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European Banks Face Deadline to Raise Capital Levels

October 13, 2011 by Leave a Comment

With European leaders under pressure to produce a major package of measures to tackle the debt crisis within weeks, banking supervisors are preparing a proposal that will place substantial new demands on European banks.

Europe’s leaders were given a boost Thursday when Slovakia’s Parliament reversed course and ratified a plan to bolster the euro zone’s rescue fund, becoming the 17th and final country to do so.

But, when European leaders meet in Brussels on Oct. 23, they will confront a series of complex decisions, including how much to increase the contribution of private investors to a Greek bailout. One leading banker confirmed Thursday that those discussions were already under way.

On Wednesday, the president of the European Commission, José Manuel Barroso, called for a comprehensive program of banking recapitalization and, the day before, the French foreign minister, Alain Juppé, said that French banks would be asked to build up capital buffers equivalent to 9 percent of their assets.

The European Banking Authority, which coordinates the work of supervisors in Europe, is reviewing the results of stress tests conducted in July.

Unlike that exercise, the new review takes into account the current market value of Greek and other sovereign debt, according to European officials who spoke on condition of anonymity because the tests are confidential.

In this case, the examination assumes relatively normal conditions rather than distressed ones as would obtain during a big drop in economic growth. But rapid recapitalization is likely to be required.

“A three- to six-month deadline is being considered,” one E.U. official said, adding that no decision had been made. One option is a two-stage process under which banks would be required to move up their recapitalization proposals, perhaps within three months, and then complete them three months later.

Struggling banks would be asked to raise capital themselves and then seek aid from their governments before European funds would be made available.

New, higher, capital buffers would be temporary to help restore confidence — and to insulate the sector against continued turbulence, the official said.

But calls for higher capital requirements have received a cool reception from the banking community, with some executives suggesting that financial institutions would rather sell assets than raise more capital.

The chief executive of Deutsche Bank, Josef Ackermann, said that he doubted requiring lenders to raise their capital levels would resolve the sovereign debt crisis.

“The injection of capital would not address the actual problem,” Mr. Ackermann said, according to a Bloomberg News report citing a speech given at a conference in Berlin. “It is not the capital funding of banks that is the problem, but rather the fact that government bonds have lost their status as risk-free assets.”

European officials anticipated that the banks would be opposed to the measure, the European official said. “They may use different arguments, but I assume the message will change once they know the detail.”

The European Banking Authority, which is likely to put forward proposals before the Oct. 23 meeting of European leaders, has declined to comment on speculation that it will recommend a 9 percent capital buffer.

“In our role as a European agency we are there to give technical advice to the European institutions,” said Romain Sadet, a spokesman for the agency.

Meanwhile, talks are under way on revising a July 21 agreement on a second bailout for Greece, which called for write-downs, or haircuts, of 21 percent for banks and other creditors, amid speculation that bank write-downs of 50 percent to 60 percent are being promoted by some governments.

“I led the negotiations at the summit in Brussels and will be there again next week because there are efforts to reopen it,” said Mr. Ackermann, who also is chairman of the global bank lobbying group, the Institute of International Finance. “That would mean an increase from the 21 percent we voluntarily said we’d do as investors, and it wasn’t easy at all to convince the investors to take that loss.”

European officials sought to limit the scope of negotiations. Because market conditions have changed since July 21, when the agreement was struck, the private sector may have to increase its contributions to stick to the “spirit” of the agreement, the official said.

Another crucial issue to be confronted by European leaders this month is whether to increase the firepower of the euro zone’s €440 billion, or $606 billion, bailout fund by leveraging it as advocated by the United States.

European officials say they believe a model under which the fund would insure against losses on purchases of bonds in struggling countries is the most likely option. The European Central Bank opposes another plan that would have it buy the bonds with the fund insuring it against losses.

On Thursday, one E.U. official said there was a preference for avoiding highly complex programs that used some of the financial engineering blamed for causing the crisis in 2008, in favor of a “plain vanilla” version.

