Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

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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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Archive | November, 2016

EU penalises Faroes in fishing dispute

Posted on 31 July 2013 by

Boats in the port of Torshavn, Streymoy island, Faroe Islands, North Atlantic©Alamy

Economic war came to Europe’s high seas on Wednesday as the EU moved to punish the Faroe Islands, its tiny neighbour, for allegedly plundering stocks of herring, the so-called “silver of the sea”.

The planned trade curbs against the nation of fewer than 50,000 people marks the EU’s first resort to sanctions in a fishing quota dispute and paves the way for similar moves on Iceland for allegedly gouging mackerel.

Iceland and the Faroe Islands unilaterally ramped up their fish take after volumes of mackerel and herring surged off their coasts, possibly as a result of rising sea temperatures driving shoals towards cooler waters in the northeast Atlantic.

The bumper catches, which saw the Faroese more than triple their herring quota last year, angered fisherman in Scotland, Norway and Ireland and prompted the European Commission to prepare retaliatory measures. These were endorsed in a vote of EU member states on Wednesday.

    Maria Damanaki, the EU commissioner for fisheries, said the bloc had “no option but to move ahead and take all necessary steps in ensuring a sustainable herring fishery”.

    Brussels’ response, which will be officially adopted later this month, is seen by the islands as a coercive and illegal attempt to protect out-of-date quotas that allow the EU and Norway to dominate fishing of pelagic species vacating their waters.

    “It is short-sighted and ill-considered of the EU to take such an unjustifiable step against one of its nearest European neighbours,” said Kaj Leo Holm Johannesen, the Faroe Islands prime minister. “It is difficult to see what purpose these measures serve other than to protect fishing industry interests within the EU.”

    The furore is reminiscent of the so-called cod wars of the 1950s and 1970s, when Icelandic vessels clashed with British trawlers. The fishing dispute could cripple the Faroese economy and is one of the biggest impediments to Iceland joining the EU club.

    Sigurgeir Thorgeirsson, Iceland’s top mackerel negotiator, said he considered any type of sanction “as illegal and not in line with international obligations”. “We can learn from the ‘cod wars’ . . . that we must solve this dispute diplomatically rather than through an economic war,” he said.

    The mackerel and herring disputes are closely intertwined, as the fish are generally caught at the same time by the same boats. While mackerel stocks are relatively high, Atlanto Scandian herring numbers are falling. The Marine Stewardship Council recently suspended its certificate for the Faroese herring fishery citing concerns over its large quota.

    It is short-sighted and ill-considered of the EU to take such an unjustifiable step against one of its nearest European neighbours

    – Kaj Leo Holm Johannesen, Faroe Islands prime minister

    The export ban and boycott on Faroese herring trawlers landing in EU ports will deal a heavy blow to the islands, which rely on fishing for half of national income. The Faroese are part of the Danish realm but enjoy independence on domestic policy and are not part of the EU.

    Denmark handles Faroe Island foreign policy and voted against the sanctions, which will force it to ban the sale of products within its own kingdom. Mette Gjerskov, Danish food minister, criticised the “drastic step” as premature.

    “It is a small community that is highly dependent on its fishing activities,” she said. “We believe that all possibilities for negotiation must be exhausted before resorting to sanctions – and that has not happened yet.”

    EU fishing groups welcomed the decision. Ian Gatt of the Scottish Pelagic Fishermen’s Association said he hoped the penalties would send “a clear signal to the Faroese that their actions are simply not acceptable in the 21st century”.

    The so-called mackerel wars have raged for almost five years, since Iceland sharply increased its take in the wake of a financial crisis that brought its economy low. Its catch rose from 37,000 tonnes of mackerel in 2007 to about 146,000 tonnes in 2011.

    The EU passed laws permitting trade sanctions in fishing disputes in the wake of the tensions. In a sign of how the fishing wars could escalate, three years ago 50 Scottish fishermen manned their trawlers to blockade Peterhead port to stop one Faroese boat offloading mackerel in the UK.

    AB InBev lifted by premium brands

    Posted on 31 July 2013 by

    Anheuser-Busch InBev, the world’s largest brewer, topped profit expectations as beer drinkers drank fewer pints but upgraded to premium brands.

