September 16, 2019

Off the Charts: Investors in Europe See a Glass Half Full and Rising

Or at least investors seem to believe they are.

A survey of investor sentiment in the euro zone this month moved into positive territory for the first time since the summer of 2011. European stocks have been rising for more than a year, with bank stocks leading the way. The yields on Spanish and Italian government bonds — which were more than five percentage points higher than German bonds’ last summer — now have spreads half that level.

It was last summer that the European Central Bank took steps to get needed cash into the hands of banks, ending the immediate fears of a collapse of the euro zone. But much remains to be done.

The German elections next weekend have delayed a lot of decisions. The widespread assumption is that Angela Merkel will remain chancellor, but it is not clear if the current coalition with the Liberal Democrats will be able to survive. If not, she may have to turn to the opposition Social Democrats and try to form a grand coalition.

There is also wide speculation about the health of European banks. In the summer of 2012, the European Central Bank took steps to provide low-cost loans to banks to buy bonds issued by their own governments, and some did, particularly in Italy and Spain.

When there are new stress tests next year — conducted for the first time in the same way in all countries across the euro zone — some analysts fear that banks may be forced to hold more capital if they have such bonds. Conceivably, such a requirement may lead the banks to sell such bonds, driving prices down and yields up and damaging the confidence that has been growing.

But none of that has so far held back investor enthusiasm. An index of European bank stocks, shown in the accompanying chart, is up by almost half since the end of 2011, although it remains more than 60 percent below its 2007 peak.

The Sentix measure of investor confidence in the euro countries climbed into positive territory this month for the first time since 2011, and it did so largely because of optimism for the future. The measure is based on questions asked of investors, and it now finds institutional investors more confident than retail investors.

Sentiment regarding current conditions has risen, but it is still negative, according to the survey. But when investors were asked about conditions six months from now, the level of optimism has risen to the highest level since the spring of 2006, well before the recession.

It may be noted that all this enthusiasm has come despite continuing declines in gross domestic product in many countries in the zone, and despite high levels of unemployment. To some extent, it no doubt both reflects the improvements in the stock and bond markets and is a cause of them.

Does all this show foolish complacency? Or does it reflect an awareness that the worst is over for the peripheral countries in the euro zone, with recovery on the horizon? By next summer, we may have the answer.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/09/14/business/economy/investors-in-europe-see-a-glass-half-full-and-rising.html?partner=rss&emc=rss

Crisis-Hit Italian Bank Records Another Loss

However, the second-quarter net loss of €280 million, or $373 million, represented a significant improvement over the €1.6 billion loss the bank posted a year earlier.

“The report confirms the commitment and effectiveness of the priority actions that we undertook, the improvement of the bank’s financial profile and its operating costs,” the chief executive, Fabrizio Viola, told investors in a conference call. “We now need to make the bank solid and act so that the market perceives it.”

The bank said that it had reduced its operating costs by 10.5 percent from a year earlier and that it had already closed 360 of the 400 branches that it plans to shut down by September, cutting 1,660 jobs in the last year. A quarter of the bank’s managers have left since last summer, the chief financial officer, Bernardo Mingrone, said.

Despite the bank’s progress, economic conditions had a “significant impact” on its results, Mr. Viola said, including an increase in loan-loss provisions.

The bank has troubles that extend beyond the local economy. Last month, in a letter sent to the Italian economy minister, Fabrizio Saccomanni, the European competition commissioner, Joaquín Almunia, expressed concerns about the viability of the bank’s restructuring plan. The European Commission must give final approval to the €4.1 billion bailout that Monte dei Paschi has received from the Italian government.

On Wednesday, Mr. Viola declined to comment on what he called “such a delicate issue,” but he said that the bank was ready to make any needed improvements to the business plan.

Since January, Monte dei Paschi, the world’s oldest operating bank, has been caught up in storm that has led to the disclosure of €730 million in losses on derivatives transactions entered into by the previous management.

Lawsuits have been filed against the bank’s former executives, as well as against Deutsche Bank and Nomura, which signed the deals responsible for most of the losses.

