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Cyprus Gets First Installment of Bailout Funds

May 14, 2013 by Leave a Comment

PARIS — After striking an unprecedented deal in March to make many bank depositors help pay for an international bailout, Cyprus on Monday received €2 billion, the first installment of that money, aimed at buttressing the economy after the near-collapse of its banking sector.

European officials say the release of the funds, equivalent to $2.6 billion, was recently approved by a working group of the 17 euro zone finance ministers, who gathered Monday evening in Brussels for their regular monthly meeting. Cypriot efforts to stabilize the economy may be on the agenda. A second allocation of up to €1 billion will be transferred by June 30, officials said.

That session was a prelude to the planned meeting Tuesday of all 27 European Union finance ministers, where the focus is expected to be on proceeding with a European banking union that could stabilize the financial system and avoid future debacles like the one in Cyprus. Officials on Tuesday were to consider a single set of rules for dealing with failing banks throughout Europe, as well as discuss continuing efforts to curb tax havens.

The thorniest issue revolves around whether depositors in any other European country should be made to suffer losses if their banks require an international rescue, as happened in Cyprus in an unprecedented and still controversial provision for a euro zone bailout.

In exchange for a €10 billion emergency aid package, Cyprus in March agreed to E.U. demands to effectively confiscate up to 60 percent of any depositor’s holdings above €100,000 held in two of the country’s largest banks, Bank of Cyprus and Laiki Bank. At the same time, Laiki Bank was forced to fold, merging into the Bank of Cyprus.

On Tuesday in Brussels, part of the debate will involve where depositors should be placed in the hierarchy of creditors in the future rules on shutting down failing banks. The main focus is what to do with depositors holding more than €100,000. Some countries want all E.U. members to have the same rules, while others want the flexibility to decide where savers should be in the hierarchy.

The president of the European Central Bank, Mario Draghi, said at his recent monthly news conference that ordinary depositors should be affected only after people who took risks by buying bonds in banks were forced to take losses. “If it can be avoided,” he said, “uninsured depositors should not be touched.”

In Cyprus, the issue came to a head after Germany and some other E.U. countries insisted on finding a new way to pay for a bailout of troubled Cypriot banks, which held large deposits from wealthy Russians. There were questions about the origins of some of the money, meaning it would be hard for Berlin to justify using German taxpayer funds to clean up Cyprus’s mess. In the end, E.U. and Cypriot officials agreed that wealthy depositors would effectively have to help foot the cleanup bill.

The president of the Cypriot central bank, Panicos Demetriades, said last week that most of the depositors who lost money under the deposit-seizure system were foreigners. “Seventy percent of the value of the deposits concerned overseas residents, leaving Cypriot households and businesses unaffected to a greater extent than was possibly expected,” he said at a news conference.

Cypriot and Brussels officials had abandoned an earlier, even more controversial plan to skim a percentage of insured deposits — those under €100,000 in Cypriot banks. They pulled back that proposal after it set off tremors in global financial markets and raised the specter of a run on euro zone banks because of concerns that even insured deposits might not be safe.

It was still in an emergency atmosphere, though, that Cyprus imposed capital controls in March to prevent a flood of money from leaving banks operating there. Those restrictions have been eased gradually since then, but remain in place for all but a handful of foreign banks, despite initial promises by the government that the strictures might be quickly removed.

The entire episode has dealt a sharp blow to the Cypriot economy.

With restrictions on how much money individuals and businesses can withdraw or transfer from their Cypriot bank accounts, spending has been sharply curtailed. The economy, already in recession, is expected to contract at least 12.5 percent in the next two years. Unemployment, at 12 percent, is forecast to rise as the shrinking of the outsize banking system, demanded by Cyprus’s creditors, curtails lending and leads to job losses.

The bailout has also set off geopolitical tension over a trove of natural gas recently found in Cypriot waters, which the country’s creditors hope could be tapped in the future to help pay off the country’s loans. Last week, the E.U. commissioner for economic and monetary affairs, Olli Rehn, pressed for the four-decade-old division of Cyprus into Greek and Turkish territories to be abolished, saying reunification would give Cyprus a “major boost to economic and social development.”