For Slovakia, the successful passage of the rescue fund was just the beginning of a new political drama after Prime Minister Iveta Radicova lost a vote of confidence Tuesday, cutting her term as prime minister in half and setting the stage for new elections in March 2012.

The opposition Smer party already held the most seats in Parliament and was leading in opinion polls. The party’s leader, Robert Fico, a leftist former prime minister, hopes that voters will be ready to return him to power.

Nicholas Kulish contributed reporting from Berlin.

Article source: http://www.nytimes.com/2011/10/14/business/global/european-banks-face-deadline-to-raise-capital-levels.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Strategies: In a Gold Lovefest, Shades of 1980

July 23, 2011 by Leave a Comment

Worried about Greece, the future of the euro, the debt ceiling in the United States, or maybe even about the entire global economy? Buy gold bullion.

Plenty of investors, at least, have been thinking that way, driving the price of gold to nominal, if not inflation-adjusted, highs.

Last week, as separate teams of high-level negotiators sought solutions to the Greek debt crisis and to the debt-ceiling morass in Washington, gold crossed $1,600 an ounce for the first time ever.

While the price fell on signs of progress on these nettlesome issues, gold ended the week at $1,602.60. (That’s well below its 1980 inflation-adjusted peak of $2,516, said Edward Yardeni, an independent economist.) Gold hasn’t been flying this high since the halcyon days of supply-side economics early in the Reagan administration.

Ben S. Bernanke, the chairman of the Federal Reserve, is hardly a gold bug, but he has taken notice. In response to brisk questioning by Representative Ron Paul — the Texas Republican who is running for president for the third time, and has advocated a return to the gold standard — Mr. Bernanke acknowledged that he is paying attention to gold prices.

“I think the reason people hold gold is as protection against what we call ‘tail risk’ — really, really bad outcomes,” Mr. Bernanke said at a Congressional hearing this month. “To the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.”

In a recent column, I noted that some experts don’t consider gold an appropriate asset in a typical diversified investment portfolio, partly because it generates no earnings, yet holding it entails cost. Gold is, however, certainly a financial asset, held by many central banks and prized by many private investors around the world.

Jeffrey Sica, for example, president of SICA Wealth Management in Morristown, N.J., is bullish about gold and other commodities — and bearish about nearly every other asset class.

“Right now, I think gold looks better than ever,” he said. His reasoning mirrors Mr. Bernanke’s, at least in this way: Mr. Sica say that he sees a painfully high probability of unfortunate events occurring in the months ahead, and that he believes gold will provide some shelter.

He departs sharply from the central banker’s views, though, in saying that the Fed’s expansionary policy known as quantitative easing “just hasn’t worked.” Furthermore, he expects the economy to weaken further, and the European sovereign debt crisis “to be with us for some time, regardless of whatever is arranged short term, and it will end up hurting many banks.”

While there may be what he calls a “relief rally” if the immediate crises seem to be resolved, he says that there has been a “general loss of confidence in the ability of central banks and governments to manage the economy.”

“That will continue to give gold and other precious metals a boost,” he adds.

Even at central banks, gold’s standing has risen in some respects lately. In June, UBS held a gathering of managers of central bank reserves, multilateral institutions and sovereign wealth funds, and found that a plurality believed gold would be the best-performing asset class through the end of 2011.

WHAT’S more, said Larry Hatheway, chief economist for UBS Investment Bank, a majority said they expected that the dollar would no longer be the most important reserve currency in the world in 25 years. Instead, they expected that “a portfolio of currencies” would replace it. Less than 10 percent envisioned gold ascending to that role.

Still, the World Gold Council, which tracks gold stocks, says the world’s central banks already hold roughly 29,000 tons of gold. Only about 166,000 tons have been mined throughout world history, the council says, so the central banks hold a significant portion of it.

Why? Most of it is a legacy of the time when major currencies were pegged to gold — in the days before Aug. 15, 1971, when President Richard M. Nixon took the United States off the gold standard. With more than 8,000 tons, the United States has more official gold stocks than any other country, the council says.

