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Spain banks ‘need $76.3 billion’

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Sep 292012
 

Spanish banks will need a total of 59.3 billion euros ($76.3bn) in extra capital to ride out a serious economic downturn, an independent report has said, removing a major obstacle in the way of an international bailout for Madrid.

The stress tests’ findings, which were released by the Bank of Spain on Friday, will help Spain decide how much it will use of the €100 billion loan facility offered by the 16 euro countries.

Spain said around 40 billion euros of the total will come as European aid while the rest could be raised by the banks themselves.

The audit, carried out by consultant Oliver Wyman, is a condition of getting European funds to patch up Spanish banks damaged by a prolonged real estate crash, and identifies which banks need more capital and precisely how much each requires.

Spain has agreed a credit line that could provide up to 100 billion euros in European Union rescue funds for its banks.

“The preliminary estimate of the final amount we would need to tap from the 100 billion euro lifeline would be one third less than the capital shortfall identified by Oliver Wyman,” Bank of Spain Deputy Governor Fernando Restoy said at a press conference.

Both the strict 2013 budget presented by the government of Prime Minister Mariano Rajoy on Thursday and the audit of 90 per cent of Spain’s banking system are necessary steps for Madrid to request sovereign aid and trigger a European Central Bank bond-buying programme.

Spain has replaced Greece, Ireland and Portugal as the main threat to the survival of the euro currency project.

The audit results were in line with market expectations and were applauded by the European Commission, the European Central Bank and the International Monetary Fund.

“That’s another layer of uncertainty that’s off the table,” said David Schnautz, rate strategist at Commerzbank. “We got the budget yesterday and today the stress tests and now we’re all keen to hear what the ratings agencies’ view will be.”

Credit rating agency Moody’s is due to review Spain’s debt grade before Monday. It currently has Spain on one notch above junk with a negative outlook.

Shaky banking sector

The audit identified the bulk of capital needs at the four banks which have already been rescued by the Spanish government.

The worst case is Bankia, the result of an ill-fated, seven-way merger between unlisted savings banks which was taken over by the government earlier this year.

The capital shortfall for these banks is 49 billion euros, with Bankia accounting for half of that. The European Commission said the exact aid needed for each bank would be determined in the coming months.

More than 60 per cent of the system, including heavyweights Santander, BBVA and Caixabank, did not need extra capital under the terms of the audit.

Other banks that will need extra capital under the stressed scenario are Banco Popular, Banco Mare Nostrum and a new entity due to be formed by a merger between former savings banks Ibercaja, Liberbank and Caja 3.

These banks will next month present plans to the Bank of Spain outlining how they intend to raise capital by their own means including share placements, asset sales and forced losses on subordinated bondholders.

Spain is suffering its worst credit crunch in 50 years and designers of the bank bailout hope these steps will lead to a resurgence of lending to families and businesses.

Spain under pressure over borrowing costs

 Markets  No Responses »
Jul 252012
 

Spain has paid the second highest yield on short-term debt since the birth of the euro at an auction, leading its borrowing costs soar to levels that are not manageable indefinitely, reflecting a growing belief that it will need a sovereign bailout that the euro zone can barely afford.

The Spanish Treasury sold the 3 billion euros of three- and six-month bills it was aiming to, though yields climbed; the six-month paper jumped to 3.691 percent from 3.237 percent last month.

“The most important takeaway from this auction is that Spain was able to get all its debt out the door,” said Nicholas Spiro of Spiro Sovereign Strategies. “Still, in March, Spain was able to issue six-month debt at a yield of under 1 percent. Now it is paying 3.7 percent.”

Spain had cushioned itself by securing well over half its annual debt needs in the first six months of the year when market conditions were more benign, but that advantage has evaporated as its funding needs for the rest of the year have grown.

On Friday, the government said it expected the economy to remain in recession well into next year, while the autonomous region of Valencia became the first to ask Madrid for aid to pay debt obligations it cannot meet. Others are expected to follow.

Spain’s northeastern region of Catalonia, responsible for a fifth of the country’s economic output, admitted it had financing needs to meet while its access to markets was shut, but had not decided yet whether to tap a state liquidity line.