    The Belgium-based maker of Stella Artois and Becks said global volumes on a like-for-like basis dropped 1.2 per cent but second-quarter earnings rose 5.8 per cent to $3.9bn, beating forecasts, as profit margins rose in its two biggest markets – the US and Brazil.

      Broker Canaccord Genuity reinstated the buy recommendations that it removed following InBev’s disappointing first-quarter results thanks to the “faster than expected recovery and better margin performance”.

      Shares in AB InBev jumped 6.9 per cent to €72.38, helping its European rivals along the way.

      Dutch brewer Heineken rose 2.2 per cent to €52.80 while Britain’s SABMiller also rose. Denmark’s Carlsberg lagged, however, falling 0.8 per cent to DKr555.

      The FTSE Eurofirst 300 index climbed 0.2 per cent to 1,208.17.

      France’s Schneider Electric climbed 3.1 per cent to €59.81 after it confirmed a bid for Britain’s Invensys, the engineering software provider, for £3.4bn.

      The deal was agreed at £5.02 a share, less than than the indicative offer of £5.05.

      HeidelbergCement gained 5.5 per cent to €57.74 after the German building materials group reported a 6 per cent rise in second-quarter operating income to €734m.

      At the bottom end of the Eurofirst was Telecom Italia, which fell 6.3 per cent to €0.51 on reports that it might be considering a capital increase.

      The company said the subject was not on the agenda for its board meeting on Thursday.

      But K+S, the German potash group, was bottom of the pile for a second day as brokers rushed to cut their targets on the stock amid fears of a drop in potash prices.

      This followed the break-up this week of the joint venture that formed the world’s biggest miner of the fertiliser product.

      K+S shares slid 8.5 per to €18.53, taking its two-day decline to 30.2 per cent.

      Publicis, the advertising agency entering a “merger of equals” with US rival Omnicom, rose 6.4 per cent to €60.64 as investors continued to warm to the marriage.

      US Treasury announces cut in debt sales

      Posted on 31 July 2013 by

      Bond traders will underwrite less government debt in the coming quarter for the first time since 2010 after the US Treasury said it
      would
      cut debt sales – reflecting its plans to introduce floating rate notes next year and an improving federal budget deficit.

      Cuts in Treasury debt sales for so-called coupon issues would start in the coming quarter and involve the two-year and three-year note maturities, said the US Treasury on Wednesday.

        The move comes as the US budget deficit for the 2013 financial year is forecast to fall towards $650bn from $1.024tn for the previous year.

        The Treasury said: “The magnitude of offering size reductions will depend on the pace and extent of the fiscal improvement.”

        During a follow-up press conference on Wednesday, the US Treasury said initial reductions in auction sizes would be only $1bn.

        Lou Crandall, economist at Wrightson Icap, said: “We suspect there may be room for more cuts in the fourth quarter but that is uncertain at this point.”

        Analysts at Credit Suisse expected the pace of reductions in issuance size to accelerate and total $6bn to $8bn in the next few quarters in the two-, three- and five-year sectors.

        The Treasury also published a final rule for its floating rate note programme and said it expected the first sale to be in January. It will announce further details in the next quarterly refunding statement in November.

        Traders expected floating rate note issuance to total $150bn in the first year before reaching $300bn when the issue was fully operational – requiring cuts in regular coupon sales.

        “Auction sizes will need to be reduced, in part due to smaller deficits and in part to make room for the new floating rate notes,” said RBC Capital Markets.

        The move to cut Treasury shorter-term coupon sales will also help extend the average maturity of outstanding US debt, which stands at 64.5 months and is expected to rise to 80 months by 2022.

        While the average maturity of US debt has extended in recent years, it trails other sovereign borrowers, notably the UK’s level of 14 years.

        The Treasury Borrowing Advisory Committee, a group of bond dealers and investors that meets every quarter with Treasury officials, agreed this week that short-dated issuance be cut in order to meet a long-established goal to increase the weighted average maturity of US government debt.

        “The committee emphasised the importance of making gradual and modest adjustments to the issuance schedule in order to maintain future financing flexibility in light of the uncertainty regarding economic growth, budget-related matters and the trajectory of future tax receipts,” said the TBAC in its report to the secretary of the Treasury.

        For August the refunding will consist of selling a $32bn three-year note, a $24bn 10-year note and a $16bn 30-year bond.