Last week, the scandal widened when prosecutors in Siena announced that JPMorgan Chase was suspected of wrongdoing for its role in a 2008 transaction that helped Monte dei Paschi raise the funds it needed to acquire a regional bank, Antonveneta. The €9 billion takeover — at what is widely regarded as an inflated price — set off the financial strains that contributed to the bank’s decision to seek the state bailout earlier this year.

Article source: http://www.nytimes.com/2013/08/08/business/global/crisis-hit-italian-bank-records-another-loss.html?partner=rss&emc=rss

Italy Orders Seizure of $2.35 Billion in Siena Bank Inquiry

The unusual move to seize such a large sum, and go after prominent bankers, underlined the importance of the case in Italy and the euro zone, where it has contributed to jitters about the country’s ability to rebuild the economy and survive the financial crisis.

Prosecutors said the former head of Nomura in Europe, Sadeq Sayeed, was a target of the investigation. Mr. Sayeed, who retired in 2010, denied any wrongdoing and said he had not learned of the accusations until asked about them by reporters on Tuesday. Another senior Nomura executive, Raffaele Ricci, is also a target of the inquiry, prosecutors said. Mr. Ricci could not be reached for comment.

The new moves by Italian prosecutors also intensify the pressure on Nomura, and are a sign that the authorities are not letting up in their efforts to find out whether anyone bears criminal responsibility for transactions that left Monte dei Paschi in need of a €4 billion, or $5.25 billion, bailout by the Italian government and unable to fulfill its traditional role as benefactor to the community of Siena, a small Tuscan city.

The bank, founded more than five centuries ago, is the oldest in the world and the third-largest bank in Italy. A foundation that was the bank’s main shareholder used its share of profits to help pay for services like day care, ambulances and even the Palio, the bareback horse race that is the city’s trademark.

But the scandal surrounding the bank has reverberated well beyond the medieval streets of Siena and its 55,000 people. The bank’s problems, and the questions of who was to blame, played a role in the election campaign this year that left Italy so factionalized that a new national government has still not been formed. The lack of a strong government in Italy remains a risk to the euro zone. Meanwhile, the country’s struggling banks are unable to provide enough credit to support an economic recovery that Italy badly needs.

Nomura has been sued by the new management of Monte dei Paschi for helping to design transactions that may have allowed previous managers at the bank to hide losses from regulators and shareholders.

In a statement, Nomura said that no assets had been seized yet. “We will take all appropriate steps to protect our position and will vigorously contest any suggestions of wrongdoing in this matter,” the bank said, declining to elaborate further.

The Siena prosecutor’s office said in a statement that most of the assets to be seized were collateral that Monte dei Paschi had posted with the Italian unit of Nomura in return for a loan. The operation was carried out by the Italian financial police in Siena, Rome, Milan and Bologna, as well as in the southern Italian city of Catanzaro, prosecutors said.

In addition, the authorities ordered the freezing of assets in accounts of three former executives of Monte dei Paschi who are also under investigation: €2.3 million from Giuseppe Mussari, former chairman of the bank; €9.9 million from Antonio Vigni, the former director general; and €2.2 million from Gianluca Baldassarri, the former chief financial officer. Mr. Baldassarri has been under arrest since February.

Prosecutors said Mr. Mussari, Mr. Vigni and Mr. Baldassarri were suspected of obstructing the functions of regulators and misrepresenting corporate assets, as well as other possible misdeeds. No formal charges have been filed against any of the people under investigation.

Italian news reports had previously mentioned Mr. Sayeed in connection with the case, but Tuesday marked the first time that prosecutors officially confirmed that he was a target of the investigation. Speaking by telephone from London on Tuesday, Mr. Sayeed said, “I completely and absolutely and vigorously deny any allegations,” which he said had “no basis in fact.”

This article has been revised to reflect the following correction:

Correction: April 16, 2013

A headline with an earlier version of this article misstated the amount of assets seized from Nomura. It was $2.35 billion, not $1.8 billion.

Article source: http://www.nytimes.com/2013/04/17/business/global/italy-seizes-nomura-assets-linked-to-siena-bank-inquiry.html?partner=rss&emc=rss

Euro Zone Finance Ministers Try to Deliver on Promises

But the talks highlighted the contrast between Europe’s tortuous decision making and the breakneck speed with which financial markets are pushing the currency zone toward a moment of truth.

