February 9, 2023

India’s New Central Bank Leader May Have a Short Honeymoon

This may not last long.

Mr. Rajan, 50, took charge on Wednesday of the Reserve Bank of India, which has tried and failed to stop the steep decline of the rupee against the dollar. India’s chronic inflation is almost certain to move higher in the coming months, given the country’s heavy dependence on imported oil priced in dollars. The stock market is plunging as economic activity slows by the day.

Yet unlike Ben S. Bernanke, chairman of the Federal Reserve, Mr. Rajan has very little political independence in his new job. Some of the biggest problems bedeviling the Indian economy are beyond his control, like the trade and government budget deficits and the crippling shortage of roads and other infrastructure.

All of his policy options carry big risks that could antagonize large sectors of the public, who will soon forget the rapturous accounts of his athleticism and charm.

“Any entrant to the central bank governorship probably starts at the height of their popularity,” Mr. Rajan said at a news conference early Wednesday evening. “Some of the actions I take will not be popular. The governorship of the central bank is not meant to win one votes or Facebook ‘likes.’ ”

Mr. Rajan, a University of Chicago finance professor, used his initial news conference to announce a long list of financial deregulatory measures that he plans in the coming weeks and months. These included issuing more licenses for new banks, making it easier for banks to open branches across the country and gradually lowering the percentage of assets that banks must hold in government securities – three steps aimed at increasing competition in India’s banking sector, long seen by critics as a clubby, cautious industry reluctant to lend to small and medium-size businesses or farmers.

The most immediate question facing Mr. Rajan, a former chief economist for the International Monetary Fund whose most recent job has been as chief economic adviser to Prime Minister Manmohan Singh, lies in how to halt the fall of the rupee. He said nothing on Wednesday evening about monetary policy, deferring the subject to a statement to be issued on Sept. 20.

Currency market intervention by the Reserve Bank has helped limit the rupee’s losses this week, and it even gained 0.94 percent on Wednesday, to 67.09 to the dollar. But the rupee’s slide through the summer and its continued weakness has fostered speculation in financial markets that Mr. Rajan might raise short-term interest rates in his first week in office.

A sliding currency pushes up inflation. An inflation-fighting central banker could raise interest rates. Higher rates would make investment in India more attractive to foreign and domestic money managers who have been hustling to move money out of the country. It could help curb inflation, already approaching 10 percent even before the full effect of rising import prices is felt in the coming weeks.

But with the economy already growing at its slowest pace since the worst of the global financial crisis in early 2009, India’s business establishment is fiercely opposed to any increases in interest rates. The Confederation of Indian Industry, the country’s most prominent business coalition, reiterated on Tuesday its call for the Reserve Bank of India to cut short-term interest rates by a full percentage point.

“The last thing you want is to choke off any hope of growth by raising” the benchmark interest rate, said Omkar Goswami, the chairman of CERG Advisory, a consulting firm based in Delhi, and an independent director of Indian companies like Infosys, a big outsourcing company, and IDFC, a financial conglomerate.

Article source: http://www.nytimes.com/2013/09/05/business/global/indias-new-central-bank-leader-may-have-a-short-honeymoon.html?partner=rss&emc=rss

In Germany, Little Appetite to Change Troubled Banks

Is it Italy, Spain or perhaps Greece? No. That description is of Germany’s banking sector.

While the country’s economy is often held up as a model, German banks are among Europe’s most troubled. They required a bailout bigger than the one American banks received, and many are still struggling to recover.

But there is remarkably little discussion about fundamentally changing the structure of the German banking system. On the contrary, Europe’s economic leaders criticize Germany for slowing progress toward unifying the Continent’s patchwork system of bank regulation, an effort seen as crucial to restoring faith in the euro zone and averting future globe-threatening crises. Ailing German banks are also a dead weight on the euro zone economy as it struggles to crawl out of recession.

“Germany was actually hit very hard by the financial crisis,” said Jörg Rocholl, president of the European School of Management and Technology, a business school in Berlin. But the debate about the future of banking in Germany is “alarmingly nonintense,” Mr. Rocholl said.

