October 25, 2020

Large Banks in Europe Struggle With Weak Bonds

Now, another type of contagion is causing concern: the risk of problems spreading to big banks, especially in Italy and Spain.

The growing vulnerability of the giant banks in these two countries is spurring investor fears that Europe’s latest bid to get a handle on its festering debt crisis, adopted just a few weeks ago, has come up short.

The banks own so many bonds issued by their home countries that they are being weakened as the value of those bonds falls, amid concerns that the cost of government borrowing could become too expensive for Italy and Spain to bear.

Now there are signs that these concerns are, in turn, starting to making it harder and costlier for the banks to borrow money to finance their day-to-day operations, a troubling trend that, at the worst, could lead to liquidity problems.

Since Europe’s second major rescue package was announced last month — aimed as much at calming fears over Spain and Italy as providing funds to Greece — the yields on Spanish and Italian bonds have hit more than 6 percent, sharply higher than they were paying on new borrowings just a couple of months ago.

In doing so they have entered what analysts refer to as the “danger zone” for 10-year bond yields, with the cost of government borrowing so high that investors become unnerved, as was the case with bailed-out Greece, Portugal and Ireland.

Bearing the immediate brunt of this development are regional banking heavyweights such as UniCredit in Italy and Santander and BBVA in Spain, which traditionally have been reliable financing machines to their home governments and as a result are now saddled with large bond holdings that are losing value by the day.

Many of these banks hold domestic bond portfolios that exceed their capital levels.

According to a report issued on Wednesday by Sanford Bernstein, a research firm, UniCredit’s exposure to mostly Italian bonds is 121 percent of its core capital ratio. For Intesa, a less-diversified competitor, that figure rises to 175 percent. For Spain, the ratios are no less daunting: a startling 193 percent for BBVA, Spain’s second-largest bank, and a less alarming 76 percent for the global banking giant Santander.

As a result, the markets have begun to focus on a number of warning signs that some European banks are finding it harder to meet their funding needs, especially in dollars.

They are borrowing larger amounts directly from the European Central Bank in its weekly lending operations, suggesting they can’t find all the money they need from the private sector to keep themselves going.

Some analysts said perhaps most worrying was that the rate it costs European banks to borrow dollars in the open foreign exchange market, by swapping their holdings of euros, has shot up twofold in the past few days — still far below the levels seen in 2008 when the market virtually froze but the highest since May 2010 when the European debt crisis first started to intensify.

Recent write-offs by French banks over their own Greek bond holdings have compounded fears over the health of Europe’s banks.

“I don’t think anyone wants to be long European banks right now,” said Simon White, an analyst and partner at Variant Perception, a London-based research firm.

UniCredit, Italy’s largest lender, reported better-than-expected second-quarter earnings on Wednesday and in a conference call, the bank’s chief executive said it had completed 83 percent of its borrowing needs for the year.

Nevertheless, that profit snapshot does not fully take into account the steep rise in Italian government bonds, from about 4.6 percent in early June to just over 6 percent now, which means that the value of those bonds has fallen.

Even more worrying is the fact that the European Financial Stability Fund, Europe’s so-called bazooka rescue fund that it endowed last month with the powers to recapitalize weak banks, will not be able to offer any such aid for at least two months.

According to a stability fund official, staff members there are working night and day to recast the entity, but do not expect to be finished until the end of August. At that point, it must be approved by the parliaments of the 17 countries that use the euro currency.

Only then could it go to the market and raise funds to help a bank in need.

That may well be too late.

As investors flee Spanish and Italian government bonds, these huge bond holdings have become a significant millstone on their countries’ banks — curbing their ability to lend and, consequently, heightening the prospect of a double-dip recession in Italy and Spain, two of the euro zone’s slowest-growing economies.

Graham Bowley contributed reporting from New York.

Article source: http://feeds.nytimes.com/click.phdo?i=65b9053950a6055945f01f22b8875e4b

Einhorn Could Become Principal Owner of Mets

Einhorn is expected to receive a one-third share of the Mets in return for his investment, but could gain much more. He will have the option in three years of raising his stake to 60 percent, effectively ending more than three decades of control of the team by the Wilpon family.

Fred Wilpon, the principal owner, could block a move to take over his team by repaying the $200 million invested by Einhorn. But Einhorn would then retain his one-third share of the team, essentially at no net cost, according to the person with direct knowledge of the negotiations, who spoke on the condition of anonymity because he was not authorized to publicly discuss the matter.

Steve Greenberg, the investment banker hired by the Wilpons to sell a minority stake in the Mets, declined to comment. Rob Manfred, executive vice president of Major League Baseball, also declined to discuss the deal. A spokesman for Einhorn said he had no comment. In a statement, the Mets said their exclusive negotiating agreement with Einhorn was “strictly confidential.” They later issued a second statement saying “there is uninformed speculation regarding terms of a potential deal.”

It is unclear what Einhorn would have to pay to increase his stake in the team to 60 percent in three years. Customarily, an auditor would be hired to revalue the franchise to determine the basis for negotiations over a price.

The deal now being discussed between Einhorn and the Mets does not include a stake in SNY, the team’s profitable cable television network. Einhorn said Thursday that he was not interested in the television business, unlike many other bidders for the team.

The outline of the proposed deal was first reported by ESPNNewYork.com.

Though the deal is not final and is subject to the approval of Major League Baseball, its terms underscore the vulnerability of the Wilpons, whose team is swimming in debt, bleeding cash and losing fans. Wilpon said the team could lose about $70 million this year, $20 million more than last year.

The Mets are also embroiled in a legal battle with Irving H. Picard, the trustee representing the victims of the fraud in Bernard L. Madoff’s Ponzi scheme, who is seeking $1 billion from the Wilpon family.