The United States ought to use that hoard to return the dollar to a gold standard, says Jeffrey Bell, who is trying to make this an issue in the 2012 presidential campaign. Mr. Bell has advocated the gold standard for years — and did so as the Republican senatorial candidate in New Jersey in 1978.

He was defeated by Bill Bradley, sometimes known as Dollar Bill because of his solid performance as a basketball player for the New York Knicks.

Mr. Bell recalls ruefully: “I used to hold up a dollar bill at campaign rallies and say, there’s nothing behind this now, we have to put something solid behind it. History shows that I lost.”

Lewis E. Lehrman, a friend and ally of Mr. Bell’s, says a gold standard would require the government to balance its budget and its current account. He says that, among other things, it would have made it impossible to accumulate the enormous private-sector debt load that led to the financial crisis of 2007.

Mr. Lehrman, once the president of the Rite Aid Corporation and now a philanthropist and historian, ran for governor of New York in 1982 but was defeated in the general election by Mario Cuomo. In a telephone interview last week, Mr. Lehrman said, “The debts in the American banking system that were amassed simply would not have been feasible if you had direct convertibility of currency into gold.”

He acknowledges that returning to a gold standard won’t happen overnight. But, he says, it will happen, “because the failure of all of the other approaches will become evident to the American people.”

The last apex of the back-to-gold movement was perhaps in 1980. It may have been a signal that the price of gold was about to peak. Could we be approaching a turning point now? “You could make that argument,” Mr. Bell says. “The big question is whether the government and the Federal Reserve will be able to get the economy under control without a return to gold.”

Article source: http://feeds.nytimes.com/click.phdo?i=0e51133e4469d7cb584be8488ce091e6

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In Europe, an Outline of Options

July 12, 2011 by Leave a Comment

After more than six hours of talks in Brussels, the ministers issued a statement outlining a range of options for reducing the debt burden on nations that have accepted loans, including reducing their interest rates and extending loan maturities, as well as helping them to buy back their bonds.

The meeting failed, however, to resolve the continuing dispute over private sector involvement in a second bailout for Greece, and over whether Europeans should run the risk of their rescue being declared a selective default by the bond rating agencies.

That argument has put Germany — which is seeking a substantial role for private investors — at odds with the European Central Bank, which wants to avoid the risk of a new Greek bailout being declared a default, thereby spreading further alarm in the market.

Monday’s talks took place against a backdrop of acute market anxiety with the spread, or risk premium, of Italy’s bonds over their German equivalents widening amid fears that Italy will be swept into the sovereign debt crisis.

The statement issued Monday by the ministers of the 17-nation euro zone said proposals would be considered “to resist contagion risk,” including “enhancing the flexibility and the scope” of the 440-billion-euro bailout fund (about $600 billion at the time) agreed to last year.

These would include the possibility of lengthening the maturities of loans offered to debtor countries and cutting the interest rates on them.

The idea of buying bonds on the secondary market had been rejected several months ago, but now appears to be gathering momentum.

“There are a variety of ways of enhancing the flexibility,” said Olli Rehn, the European Union economic and monetary affairs commissioner, adding that bond buybacks were one of those.

“I would at this stage not exclude any option,” he added.

The idea is supported by the European Central Bank, which argues that it would satisfy calls for a private sector contribution because Greek bonds would be sold at below their face value. By being voluntary, such a program would not prompt further downgrades by the ratings agencies.

Jean-Claude Juncker, the prime minister of Luxembourg and head of the euro zone finance ministers, said details would be filled in “shortly, and shortly means as soon as possible.”

But confusion remained over the euro zone’s broader approach toward involving the private sector in a new bailout of Greece. Until recently the European governments had insisted that private sector involvement in a new rescue for Greece should be voluntary, to avoid a selective default.