Risk of default

On the secondary market, Spanish five-year government bond yields rose above 10-year yields for the first time since June 2001. Having to pay more to borrow shorter-term rather than longer-term is usually a sign that markets think the risk of a default or debt restructuring has increased.

“The spread between 5- and 10-years moved to negative today, which is a classic sign that the market thinks the current trends are unsustainable for Spain’s fiscal dynamics,” said Nick Stamenkovic, bond strategist at RIA Capital Markets.

The return investors demand to hold Spanish 10-year bonds is now at 7.6 percent, while the cost of insuring Spanish debt against default has also hit record highs.

Ten-year yields above 7 percent have proved to be a tipping point leading eventually to bailouts for other countries in the euro zone, though Spanish Economy Minister Luis de Guindos insisted on Monday that Madrid would not need more aid.

The government has already asked for up to 100 billion euros to recapitalise the nation’s banks, which have been battered by a four year economic downturn and a property crash.

The government has launched a fresh 65 billion euro package of tax rises and spending cuts designed to chip away at its debt mountain but it will also probably drive the economy deeper into recession.

The alarming spiral of Spain’s debt costs has banished any hopes that a bailout of its banks, or a June EU summit that gave the euro zone’s rescue funds a green light to intervene in the markets, has put the debt crisis into abeyance.

Spain and Italy have called for help to ward off market pressure. The ECB has cut interest rates but has shown marked reluctance to revive its bond-buying programme, the only mechanism that could lower borrowing costs at a stroke.

De Guindos and Wolfgang Schaeuble, Spain and Germany’s Finance Ministers, called on Tuesday for a quick implementation of the decisions of the last European Union summit, particularly setting up a banking union with a single European supervisor.

They also said after meeting in Berlin that Spain’s funding costs did not reflect the fundamentals of its economy and the sustainability of its debt.

French Foreign Minister Laurent Fabius said further aid for Spain could take the form of an increase in Europe’s rescue fund or action by the ECB.

“I hope it will not be necessary to intervene again,” he told France 2 television. “If we have to intervene, it could be an increase in the firewalls … or interventions by the central bank.”

The euro zone as a whole is now subsiding into recession.

Business surveys on Tuesday showed the currency area’s private sector shrank for a sixth month in July, with the downturn that began in the euro zone’s high debt nations now becoming entrenched in Germany and France.

Credit ratings agency Moody’s Investors Service lowered its outlook for Germany, the Netherlands and Luxembourg to negative from stable late on Monday, citing an increased chance that Greece could leave the euro zone.

It also warned Germany and the other ‘AAA’-rated countries that they might have to increase support for Spain and Italy.

Rupee down 13 paise against dollar

 Markets  No Responses »
Jul 242012
 

MUMBAI: The rupee on Tuesday breached the 56-mark, down 13 paise to trade at fresh three-week low of 56.10 against the US dollar on the Interbank Foreign Exchange due to strong demand for the American currency from banks and importers, particularly oil firms.

Besides, the dollar also strengthened against other currencies such as the euro in the overseas market on worsening euro zone worries and Moody’s downgrading Germany’s sovereign outlook to negative, putting further pressure on the rupee, dealers said.

The domestic currency has fallen past the 56-level against the dollar after June 29.

Wall Street up

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Oct 092009
 

share-market-india2US shares resumed their rally on Thursday as the market was energized by an earnings report from aluminum maker Alcoa showing a surprise return to profit.

The Alcoa report, the first from a blue-chip firm for the third quarter, offered hope that companies are regaining health as the economy improves.

The Dow Jones Industrial Average climbed 59.10 points (0.61 percent) to 9,784.68 at the closing bell as Wall Street followed a rally in overseas markets.

The tech-heavy Nasdaq advanced 13.26 points (0.63 percent) to 2,123.59 and the broad Standard & Poor’s 500 index increased 7.55 points (0.71 percent) to a preliminary close of 1,065.13.

Patrick O’Hare at Briefing.com said Alcoa’s report “kicked more than a few short sellers in the mouth as the aluminum maker said mostly all the right things.”