While proposals have been working their way through Europe’s convoluted procedures, risks have grown that the debt crisis will plunge Europe back into a steep recession or lead to a fragmentation of the currency union.

On Tuesday the borrowing costs of Italy, the euro zone’s third-largest economy, after Germany and France, reached nearly 8 percent, a record since the inception of the common currency in 1999. An Italian newspaper reported Tuesday that because of the economic slowdown, the European Commission now believes the Italian government will need to adopt more stringent measures to reach its financial targets.

The Dutch finance minister, Jan Kees De Jager, said Tuesday that help might be needed from the International Monetary Fund to bolster the euro zone bailout fund, the European Financial Stability Facility. “We have to look for other solutions to complement the E.F.S.F. and that in my mind will be the I.M.F.,” he said as he arrived for the meeting in Brussels.

A month after E.U. leaders announced a plan to resolve the crisis, most of those decisions have either been delayed or overtaken by events, said Nicolas Véron, a senior fellow at the Bruegel economic research institute in Brussels. Plans to increase the power of the bailout fund, now expected to fall short of the target of €1 trillion, or $1.3 trillion, were now “too little too late,” Mr. Véron said, adding that Europe’s policy errors were caused by a “systemic failure of our institutional framework.”

France and Germany say they planned to break the downward spiral by outlining a new push towards a fiscal union, with stricter rules against budget “sinners,” before a meeting next week of E.U. leaders in Brussels. But the detail of how these ideas will be pushed through remains highly uncertain.

Germany is determined to toughen the euro zone rules significantly before it will contemplate any more far-reaching changes to help shore up the currency. So far Berlin has resisted any larger intervention by the European Central Bank that might stoke inflation, or the short-term introduction of common euro zone bonds.

Some officials hope that agreement in principle on new fiscal rules can encourage the E.C.B. to intervene more actively to help Italy and Spain without risking criticism from Berlin. In recent days senior figures in Austria, Finland and the Netherlands have declined to rule out an enhanced role for the central bank.

Plans to expand the bailout fund, and allow it more freedom, were agreed to in July, and a decision was made in October to leverage its power to around €1 trillion. Because of changed market conditions and declining confidence, which means investors may need more insurance to be tempted to buy bonds, it now appears that the total firepower will fall short of €1 trillion.

Luc Frieden, Luxembourg’s finance minister, said the €1 trillion figure “will be very difficult to reach, in view of the changed market circumstances.”

“I think the E.F.S.F. alone will not be able to solve all the problems,” Mr. Frieden said. “We have to do so together with the I.M.F. and with the E.C.B., within the framework of its independence.”

The decision on whether to release an international loan of €8 billion to Greece was also made in October, but implementation was held back when the former Greek prime minister, George A. Papandreou, suggested holding a referendum on the bailout package. The idea was later scrapped and Mr. Papandreou resigned. Bank recapitalization, the third pillar of the October meeting, was not a main area of discussion Tuesday, but there are worries that this requirement may impose burdens on banks that make them less likely to lend.

Article source: http://feeds.nytimes.com/click.phdo?i=e2fb4e96eb311b604fa61e1a8de99323

Fiat to Withdraw From Italy’s Leading Employers’ Group

The decision by Fiat, the country’s largest manufacturer, comes a little more than a week after the employers’ group, Confindustria, signed an agreement with labor unions that aimed to weaken national legislation that would liberalize the labor market by allowing employers to negotiate contracts with the workers at individual factories rather than be tied to national contracts.

Sergio Marchionne, the chief executive of Fiat, has made being able to dismiss employees in Italy more easily a key point in his efforts to improve the company’s competitiveness. He has threatened to pull all production out of Italy if Fiat is not allowed to override national contracts and negotiate directly with its workers.

Jean-Claude Trichet, the president of the E.C.B., and Mario Draghi, who will take over leadership of the central bank in November, wrote to Prime Minister Silvio Berlusconi in August outlining the changes necessary for Italy to restore the confidence of investors who were dumping Italian government bonds.

The letter specifically mentioned the need for wages and working conditions to be negotiated by individual companies. The E.C.B. has been buying Italian bonds since August in an effort to shore up the market. Corriere della Sera published the E.C.B. letter last week.