Einhorn, 42, is expected to seek legal indemnity from that case, which is being mediated by Mario M. Cuomo, the former governor of New York. Einhorn is also likely to clarify what role he would have if the Mets were forced to sell the club.

The potential agreement with Einhorn “certainly demonstrates a desperate need for immediate cash by Wilpon,” said Marc Ganis, the president of SportsCorp, an industry advisory firm. Einhorn, on the other hand, was striking a clever deal, he said.

“His downside is he receives one-third of the Mets for a three-year, $200 million loan,” Ganis said. “His upside is he would be the control owner of the Mets in three years at a reasonable valuation and only have to buy 60 percent, not 100 percent, to achieve that.”

Einhorn is president and co-founder of Greenlight Capital, a hedge fund that manages about $8 billion. His willingness to invest $200 million in a distressed team and maintain a path to majority ownership echoes a strategy he has used in amassing his fortune. He is known for buying into severely undervalued assets that have the potential to recover.

Few teams publicize the sale of minority stakes, and even fewer publicize them before the sales have been made final. Yet the Mets announced their intention to sell 20 to 25 percent of the club four months ago. Since then, the team has slumped in the standings and experienced a 10 percent decline in attendance from last year.

Wilpon was roundly criticized last week for making negative comments about his star players and for calling his team “lousy” and “snakebitten.” He also said his team was “bleeding cash.”

The announcement that the Mets were in exclusive negotiations appears to have given the upper hand to Einhorn, because it deterred other potential investors and set up an expectation that a sale would be made.

Still, Wilpon, who made his fortune in real estate, may be calculating that the team and the economy may recover in three years, which would make it easier for him to raise the cash needed to fend off a takeover. At that time, Wilpon could sell part of his stake in SNY to Einhorn, or raise cash to repay him.

In the short term, the $200 million from Einhorn is almost certain to meet the team’s most pressing needs and potentially stabilize its finances into next year. The Mets are expected to use half the money to pay back loans to banks and Major League Baseball, according to several people with direct knowledge of the team’s finances. The rest would help pay player salaries and cover other expenses.

By selling the club in pieces, Wilpon may also be trying to reduce the amount of capital-gains tax he would have to pay at any one time.

Article source: http://feeds.nytimes.com/click.phdo?i=604347e77ec460d8f91977146f92358b

Corner Office: Linda Lausell Bryant: Note to Staff: We’re a Team, Not a Family

Q. Talk about some important influences for you.

A. Part of my background includes conflict resolution training. And I really feel like that has shaped me tremendously. There are understandable tendencies among people to say, “Let’s avoid conflict.” I was trained to really go for it, and find out what some disagreement is about. What’s really underlying it? What are the underlying needs and issues here?

So two people will present the conflict as, “I wanted the red one; she wanted the blue.” Or whatever it is. But is it really about the red or the blue, or what’s it really about? I’ve always felt particularly adept at finding out the underlying psychodynamic issues. The training to not avoid the conflict — to kind of go for it and learn to get comfortable with it — was something that shaped me very much.

Q. How else does your background influence the way you manage and lead?

A. You have to respect not only people’s needs, but also their pain, their vulnerability. A lot of battles are about very personal things. I’m very attuned to the unspoken needs that people play out in the workplace. People are people in whatever setting — they bring their luggage of stuff, we all do — and the dynamics in the workplace are a function of the interaction of what we all have in our suitcases. You can’t change that. You can acknowledge it. You can give it space. You can give it air and light. In the end, it can’t rule the day, either, because in the workplace there are higher things and rules that are going to guide what we need to do here. It’s helpful to know that, and be aware of it as a boss, and it’s even better if employees are aware of it and that they feel that you’re not trying to change who they are.

So I really try to allow people to bring their full selves, and I try to hire with an eye toward: “O.K., what is it that you have? What are these personal characteristics that you have in addition to all your obvious qualifications that would mesh with this organization, that are complementary to what we’re trying to get done here?”

Q. How has your leadership style evolved?

A. Recently, I’ve really shifted my thinking. Our culture reflected our work, which is to create a sense of family for our teens. So our staff would say: “We’re a family. We’re a family.” And I’ve actually said directly to everyone in all-staff meetings: “We’re not a family, because in a family you never can fire somebody like your Uncle Joe. You just can’t. You have to put up with him because he’s family. In an organization, if someone is taking the organization down, we can’t accept that because the organization is bigger than any one of us.”

So I’ve said to them that the analogy that best suits us is, “We’re a team,” and in a team, everybody’s got a role to play. And the team wins when everybody plays their roles to their best ability. The other thing that’s different in a team is that people understand the concept of roles. So if you’re the manager, you have a job to do as a manager. No one, generally speaking, resents the fact that you have authority because they understand that it comes with the role of a manager and that teams need managers. They don’t manage themselves.

But in a family, it is about power. You know, Mom or Dad has the power, and I think the dynamic that often plays out in a workplace is that people project all of their parental stuff. And I remember a job where I actually had to say to my team: “I am not your mother. I’m the division director here. I have a job to do. You have a job to do.”

Q. How else has your leadership style changed?

A. I feel I’ve grown up more as a manager in this job. It’s been a process, but I’ve really grown up because I went from being the charismatic leader, the leader everyone loves — “I love you, and you love me, and we’re a big, happy family” — to being more comfortable with everyone not being happy. I’d like everyone to be happy, but I can take it if they’re not. And I no longer feel like it’s my job to make sure everyone is happy. My job is to fulfill the mission of this organization, and to make sure that all the pieces are in place so that we can do that.

Q. What changes did you make when you took over?

Article source: http://feeds.nytimes.com/click.phdo?i=6e543adf57a5d2c96a81f265b9386d3a