Such a move could also pave the way for faster exploration of extensive natural gas reserves off the coast of Cyprus, which Turkey, Russia and the European Union are all interested in pursuing.

Cyprus has been divided since 1974, after Turkey invaded the north. Turkish officials have warned the Cypriot government in recent months not to proceed with gas extraction unilaterally, saying it would risk further inflaming political tension with Ankara.

James Kanter contributed reporting from Brussels.

Article source: http://www.nytimes.com/2013/05/14/business/global/Cyprus-Gets-First-Tranche-of-Bailout-Funds.html?partner=rss&emc=rss

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Moody’s Downgrades Top French Banks

December 9, 2011 by Leave a Comment

Moody’s cut various ratings for Société Générale, BNP Paribas and Crédit Agricole by one notch, citing the problems each had had recently in raising funds on the open market.

The ratings agency said the banks could face further losses on their holdings of Greek and Italian government bonds should the crisis deepen.

Just a day earlier, Europe’s main banking regulator said that all French banks had passed a test designed to see whether financial institutions had enough capital to weather unexpected shocks.

And on Friday, Goldman Sachs upgraded its recommendation for holding shares of European banks to neutral from underweight. It said a decision Thursday by the European Central Bank to lend troubled banks dollars for longer periods under eased terms would help the banks weather the effects of the crisis and an economic downturn.

But the Moody’s assessment includes more dire assumptions about the future of the euro than the European Banking Authority used. Moody’s also repeated a warning that Greece and several other countries could default on their debts and exit the euro zone if politicians failed to find a solution to their problems.

If Société Générale, BNP Paribas and Crédit Agricole continue to have trouble getting funding, Moody’s said, the French government will probably step in to provide them with financial support, raising the specter of at least a partial nationalization of the biggest French banks.

The French government has a long history of stepping in to support its banks, considering them integral to the economy. French officials have said they are ready to backstop the banks if the markets force their hand, but they insist the banks are sound.

The downgrades came as European leaders took their latest step Friday to keep the euro monetary union from breaking apart. All 17 members of the euro zone agreed to sign a treaty that would require them to enforce stricter fiscal and financial discipline in future budgets.

The leaders also agreed to provide €200 billion, or $266 billion, to the International Monetary Fund and to make changes to Europe’s own bailout funds to help keep the crisis from engulfing Italy and Spain.

Many banks in Europe have had trouble getting funding in recent months, and have had to turn to their national central banks and the E.C.B. instead.

Société Générale, BNP and Crédit Agricole had “materially” increased their borrowing from the French central bank in September, Moody’s said, adding that it was “unlikely that markets will return to normalcy soon.”

Standard Poor’s warned in the past week that it could cut the credit ratings of 15 countries in the euro zone — including France — by two notches, as the bill from the crisis grows and the European economy risks tipping into a recession.

If such a downgrade were to happen, all banks in those countries would have even more funding problems.

Société Générale and BNP recently cut the amount of Italian debt they hold. Each also recently took losses on their investments in Greek bonds.

But Société Générale and Crédit Agricole remain exposed to Greece through subsidiaries there that could pose fresh problems if Greece were to default or leave the euro, Moody’s said.

BNP is exposed to Italy further through a retail banking outlet.

To maintain a sizable capital cushion so as to absorb any fresh losses the crisis might inflict, each bank has announced plans to sell assets. But with investor appetite dampened by the crisis, Moody’s warned that the banks could have a hard time finding buyers.

Société Générale said it was “confident” it could reach its capital goals and “surprised” by the Moody’s decision to downgrade it.

Société Générale is one of a handful of European banks that have been the subject of rumors of financial difficulty. The bank has vigorously denied that, and last summer called on the French government to investigate what it said were attacks against it by short-sellers, or investors betting against its stock.

Article source: http://feeds.nytimes.com/click.phdo?i=6300ddc664f7efa566f3317bd7b765bf

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E.U. Tells Banks to Garner Bigger Reserves

October 12, 2011 by Leave a Comment

Under proposals outlined by the European Commission president, José Manuel Barroso, banks would be required to boost temporarily their protection against losses as part of a comprehensive plan to restore waning confidence.