The company said its net income was 77 million dollars or eight cents a share in the quarter ended September, after three losing quarters, surprising analysts who had expected a fourth straight quarterly loss.
The market was also encouraged by news that initial claims for US jobless benefits in the week ended October 3 fell to a nine-month low of 521,000, another encouraging sign.

The report “reaffirms that labor market conditions are improving,” said Michael Bratus at Moody’s Economy.
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Markets took a deep breath as the Shanghai index

 Featured, Markets  Comments Off
Aug 212009
 

hongkongMost Asian stock markets edged higher on Friday, keeping a wary eye on volatile Chinese shares, while currency traders went on the
defensive after a wild see-saw week and mixed US economic data, bidding up the safe-haven yen.

Markets took a deep breath as the Shanghai index opened lower after jumping 4.5 percent on Thursday, but Chinese shares soon moved into the black and were up 1 percent by late morning.

The index has lost about 15 percent in just two weeks, unnerving global investors who are trying to gauge how China’s revival is playing out while wrestling with continued mixed signals on recovery prospects in major Western economies.

“Investor sentiment has not yet fully recovered despite yesterday’s rebound,” said analyst Zhou Lin at Huatai Securities in Nanjing. “So they will watch the market’s performance as well as economic fundamentals to decide on their investments.”

A government think-tank said China’s gross domestic product would grow about 8.5 percent in the third quarter from a year earlier, picking up pace from the second quarter’s 7.9 percent.

Modest gains in US stocks overnight, buoyed by positive manufacturing data and Thursday’s rebound in Chinese stocks, also lent some support to most Asian markets, offseting disappointment that US weekly jobless claims increased for a second week.

As Shanghai moved higher, the MSCI index of Asia-Pacific shares outside Japan pared early losses to stand little changed by 0316 GMT.

Most markets in the index, however, were slightly higher with the exception of Australia, which fell 1.5 percent after a cautious outlook on loan demand from major lender Westpac Banking Corp.

In Japan, the Nikkei average fell 1.3 percent as automakers fell ahead of the end of the US “cash for clunkers” programme on Monday. The programme has boosted US car sales.

Shares in the world’s biggest automaker, Toyota Motor, shed 2.7 percent.

The yen rose broadly against other major currencies, particularly those leveraged to global growth, as investors fretted about the potential for further weakness in Chinese shares and shied away from riskier investments.

The dollar fell 0.3 percent to 93.93 yen, approaching this week’s one-month low of 93.66 yen as Japanese exporters sold, while the euro also eased and the Australian dollar fell 0.7 percent to 77.74 yen .

Sentiment towards the Australian dollar was hurt after ratings agency Moody’s Investors Service repeated its concerns about the deteriorating financial position of many of Australia’s states and said downgrades could not be ruled out.

US crude futures initially edged up to a seven-week high above $73 a barrel but then slipped back below the $73.00 mark.

Japanese government bonds advanced, with futures hitting a five-month high after gains in US Treasury debt prices in New York and the drop in Tokyo stocks.

Treasury futures rose slightly in Asian trade.
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RBI likely to retain rates

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Jun 262009
 

rbi-governorEven as inflation remained in the negative territory for the second consecutive week, Moody’s on Thursday said there is no threat of deflation in India as demand is not contracting and the Reserve Bank is expected to retain interest rates.
“India is not threatened by deflation, although the wholesale price index has recently contracted on a year-on-year basis for the first time in 30 years,” Moody’s economy.com said in a report.
Falling agricultural output will also put upward pressure on food prices, helping to stop the contraction in the WPI, the report said.
However, it added that year-on-year changes in the WPI is likely to remain in the negative territory at least until the end of the September quarter.
Moody’s further said that the central bank’s monetary policy stance is unlikely to be influenced by the weak price data in recent weeks and it is expected to maintain a neutral stance for now.
“The central bank is expected to maintain a neutral stance for now, amid signs that the Indian economy has already hit its trough and the need for further rate cuts has softened,” the report added.
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China investment surge recovery hopes

 Featured, Markets  3 Responses »
Jun 112009
 

hongkongBEIJING/- Chinese investment surged in May, adding to hopes the world’s third largest economy may lead a recovery, but a record slump in Japan’s first-quarter GDP reinforced expectations its rebound from recession will be slow.

