China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Cyprus reforms on track but risks remain

Posted on 31 July 2013 by

The Cypriot and European Union flags are seen flying outside the office of the bank employees' union ETYK in the Cypriot capital, Nicosia, on April 4, 2013, as bank employees demonstrated over fears that pensions may be at risk under Cyprus's bailout. ETYK called the two-hour work stoppage over concerns that pension funds at failed Laiki and at Bank of Cyprus are not being protected under the island's 10-billion-euro bailout deal with the IMF, European Commission and European Central Bank.©AFP

Cyprus’s economic reform programme is on track, but substantial risks remain, according to EU and International Monetary Fund monitors.

The island’s prospects are regarded as remaining uncertain as authorities struggle to contain a deepening recession and rebuild confidence in the battered banking system.

    “While the authorities have started to implement the programme with determination, risks remain substantial. . . The short-term outlook remains difficult and subject to considerable uncertainty,” the troika of the European Commission, European Central Bank and IMF said in a statement on Wednesday after their first assessment mission since a €10bn international bailout in March.

    The troika’s positive report on reform effectively clears Cyprus to receive a €1.5bn tranche of aid in September from the EU and another €86m from the IMF.

    Yet the Cypriot economy is projected to shrink by about 13 per cent in 2013 and 2014, with the eurozone’s first capital movement controls, imposed in March as a bailout condition, constraining private sector activity. Controls have been gradually eased, but are likely to continue for another 24 months, according to local bankers.

    Cyprus has met fiscal targets set by international lenders, while Bank of Cyprus, the country’s largest bank, has been recapitalised with funds raised through a 47.5 per cent “haircut” of uninsured deposits.

    Co-operative credit institutions, which used to account for about a third of lending, will be restructured and recapitalised by the end of this year without imposing a haircut on depositors, the statement said.

    Underscoring a rapid weakening of the labour market, the jobless rate jumped to 17.3 per cent in April from 11.7 per cent a year earlier – the largest annual increase in the eurozone, according to official figures released on Wednesday.

    Despite the island’s economic problems, Greek and Turkish Cypriots are preparing to resume peace talks under UN auspices in October after a 14-month hiatus. Both sides have appointed negotiators to lead a fresh attempt to reunify the two communities in a loose federation. Cyprus has been divided since Turkish troops occupied its northern third in 1974 in response to an Athens-inspired coup aimed at union with Greece.

    EADS to rebrand as Airbus

    Posted on 31 July 2013 by

    An EADS Eurofighter Typhoon jet rolls along the taxiway at the Swiss Army Airbase in Emmen, central Switzerland©Reuters

    EADS is to rebrand itself as Airbus and merge its sensitive defence units in a move to streamline the pan-European aerospace group’s structure and reinforce a strategic emphasis on its commercial aircraft operations.

    The shake-up, announced on Wednesday, represents an important step for Tom Enders, the German chief executive who has campaigned for “normal” governance at the group since his attempt at a €36bn tie-up with BAE Systems of the UK fell foul of German government objections in October.

      Mr Enders said EADS had now abandoned its previous plan to become equally balanced between civil and defence operations in a move that marks a departure from the logic behind the talks with BAE.

      First-half results on Wednesday confirmed the predominance of the company’s main subsidiary. EADS reported a 21 per cent increase in earnings before interest and tax in the first half to €1.6bn compared with the same period last year.

      Net income rose 31 per cent to €759m on revenues up 6 per cent to €26.3bn, thanks mainly to the performance of its commercial aircraft operations.

      Commercial aerospace accounts for 70 per cent of EADS revenues, a ratio Mr Enders said was likely to rise as the defence business was in a “flat or shrinking market at least for the rest of the decade”.

      He added: “We are proud to have a strong Airbus as the driver of growth.”

      The new structure, due to take effect from next year, will divide the Airbus group into three divisions. Airbus will remain the flagship civil aerospace division with €37bn in annual revenues and 68,000 employees. Airbus Defence & Space will combine Cassidian, the Munich-based defence unit; the Astrium satellite business and Airbus Military, which makes transport aircraft. This unit will have revenues of €14bn and 45,000 employees and be headquartered in Munich. The Eurocopter division will be renamed Airbus Helicopters, contributing €6bn in revenues and employing 23,000.