Mr. Barroso also called on the 17 euro zone nations to maximize the capacity of the their 440 billion euro bailout fund – a clear hint that he favors a leveraging of the backstop so as to increase its firepower up to as much as 2 trillion euros.

The euro zone is entering a critical countdown, with investors in financial markets expecting an E.U. summit meeting Oct. 23 and a meeting of leaders of the Group of 20 leading economies Nov. 3 to endorse major decisions to help resolve the region’s debt crisis.

However, after tough negotiations inside the European Commission, the plan put forward Wednesday did not put a figure on the capital reserves that would be required.

On Tuesday Alain Juppé, the French foreign minister, told the National Assembly that several leading French banks — like BNP Paribas, Crédit Agricole and Société Générale — that are deeply exposed to the sovereign debt of Greece and other south European countries would move to increase their capital reserves, initially by using their own revenue or through the financial markets. Money from the government would be drawn upon only as “a last resort,” he said, according to Reuters.

Mr. Juppé said the move, which was agreed upon with Germany during talks Sunday, meant that the banks’ best buffer against losses — so-called core Tier 1 capital — would increase to 9 percent or more, from 7 percent, by 2013.

The European Banking Authority has also suggested a 9 percent floor, according to E.U. officials. The authority declined to comment Wednesday on the figure.

Mr. Barroso’s plans are designed to help set the agenda for the Oct. 23 summit meeting of E.U. leaders, a gathering that was delayed nearly a week to provide more time to find ways to tackle the crisis.

With the euro zone’s bailout fund of €440 billion, or $606 billion, due to gain new powers to help recapitalize banks, the issue of whether to use it has divided France and Germany.

France fears that it could lose its AAA credit rating if it has to inject billions of euros in taxpayer money into its banks. That would be a huge political setback for the French president, Nicolas Sarkozy, who faces a re-election campaign next year.

But Berlin is reluctant to use European funds to recapitalize banks that compete with its own financial institutions.

Article source: http://feeds.nytimes.com/click.phdo?i=c4f41bc6aa7bafaa0cdd0b30cd6e7a6b

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Markets Ahead on Hopes for European Bank Plan

October 10, 2011 by Leave a Comment

However, mounting expectation of a wave of recapitalization in the European banking sector as well as Erste Group Bank’s warning that it would make a big loss this year prompted European investors to lock in some of the recent strong gains made in banking stocks.

On Wall Street, the Standard Poor’s 500-stock index opened sharply higher, with an early gain of 2.7 percent. The Dow Jones industrial average gained 2.3 percent and the Nasdaq composite index rose 2.9 percent.

At midafternoon in Europe, the Euro Stoxx 50 was up 0.6 percent. The FTSE 100 in London was up 0.9 percent and the DAX in Frankfurt rose 0.7 percent. Europe’s main volatility index dropped to its lowest level since early September.

“We’re getting signals on a lot of fronts that the end of the crisis is coming,” said Valerie Gastaldy, head of the Paris-based technical analysis firm, Day By Day.

“The bottom line for European equities is that banking stocks have recently shown resilience despite that nothing has really changed on the news front. The question now is: Is this the start of a bear market rally that will last for a few weeks, or is it the start of a trend that could go on for six months? It too early to say.”

German bond futures hit their lowest level since early September on Monday, signaling a potential change in trend.

Shares of Erste Group Bank tumbled 14 percent after the East European lender warned it would post a big loss on the year and would not pay a dividend after taking hits on its foreign currency loans in Hungary and euro zone sovereign debt.

Société Générale was down 0.4 percent, HSBC down 0.2 percent and UBS down 0.3 percent, as investors locked in recent gains.

Over the weekend, the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, said they would work out a plan to recapitalize European banks, come up with a sustainable answer to Greece and accelerate economic coordination in the euro zone by the time of a Group of 20 gathering in Cannes, France, on Nov. 3-4.

“Recapitalizing the banks would be a strong signal sent to the market, even if banks don’t necessarily need fresh funds,” said Benoit de Broissia, an analyst at KBL Richelieu.

“It would help ease the tensions and restore investors’ confidence in the sector. The best solution would certainly be an investment from states in the form of preferred shares that could be bought back when things settle down.”