Banks in Germany invested in seemingly every bad asset that came their way, including American subprime assets and Greek bonds. “There is no sense of pride that Germans were especially thorough or prudent,” said Sven Giegold, a German who is a member of the Economic and Monetary Affairs Committee in the European Parliament.

Some 646 billion euros, or about $860 billion, was spent or set aside to rescue German banks from 2008 through September 2012, according to European Commission figures. That is the second-highest bailout in Europe after Britain and more than the $700 billion authorized for the Troubled Asset Relief Program in the United States, of which $428 billion has been spent, according to the Congressional Budget Office.

In one recent example of German banking dysfunction, German authorities indicted Bernie Ecclestone, the chief executive of the Formula One auto racing series, in connection with a $44 million bribe said to have been paid to the former chief risk officer of BayernLB, a so-called landesbank owned jointly by the state of Bavaria and community savings banks.

Mr. Ecclestone, accused of making the payoff in 2006 so that the bank would sell its stake in Formula One to his favored buyer, has said he did nothing illegal.

The landesbanks, typically owned by state governments and local institutions, have a long history of corruption and mismanagement. BayernLB already required a 10 billion euro bailout from state taxpayers, and several other of its former top managers were under investigation for insider trading. Six former top managers of HSH Nordbank, a landesbank in Hamburg, are on trial for charges that include fraud and illegally concealing the bank’s true financial state, including losses on loans to the depressed shipping industry.

“Germany’s banking industry has improved its capitalization significantly and is now better off than before the crisis,” said Christopher Pleister, chairman of the German Financial Market Stabilization Agency. He said Germany’s bank restructuring law included strong protections for taxpayers and rigorous oversight. Mr. Pleister said it should be the model for the rest of Europe.

Yet there is little appetite for change in Germany because the banking system is so deeply intertwined with its politics, serving as a rich source of patronage and financing for local projects.

The landesbanks and the country’s roughly 400 local savings banks, known as sparkassen, are controlled by state and municipal politicians. All told, about 45 percent of the German banking industry is in government hands. That is not counting a 25 percent stake in Commerzbank, the country’s second-largest commercial bank, acquired by the federal government in the course of a bailout.

Article source: http://www.nytimes.com/2013/08/10/business/global/in-germany-little-appetite-to-change-troubled-banking-system.html?partner=rss&emc=rss

China’s Trade Data Is Significantly Weaker Than Forecast

HONG KONG — Chinese trade data for June came in much weaker than expected on Wednesday, offering up the latest evidence that the Chinese economy has lost much of its previous vigor.

Exports fell 3.1 percent from a year earlier — the first drop since early 2012 — the customs department reported, and imports decreased 0.7 percent, falling for the second month in a row. Both figures were far below the expectations of analysts, who had projected a 4 percent rise in exports and an 8 percent climb in imports.

The weak import data underlined slack demand within China. The export slump reflected weak overseas demand, but analysts said it was also partly attributable to a recent government crackdown on false export reporting by companies that had been seeking to bypass currency controls and move money into the country as a way to place a bet on further appreciation of the currency, the renminbi. The strengthening currency and rising wages in China have helped erode the country’s competitiveness at a time when demand from export markets like the United States remains lackluster.

Growth in China has been cooling for many months as the new leadership in Beijing seeks to shift the economy away from a credit-driven and increasingly outdated growth model. For years, China has relied on heavy manufacturing, state-sponsored investment and exports to power growth. Aware of the limits of these growth drivers, China is now seeking to foster more domestic demand and raise productivity.

Policy makers have also been seeking to rein in the rapid credit growth that has built up in recent years and created new potential risks to the economy. Last month, China’s central bank engineered a cash crunch within the banking sector in a bid to get commercial lenders to adopt more prudent lending practices.

The cost of this shift is slower economic expansion, and analysts on Wednesday cautioned that this could start to impinge on China’s ability to create new jobs for the millions of fresh graduates who enter the work force each year.

China is unlikely to achieve its target for this year of 8 percent growth in trade, Liu Li-Gang, a China economist at ANZ in Hong Kong, wrote in a research note. “This will not only bring about downside risk to the G.D.P. growth for this year but also place severe pressure on employment,” Mr. Liu wrote, referring to gross domestic product.

For now, however, Beijing appears comfortable with the economy’s performance.