Technical negotiations in recent weeks have led several governments to believe that those objectives are incompatible, and Monday’s declaration watered down those conditions. It also welcomed ideas for voluntary private involvement, but did not say such contributions must be voluntary or that they should be substantial. The declaration also noted that the bank remained opposed to moves that would provoke a “credit event” or selective default, but it did not describe that as the position of the euro zone.

Last week a French plan for a voluntary rollover of Greek debt, designed to satisfy the ratings agencies, was rejected by Standard Poor’s. That prompted Germany to revive its earlier idea of bond swaps on the basis that, if any plan involving private investors was destined to fall foul of the ratings agencies, its model should be reconsidered.

On Monday, the Netherlands continued to press for a substantial private sector contribution, while Austria’s finance minister, Maria Fekter, said any plan that included banks and other investors “must be expressly voluntary.”

Germany had gone into the meeting skeptical of bond buyback plans, though it has not ruled out the idea, said a government official with knowledge of the discussions. Once such a plan was established, the official said, Greek bond prices would immediately rise, making the buybacks more costly and canceling out the amount effectively contributed by investors.

“You need to mobilize quite a lot of money for relatively little impact in terms of private sector involvement or debt reduction,” the official said.

Such a plan could also require a revision of the current legislation authorizing the European rescue fund, which was established last year and has already provided aid to Ireland and Portugal. That would add more political complications than already exist, the official noted. “It raises a number of question marks,” he said. “I don’t want to rule it out.”

Greece received a 110-billion-euro bailout last year, much of it in the form of bilateral loans from its European Union partners. If those loans were used instead to buy bonds, no rule changes would be needed.

The European Central Bank has already bought Greek, Portuguese and Irish bonds on the open market for 74 billion euros. But it has not made any purchases since March and is not expected to make any more purchases for fear of taking on too much risk. The bank is pushing the European Union to take on that task instead.

Stephen Castle reported from Brussels and Jack Ewing from Frankfurt.

Stephen Castle reported from Brussels and Jack Ewing from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=dd06b49b7471bf4b2e73638b8ee1eeee

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Europe Gives $17 Billion to Greece to Avoid Default

July 2, 2011 by Leave a Comment

As part of the announcement, the finance ministers said they would cancel a meeting planned for Sunday, when the conditions for a second bailout were expected to be decided, and hold a videoconference on Saturday instead.

The size of a second bailout for Greece has not yet been determined. But an official with the Austrian Finance Ministry, Thomas Wieser, was quoted by Bloomberg News on Friday as saying that Greece could receive as much as $123 billion (85 billion euros) in new financing, including a contribution from private investors.

Officials decided to postpone their meeting Sunday after concluding that there was still significant disagreement among private investors about how their contributions to a second Greek rescue should be structured, according a person who spoke on condition of anonymity because he was not authorized to speak publicly.

Several diplomats and officials briefed on the talks said that settling on a second loan package by Sunday night was too ambitious, and that holding a meeting that did not produce a detailed agreement would be interpreted as a failure by the financial markets.

Without the meeting Sunday, the next opportunity to reach a deal would be July 11, at the next meeting of euro zone finance ministers in Brussels.

The release of the immediate aid, part of an original 110 billion euro bailout ($159 billion) for Greece agreed to last year, should help the country meet its financing needs through the summer. By September, Greece will need a new rescue, which leaves only a few months for euro zone ministers to draft a package.

Olli Rehn, the Europe’s commissioner for economic and monetary affairs, said on Friday that he was confident that the payment would be released this weekend.

“I’m certain we now have a sufficient consensus that we can take a decision during the weekend, and on the fifth, transfer the Greek loan package,” he said on Bloomberg Television in Helsinki, Finland.

Part of the discussion on transferring additional aid to Greece has hinged on demands by the International Monetary Fund that the European Union fill any holes in Greece’s budget in the coming year.

The I.M.F. said last month that it would need that assurance if it were to release its portion of the immediate aid. Countries including the Netherlands have said they will provide guarantees for Greece only if there is a credible plan for substantial private investor involvement in the second bailout.