        Dubai property market getting hotter

        Posted on 31 July 2013 by

        Dubai’s revived real estate market is showing signs of overheating again with average rental costs up almost a third over the past 12 months, five years since the emirate’s debt-laden property bubble burst.

        Economic confidence has returned to the emirate’s trade, tourism and services sector as Dubai emerges as a haven amid regional unrest, prompting more hiring within some companies using the business hub for the oil-rich region.

          In a report this week, property consultants CBRE said the residential sector is showing “increasing signs of overheating” as rental and sales prices rise “too quickly.”

          Average residential rentals have now grown by over 30% over the past 12 months, with half-yearly figures rising close to 14%.

          Officials used to say the silver lining of the real estate crash was a reduction in sky-high costs that had accompanied the property bubble though 2008.

          CBRE now warns that rental growth is significantly outpacing wage inflation, “which could start to impact on Dubai’s competitiveness if sustained at current levels for too long”.

          The IMF has also weighed in, saying the government should prevent a return to “boom-and-bust” as the non-oil economy of the United Arab Emirates grows at four per cent a year driven by Dubai’s core service sector.

          Implementing real estate-related fees could help mitigate speculation, it said in a report released this week.

          CBRE says widespread growth in the residential sector – led by prime properties around the world’s tallest tower and on Dubai’s man-made Palm Island – is triggering price inflation in less-popular areas, including developments located on the desert outskirts, such as Jumeirah Village and Dubai Sports City.

          A rise in demand, much of it from cash-rich overseas purchases and local residents seeking investment opportunities, is coinciding with a more limited supply of housing stock.

          Matthew Green, head of UAE research for CBRE, says the spate of recent property launches, prompted by the real estate revival, will ease the constraints in demand for popular districts.

          In the meantime, landlords are becoming increasingly aggressive in trying to put up rents, prompting an increase in the number of rental disputes at the real estate regulator.

          The rental committee only allows landlords to increase rent if the leasing rate is more than 26 per cent below the regulator’s view on the market rate.

          “Rental laws were introduced to protect tenants and therefore lots of decisions are in favour of tenants,” says Ludmila Yamalova of legal consultants HPL Yamalova & Plewka.

          However, many tenants do not know the law or want to avoid hassle are not fighting rental increases, contributing to the recent rise in leasing rates.

          One professional who in April moved into a modest one-bed apartment in Dubai Marina had to pay Dh85,000 for a year’s rent, while colleagues a year ago managed to secure similar properties for around Dh65,000.

          “I was amazed at how small the apartment was and how much I had to pay for them,” she said. “I seriously had to lower my expectations.”

          India plans measures to boost inflows

          Posted on 31 July 2013 by

          India’s Congress-led government is considering a sovereign bond issue and liberalising overseas borrowing rules for companies and foreign direct investment rules, to ensure sufficient foreign capital inflows to finance its current account deficit.

          P. Chidambaram, finance minister, said he was confident India would be able to keep its deficit below the $88bn, or 4.8 per cent of GDP, recorded during the last April-to-March financial year – and to finance it without drawing on existing foreign currency reserves.

            “We are confident that we can ensure stable sources of additional financing for the current account deficit,” he said on Wednesday.

            But analysts say the Congress has few easy options for increasing foreign inflows at a time when growth is slowing, and the local currency, the rupee, is hovering near record lows.

            The ministry’s proposal for a sovereign bond issue has been met with scepticism from the Reserve Bank of India, whose governor, Duvvuri Subbarao, called it the “least preferred option”, telling reporters that such an offering should be made from “a position of strength”.

            It is also unclear whether the RBI would sanction any easing of the current restrictions on Indian companies’ ability to borrow money abroad.

            The RBI currently has a ceiling on the interest rates at which companies can take on overseas bank loans and certain other forms of debt – rules that have stopped many Indian companies from raising money abroad, despite the attraction of borrowing at interest rates that are typically lower than in the domestic market.

            “The sovereign obviously doesn’t want a situation where there are a whole load of companies who might default on foreign debts,” says Ananda Bhoumik, a director at India Ratings, a subsidiary of the rating agency Fitch. “But it should be possible to raise the ceiling at which companies are allowed to borrow and streamline the process, to allow more good companies to bring money in from abroad.”

            However, others expressed doubts that any easing of external commercial borrowing rules would lead to any significant increase in foreign inflows, given the depressed sentiment among India’s largest companies about the country’s prospects.