At a meeting in southern China on Tuesday, the prime minister, Li Keqiang, said that although major economic indicators remain within reasonable bounds, growth is facing challenges, the state-run Xinhua news agency reported.

“This year, economic activity has in general stayed stable, and the main indicators are still within reasonable bounds for the annual forecasts,” Mr. Li said. “But economic conditions have become more complex and changeable. There are both favorable and unfavorable factors, and the economy has both momentum for growth and downward pressures.”

China must maintain steady growth while also carrying out adjustments needed to ensure healthy development in the long-term, he said. “Macro adjustment must be both grounded in the present and take a long-term view, so that economic activity is within reasonable bounds, and the rate of economic growth and employment levels do not slip below the lower limit.”

Chris Buckley contributed reporting.

Article source: http://www.nytimes.com/2013/07/11/business/global/chinas-trade-data-is-significantly-weaker-than-forecast.html?partner=rss&emc=rss

Chief of Austrian Bank Offers to Resign

Mr. Stepic, one of the longest-serving banking executives in Austria, said in a statement that he had offered to resign because inquiries into his investments and recent news reports about them threatened to damage Raiffeisen’s reputation.

The bank said its board would consider his proposal promptly. Mr. Stepic, who has been with Raiffeisen since the 1970s, will remain chief executive until the board makes a decision.

Mr. Stepic built his reputation in Austria’s banking sector when he started Raiffeisen’s expansion into Eastern Europe, a step that turned a local Austrian lender into one of the biggest banks in the region. Raiffeisen opened its first business in Eastern Europe in 1987, in Hungary, years before the collapse of Communism in 1989.

Raiffeisen now has operations in 17 markets in Central and Eastern Europe, more than 3,000 branches, and 14 million customers. The expansion has been highly profitable for the bank until recently, when rising numbers of bad loans in Eastern Europe weighed on its earnings.

The bank and Austria’s financial market regulator are reviewing the circumstances under which Mr. Stepic bought three apartments in Singapore through investment vehicles set up in Hong Kong and the British Virgin Islands. Mr. Stepic has repeatedly said that these were not “offshore constructions” and that all investments were made with income already taxed in Austria.

But the recent scrutiny added to the pressure on Mr. Stepic from a separate investigation by the Austrian financial regulator into an unpaid loan linked to a real estate deal in Serbia. The investigation was stopped this week when Mr. Stepic showed that he had exited the deal early. In April, Mr. Stepic repaid 2 million euros, or $2.6 million, of his bonus, citing solidarity and respect for employees as he cut jobs and earnings declined.

On Friday, Mr. Stepic said he would resign “out of responsibility for and affinity to this organization.” He said he “became aware that a discussion is under way that threatens to damage” the bank’s image, referring to reports in Austrian newspapers about his property investments in Singapore.

“I have offered my resignation under circumstances I would not have chosen but am aware that I have given my best and have nothing to reproach myself for,” he said.

The bank’s supervisory board said the offer to resign showed Mr. Stepic’s “deep affinity for the company” and that “credit should be given to him taking this difficult decision and so fending off damage for the company’s image.”

Raiffeisen Bank International is the main subsidiary of Raiffeisen Zentralbank. Raiffeisen Bank International encompasses operations beyond Austrian retail banking, including the operations in Eastern Europe, commercial banking and investment banking.

Article source: http://www.nytimes.com/2013/05/25/business/global/chief-of-austrian-bank-offers-to-resign.html?partner=rss&emc=rss

DealBook: As Larger British Rivals Perk Up, a Heralded Small Bank Stumbles

A branch of the Co-operative Bank in London.Toby Melville/ReutersA branch of the Co-operative Bank in London.

LONDON — Just as larger banks in Britain are recovering from the financial crisis, a smaller one championed by lawmakers as an alternative to institutions like Barclays and Royal Bank of Scotland is floundering, complicating the government’s plan to shake up the industry and testing its new regulatory system.

Much like the past troubles of its maligned larger rivals, the Co-operative Bank now has too many risky real estate loans and a buffer against losses that is too thin. Moody’s Investors Service cut its rating last week by six levels, to junk status, and said the bank might require “external support” if loan losses increased much more. The bank’s chief executive, Barry Tootell, resigned the next day.