      The move is set to involve job losses in the new defence division – a sensitive issue for EADS’s German, French and Spanish state shareholders – as the group seeks cost savings to help it hit its target of achieving an underlying group profit margin of 10 per cent in 2015.

      The new name will give the group a stronger public profile as it battles Boeing, the US aerospace and defence group that is EADS’s main rival.

      The renaming simply gathers the entire company under the best brand we have. It reinforces the message that we make things fly

      – Tom Enders, EADS chief

      “The renaming simply gathers the entire company under the best brand we have,” Mr Enders said. “It reinforces the message that we make things fly.”

      But analysts questioned whether the change would bring about real benefits. One said: “Is there any real synergy there or is it just rearranging the deckchairs?”

      Zafar Khan, analyst at Société Générale, said the move represented a change in mindset and an illustration of the group’s confidence in the civil aerospace business. But added: “How much is all this going to cost and how much benefit is it going to bring?”

      EADS’s results came in ahead of analysts’ expectations. It reaffirmed its full-year guidance of earnings before interest and tax before one-off items of €3.5bn, with earnings per share before one-offs of €2.50, compared with €2.24 in 2012.

      It also pledged to turnround rising free cash outflow, which has been caused by a build-up in inventory. The group’s net cash position in June was €5.9bn, compared with €9.2bn at the end of March, and €12.3bn at the end of December.

      “The free cash outflow would be a concern if it doesn’t come back again in Q4 as promised, but management seems confident,” said Nick Cunningham at Agency Partners.

      Analysts said deliveries of the A380 superjumbo and the A400M transport aircraft in the second half – the first of which is set for delivery to the French military this week – should help turn things round.

      The shares, which have risen almost 50 per cent in the year to date, were up 1.4 per cent at €44.89 in Paris on Wednesday.

      Banks hit by debit card cap fee ruling

      Posted on 31 July 2013 by

      The Federal Reserve was criticised on Wednesday for being too soft on the financial industry after a judge ruled that limits on debit card fees charged to retailers were not tough enough.

      Richard Leon, a district judge, found that a cap on “interchange fees” paid by retailers on debit card transactions had been set too high and should be lowered, in a decision that the American Bankers Association warned would have “disastrous consequences” for the banks.

        Visa shares fell more than 10 per cent immediately after the ruling.

        US Congress introduced the limit in 2010 and told the Fed to set the cap at an appropriate level. The original provision was fiercely opposed by the banks, which have since suffered a multibillion-dollar hit to revenues.

        But retailers said the cap had been set too high and Judge Leon agreed on Wednesday. He said the Fed had taken account of too many costs when setting the cap, including that of dealing with fraud, and it should be lowered.

        Dick Durbin, the Democratic senator who sponsored the cap, celebrated the court’s decision. He attacked the Fed for being too soft in its original “decision to bend to the lobbying by the big banks and card giants”.

        A spokesperson for the Fed said it was “reviewing the judge’s opinion”.

        The ABA said it was “deeply disappointed” and attacked the “price controls” as “further lining the pockets of our nation’s big-box retailers at their own customers’ expense”. The ABA said the Fed should deploy “all legal means” to fight the decision.

        MasterCard, which is less reliant than Visa on debit cards and which reported improved results on Wednesday, fell more than 4 per cent following the ruling, but closed up 1.5 per cent in New York. Visa closed down 7.5 per cent.

        The Fed had argued that it was free to consider costs not specifically banned by the law.

        “Not quite!” wrote the judge at the district court in Washington. “If I were to accept the Board’s argument, then every term in the statute would have to be specifically defined or otherwise be deemed ambiguous. This result makes no sense, and more importantly, it is not the law.”

        He found the Fed’s interpretation of the law “utterly indefensible” and said it had “shoehorned a whole array of excluded costs into the interchange fee standard”.

        The case was brought by a collection of retailers and trade associations, including NACS, the convenience store lobby group, and the National Retail Federation.

        Banks have considered introducing fees to consumers to make up for the revenue shortfall but both Bank of America and Wells Fargo have dropped the idea amid fears of a consumer backlash.

        Alan Greenspan, the former Fed chairman, has criticised the limit as an undue interference in free markets.

        The court ruling comes as the European Commission takes aim at fees with its own caps. MasterCard has argued that the “coerced reduction of interchange fees” in various countries has backfired, with cards becoming more expensive while retail prices barely change. In Australia, “the merchant pocketed the reduction”, it argued to the commission.