While these issues have blocked negotiations for weeks, the passage this week of new austerity measures by the Greek Parliament, and plans put forth by the banks and other holders of Greek debt to roll over their holdings, are helping to move the discussions on a second bailout forward.

Meanwhile, several telephone conversations have taken place between Mr. Rehn and John Lipsky, acting managing director of the I.M.F., who is scheduled to take part in the videoconference on Saturday. Mr. Lipsky needs to make a recommendation to his board, which meets Friday.

On Friday, European officials expressed confidence that a compromise could be found that would allow the immediate aid to be released.

“We think we can come up with something which is enough to convince the I.M.F. over the 12 billion euros,” said one official, who had been briefed on the talks, “but on the other hand a comprehensive package involving the private sector is such a tricky deal that Sunday — and possibly the 11th — is far too optimistic.” The official spoke on condition of anonymity because he was not authorized to discuss the negotiations publicly.

The link between the two issues suggests that the broad outlines of a second bailout for Greece will probably be put forth by European officials as they try to persuade members to back any deal reached with the I.M.F.

Europe’s finance ministers have not confirmed the 85 billion euro figure for the second bailout. Calculating an amount is complicated because of the different elements that would be used in a new rescue effort.

The cancellation of Sunday’s meeting might also increase criticism of the head of the Eurogroup of finance ministers, Jean-Claude Juncker of Luxembourg. He called the gathering Sunday after finance ministers failed to reach a deal at the last euro zone meeting in Luxembourg.

Meanwhile, the Institute of International Finance, a lobbying group of international financial institutions, said there was broad support for the idea of participating in further aid for Greece. “The private financial community is ready to engage in a voluntary, cooperative, transparent and broad-based effort to support Greece,” it said Friday.

The options include rolling over or extending bonds that mature into long-dated instruments. It was also important to consider debt buyback proposals to reduce long-term debt, the institute said. Under a French plan announced in the past week, the private sector would reinvest at least 70 percent of the proceeds of bonds maturing before the end of 2014 into new 30-year Greek debt.

German banks indicated Thursday that they would be willing to adopt a similar plan.

Article source: http://feeds.nytimes.com/click.phdo?i=b4c372ee1876b7811b7a6e063a18ce93

Filed Under: Business News Tagged With: , ,

Shares Rise on Developments in Greece

June 17, 2011 by Leave a Comment

Financial markets have been unsettled amid concerns about political stability in Greece and the fate of a second bailout for the country, sending investors into less risky assets. On Friday, Germany agreed under pressure from France not to force private investors to take on some of the burden of a new bailout package for Greece. The announcement in Berlin meant Germany was backing away from a sticking point with the European Central Bank on the issue.

While the stock market was higher for most of the day after the announcement, the market pared gains less than an hour from the close after Moody’s Investors Service said it put Italy’s government bond ratings on review for possible downgrade. It cited growth challenges, a likely rise in interest rates and risks posed by changing funding conditions in Europe as among the reasons for the review.

The Dow Jones industrial average was up 42.84 points, or 0.36 percent, to 12,004.36. The Standard Poor’s 500-stock index was up 3.86 points, or 0.30 percent, to 1,271.50. After early gains, the Nasdaq composite index fell 7.22 points, or 0.28 percent, to 2,616.48, recording its fifth consecutive weekly loss.

The euro was buffeted by developments, starting with the announcement by Chancellor Angela Merkel about Greece on Friday.

“That is when the euro popped” to $1.4240 within about 15 minutes, said Brian Dolan, the chief currency strategist for Forex.com. By the time of the Moody’s announcement about Italy, the euro was at $1.4310, and it then dipped to $1.4280.

“It highlights the sovereign debt overhang that continues to plague the euro zone,” Mr. Dolan said. “You get a short-term rebound in the euro but the long-term issues are still there, and that is going to prevent the euro from a sustained recovery.”