The developments are an embarrassment for George Osborne, the chancellor of the Exchequer, who made it one of his goals to support the growth of smaller banks to improve the stability of the banking sector and increase competition. The government frowned upon the concentration of the market – the top five banks control 85 percent of the personal checking accounts – arguing that more competition would strengthen the sector.

In a speech in February, Mr. Osborne said he wanted “upstart challengers offering new and better services that shake up the established players.” He mentioned the Co-operative Bank by name, saying Britain had started to make some headway but that he wanted to see “more banks on the high street, so customers have more choice.”

In an industry that had cost the government billions of pounds to support throughout the financial crisis and had recently shocked clients with a string of scandals, the Co-operative Bank had enjoyed a relatively unscathed reputation.

Its structure also makes it stand out. The bank is the main subsidiary of the Co-operative Group, one of the largest cooperative businesses. It is owned by seven million members, mainly its employees and customers. Apart from the bank, the Co-operative Group also owns funeral services, pharmacies, food stores and farms.

Much of the government’s hope to expand the Co-operative Bank relied on the planned purchase of 632 branches that the Lloyds Banking Group had to sell to comply with European competition rules after receiving a government bailout in 2008. The purchase would have tripled the bank’s network to about 1,000 branches.

But the Co-operative Bank pulled out of the £750 million ($1.2 billion) deal in April, almost a year after agreeing on the terms, citing the economic environment and increasing regulatory requirements. Analysts said the bank had neither the financial strength nor the technological know-how to complete the transaction. A month earlier, the Bank of England had asked banks to raise a combined £25 billion before the end of the year to plug capital shortfalls.

“There could have been closer scrutiny,” said Simon Maughan, an analyst at Olivetree Securities. But he also said “there’s an irony: the government is insisting on higher capital, then having to go and help the banks as they’re trying to achieve that.”

The Co-operative Bank’s troubles stem mainly from a portfolio of commercial real estate assets that it inherited when it combined with the Britannia Building Society in 2009. Over the years, the bank put aside money to cover losses from bad loans, but not enough. In March, the bank shocked the market when it reported a loss of £674 million for 2012. Impairment charges more than quadrupled, to £469 million.

The bank’s core Tier 1 ratio, a measure of a bank’s ability to weather financial crises, is 6.7 percent, according to new stricter accounting rules known as Basel III. That is below the 7 percent target the Bank of England ordered British banks to achieve by the end of this year, Moody’s said.

The bank’s troubles are also the first serious test for Britain’s new regulatory system. Five years after the government had to bail out the Lloyds Banking Group and the Royal Bank of Scotland and was forced to privatize the mortgage lender Northern Rock, London overhauled the way it supervised banks, shifting more powers to the Bank of England. A spokesman for the Bank of England’s Prudential Regulation Authority, one of the new financial regulators, declined to comment on the Co-operative Bank, citing its policy not to comment on specific companies.

Ian Gordon, an analyst at Investec Securities, said it was “curious that the bank was allowed to run with such weak levels of capital,” adding there was “an element of regulatory neglect” that represented a lesson for the new system.

Julia Black, a professor at the London School of Economics, said, “Supervision isn’t a transparent process, but I’m surprised it hasn’t already been required to hive off the bad loans or to set aside more capital.”

The Co-operative Bank said it would not need a government bailout and was working with the regulator to improve its capital position, mainly through selling businesses and loan portfolios. The bank’s cooperative structure means it cannot sell equity to improve its capital buffer but must rely on selling assets and pooling capital from its profitable nonbanking businesses.

Some analysts suggest the Co-operative Group might be better off not owning a bank in the long run – and that Mr. Osborne might be better off looking elsewhere for a new banking champion.

Article source: http://dealbook.nytimes.com/2013/05/15/heralded-small-bank-in-britain-mirrors-troubles-of-larger-rivals/?partner=rss&emc=rss

National Bank of Greece and Eurobank Suspend Talks

The move followed reports that the international lenders overseeing a bailout of Greece had feared the creation of a megabank that would be too big to fail. It came amid growing concern in Europe about the threat posed by large banks in small countries in the wake of the banking crisis in Cyprus.