        The payments network reported a 19 per cent year-on-year increase in second-quarter net income to $848m on Wednesday on revenue that rose 15.2 per cent to $2.1bn.

        RBS selects McEwan as new chief

        Posted on 31 July 2013 by

        Ross McEwan, CEO of RBS UK Retail. Photograph: Rosie Hallam.Ross McEwan, CEO of RBS UK Retail. Photograph: Rosie Hallam.©FT

        Ross McEwan, CEO designate of RBS

        Royal Bank of Scotland is in late-stage discussions with regulators at the Bank of England to appoint insider Ross McEwan as the part-nationalised lender’s new chief executive.

        Mr McEwan, a New Zealander, was drafted in as RBS’s head of retail banking last summer as the group moved to reinforce its credentials on the UK high street.

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        Previously in a similar role at Commonwealth Bank of Australia, Mr McEwan is seen as a safe, politically acceptable choice to succeed Stephen Hester, the former investment banker who was ousted as chief executive last month after pressure from the Treasury. Mr Hester was appointed in late 2008 to turn round the bailed-out RBS.

          RBS chairman Sir Philip Hampton, aided by Anna Mann’s MWM headhunting firm, has run an accelerated international search for a replacement over the past month. But after Blackrock’s Mark McCombe, the leading external candidate, dropped out of the race last week, the focus has shifted back to internal succession.

          Mr McEwan’s selection as the preferred candidate was discussed at an all-day board meeting on Wednesday, though regulators at the BoE’s Prudential Regulation Authority have yet to sign off on the choice, according to two people familiar with the process. Assuming he is approved, his appointment could be announced as early as Thursday, or alongside RBS’s second-quarter results on Friday.

          One person close to the recruitment process cautioned that if any problem arose with Mr McEwan’s selection, the current finance director, Bruce van Saun, remained a fallback candidate.

          Mr McEwan is “as close as you could get to a carbon copy of Antony Jenkins”, according to one associate – a reference to the retail banker appointed at Barclays with a mission to clean up the bank in the wake of hard-charging investment banker Bob Diamond. However, he lacks direct experience of investment banking or running a whole company, which some believe may concern the PRA.

          Fans of Mr McEwan say he is a straightforward banker who would send the right signals about RBS shifting away from investment banking operations and focusing on the group’s more politically palatable retail franchise.

          As a recent arrival in Britain, however, the New Zealander has few political or regulatory contacts, so may find it tough to pilot RBS through the next few months. Among many issues, the group is facing a potential split into a “good” and “bad” bank at the behest of the Treasury, and will need to negotiate with the government and with the European Commission over a series of state-aid issues.

          Mr McEwan has kept a low profile in his first year at RBS, though in a signal of his blunt approach he told investors in March. “I have been quite surprised by how bad this industry is. There is not a great retail bank in the UK.”

          One of the challenges RBS will have experienced in courting external applicants for the chief executive job is the prospect of critical scrutiny from politicians and the general public of pay and bonuses. Bankers pointed out that promoting an insider to the role mitigates that problem.

          Taylor Wimpey profits jump 42%

          Posted on 31 July 2013 by

          Taylor Wimpey provided further evidence of a booming UK housebuilding market as it posted a 42 per cent jump in pre-tax profits, helped by improving consumer confidence and government homebuying schemes.

          The company – Britain’s second-largest housebuilder by market value – said its pre-tax profits rose to £109m in the first half of 2013, while sales increased 11 per cent to more than £1bn.

            In line with the majority of the London-listed housebuilders, Taylor Wimpey has reported an increase in demand since the launch of the government’s Help to Buy scheme in April. The first phase of the scheme helps purchasers buy new-build properties with a deposit as small as 5 per cent.

            However, since its launch, critics ranging from the International Monetary Fund to the UK’s Office for Budget Responsibility have warned that it will push up house prices rather than encourage housebuilders to build homes.

            Nevertheless, Pete Redfern, chief executive of Taylor Wimpey, suggested the benefits of the scheme for housebuilders had been overplayed. “Of course, Help to Buy is having an impact but it would be misleading to think it’s the only thing,” he said.

            Help to Buy equity loans accounted for just 235 of Taylor Wimpey’s 5,191 completed sales in the six months to June 30. However, the true impact will become more apparent in the second half of this year, when a further 1,300 reservations through the scheme are due to be completed.