In European stocks, the CAC-40 was up 31.43 points, or 0.83 percent, at 3,823.74. The DAX in Germany was up 53.85 points, or 0.76 percent, at 7,164.05 and the FTSE in Britain rose 16.13 points or 0.28 percent, to 5,714.94.

Bruce McCain, chief investment strategist of Key Private Bank, said the market had become oversold because of concerns related to the euro zone debt problems. As a result, investors have taken down some of their exposure to equities.

Now, Mr. McCain said, “it has the opportunity to rally a bit.”

“We priced in a lot of negatives over a short time period,” he said. “We have moderated the risk. We may well moderate more risk.”

United States government bonds, which traded higher in price on Thursday as European debt concerns engulfed the markets, were trading only slightly lower on Friday on the hopes of another bailout. The Treasury’s 10-year note yield was up 3 basis points to 2.96 in early trading on Friday.

But analysts said there were still unresolved variables that kept risk lingering on the margins, including how the Greek people will accept any new austerity demands and whether there will be contagion to Ireland, Italy, Spain and Portugal.

“The problems in the euro zone don’t begin and end with Greece,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, in an early analysis of the bond trade. “Back in the U.S., things of an economic nature are still ‘spotty’ at best.”

Mr. McCain noted that recent economic reports in the United States have been mixed, although on Thursday the latest statistics on housing starts and permits and weekly jobless claims suggested a bit of improvement. In addition, companies are still sorting out the impact of the supply chain disruptions from the disasters in Japan and oil has declined.

In the broader market, financials, consumer staples, utilities and telecommunications shares rose by more than 1 percent.

Article source: http://feeds.nytimes.com/click.phdo?i=c4ce421d0c9acca5445e980ac956b80e

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Mario Draghi Holds E.C.B. Line Against Restructuring for Greece

June 14, 2011 by Leave a Comment

BRUSSELS — With European governments divided over how to shape a new bailout for Greece, Mario Draghi, the likely next president of the European Central Bank, warned Tuesday against forcing private investors to take part.

At a confirmation hearing at the European Parliament, Mr. Draghi, the former head of the Bank of Italy, also highlighted the risk that a Greek default could set off a “chain of contagion.”

“All in all, the costs outweigh the benefits,” he said.

His comments came as European finance ministers held an unscheduled meeting in Brussels to try to bridge differences in the new package for Greece.

The E.C.B. has been firmly against any restructuring of Greek debt, in part because of its own holdings. The Dutch finance minister, Jan Kees de Jager, told his Parliament in The Hague on Tuesday that the E.C.B.’s total exposure to Greece might be €130 billion to €140 billion, or as much as $200 billion. In addition, the E.C.B. has provided €90 billion of liquidity to Greek banks, he said, according to Bloomberg News.

In his remarks, Mr. Draghi suggested that at least one of the options under discussion for involving the private sector would be acceptable to the E.C.B, but that the central bank “excludes all concepts that are not purely voluntary.”

One acceptable option is known as the Vienna Initiative, after a deal in 2009 under which international lenders agreed to roll over credit lines to Central and East European countries. That, he said, “looks entirely voluntary.”

“Another one is a debt exchange, which I haven’t understood whether it is voluntary or it could end up being involuntary,” he added.

Germany has taken the firmest line on involving the private sector. The German government has received parliamentary support for a second bailout of Greece if necessary, but only if there is a substantive and quantifiable involvement of the private sector.

The government wants the extension of debt maturities to be considered, and has received support from some other capitals.

“You can’t leave the profits with the banks and make the taxpayers shoulder the losses,” Austria’s finance minister, Maria Fekter, said on arrival in Brussels.

Other governments, like France, share the E.C.B’s worries that too harsh a solution could lead to a cascade of problems that would destabilize the euro zone.

The meeting Tuesday night was not expected to produce a breakthrough. “It’s sounding-board time, not endgame time,” said one E.U. diplomat, who was not authorized to speak publicly.

A deal could come Friday in Berlin, when the German chancellor, Angela Merkel, will meet the French president, Nicolas Sarkozy, before another gathering of European finance ministers Monday in Luxembourg.