            “These [borrowing] rules have been changed from time to time over the last few years, so I don’t see it is a big bang game changer,” says Sajjid Chinoy, chief economist at JPMorgan in India. “Given that investment is so low at home at the moment, and the state of the rupee is so unstable, the desire of Indian companies to borrow abroad is quite low in any case.”

            The government is also keen to liberalise foreign direct investment rules, but has faced strong internal resistance, while concerns about the overall investment climate have made many foreign companies cautious, even when openings are announced.

            Last September, New Delhi announced it would allow foreign direct investment in supermarkets and department stores, but the offer came with so many conditions that big investments have failed to materialise, despite huge foreign interest in India’s market potential.

            On Wednesday, Mr Chidambaram admitted that foreign investor sentiment towards India was only likely to improve after Indian business houses grow more confident about the country’s prospects. “It is only domestic investment that will bring in its wake foreign investment,” he said.

            Brazil sells currency swaps to boost real

            Posted on 31 July 2013 by

            Brazil’s central bank sold 30,000 currency swaps to alleviate a critical dollar shortage that has driven the real to four-year lows in recent sessions.

            The real has been the worst-performing emerging market currency, falling 12.4 per cent against the dollar this year, and the US currency on Wednesday briefly jumped above R$2.30 for the first time since May 2009.

              The swaps – derivatives contracts that provide investors with protection from violent swings in the currency – raised a total $1.5bn in dollar liquidity and pulled the real back from its weakest level.

              Although the real had stabilised at about R$2.25 against the dollar in recent weeks, investors were reminded this week by monthly primary budget surplus data that Brazil is unlikely to meet its annual surplus target, the amount needed to service its outstanding debt.

              Having hit a high of R$2.3022, the dollar eased back after the auction to trade just 0.2 per cent higher at R$2.2861. It was the central bank’s 20th intervention to support the real since the end of May.

              Sterling fell to a month low against the dollar as investors continued to position for the likely divergence in policy between the Bank of England and the US Federal Reserve.

              Although the BoE is not due to outline plans for its forward guidance until next week’s inflation report, many market watchers expect aggressive targets to be set that will require equally aggressive policy response.

              “Overall, we tend to think that gains for the pound are limited due to the huge amount of policy uncertainty related to the august inflation report,” said Kathleen Brooks at Forex.com.

              The pound fell 0.5 per cent against the dollar to $1.5163 and was down 0.1 per cent to £0.8713 against the euro, which was buoyed by German data.

              Against the dollar, the single currency was up 0.1 per cent to $1.3271 as unemployment in Germany fell 7,000 to 2.9m, leaving the rate steady at 6.8 per cent, the country’s labour department said.

              The euro gained 0.1 per cent to Y130.21 against the yen. The dollar gave up some of its gains against Japan’s currency, falling 0.1 per cent to Y98.17.

              The Macro Sweep: Europe, Taiwan, US

              Posted on 31 July 2013 by

              It was optimism all round on Wednesday, not just in Europe. Taiwan and the US beat expectations of gross domestic product growth in the second quarter of 2013. Singapore manufacturers also expressed some cautious optimism. Data remained fairly steady within Europe – although the number of unemployed people dropped in the eurozone, it wasn’t enough to change the unemployment rate.

              Europe

              Eurozone

              The number of unemployed people in the eurozone fell in June for the first time in two years. The harmonised unemployment rate remains unchanged
              from the 12.1 per cent recorded in May.

                Flash estimates for the harmonised index of consumer prices showed inflation was steady at 1.6 per cent,
                in line with market expectations. Food, alcohol and tobacco have contributed the most to the annual rise in inflation.

                Norway

                Unemployment slid down 0.1 per cent to 3.4 per cent,
                bringing the total number of unemployed people to 93,000.

                The manufacturing, mining and quarrying sectors reported a decline in new domestic orders, but that has had little effect on total output. The measure of production volume remained just below the turning point into expansion at 49.9.

                Labour force participation
                in the second quarter of this year dropped 0.6 per cent from the year before. The unemployment rate also edged up 0.3 per cent to 3.6 per cent in the same time, according to non-seasonally adjusted figures. The seasonally adjusted rate of unemployment
                actually edged down a little from last year to 3.4 in May.