            Although Mr Redfern has previously called for a clear end point for Help to Buy, he disputed concerns that it would lead to inflated house prices. “I don’t think we are going to see a housing bubble,” he said. “If we see a housing bubble, it will be because of a shortage of land and planning permission over the long term, not Help to Buy.”

            Taylor Wimpey spent £233m on land during the first half of the year and now has a land bank of 101,566 plots. It has a forward order book of a record 7,378 homes, valued at £1.3bn.

            Despite this, Antony Coldling, analyst at Jeffries, the investment bank, argued that Taylor Wimpey’s had not shifted towards building more homes at the expense of returns.

            “Although the housing market has changed gear Taylor Wimpey’s strategy has not; it remains focused on optimising shareholder value ahead of growing volumes,” he said.

            The company’s 5,191 completed homes in the period was a slight increase on the 5,083 completed in the same period last year. Average prices rose from £176,000 to £188,000.

            Group operating margin increased to 13.1 per cent, compared with 11.1 per cent for the same period last year. The company continued to develop land that it had bought cheaply during the financial crisis.

            Taylor Wimpey raised its interim dividend to 0.22p per share. The stock rose 0.3p to 106.5p on Wednesday.

            Banks should learn from Habsburg Spain

            Posted on 31 July 2013 by

            Spain's Leading Banks As Economy Struggles©Bloomberg

            Investors in the volatile debt of Ireland, Portugal, Spain and Italy can be forgiven a sense of déjà vu. The history of sovereign debt is strewn with promises broken, creditors losing their shirts (and sometimes literally their heads) and, during defaults, economic malaise. So does the long, melancholy history of government borrowing offer any lessons for policy makers today?

            Carmen Reinhart and Kenneth Rogoff, in their classic study of eight centuries of financial crises, argue that the repeated folly of investors is the cause of sovereign debt problems. After a few good years, creditors forget the risks, lend recklessly, then end up snared in a default. The cycle soon restarts as new investors convince themselves “this time is different”.

              At the dawn of sovereign lending, King Philip II of Spain – ruler between 1556 and 1598 of the only superpower of his age – signed hundreds of loan contracts. He also became the first serial defaulter, halting payments four times. The story of a powerful monarch able to convince creditors to lend as much as 60 per cent of gross domestic product while defaulting again and again offers useful insights into how the bargain can be improved.

              Sovereign debt crises today “hurt” in three ways. First, when bond markets panic and yields rise in a downturn, taxes are raised and spending is cut. Austerity aggravates the slump. Second, a country’s banking system typically implodes. Third, the return to debt markets is often long delayed; state employees are sacked, contractors go unpaid, and the economic slump deepens.

              By contrast, Genoese lenders to Philip II created a safe and stable sovereign borrowing system. It survived shocks such as the failed 1588 invasion of England with the Armada. Most bankers lent to the king for decades; no lender lost money in the long term. Financiers simply charged higher rates in normal times to compensate for the risks during crises.

              When shocks hit – such as a combination of low silver revenues and a costly war against the Ottomans – debt contracts were not expected to be honoured to the letter. Renegotiations were concluded fast – in 12 to 18 months, compared with today’s average of six to seven years. “Haircuts” for investors, from 20 to 40 per cent, were moderate. Lending resumed promptly.

              Even in normal times, lenders and borrowers shared risk effectively. A large fraction of Philip II’s short-term debt was “state contingent” – repayment terms and interest rates were automatically adjusted in line with fiscal conditions. In bad times – when the silver fleet from the Americas was small, say – the king either repaid less or extended the maturity of a loan. This avoided the need to let soldiers go unpaid.

              Automatic loan modification enabled Spain to avoid negative feedback loops such as those seen in southern Europe today, with falling tax revenue leading to austerity and hence an even more severe slump. The ability to write state-contingent debt using an easily observed indicator of fiscal health, such as the arrival of a fleet, was crucial. In modern debt markets, verifiable indicators such as value added tax receipts, certified economic growth figures or world oil prices could be used as measures of fiscal strength.

              The practices of the bankers, too, offer lessons for today. Loans were expensive and profits high. The Genoese absorbed losses easily because of their low leverage. Instead of borrowing themselves or taking deposits (as earlier competitors had done), they mostly financed themselves with equity. In addition, they sold the lion’s share of each loan on to other investors. Profits and losses were then distributed proportionately. During crises, everyone suffered, but no toxic concentration of risk threatened the bankers’ survival. In other words, risk transfers that failed during the recent subprime crisis worked well in the 16th century.