In an assured performance before a committee of European deputies, Mr. Draghi stressed his commitment to price stability, the E.C.B’s main mandate.

On Greece, he argued that the effect of a default was difficult to predict. “Who are the owners of credit-default swaps? Who has insured others against a default of the country?” he asked. “We could have a chain of contagion.”

Meanwhile, in Athens, the fragility of the Greek government was highlighted when two of the controlling party’s deputies said they would not support its latest package of austerity measures, which are a quid pro quo for more international aid. That reduces the Socialist government’s effective parliamentary majority to just a handful.

Article source: http://feeds.nytimes.com/click.phdo?i=19f18500da34fc2257ac28767fcaa931

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Greek Talks Pave Way for Fresh Bailout Funds

June 4, 2011 by Leave a Comment

A statement from the International Monetary Fund, the European Commission and the European Central Bank said on Friday that Greece had agreed to the measures, which include a new austerity plan and the creation of an independent fund to privatize 50 billion euros in state assets.

The next installment of international aid under the original bailout, which had been in doubt, “will become available, most likely, in early July,” it added.

Meanwhile, Jean-Claude Juncker, who heads a group of European finance ministers, said in Luxembourg that he expected his colleagues to agree on further aid for Greece. Fresh money would be provided under “strict conditionality,” Mr. Juncker said after a meeting with the Greek prime minister, George A. Papandreou.

“This conditionality will include private-sector agreements on a voluntary basis,” said Mr. Juncker, suggesting that any new European package would include a voluntary pledge by private investors to extend the maturity of Greek debt.

Mr. Juncker also highlighted “with satisfaction” the fact that Greece was willing to set up a new fund to manage privatization.

While the announcement on Friday left many details unknown, it clears the path toward a second bailout for Greece, a little more than a year after an international rescue worth 110 billion euros, or $159 billion at current exchange rates.

Officials have been considering whether to make additional loans of up to 60 billion euros to give Greece more breathing room while it struggles with a deep economic downturn.

But several euro zone countries, including the Netherlands, had made it clear that if the I.M.F did not make available its share of the next installment of original aid, worth 12 billion euros, they would not step in to make up the difference, let alone offer further help.

Under its internal rules, the I.M.F is unable to make such a payment if there is a financing gap in the Greek government’s budget plans.

A low level of economic growth has widened the hole in the Greek budget, which has in turn prompted a scramble for more cost-cutting measures.

The talks that concluded Friday addressed that issue. The Greek government is set to announce a new austerity plan that envisions raising 6.4 billion euros through spending cuts and tax increases this year. That is in addition to the plan to raise 50 billion euros by 2015 through privatizations.

The ministry said the additional measures would be discussed by the government “in the coming days” before being voted on in Parliament.

European officials view Greece’s privatization program as central to averting a default. They have been so concerned at the slow pace of asset sales that the Netherlands proposed the creation of an outside agency to manage it.

Though the announcement did not state that European officials would be involved in the process, there were suggestions that the Greek government would tap outside experts.

Olli Rehn, the European commissioner for economic and monetary affairs, said he was open “to explore possibilities for further and reinforced assistance should there be a need, for instance in taxation and privatization matters.”

The announcement came amid mounting public opposition in Greece to its austerity drive and growing rifts within the governing Socialist Party, which has failed in two attempts to secure a broad political consensus for more austerity measures.

European Union and International Monetary Fund officials have pushed the government to persuade all political parties to sign on to the measures to ease their adoption.

The Socialist government has a comfortable six-seat majority in Parliament, but several Socialist lawmakers have suggested they might vote against the new austerity proposals.

A letter sent to Mr. Papandreou on Thursday by 16 Socialist members of Parliament framed the question being posed continually in the Greek media: “A year after signing the memorandum, we are at a crucial juncture again. Why?”