                Exports of fresh salmon dropped in the week commencing July 22 to 13,509 tonnes. The fall of 4.2 per cent from the week before
                corresponded with a 4.7 per cent drop in the price. Although the price remains 61.9 per cent higher, the quantities being exported are 5.9 per cent lower.

                Germany

                The unemployment rate was steady in June, at 5.4 per cent
                . There was no change from the month before but it did drop 1.8 per cent from the same month the year before.
                Retail sales fell 1.5 per cent in June, despite expectations for a slight increase. Sales of beer were down 4.9 per cent
                year on year in the first half of this year.

                Turkey

                A 6 per cent year-on-year decrease in exports and a 2 per cent increase in imports pushed the trade deficit up 18.9 per cent to $8.57bn.
                Exports to the EU were up 5.3 per cent from the year before, while exports to Germany rose 3.5 per cent and exports to Africa were up 9.3 per cent. However, the balance was pulled down by weak demand elsewhere – exports dropped 38.4 per cent to South American countries and 21.8 per cent to Asia.

                Hungary

                Producer prices edged up 0.3 per cent
                month on month in June, helped up by a 4 per cent rise in the cost of manufacturing pharmaceutical products.

                France

                The fall in producer prices slowed
                to minus 0.3 per cent in June. Prices stabilised in most sectors, except for food, where they rose 0.3 per cent. High pork prices pushed meat prices up 1.4 per cent, while farm milk moved up 2.1 per cent.

                Although household consumption of goods decreased 0.8 per cent month on month in June, it still increased over the second quarter, edging up 0.3 per cent. The decline in spending on food products, was offset by expenditure on durable goods and energy products.

                Switzerland

                Construction helped the KOF economic barometer
                to continue rising, moving 0.08 points to 1.23 points. The UBS consumption indicator remained steady, dropping only slightly from 1.45 in May to 1.44 in June. Registrations of new cars dropped 27.6 per cent
                year on year in June.

                Italy

                CPI inflation stayed at 1.1 per cent
                in July. The cost of fresh vegetables dropped 7.3 per cent, while fresh fruit fell 6.8 per cent from the month before. Transport costs, however, provided upward pressure with the cost of air transport up 11.2 per cent and sea and inland waterway transport up 8.7 per cent.

                “Italian inflation continues to subside” economists at 4Cast said, “but on the assumption that the VAT hike will go ahead as scheduled in October, Bank of Italy now expected inflation to average 1.5 per cent over 2013 and 2014.”

                The harmonised index of consumer prices fell 1.8 per cent month on month in July, bringing the year-on-year rate down to 1.2 per cent. it was pulled down by a decrease of 18.9 per cent in clothing and footwear prices. July’s industrial producer prices increased 0.3 per cent
                from the month before. The prices were pulled up by a 0.4 per cent increase, which countered the 0.1 per cent fall in non-domestic prices.

                Ukraine

                The economy contracted 1.1 per cent in the second quarter, year on year, according to government figures. The data adds impetus to the government’s bid to seek further assistance from the International Monetary Fund.

                Americas

                US

                The US economy grew
                at an annualised rate of 1.7 per cent in the second quarter of this year, boosted by robust consumption and investment. The figure was well ahead of expectations and is likely to encourage the US Federal Reserve to consider tapering
                as early as September.

                Asia Pacific

                Singapore

                Preliminary estimates show the seasonally adjusted unemployment rate moved up from 1.9 per cent in March to 2.1 per cent in June.

                The business sentiment survey showed that 13 per cent of manufacturers expect business conditions to improve, while 5 per cent think there will be a deterioration in the second half of 2013. Eight per cent of manufacturers think business conditions will be more favourable in the second half of the year compared with the first. The report noted that “the manufacturing sector continues to be concerned about the global macroeconomic environment, in particular the US, EU and China.”

                Australia

                Private credit beat expectations, edging up 0.4 per cent month on month in June. It was helped by a sixth consecutive month of growth in housing credit.

                Taiwan

                A pick-up in consumer spending helped the economy to expand 2.3 per cent
                in the second quarter of this year, beating forecasts.

                Moneysupermarket falls on Google change

                Posted on 31 July 2013 by

                Shares in Moneysupermarket.com fell 15 per cent on Wednesday after the UK’s leading price comparison website said revenues were hit because of changes to Google’s search algorithms.