“If Fiat begins to negotiate its own contracts, the company no longer needs Confindustria, which negotiates for employees on a national level,” said Giuseppe Berta, a professor specializing in industrial relations at Bocconi University in Milan. “The move de-legitimizes Confindustria and saps its power.”

Mr. Berlusconi has long championed himself as an economic liberal who would stimulate the Italian economy, yet his government has done little liberalizing and has been unable to get the country out of the economic doldrums that have lasted for the better part of the past decade. Italian government debt is about 120 percent of the gross domestic product.

“Confindustria has supported Berlusconi for years without getting much in return, so in the last year they have moved closer to the opposition and have gone as far as calling for a change in government,” Mr. Berta said.

The new legislation, passed in August, coupled with another agreement signed with labor unions in June, “would have enabled all Italian businesses to compete internationally under conditions that are less disadvantageous in comparison with those of our competitors,” Mr. Marchionne wrote in a letter to Emma Marcegaglia, chairwoman of Confindustria, announcing Fiat’s withdrawal.

The letter, dated Sept. 30 and released Monday, said Fiat’s withdrawal would be effective Jan. 1.

Fiat “cannot afford to operate in Italy in an environment of uncertainty that is so incongruous with the conditions that exist elsewhere in the industrialized world,” the letter said.

Fiat will apply the new provisions passed by the government and will consider collaborating with local and regional organizations that are part of Confindustria, Mr. Marchionne wrote in the letter.

While Mr. Marchionne has been at odds with Ms. Marcegaglia for months, Fiat’s decision was once thought impossible because the carmaker had been a pillar of the employers’ group for years. Gianni Agnelli, for decades the patriarch of the family that has controlled Fiat for a century, was the chairman of Confindustria in the 1970s, and Luca Cordero di Montezemolo, another Fiat chairman, headed Confindustria from 2004 to 2008.

Mr. Marchionne said that quitting Confindustria would not affect the company’s investment plans for Italy. While Fiat confirmed Monday that it would make a sports utility vehicle at its Mirafiori plant in Turin, it pushed the date of the beginning of production back a year, to the second half of 2013. Fiat also pushed back the start of production of a new turbo engine for its Alfa Romeo brand to 2013.

“With overproduction in world car production and with the need to outfit the new production lines, it makes sense for Fiat to take things slowly so they can see where the market is going,” Mr. Berta said.

Article source: http://feeds.nytimes.com/click.phdo?i=85cda3e2d4640676427b9affd1936181

S.&P. Downgrades Italy’s Credit Rating a Notch

The ratings firm cut Italy’s long- and short-term sovereign credit ratings to “A/A-1” from “A+/A-1+.” The rating is still five steps above junk status.

The ratings agency has a negative outlook on Italy’s ratings and listed Italy’s political issues and heavy debt load as the main factors contributing to the downgrade. It anticipates that political differences will likely limit Italy’s ability to respond decisively to its debt crisis.

“What we view as the Italian government’s tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy’s economic challenges,” SP managing director David T. Beers wrote in a research note outlining the credit rating downgrade.

Last week, Italy’s Parliament gave final approval to Premier Silvio Berlusconi’s government’s austerity measures, a combination of higher taxes, pension reform and spending cuts. The planned cuts and taxes sparked street protests in Rome similar to those in other European countries trying to come to grips with the economic crisis.

Berlusconi has said that the government’s austerity measures will shave more than 54 billion euros ($70 billion) off Italy’s deficit over three years.

The European Central Bank had demanded stiff austerity measures to calm markets roiled for weeks over doubts about how serious Italy is about coming to grips with its debt. Italy is the eurozone’s No. 3 economy and has a deficit to gross domestic product ratio of 120 percent, one of Europe’s highest.

The bank has spent billions over the last month buying up Italian government bonds in a bid to lower Italy’s borrowing costs and keep it from becoming the next eurozone nation to need an international bailout. The SP downgrade, however, could lead to higher borrowing costs for Italy because it implies that investors face greater risks when buying Italian debt.

SP said that weaker economic growth will likely limit the effectiveness of the government’s economic plan.

“We believe the reduced pace of Italy’s economic activity to date will make the government’s revised fiscal targets difficult to achieve,” SP said.