The new bank would have been the biggest in Greece, with assets of around 180 billion euros, or $234 billion. Greece’s gross domestic product stood at around 190 billion euros last year and is expected to contract 4.5 percent in 2013.

The Bank of Greece, the country’s central bank, said late Sunday it had received letters from Eurobank and National Bank of Greece saying they had been unable to ensure that 10 percent of their share offerings would be taken up by the private sector, in accordance with the country’s agreement with its foreign creditors.

Authorities have not ruled out the eventual resumption of talks to complete the merger. The deal was announced in October and talks were already at an advanced stage. A state banking support fund is to decide whether the merger should proceed once the recapitalization of Greece’s four main banks — NBG, Eurobank, Alpha Bank and Piraeus Bank — — is completed, probably by the end of April.

Deposits at all Greek banks are guaranteed, the central bank’s statement added.

NBG took over 84.3 percent of Eurobank in February through a share swap as part of a broader plan to bolster Greece’s banking sector, which has been shaken by bad loans and a private debt write-down last year.

On Sunday, Finance Minister Yannis Stournaras reported “significant progress on many levels” in discussions over Greece’s compliance with the terms of its 130 billion-euro international bailout, and said he expected negotiations could be completed “in the next few days.”

Mr. Stournaras said there would be no further austerity measures such as cuts to pensions and salaries. He said he hoped to conclude talks with the so-called troika of international lenders — the European Central Bank, the European Commission and the International Monetary Fund — before an informal meeting of euro zone finance ministers in Dublin on Friday, when Greek progress in economic reforms is to be examined.

The two sides are also close to agreeing on the number of installments with which Greeks will be permitted to pay off debts to the state, a Finance Ministry official said, referring to some 55 billion euros in outstanding tax and social security payments. The official spoke on customary condition of anonymity.

The troika has yet to respond to Greek requests to soften a contentious property tax, which was introduced in 2011 as an emergency levy.

The mood in the Greek government’s talks with the troika over the weekend appeared to be calmer than it had been at the end of last week, when Mr. Stournaras reportedly challenged officials pushing for more austerity to “take the keys to the ministry and give them to Tsipras.” That was a reference to Alexis Tsipras, who leads the main leftist opposition party, Syriza, which opposes the bailout.

A meeting on Sunday between Prime Minister Antonis Samaras and the foreign envoys, during which he emphasized that austerity-weary Greeks are unable to take more pain, appears to have helped ease the tensions.

Article source: http://www.nytimes.com/2013/04/09/business/global/national-bank-of-greece-and-eurobank-suspend-talks.html?partner=rss&emc=rss

For Cyprus, a Sudden Need to Play Nice With Turkey

Since the discovery of the gas two years ago in nearby waters, Cyprus has been laying plans to get the gas to market by circumventing Turkey, which has occupied the northern third of the island for nearly 40 years.

But in less than a week, those Cypriot ambitions have been dealt a double blow.

On Monday, Cyprus was forced to shrink a banking sector that could have helped channel capital for vital energy infrastructure as a condition for a €10 billion, or $13 billion, bailout from the European lenders and the International Monetary Fund. The deal fended off an uncontrolled default and the country’s exit from the euro, but snatched away the keys to Cyprus’s prosperity in recent decades.

Three days earlier, Israel — on whose additional gas Cyprus was relying to turn itself into an energy export hub — mended fences with Turkey. The reconciliation, over an Israeli raid three years ago that left nine Turks dead on an aid vessel bound for Gaza, has opened the way for normal relations between Israel and Turkey that could include direct cooperation in the energy sector, bypassing Cyprus.

The sudden reversal of fortunes implies that fiercely self-reliant Cypriots may need to brush up on their own relations with Turkey to make its gas wealth a reality.

“The saddling of Cyprus with so much debt could be an indirect way of the E.U. pushing Greek Cypriots into some kind of resolution of the Cyprus problem,” said Fiona Mullen, director of Sapienta Economics, a consulting firm based in Nicosia. “If you have to pledge the wealth of future generations to save your souls today, then this puts a premium on making as much revenue out of the gas as fast as possible.”

E.U. lawmakers also regard the Cypriots’ desperate need for cash as leverage for a settlement with Turkey, but underline the huge political challenges.