China’s investment pick-up, which comes on the back of massive government stimulus spending, offset surprisingly weak figures for exports and imports, which both fell for a seventh consecutive month and at an accelerating pace.

There was positive news from Australia, where a smaller-than-expected fall in employment built on hopes the country, which has so far dodged falling into recession, will see an economic revival sooner than other developed nations.

Global data in recent weeks has pointed to a rebound from the deepest recession in six decades, driving stock markets sharply higher from a March trough, but worries about the ballooning U.S. trade and budget deficits hang over the nascent recovery.

U.S. Treasuries edged up in Asian trade, after the benchmark 10-year yield advanced to 4 percent overnight, the highest since Oct. 16, on concern about how expensive it will be for the U.S. government to finance its growing budget deficit.

“The risk of rising yields should not be discounted,” said Joseph Brusuelas of Moody’s Economy.com. “If continued, they will reduce home mortgage refinancing and curtail corporate borrowing, both critical to an economic recovery.”

STIMULUS PLAN

China has sought to cushion the blow from falling exports with a 4 trillion yuan ($585 billion) economic stimulus plan.

Data on Thursday showed annual growth of fixed asset investment in urban areas in the January-May period accelerated to 32.9 percent. from 30.5 percent in the first four months of the year, suggesting the stimulus is working.

“I think this is a welcome sign of momentum building in the Chinese economy, and it’s good for the global outlook,” said David Cohen of Action Economics in Singapore.

Underpinned by optimism over the Chinese economy, commodity-related stocks in Asia rose for a third straight day while oil prices extended gains to seven-month highs.

The need for government pump-priming was underlined by May customs data that showed exports fell 26.4 percent on the year, while imports fell 25.2 percent, resulting in a trade surplus of $13.4 billion, compared with $13.1 billion in April and $18.6 billion in March.

“I’ve always been pretty conservative with China’s import and export forecasts, and I think they haven’t reached a bottom yet, because the U.S. and European economies are still deep in recession,” said Sherman Chan of Moody’s Economy.com in Sydney.

However, she also noted that trade flows today reflect orders placed several months ago, when the global economy was in dire straits. Investment, by contrast, is a better leading indicator.

Japan’s economy contracted a revised 3.8 percent in the first three months of the year, better than economists’ median forecast of 4.0 percent, which was the same as the initial estimate, but still the fastest pace since World War Two.

Economists are forecasting a gradual return to growth, although weak capital spending and personal consumption are expected to be a drag on the economy in the coming months.

“Our economic assessment remains the same for the first quarter — this was the period when the economy collapsed, said Kyohei Morita, chief economist at Barclays Capital in Tokyo.

“For the second quarter and beyond, we have bottomed out and are gradually picking up, led by exports, public investment and consumption.”

POSITIVE DEVELOPMENT

In Australia, the currency climbed while bonds slid after data showed only a net 1,700 jobs were lost last month, compared with an expected drop of 30,000.

That followed a rise of 25,400 in April and left employment down just 9,400 so far this year. The United States has shed 2.9 million jobs in the same period.

“Another very good result and a very positive development,” said Michael Blythe, chief economist at Commonwealth Bank, adding that the rosier outlook meant the central bank was likely to leave interest rates untouched at a record low 3 percent for now.

In the United States, the federal budget deficit logged a bigger-than-expected $189.7 billion in May, the U.S. Treasury reported on Wednesday. The nation’s trade gap also widened to $29.2 billion in April, another report showed.

The yawning deficits renewed investors’ fears that massive government spending will lead to dangerous inflation and undercut any fledgling rebound.

A government bond auction pushed yields on the benchmark 10-year Treasury note above 4.0 percent for the first time in eight months, suggesting investors want the government to pay a premium to finance its huge deficit.

“It’s hard to envisage that the Fed will raise interest rates anytime soon given the economic fundamentals, but on the other hand there are supply concerns in the U.S.,” said a foreign exchange dealer at a Japanese bank.

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