Merkel, Enrico Letta said Rome was committed to maintaining budget discipline.

                      “Our task is to continue with policies of fiscal consolidation and keeping public accounts in order,” he said. But, he added, it was “absolutely necessary” to foster growth and job creation “so that our citizens see Europe not as something negative but as something positive”.

                      Europe must stick to the fiscal compact, he insisted, but had to do more to fulfil the promises of the growth pact that leaders agreed last summer.

                      “The ways in which we will find the resources are up to us; I don’t have to explain it to anyone,” Mr Letta said. “I am not here to justify the internal choices that we intend to make.”

                      Mr Merkel acknowledged Italy’s “substantial” progress in reforming its economy, but stressed that “budget consolidation and growth need not be contradictory . . . The goal is not deficit or growth numbers but to get people back to work.”

                      Earlier Mr Letta put Europe on notice that Rome will seek stronger moves towards political union. A committed supporter of Europe, he warned that the creation of the single currency was not sufficient on its own.

                      “Now we have to make up for lost time. That time was lost because too many countries have looked at the next elections and by doing this they have made it harder to explain to citizens that they had to concede sovereignty,” Mr Letta said in a speech to the Italian senate.

                      “Our destiny as Europeans is common, otherwise it will be made up of individual countries that will slowly decline . . . in a world where the powers of countries with populations in their billions will prevail,” Mr Letta said.

                      Mr Letta leads the first coalition in Italy of left, right and centrist parties formed out of two months of deadlock resulting from inconclusive elections. A Catholic moderate of the centre-left Democrats, the 46-year-old prime minister is under pressure from the left wing of his party and former centre-right prime minister Silvio Berlusconi to renegotiate the fiscal compact agreed between Rome and Brussels.

                      Referring to Italy’s deficit targets, Mr Berlusconi told reporters on Tuesday: “We have to go to Europe to negotiate because with this crisis of recession, which has its roots in measures imposed by the EU, we must rediscuss the commitments made.”

                      After Berlin, Mr Letta is to meet François Hollande, French president, in Paris on Wednesday before heading to Brussels on Thursday. He will visit Madrid next week.

                      Signalling a break with the policies of Mario Monti’s previous technocrat government, Mr Letta on Monday said his government would cancel a property tax due in June and an increase in valued added tax scheduled for July.

                      The prime minister has yet to spell out what he intends to propose on the economic front during his tour. During Italy’s election campaign, the Democrats proposed that spending on investment should be excluded from the budget deficit in return for greater budget control by the European Commission.

                      Despite its €2tn of public debt which is forecast to rise to 130 per cent of gross domestic product this year, Italy’s budget is in better shape than most of its eurozone peers.

                      Excluding interest payments on its debt, Italy posted a budget surplus of 2.5 per cent of GDP last year, having reduced net government borrowing for the third consecutive year. The Bank of Italy has forecast that the primary surplus in 2014 will lead to a stabilisation of the debt-to-GDP ratio even if the economy posts only modest growth.