For Cyprus and Turkey, “gas exploration and export could be the coal and steel commodity that united France and Germany after the war,” said Andrew Duff, a British member of the European Parliament, referring to the foundations of economic alliance that developed into the modern-day European Union.

“The thing that we haven’t as yet seen in the Eastern Mediterranean that we saw after the war here is leadership of a statesmanlike quality that can carry such a deal through,” said Mr. Duff, who participates in an E.U.-Turkey Joint Parliamentary Committee.

The two halves of the island have been split between the mainly Turkish-speaking north, occupied by Turkey since an invasion in 1974, and the internationally recognized, mainly Greek-speaking Republic of Cyprus in the south.

Both sides have sparred over ownership of the gas, creating another obstacle to reunification rather than an incentive to cooperate. Yet the closest natural customer is Turkey, which imports most of its oil and gas and is the biggest potential, and rapidly growing, consumer.

Those tensions bubbled to the surface again last weekend when the Turkish Ministry of Foreign Affairs warned the Cypriots against making the gas part of a potential deal, now apparently off the table, to repay bailout loans to the Union or Russia.

“It is not acceptable that the Greek Cypriot side uses the economic crisis it is facing as an opportunity to create new fait accomplis,” the ministry said in a statement. The “only way to exploit the natural resources of the island” is “the clear consent of the Turkish Cypriot side regarding the sharing of these natural resources,” according to the ministry.

On Wednesday, the Turkish energy minister, Taner Yildiz, said his government was suspending planned projects with the Italian energy giant Eni partly over the energy company’s involvement in energy exploration in Cyprus.

Cyprus has nurtured ties with Israel to protect future gas facilities to produce and deliver liquefied natural gas, or L.N.G., drawn from offshore fields in the Eastern Mediterranean and to avoid the need for a pipeline to Turkey to reach markets.

Article source: http://www.nytimes.com/2013/03/28/business/global/for-cyprus-a-sudden-need-to-play-nice-with-turkey.html?partner=rss&emc=rss

Euro Watch: Global Stock Markets Drop on Cyprus Concerns

PARIS — Global stock markets faltered on Monday as investors awaited the outcome of a vote in Cyprus that could help to determine the future of the euro zone.

Parliament was scheduled to vote Monday afternoon in the Cypriot capital, Nicosia, on whether to approve a 10 billion euro, or $13 billion, European Union bailout.

Nicos Anastasiades, the Cypriot president, warned Sunday that a failure to pass the deal could lead to a major shock, including “a complete collapse of the banking sector” and the possibility that the divided island nation would have to leave the euro altogether.

The bailout plan, worked out early Saturday in Brussels, brought a sharp backlash among Cypriots over a critical break with recent European tradition: For the first time since the onset of the euro zone sovereign debt crisis and the bailouts of Greece, Portugal and Ireland, ordinary depositors — including those in insured accounts — will being called on to bear part of the cost, 5.8 billion euros, through one-time levies on their savings.

That strikes many people as deeply unfair, and has raised fears that depositors in Spain or Italy, two countries that have struggled economically of late, might also take fright.

Jeroen Dijsselbloem, the president of the group of euro area ministers, declined Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

Cypriot political leaders were discussing revisions to the deal announced Saturday to make the levy more palatable to citizens and get the bailout through Parliament, including reducing the percentage to be paid by those with deposits of less than 100,000 euros.

Still, many analysts and economists insisted that Cyprus’s problems were unique, and said they expected the fallout from the trauma there to be limited. They noted that Cyprus’s banks, whose assets dwarf the island’s gross domestic product, are holding tens of billions of euros in Russian deposits of dubious provenance. That, in turn, is raising fears in other euro zone nations that non-Cypriot taxpayers would be bailing out wealthy Russians, something that has not been a concern with other euro nations in distress.

And analysts at Société Générale noted that the Cypriot banks had issued debt equivalent to just 1.3 percent of their total liabilities, meaning that if the European Union insists on so-called bail-in by creditors, depositors were the only ones able to pick up the tab.

Goldman Sachs analysts said that, assuming Parliament approved a deal, “the direct ramifications from Cyprus will likely be contained,” thanks partly to the European Central Bank’s commitment to back up euro zone banks.

