Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

Continue Reading


Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

Continue Reading


Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

Continue Reading


Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

Continue Reading


Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

Continue Reading

Categorized | Capital Markets

Puerto Rico drops tax plan, hitting bonds

Posted on April 30, 2015

A pedestrian passes a closed shop with a for sale sign outside, along Paseo de Diego in San Juan's Rio Piedras district, September 3, 2013. Flows of Puerto Ricans leaving for mainland United States have run steadily since the 1950s, but are now a torrent stripping the U.S. territory of the young and educated people and destabilizing a weak economy blamed for the exodus. Picture taken September 3, 2013. REUTERS/Alvin Baez (PUERTO RICO - Tags: BUSINESS POLITICS) - RTX13FPI©Reuters

Puerto Rican bonds slid deeper into distressed territory on Thursday after the debt-laden island’s House of Representatives voted down measures to overhaul the tax system, deepening concerns over the commonwealth’s creditworthiness.

The House of Representatives voted 28 to 22 to reject a bill that would have reformed the value added tax and helped plug a yawning budget deficit that has led debts to spiral to more than $70bn, in an island with a population of just 3.6m.

    Puerto Rico’s Government Development Bank, which handles the island’s debt sales, said in a letter to the governor and speaker of the house last week that the financial situation was “extremely precarious”. The letter warned of a government shutdown within three months if the bill did not pass and allow the commonwealth to issue another bond to stave off a deeper crisis.

    “A government shutdown would have a devastating impact on the economy, with cuts to payroll and utilities, with a painful and long-term recovery,” an English-language translation of the letter said. “These times of crisis require the co-ordinated and determined contribution in all sectors for the good of our country.”

    The chances of Puerto Rico returning to bond markets now look slimmer. Investors were unimpressed by the legislature’s reluctance to lift taxes, and sent the yield of the $3.5bn bond issued early last year — before debt markets slammed shut — to a new high of 10.6 per cent, up 34 basis points on the day.

    “The government and legislature need to come up with a plan to close the budget deficit that is transparent and credible. Then creditors would be willing to offer some bridge financing,” said Charles Blitzer, a former International Monetary Fund official who advises some Puerto Rican bondholders.

    “Time is running out, but there is still some time to solve this,” he added. “Puerto Rico faces a liquidity problem, not a solvency problem.”

    Puerto Rico’s governor Alejandro Garcia Padilla also criticised the legislature, and said in a statement that the bill’s failure put the future of the country at risk. “The lawmakers who voted against the measure will have to answer to history for their irresponsible actions,” he said, according to Reuters.

    Puerto Rico’s predicament is complicated by its legal status. It is an unincorporated US territory, as opposed to a full state or sovereign country. This means that investors have benefited from the tax exemption given to US municipal debt, but the island cannot go to the International Monetary Fund for a bailout.

    Jack Lew, US Treasury Secretary, earlier this week urged Puerto Rican officials to come up with a “credible” budget for next year and a longer-term solution to address its crisis, but the US has so far refused to offer any direct help for the territory.

    Even bankers and investors that have been cautiously optimistic on Puerto Rico eventually navigating its way through its debt crisis are becoming more guarded on the island’s future.

    “Puerto Rico faces near-term liquidity problems,” said a municipal finance banker. “They need to demonstrate the willingness to increase taxes and cut spending . . . To get out of the distressed space they have to show some real austerity.”