Article source: http://feeds.nytimes.com/click.phdo?i=ac4416890a3aa6dbc01b6ba71cc375e0

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DealBook: $2.3 Billion Loss Posted by Royal Bank of Scotland

August 6, 2011 by Leave a Comment

The headquarters of the Royal Bank of Scotland in London.Oli Scarff/Getty ImagesThe headquarters of the Royal Bank of Scotland in London.Stephen Hester, chief of the Royal Bank of Scotland.Stefan Wermuth/ReutersStephen Hester, chief executive of the Royal Bank of Scotland.

7:44 p.m. | Updated

LONDON — Royal Bank of Scotland, the British bank partly owned by the government, reported Friday a loss of £1.4 billion, or $2.3 billion, for the first half of the year, compared with a profit last year, as exposure to Greek government debt continues to weigh on European financial firms.

The loss at R.B.S. comes in contrast to its profit of £9 million for the first six months of 2010. In the latest period, the bank said it had set aside £733 million to cover its exposure to Greek sovereign debt. Costs to pay compensation to customers for mistakenly selling some insurance products also cut into income.

Stephen Hester, the R.B.S. chief executive, said he was pleased with efforts to reduce costs and streamline the bank’s businesses, but he warned that a more difficult economic environment would slow down his efforts.

“There is no shortcut to achieve our goals,” Mr. Hester said in the statement. “Economic and regulatory headwinds may be challenging, but the momentum that our people and restructuring actions have sustained thus far in the R.B.S. recovery plan should continue to stand us in good stead.”

R.B.S. became the latest European bank forced to take a hit for its holdings in Greek sovereign debt. France’s two biggest banks, Société Générale and BNP Paribas, disclosed large charges on their Greek debt exposure this week. European leaders approved a Greek rescue plan last month but asked bondholders to share some of the costs.

The British bank’s gross holding of Greek government debt was 1.2 billion euros, or $1.7 billion, according to figures compiled by the European Banking Authority.

R.B.S. also said it put aside £850 million to pay for customer claims about mistakes the bank made in selling a salary insurance product. Other banks, including the Lloyds Banking Group and Barclays, took similar steps this week.

Operating profit at R.B.S.’s global banking and markets unit, which includes trading activities, fell to £483 million in the second quarter from £914 million in the same period last year. R.B.S. had a core Tier 1 ratio, a measure of its capital strength, of 11.1 percent at the end of June.

R.B.S. had a loss of £897 million in the three months through June, compared with a profit of £257 million in the three months through June last year.

Article source: http://dealbook.nytimes.com/2011/08/05/r-b-s-posts-loss-of-2-3-billion-for-half/?partner=rss&emc=rss

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After Test Results, European Banks Are Urged to Bolster Reserves

July 16, 2011 by Leave a Comment

The high pass rate under the exams did not satisfy analysts’ hopes for a bolder accounting that would help restore confidence in the health of the European Union financial system and remove doubt about the effects of a default by Greece on its government debt.

After a vast data-crunching exercise by regulators, only eight of 90 banks were deemed too weak to survive economic shocks like a further deterioration in the sovereign debt crisis.

A ninth bank, Helaba of Germany, would have failed, but refused to disclose its data. An additional 16 passed narrowly, and will be asked to take steps to “promptly” increase their resilience, by raising more capital for example, the regulators said.

“The publication of these results will not assuage investors’ fears over the resilience of the E.U. banking sector,” Marie Diron, an economist who advises the consulting firm Ernst Young, wrote in a note.

Of the banks that failed, five were in Spain, two in Greece and one in Austria, said the European Banking Authority, which conducted the tests.

All were relatively small players. But the stress test results could also put pressure on some giant banks that have been regarded as healthy, including Deutsche Bank in Germany, UniCredit in Italy, and Société Générale in France. Capital reserves at all three were uncomfortably close to the level where they would have been formally asked to either raise more capital or reduce risk.

The test results come amid rising anxiety that Greece is on the verge of defaulting on its debt, an event that could provoke a banking crisis because so much of those bonds are parked on the balance sheets of European financial institutions. As a result, the stress tests have clear implications for the overall health of the euro zone.