              Repeated cycles of lending and default, contrary to common belief, are not a sign of bankers’ stupidity. Often, creditors have realised that “next time will be the same”, and prepared themselves accordingly. They have provided effective insurance to the sovereign, and absorbed losses with thick equity cushions. The age of the galleon produced effective risk-sharing and a stable banking system; the age of the internet and jet travel is failing to do the same.

              The writers, who teach economic history in Barcelona and Vancouver, are the authors of the forthcoming ‘Lending to the Borrower from Hell’

              Herbalife boosted by reports of Soros stake

              Posted on 31 July 2013 by

              Herbalife Ltd. signage is displayed outside of the company's corporate headquarters in Torrance, California©Bloomberg

              Herbalife shares jumped to a fresh 12-month high on Wednesday following reports that billionaire investor George Soros had taken a large stake in the nutritional supplement direct seller.

              A 9 per cent rise in the share price to more than $65 extends losses already in the hundreds of millions of dollars for Pershing Square, the $13bn hedge fund run by Bill Ackman, that has called Herbalife a fraudulent pyramid scheme and placed a billion-dollar bet against the value of its shares.

                Mr Soros, one of the most successful investors of all time, is the second retired hedge fund manager to back the company. He joins Carl Icahn, a veteran agitator and bitter rival of Mr Ackman, who has taken a 16.5 per cent stake in the group, worth $1.1bn. Mr Icahn has also appointed two representatives to Herbalife’s board.

                Herbalife, which has said it is a legitimate business that has been operating for 33 years, sells products such as weight-loss shakes and vitamin pills in countries around the world through a network of self-employed salespeople it calls distributors.

                Shares in the company hit a peak of more than $72 in April 2012, days before another hedge fund manager, David Einhorn, appeared on a conference call to ask questions about the nature of Herbalife’s sales.

                In December they hit a low of less than $27 after Mr Ackman unveiled his bet against the company and urged regulators to investigate what he said was an illegal pyramid scheme designed to exploit naive new recruits rather than sell products to real end consumers.

                Mr Icahn disclosed an interest in Herbalife the following month, calling Mr Ackman a “crybaby” as the two men traded insults live on CNBC.

                The share price has steadily recovered this year, before jumping more than 9 per cent on Wednesday after the television broadcaster reported that Mr Soros had taken a large position in the company. Mr Soros did not immediately respond to requests for comment.

                It follows the release by Herbalife of second-quarter results on Monday, the first since it appointed PwC as its auditor following the resignation of KPMG because of an insider trading scandal in April.

                There have been calls from several quarters for the Federal Trade Commission to investigate Mr Ackman’s allegations against Herbalife, including consumer groups, Linda Sanchez, a Democratic US representative, and Timothy Ramey, an analyst for Davidson & Co with a “buy” rating on Herbalife. The FTC has said that it considers all correspondence from the public seriously.

                Pershing Square’s flagship fund is up 8.3 per cent so far this year, according to a client of the firm, and the losses on Herbalife come as Mr Ackman launches a new campaign of activism at Air Products, the industrial chemical company.

                Ecobank board to discuss chairman’s fate

                Posted on 31 July 2013 by

                Clients queue outside before the opening of a branch of the Ecobank in Abidjan©AFP

                The divided board of the African bank that pioneered cross-border expansion on the continent is to meet next week to determine the fate of its chairman, as Nigerian regulators broaden inquiries into debts linked to his business interests.

                The Securities and Exchange Commission (SEC) in Lagos, which had a central role in sanitising Nigeria’s financial system following the 2009 bank and stock market crash, has summoned the board of Ecobank Transnational (ETI), the bank has confirmed.

                  The ETI board is scheduled to meet separately on Monday in a special session to address the position of its chairman Kolapo Lawson. Board members will also raise the question of how Thierry Tanoh, chief executive, handled issues surrounding the debts, said people familiar with the matter.

                  Ecobank has been in the vanguard of African banks, championing regional integration to establish a presence in 33 African countries with assets worth $20.6bn. Mr Tanoh was recruited a year ago from the International Finance Corporation, the World Bank’s private sector lending arm, with a brief to consolidate these gains.