                Google, which accounts for nine out of every 10 searches in the UK, is a key channel through which Moneysupermarket and its rivals attract consumers to their websites.

                  Moneysupermarket – which earns fees from financial services groups when users apply for loans, savings accounts and insurance – said that “trading slowed” in the second quarter after the company lost its leading positions in the Google natural search results for “some of the key terms for motor and home insurance”.

                  Peter Plumb, chief executive of Moneysupermarket.com, said it was the first time that several of its top search terms had been affected and that the company’s marketing team was working hard to regain its top position.

                  “You never get told how Google will change its algorithms – it’s the nature of the beast,” he said.

                  Searching the term “car insurance” on Wednesday returned Moneysupermarket in fifth place, down from the top unsponsored search position in June. The comparison site also pays for adverts on Google, so remains in a prominent position in the ad box at the top of the page.

                  For the six months to the end of June, Moneysupermarket said that group revenue increased 10 per cent to £112.3m, in line with analyst expectations. The revenue growth was flattered by the acquisition last year of Money Saving Expert, the finance advice website.

                  Adjusted earnings before interest, tax, depreciation and amortisation rose 29 per cent to £39.9m. Earnings per share rose to 2.8p, up from 1.7p in the first half last year.

                  The company’s insurance, travel, and home services divisions all expanded, but its money division, which includes savings products, suffered a 13 per cent decline in revenues.

                  The company put the weakness in its money division down to the UK government’s Funding for Lending Scheme, which has reduced what savers can earn on their deposits.

                  Roddy Davidson, analyst at Westhouse, said: “We are cautious on the continuing challenges being experienced in the money vertical and would have liked a more definitive statement on success in tackling the problems caused by Google’s recent algorithm changes.”

                  Moneysupermarket also announced on Wednesday that Paul Doughty, the group’s chief financial officer since 2004, would step down from the role by June 2014.

                  Simon Nixon, who founded Moneysupermarket in 1999, made his first big disposal of shares in the company in June, selling an 18.5 per cent stake for £200m.

                  Shares in Moneysupermarket, which had risen a third since the start of the year, were down 14.7 per cent at 180.90p by late afternoon on Wednesday.

                  Brazil hits out at IMF over Greek bailout

                  Posted on 31 July 2013 by

                  Paulo Nogueira Batista, executive director, Brazil's International Monetary Fund, speaks during the 2007 Brazil Economic Conference on "Growth and Investment Opportunities in Brazil" in Washington, D.C., on Monday, Oct. 22, 2007. Photographer: Carol T. Powers/Bloomberg News©Bloomberg

                  Brazil’s representative to the International Monetary Fund’s executive board abstained from approving the fund’s new €1.8bn contribution to Greece this week and issued a stinging criticism, arguing that Athens might be unable to repay its rescue loans.

                  Paulo Nogueira Batista, who represents 11 Central and South American countries on the IMF board, said Greece’s political and economic difficulties “confirm some of our worst fears”, adding the fund’s own economists were making “over-optimistic” assumptions about economic growth and the sustainability of its debt.

                    “Never-ending economic depression and severe unemployment levels have led to political discord,” wrote Mr Batista. “The widespread perception that the hardship brought on by draconian adjustment policies is not paying off in any way has further undermined public support for the adjustment and reform programme.”

                    Developing countries have long been uncomfortable about the outsized fund resources being devoted to the eurozone crisis, with Brazil voicing concern that an organisation aimed at helping poorer countries is being used to shore up some of the world’s largest economies.

                    But Mr Batista’s abstention and harsh statement – which included his assessment that the IMF’s Greece staff was “one step short of openly contemplating the possibility of a default or payment delays by Greece on its liabilities to the IMF” – is one of the toughest stands taken since the Greek bailout began three years ago.

                    It came as the IMF itself issued a report calling on eurozone countries to provide €11bn more funding for the Greek bailout and consider big writedowns of their bailout loans to Athens in order to reduce debt to more reasonable levels.

                    “This abstention undermines the belief that IMF disagreement between the Europeans and emerging markets over Greece are a thing of the past,” said Mujtaba Rahman, head Europe analyst at the Eurasia Group risk consultancy. “Ahead of difficult negotiations on a third bailout and debt writedowns this fall, this signal of disarray from within the IMF could not have come at a worse time.”