Public opposition to the new measures has been clear. Thousands of Greeks, including many young people, filled the main square outside Parliament for a 10th day Friday, calling on the government to revoke the austerity measures and for foreign creditors to “go home.” The protests have been small by Greek standards but are growing in intensity, and there have been sporadic incidents of stone-throwing at politicians.

Government officials have said that some of those incidents have been orchestrated by the Communist Party and Syriza, the radical left party, which are both represented in Parliament.

On Friday, members of PAME, the Communist-affiliated labor union, stormed the Finance Ministry offices, which are opposite Parliament, and strung up a banner calling for “an organized overthrow” and strike action.

The country’s main labor union, GSEE, which represents around two million workers, has called a one-day strike for June 9 and is joining the civil servants’ union, which represents about 800,000 people, for a general strike on June 15.

Niki Kitsantonis reported from Athens and Stephen Castle from London.

Article source: http://feeds.nytimes.com/click.phdo?i=1cad3961bd3974f0f19d16a9c3d1ca99

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Mortgages: Nonbank Lenders Staging a Comeback

April 3, 2011 by Leave a Comment

So-called nonbank lenders are trying to stage a comeback now, through two relatively new lobbying groups based in Washington that are seeking to burnish the image of those nonbank lenders that steered clear of risky lending.

While a few nonbank lenders still offer higher-risk loans with exorbitant rates, others, including stalwarts like LendingTree and Quicken Loans, sell plain-vanilla fixed-rate or adjustable-rate loans that are marginally cheaper than those from big banks.

Many borrowers are suspicious of the loans offered by smaller, nonbank lenders. “Most consumers say, ‘Who are these people?’ but the fact is that these are mainstream loans with good pricing,” said Glen Corso, the managing director of the Community Mortgage Banking Project, a trade group of 43 nonbank lenders.

Some nonbank lenders say they are seeing a steady increase in business from middle-income borrowers who may be unable to get a loan elsewhere.

“So far this year, we’re up 15 to 20 percent in the total value of loans we make,” compared with last year, said David Wind, the president of Guaranteed Home Mortgage, a nonbank lender in White Plains, N.Y.

Mr. Wind said the average loan amount in the New York City area was $240,000, compared with $220,000 a year ago, an indication that higher-end customers were seeking out nonbank lenders amid tighter underwriting standards at the larger banks. Because nonbank lenders tend to be smaller and have lower operating costs, he said, they can offer rates that are 0.125 to 0.375 percentage points below those offered by major banks.

The nonbank lenders extend money through one of two methods: the lenders have a line of credit with big banks and funnel that money to consumers in the form of home loans, or they collect money from private investors to lend to consumers. (The most recent data from the Federal Financial Institutions Examination Council showed there were 914 nonbank lenders nationwide at the end of 2009.) 

It is the second category that borrowers need to be wary of, said Diane Thompson, a lawyer at the National Consumer Law Center, because the interest rates may be significantly higher.

Nonbank lenders with lines of credit from big banks often find themselves with the same tough underwriting standards as the banks, said Stephen Adamo, the president of Weichert Financial Services, a nonbank lender in Morris Plains, N.J.

Still, Mr. Wind admits that nonbank lenders still have a battered reputation among consumers to overcome. “There’s a tremendous image problem,” he said.

And the new Consumer Financial Protection Bureau has made regulation and oversight of nonbank lenders a priority.

Enter the Community Mortgage Banking Project and Community Mortgage Lenders of America, both created in 2009 to promote the interest of nonbank lenders. “Nonbank lenders don’t have the name recognition of a Wells Fargo or a Bank of America, so they have to compete on price,” Mr. Corso said.

He said that contrary to popular belief many nonbank lenders these days do not offer subprime or other risky loans, and instead were offering conventional mortgages or loans backed by insurance from the Federal Housing Administration.

But Ms. Thompson advised home buyers, especially those who aren’t inclined to comparison shop or read the fine print in lending disclosures, to stick with a bricks-and-mortar bank. “There’s a long track record which indicates that this is where consumers will get the best deal,” she said.

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