                  He is under fire from some shareholders, including South Africa’s Public Investment Corporation, the largest, for allegedly failing to keep the ETI board adequately informed about an April letter from the Central Bank of Nigeria (CBN) questioning Mr Lawson’s fitness as chairman. In the letter, the CBN’s director of banking supervision wrote of “huge outstanding non-performing facilities against” the chairman and owed to the Asset Management Corporation of Nigeria, which was set up to absorb non-performing assets following the 2009 Nigerian bank crash.

                  Mr Lawson said he is “in constructive negotiations with Amcon for a final settlement”.

                  ETI said an “outstanding amount” – N1.6bn ($10m) – owed to its Nigerian subsidiary by a family real estate company also chaired by Mr Lawson was cleared last week.

                  Analysts pointed out, however, that the sums were insignificant in the context of the bank’s balance sheet. Ecobank’s half-year results released on Monday showed pre-tax profits of $200m, up 58 per cent, with return on equity up 15.3 per cent from 11.5 per cent in the prior year.

                  But PIC and some other shareholders have insisted that the matter raises “corporate governance” issues that need addressing at board level.

                  There are also broader ramifications for Nigeria’s regulators, who are pressing to institutionalise reforms after the 2009 crash exposed a nexus of elite business and political interests with billions of dollars in non-performing loans.

                  The matter has become a test of cross-border supervision in Africa as banks hunt for growth across jurisdictions. The CBN does not regulate ETI, which is headquartered in Togo and falls under the purview of the west African banking commission.

                  But a senior banking official said the CBN has written to the commission, based in Abidjan, to inform it that under Nigerian regulation Mr Lawson would have been asked to stand down as a result of the longstanding liabilities to which he is linked.

                  The commission did not respond to requests for comment.

                  IMF warns of €11bn Greek bailout shortfall

                  Posted on 31 July 2013 by

                  Protestors shout slogans against the visit of the German finance minister©AFP

                  Protestors shout slogans against the visit of the German finance minister

                  Greece’s second bailout is €11bn short of cash, and eurozone governments need to fill almost half of that gap before the end of the year, the International Monetary Fund reported in its quarterly assessment of the Greek rescue.

                  In addition, the IMF said that in order to bring Greek debt levels back to a manageable level, Athens must be relieved of debts it owes to eurozone governments totalling 4 per cent of economic output – or about €7.4bn – within the next two years.

                  Eurozone governments may be forced to write off even bigger chunks of their bailout loans to Athens unless the Greek economy begins to turn round, the IMF said in its most clear call yet for these governments to accept big losses on their Greek aid.

                  Greek tragedy

                  Greek tragedy

                    “If investors are not persuaded that the policy for dealing with the debt problem is credible, investment and growth will be unlikely to recover as programmed,” the IMF said in the 195-page report. “Should debt sustainability concerns prove to be weighing on investor sentiments even with the framework for debt relief now in place, European partners should consider providing relief that would entail a faster reduction in debt than currently programmed.”

                    Almost all Greek sovereign debt is owed to eurozone governments. It is expected to peak this year at 176 per cent of economic output.

                    The IMF’s call for eurozone governments to accept losses on their bailout loans to reduce Greece’s debt load is not new, having led to a weeks-long stand-off between the fund and Brussels when the Greek programme was last overhauled in December.

                    But the new report is the first time the IMF has raised the prospect of writedowns even larger than those agreed in December, and comes two months before Germans go to the polls, potentially causing problems for Angela Merkel, chancellor.

                    Ms Merkel and other members of her ruling Christian Democratic Union party have insisted in recent weeks that there would be no “haircuts” on their bailout loans.

                    Wolfgang Schäuble, the German finance minister, gave warning during a recent visit to Athens that the Greek government should “not continue this discussion”.

                    On Wednesday, German officials rejected the need for further debt relief, saying the most recent report by international monitors had found that Athens was hitting all its bailout targets.

                    Martin Kotthaus, the German finance ministry spokesman, said reform measures taken in recent months had strengthened confidence in financial markets, and calls for another Greek programme would undermine that confidence.

                    But Carsten Schneider, budget spokesman for the opposition Social Democratic party, said that the IMF had “told the bitter truth yet again”.

                    He said that the financial situation in Greece was the result of the “failed policy that has been decisively pursued” by Ms Merkel.

                    “Unlike the IMF, she does not have either the strength or the courage herself to recognise this failure,” he added, urging that the IMF should remain part of the troika in the future, even if it were no longer participating financially.