                    The warnings come amid a national election campaign in Germany where tolerance for more Greek aid and debt relief is waning and opposition parties have attempted to make Chancellor Angela Merkel’s handling of the bailout a campaign issue.

                    German officials pointed to recent findings by international monitors, which include the IMF, that the bailout was hitting its fiscal targets, arguing that it was therefore not appropriate to discuss new Greek assistance.

                    In depth

                    Greece debt crisis

                    Greece

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

                    In an interview, Mr Batista said that while he had abstained in the past, he was now convinced that Greece’s second €172bn bailout suffered from the same rosy assumptions that hobbled the first rescue, which was later harshly criticised by the IMF itself. “The second programme suffers from many of the same problems as the first,” he said.

                    Mr Batista’s abstention will have no direct impact on Greece’s aid; the Brazil-led group represents only 2.6 per cent of IMF board votes, which are dominated by European and US members. The board approved the payment on Monday, just two days before an end-of-month deadline.

                    But it will raise the pressure on IMF officials to take an increasingly tough stand with eurozone leaders, who are reluctant to accept losses on their existing bailout loans.

                    Brazil’s belligerence has grown since 2009 when, after decades of relying on the IMF to bail it out of a series of financial crises, it became a net creditor of the fund when it provided $10bn in financing to help developed countries hit by the financial crisis.

                    Since then, Guido Mantega, Brazil’s finance minister, has emerged as one of the most outspoken critics of the IMF, calling for greater representation of developing countries on the board.

                    Brazil’s new confidence as a global economic power has also led the country to put increasing pressure on the IMF on issues ranging from the acceptance of capital controls in global markets to even its methodology for calculating debt.

                    Last week, it emerged that Brazil had asked the IMF to change the way it measures nations’ gross debt, which it said unfairly inflated its own liabilities.

                    Additional reporting by Joseph Leahy and Samantha Pearson in São Paulo and Quentin Peel in Berlin

                    BNP Paribas hit by European decline

                    Posted on 31 July 2013 by

                    BNP Paribas aims to go head to head with Germany’s big banks by courting the country’s export-focused Mittelstand companies, as part of a plan to boost business in the country by a third within three years.

                    The target, announced as one of two new strategic priorities for BNP, came as France’s largest bank by market value and assets suffered a 5 per cent year-on-year drop in net profits in the second quarter to €1.76bn.

                      Rising provisions for bad loans in Italy and weaker investment banking earnings amid a stagnant European economy hit overall performance, though the result was better than the €1.62bn average forecast from analysts polled by Bloomberg.

                      But BNP, which last week acquired a small depositary business from Germany’s Commerzbank, said it saw great promise to expand in the German market.

                      “We will consider opportunistically buying certain other targeted lines of business to support our planned organic expansion in Germany,” Jean-Laurent Bonnafé, chief executive, told the Financial Times.

                      The bank said it would add 500 jobs to its 3,500-strong staff in Germany across retail banking, corporate and investment banking and asset management. It aims to increase revenues in the country by 8 per cent annually to €1.5bn by 2016.

                      A second strategic target would be to expand its asset management operations, boosting assets under management by €40bn and revenue by 10 per cent over the same period.

                      BNP has this year refocused on expansion after spending the past two years increasing its capital, shrinking its balance sheet and cutting jobs. It has already embarked on an Asian growth plan, though US expansion has been shelved while local regulatory requirements remain in limbo.

                      In the second quarter, retail banking performed well, aside from a 28 per cent rise in provisions for bad loans at its Italian banking arm BNL.

                      The investment banking arm joined European rivals in underperforming their US peers in fixed income trading, as European interest rates business slowed amid the June market turmoil. Pre-tax investment banking income fell 39 per cent to €479m, about half the level of retail profits.

                      The investment bank’s bad loan provision jumped tenfold to €206m. James Chappell, analyst at Berenberg, said the overall results were “positive” but expressed concern “as to whether the exceptionally low credit losses French banks have seen is worsening as losses need to be recognised”.

                      BNP stands apart from many European peers with strong capital and leverage ratios. Its core tier one capital ratio is 10.4 per cent under the incoming Basel III rule book, while its leverage ratio of 3.4 per cent is ahead of the new 3 per cent norm. Both Deutsche Bank and Barclays have been struggling to cut assets and raise capital to comply with regulators’ sharpened focus on leverage.