“To me the real question is not stress in the institutions, but the ability of states to control the sovereign debt” problem, Paolo Bordogna, head of financial services in Europe for the consulting firm Bain Company, said ahead of the release of the results.

Analysts had been skeptical that the tests this year were rigorous enough to clear up doubts about the European banking system and to encourage institutions to begin lending to each other again rather than relying on the European Central Bank for funds.

The European Banking Authority, for example, did not examine what would happen if Greece proved unable to pay its debts, which critics saw as a major flaw.

“This year’s tests still did not include the impact of a formal debt default by a European government, which is the single greatest risk facing the European banking sector at present,” Ms. Diron wrote.

But European officials argued that, even if people thought the test was too forgiving, they now had a huge amount of data they could use to run their own stress evaluations, including detailed information on bank holdings of government debt.

“We are putting out a lot of information so that investors and analysts can make up their own minds,” Andrea Enria, the chairman of the E.B.A., said by telephone. Mr. Enria defended the integrity of the stress test. The test imagined that banks had to absorb a sharp recession and surge in unemployment, which implied banking losses that were twice as high as in 2009, the height of the financial crisis, he said.

The E.B.A. said that at the end of last year, 20 banks would have failed the test. But in the first four months of this year, banks raised about 50 billion euros ($71 billion) in new capital.

The release of the tests occurred after markets closed in Europe and had little effect on stocks in the United States. The Dow Jones industrial average rose 42.61 points, or 0.34 percent to 12,479.73, and the Nasdaq rose 27.13 points, or 0.98 percent, to 2,789.80. The dollar’s value against the euro was also little changed at $1.42.

Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott, said that the number of banks that failed was within expectations. “That was give or take the number the markets were betting on,” he said. It was also positive that most of the weak banks were in Spain, a country where the central bank has a good reputation for dealing with weak institutions.

Raphael Minder contributed reporting from Madrid and Christine Hauser from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=6e5dc87a18ffaf10d9bbe03794af7c69

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Stress Tests Results for European Banks to Be Delayed

June 2, 2011 by Leave a Comment

LONDON — The stress testing of European banks is taking at least a month longer than initially expected because some banks submitted figures that were too optimistic or lacked detail, a person with direct knowledge of the process said on Thursday.

Banks were asked for more information about their calculations of how they would fair in distressed financial markets and to resubmit their results to the European Banking Authority, said the person, who declined to be identified because the process is not public. The E.B.A., which is based in London, is expected to publish the results next month instead of this month.

“The tests are important because they give disclosure that is consistent across all banks,” said Philip Richards, an analyst at Société Générale in London. “It’s not about who fails but about getting more information including on sovereign debt risks.”

The delay, announced in a statement late Wednesday, comes after a similar test conducted last year drew criticism that the parameters used were not rigorous enough, and the tests too easy to sufficiently restore confidence in the 91 European banks covered. Some economists said they for example excluded the possibility of a Greek debt default.

The E.B.A. released a stricter test methodology in March and the 91 banks submitted their data during April and May. But erroneous or missing data meant the E.B.A. would need more time to analyze the results.

“Errors will have to be rectified and amendments made where there are inconsistencies or unrealistic assumptions,” the E.B.A. said in the statement.

Some banks had complained about the additional workload caused by the stress tests and others questioned their relevance. Hypo Real Estate, which failed the previous round of stress tests, said last year that the tests had “limited relevance” because it was already transferring troubled assets into a vehicle backed by the German government. Hypo Real Estate failed last year’s stress test together with ATEBank of Greece and five Spanish savings banks.

The new rules laid out by the E.B.A. this year have become a heated political issue again in Germany because they appear to create a problem for some German landesbanks by disqualifying a part of the funds they now use to meet regulations on shock-absorbing reserves. The economics minister of the state of Hessen, Dieter Posch, said in April that the state’s landesbank, Helaba, should boycott the stress test.

As part of the test, European banks would have to reveal how much sovereign debt from a European country they hold. At a time when some analysts say that a restructuring of Greece’s debt remains an option, such numbers will be closely watched by investors.

Jack Ewing contributed reporting from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=aa522554f155f6c14849dc2c4c5bfd74

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