The firm projects that Italy’s real gross domestic product will grow at an annual average of 0.7 percent between this year and 2014, down from an earlier projection of 1.3 percent growth.

Italian officials have reportedly held talks with China’s sovereign wealth fund in an effort to persuade Beijing to buy Italy’s government bonds or invest in its companies. The nation’s financial crunch also has prompted Rome to consider selling stakes in major state-owned companies such as power utility Enel or oil and gas supplier Eni, according to news reports.

Article source: http://www.nytimes.com/aponline/2011/09/19/business/AP-US-Italy-Credit-Rating.html?partner=rss&emc=rss

DealBook: Lactalis Bids $4.95 Billion for Rest of Parmalat

Lactalis of France, one of the world’s biggest cheesemakers, said on Tuesday that it was bidding 3.4 billion euros, or $4.95 billion, for the rest of Parmalat of Italy that it does not already own — a deal that would create the largest dairy company in the world.

The Lactalis bid comes on the same day President Nicolas Sarkozy of France is arriving in Rome to discuss, among other things, the sensitive issue of French companies acquiring a number of their Italian peers.

“We have an ambitious growth plan for Parlamat, creating a benchmark Italian dairy group on a global level, which would keep its headquarters, organization and management in Italy,” said Emmanuel Besnier, head of the Lactalis Group.

Lactalis is offering 2.60 euros for each Parmalat share for the 71 percent of the company it does not already own. That is 12.45 percent above Parmalat’s closing price on Monday and 21.3 percent above its average share price in the last year.

The French company, which became Parmalat’s largest shareholder last month, has moved quickly to make a bid for the full company in the face of political opposition, citing a “change in the regulatory framework” tied to its investment.

Earlier this month, an Italian court decided to allow Parmalat to postpone its annual shareholder meeting until the end of June. The move would give the Italian government time to create new rules that could protect Italian companies from foreign takeovers.

“Milk is not a strategic product,” said Michel Nalet, a spokesman for Lactalis, citing the General Mills deal last month to buy half of the French yogurt maker Yoplait for $1.1 billion. Lactalis had originally bid for Yoplait, but was rebuffed.

Such cross-border deals have ruffled political feathers. When Pepsi was reported to be weighing a bid for the French yogurt maker Danone in 2005, the French prime minister at the time, Dominique de Villepin, said he would “defend the interests of France.” In the end, no bid was made.

In 2006, Lactalis bought another Italian dairy producer, the cheesemaker Galbani, from the private equity firm BC Partners, in a deal thought to be worth more than 1 billion euros.

“Galbani stayed Italian, and it’s now the second most important cheese in the group,” Mr. Nalet said. “We have the same strategy for Parmalat.”

Lactalis went further to reassure Italian authorities, saying that after the takeover it intended to relist Parmalat on the bourse in Milan, maintaining the necessary minimal free float.

In Rome, Prime Minister Silvio Berlusconi told reporters, “I do not consider the takeover bid a hostile takeover bid,” according to Reuters.

Parmalat shares rose 27 euro cents, or 11.7 percent, to 2.58 euros on the exchange in midmorning trading on Tuesday.

Parmalat gained notoriety in December 2003, when it disclosed that a bank account that supposedly held some $5 billion did not exist. The company soon toppled into bankruptcy. In December, Parmalat’s founder and former chief executive, Calisto Tanzi, was sentenced to 18 years in prison for his role in the collapse.

When it collapsed, Parmalat had 36,000 employees and was one of the top 10 companies in Italy — it also had 14 billion euros worth of debt. It emerged from bankruptcy in October 2005, the same month it went public, and now has about 14,000 employees.

The company reported 4.3 billion euros in revenue last year.

This month, four major investment banks were cleared by an Italian judge of charges that they had abetted Parmalat in concealing its debt and overstating its profit. Bank of America, Citigroup, Morgan Stanley, Deutsche Bank and their employees were cleared, though the case may be appealed.

On Tuesday, Lactalis said Crédit Agricole, HSBC, Natixis and Société Générale had agreed to finance the deal.

Article source: http://feeds.nytimes.com/click.phdo?i=2fcd6daea755d183e81e01dc48e97015