“Unfortunately, the issue is not as simple as whether the Cypriot government supports the bailout,” analysts at DBS in Singapore wrote in a research note on Monday.

The markets, they added, are worried that the plans to force ordinary depositors to share the cost of the bailout “may send the wrong message on the safety of bank deposits in other E.U. nations, just when light appeared to be emerging at the end of the long tunnel for the peripheral nations.”

More broadly, the analysts at Société Générale noted that the approach adopted over the Cyprus bailout also highlighted that there is still “no standard approach of tackling the euro debt crisis.”

In early Paris trading, the Euro Stoxx 50, a benchmark for euro zone blue chips, was down 1.9 percent. In London, the FTSE-100 index dropped 1.0 percent. Yields on Spanish and Italian government bonds — which move in the opposite direction of the prices — rose, as investors sought the perceived safety of German and other bonds.

Trading in U.S. equity index futures pointed to expectations that stocks would fall at the opening bell

The euro fell sharply against the dollar, dropping to $1.2940, from a close of $1.3074 on Friday. The decline took the currency to its weakest level since late last year. Cyprus’s markets were closed for a bank holiday, and officials have suggested they might extend the holiday for a second day Tuesday.

In Asian trading, the Nikkei 225-stock average tumbled 2.7 percent in Tokyo, while the Sydney benchmark Australia, the S.P./ASX 200 index, closed 2.1 percent lower. The Hang Seng index in Hong Kong fell 2 percent.

Bettina Wassener reported from Hong Kong.

Article source: http://www.nytimes.com/2013/03/19/business/global/asian-markets-drop-on-latest-euro-concerns.html?partner=rss&emc=rss

Economix Blog: A Place That Makes New York Real Estate Look Cheap

Think it’s expensive to buy a home in New York? Try moving to China.

Sources: International Monetary Fund, using CEIC Data; 8th Annual Demographia International Housing Affordability Survey; national statistical offices; and I.M.F. staff estimates. Note: Data for cities in mainland China (in red), Tokyo, and Singapore are calculated as the price of a 70-square-meter home divided by average annual pretax household income; data for other cities are the median house price divided by median pretax household income, as reported by Demographia. Sources: International Monetary Fund, using CEIC Data; 8th Annual Demographia International Housing Affordability Survey; national statistical offices; and I.M.F. staff estimates. Note: Data for cities in mainland China (in red), Tokyo, and Singapore are calculated as the price of a 70-square-meter home divided by average annual pretax household income; data for other cities are the median house price divided by median pretax household income, as reported by Demographia.

That chart comes from the International Monetary Fund (and was brought to my attention by Torsten Slok, the chief international economist at Deutsche Bank). It shows the ratio of house prices to annual household income: that is, how many years’ worth of income it would take to buy the typical house in a given city.



Dollars to doughnuts.

As you can see, the median house price in New York was equal to 6.2 years’ worth of the median pretax household income in 2011. The most comparable data we have for an array of Chinese cities — shown in red above — suggests that homes in New York are a steal compared to those in urban parts of the Middle Kingdom.

The Chinese data (which use a slightly different metric: the price of a 70-square-meter home divided by average annual pretax household income) show that in Shanghai it would cost 15.9 times the typical household income to buy a standard home. In Beijing, the ratio is even higher, at 22.3.

Real estate prices are so high in China, Mr. Slok explains, because people have few options for parking their savings.

The savings rate is phenomenally high in China. The consumer banking sector, however, is not nearly as built out as those in most developed countries, partly because the Chinese government restricts entry of foreign service-providing companies like financial institutions. So people have been investing their savings in a local sector that has had big returns — real estate — chasing home prices ever higher.

I should note, by the way, that housing prices in China began to fall in 2011 as the government tried to curb speculative real estate investment. Home prices then picked up again in the middle of last year and continue to rise.

Article source: http://economix.blogs.nytimes.com/2013/01/25/a-place-that-makes-new-york-real-estate-look-cheap/?partner=rss&emc=rss

Spanish Banks Agree to Layoffs and Other Cuts to Receive Rescue Funds in Return

The most significant cuts will be made by Bankia, the giant lender whose collapse and request for 19 billion euros, or $25 billion, in additional capital last May led the Spanish government to negotiate a banking rescue of up to 100 billion euros ($130 billion) a month later.