                    The issue of accepting losses on existing bailout loans – at the same time as being asked to provide additional aid – is politically combustible in several other northern eurozone countries as well, where anti-bailout sentiment is running high.

                    In depth

                    Greece debt crisis


                    Greece struggles on with drastic austerity as eurozone leaders continue to argue over how to help the country cope with its debt mountain

                    Eurozone officials have insisted they will not discuss further debt relief for Greece until April 2014 at the earliest, when statistics officials are due to rule on whether Athens has for the first time reached a balanced budget, when debt payments are not counted – a so-called primary surplus.

                    EU officials have indicated there may be ways to fill the immediate cash shortage – which the European Commission has estimated at €3.8bn for 2014, although the IMF puts it at €4.4bn – without forcing eurozone lenders to put additional cash into the €172bn joint EU-IMF programme.

                    One EU official said there might be leftover funds intended to recapitalise Greece’s banking sector that might no longer be needed and could be reprogrammed, for example. But the IMF report makes clear that the funding gap, which opens up in August 2014, goes beyond next year and into 2015, where it estimates Greece will need an additional €5.6bn.

                    The issue of closing the 2014 gap is essential for the IMF, which is barred from making its quarterly disbursements unless Greece has financing in place for an entire year. As of this August, Greece will have financing in place for only 11 months, and the report says the issue must be addressed during the bailout’s next quarterly review, expected in late September.

                    Although the report does not address the 2015 shortfall, IMF officials have been urging eurozone leaders to fill the €5.6bn gap for that year at the same time.

                     . . . 

                    Greece’s troubled second bailout

                    March 2012 – After less than two years, eurozone officials agree that Greece’s first €110bn bailout was not big enough and sign on to a second €172bn rescue, which includes history’s largest sovereign debt default.

                    May 2012 – Greek elections result in the stunning second-place finish by the radical anti-bailout Syriza party, throwing the county into political turmoil and opening a public debate on “Grexit”.

                    June 2012 – Centre-right New Democracy is able to secure a victory in a second election, but the political upheaval throws the bailout off course.

                    November 2012 – Eurozone officials agree to overhaul the second bailout by extending it for two years, through 2016. But an agreement is held up by a stalemate between the IMF and eurozone finance ministers over how much debt relief to give Athens.

                    December 2012 – After weeks of negotiations, the IMF and eurozone agree to a staged debt relief plan where the EU will lower its interest rates on bailout loans immediately and revisit the debt issue once Greece reaches a primary surplus. They set a debt target of “substantially below” 110 per cent of GDP by 2022.

                    June 2013 – IMF issues a self-criticism of the first Greek bailout, saying Athens should have defaulted on its sovereign debt much earlier and blaming European officials for resisting such a move.

                    July 2013 – IMF issues its quarterly report on Greece suggesting even the debt relief agreement reached in December may be too little.

                    August 2013 – Because of a financing gap caused by slippages in Greece’s privatisation programme and the failure of eurozone central banks to roll over Greek bonds they hold, the bailout no longer has 12 months of financing in place, barring the IMF from disbursing any additional funds.

                    September 2013 – EU and IMF monitors are due back in Athens for the next quarterly review. IMF officials insist the 2014 financing gap of about €4bn must be filled by eurozone lenders as part of these talks.

                    April 2014 – Eurostat scheduled to review Greece’s budget numbers, which are likely to show Athens for the first time has reached a primary budget surplus. Eurogroup expected to take up issue of further debt relief as a result.

                    St. James’s Place sees fresh inflow

                    Posted on 31 July 2013 by

                      A recruitment drive undertaken by wealth manager St. James’s Place to capitalise on difficulties at the banks spurred fresh inflows of client monies in the first half of 2013. Yet even after its shares rose 4 per cent on Wednesday to 618p, they remain beneath levels reached two months ago before one-time majority shareholder Lloyds Banking Group cut its stake. A prospective earnings multiple of 22 times is not cheap, given the rate of expansion may moderate, and a 2.3 per cent dividend yield is rather dull. Still, cash flows should continue to strengthen and bulls should be tempted by the discount to Hargreaves Lansdown’s valuation at 27 times earnings.

                      Year to June 30 % change
                      New sales £426.5m 21
                      Pre-tax profit £249.5m 193
                      EPS 21p 128
                      Dividend 6.38p 50