The money approved Wednesday is part of that negotiated amount and will come from the European Stability Mechanism, the rescue fund for the euro zone.

Joaquín Almunia, the European Union’s antitrust commissioner, said the approval of the restructuring plans of the four banks — Bankia, Novagalicia Banco, Catalunya Banc and Banco de Valencia — was “a milestone.”

Although the Spanish government can tap into more of the money to help other troubled banks stay afloat, the government has said it will not need the full amount in any case.

Presenting its restructuring plan on Wednesday, Bankia said it would lay off 6,000 employees, or 28 percent of its work force, and cut its branch network by 39 percent. The bank predicted it would return to profit next year and reach earnings of 1.5 billion euros ($1.9 billion) by 2015.

Still, the Spanish government has yet to draw a line under its banking crisis. The next step is expected in December with the creation of a so-called bad bank, which the government is trying to create by teaming up with private investors as equity holders. But the valuation of the bad bank’s assets has proved to be a thorny issue because of the effect such valuations could have on other real estate assets.

Even though the future of the four rescued banks is now clearer, “our banking sector is still in the middle of a road to nowhere,” said Juan Ignacio Sanz, a professor of banking at the Esade business school in Barcelona. He noted that banks had not resumed lending, “as nobody trusts that Spain’s economy will recover in the near future.”

He added, “Everybody is just waiting to see how the bad bank can operate, whether it will have any private investors and how it will affect the Spanish real estate market.”

The government wants to limit the assets in the bad bank to 90 billion euros ($116.6 billion). Bankia said Wednesday that it was hoping to transfer bad property loans valued at 24.6 billion euros ($31.9 billion), a discount of 27.9 percent compared with their current book value.

The International Monetary Fund also highlighted the difficulties in setting up the bad bank during a correction in the housing market. In a report issued Wednesday about Spain’s finance sector, the fund said that future transactions by the bad bank could “become reference prices for the market, given low turnover in the housing market.” After a prolonged recession, the I.M.F. predicted, Spain’s economy would grow 1 percent in 2014.

Caixabank, one of Spain’s largest institutions, is set to acquire Banco de Valencia, one of the four rescued banks, for a symbolic euro. Banco de Valencia is expected to receive 4.5 billion euros ($5.8 billion) of the European bailout money approved Wednesday.

Of the four rescued banks, Banco de Valencia was the only one for which Brussels reached the conclusion that “the bank’s viability could not be restored on a stand-alone basis.” The commission, which is the executive arm of the European Union, said the other three banks had the potential to rebound once their balance sheets were cleaned. By 2017, the balance sheet of each bank will be reduced by more than 60 percent compared to 2010, the commission forecast.

The conditions set by Europe are intended to ensure that the bailout does not distort competition in the banking sector. Mr. Almunia said the restructuring plans presented by the four banks were “very serious and very demanding.”

“I very much hope that the results that we expect to obtain from these decisions will allow the taxpayers — in this case the euro area countries’ taxpayers who are also taking risks, not only the Spanish taxpayers — to get an adequate return for these efforts,” he said.

Over all, Spain’s banking industry could need as much as 59.3 billion euros ($76.8 billion) in additional capital, according to an independent banking assessment published in September by Oliver Wyman, a consulting firm. Of the 14 banks assessed by Oliver Wyman at the government’s behest, half were not in need of any emergency funds, including the three leaders: Santander, BBVA and Caixabank.

Trading of shares in Banco de Valencia and Bankia was suspended Wednesday. Bankia’s collapse in May prompted lawsuits against the former management led by Rodrigo Rato, who had previously been managing director of the I.M.F. Disgruntled shareholders, who bought shares when Bankia floated them last year, assert that the bank and its auditors produced an inaccurate listing prospectus for what was at the time one of the few successful initial public offerings in Europe.

Bankia and other banks are also facing legal action from holders of preferred shares.

Raphael Minder reported from Madrid and James Kanter from Brussels.

Article source: http://www.nytimes.com/2012/11/29/business/global/european-commission-approves-bailout-of-four-spanish-banks.html?partner=rss&emc=rss