Five of Europe’s largest lenders face up to another €10bn in litigation costs in the next two years due to alleged foreign exchange manipulation and other legal issues, underscoring how past misbehaviour continues to drag down profits, the Financial Times reported. Barclays, Deutsche Bank, UBS, Royal Bank of Scotland and HSBC will have to set aside between €8.5bn and €10.6bn for litigation in 2014 and 2015, according to estimates by three senior analysts. That would come up top of the €16.4bn those five banks had already provisioned for legal costs through the end of 2013. The five banks are the largest European players in the vast forex market and have all been caught up in the sprawling global investigation of more than 15 banks amid allegations that traders colluded to move prices. Analysts expect a sizeable portion of the future legal bill to come from forex, where bankers are braced for a bout of fines and civil litigation much like the probe into Libor and other interbank lending rates. Five banks and brokers have already paid $5.8bn in Libor-related penalties with more fines expected. Read more. (Subscription required.)
Daily Insolvency News Headlines
Mon., March 10, 2014
The Spanish government is working against the clock to reach a deal with builders over a multibillion euro bail-out for nine bankrupt motorways which could directly hit the country's deficit, Reuters reported. Talks that have dragged on for months were abandoned at the end of last year, but have now resumed in the hope of finding a solution before the first of the companies starts liquidation proceedings in about a month. Negotiations are focused on how to create a state-owned holding company to manage the motorways with the minimum impact on state coffers and without it constituting state aid. "We are still working with the government on this," said Julian Nunez, the chairman of Seopan, an association that represents Spanish builders like ACS and OHL, many of which won concessions to build toll roads from the government during Spain's construction boom. "The solution has to be the best for public interest, minimising the impact on the state budget," he told journalists at an event on Friday, adding that total debt associated with the nine motorways was 5.1 billion euros ($7.1 billion). The government hoped to reach a solution soon, he said, and nothing was ruled out. The Public Works Ministry and the Treasury Ministry declined to comment. Under Spanish legislation, drawn up over 40 years ago, when a private motorway goes bankrupt the state has to repay the owners for the cost of the land and the construction. Read more.
Austria should set up a so-called bad bank to manage the assets of Hypo Alpe-Adria-Bank International AG rather than pursue a riskier strategy of shuttering the nationalized lender, Austrian Central Bank Governor Ewald Nowotny said, Bloomberg News reported. The bad bank would manage about 17.8 billion euros ($24.7 billion) of Hypo Alpe’s assets, Nowotny said today on Austrian state broadcaster ORF. A task force formed to consider the bank’s future concluded that the costs of letting it go insolvent exceed the benefits, he said. “It has consequences for other sectors of the banking industry,” he said. “It has consequences for the credibility of the Austrian state.” Finance Minister Michael Spindelegger is fending off criticism over the costs of winding down Hypo Alpe more than four years after the departure of shareholders including Germany’s Bayerische Landesbank prompted its nationalization. The task force was asked to recommend models for a bad bank, consider ways to force former owners to contribute more and encourage bondholders to accept losses. Spindelegger reiterated in a statement today that he’s trying to make sure taxpayers don’t carry all the burden and said he has “no taboos” regarding possible solutions. The government will decide which course to take this month, he said. Read more.
French steel maker Ascometal went into administration on Friday, putting at risk up to 2,000 jobs in a fresh headache for the Socialist government as it tries to bring down unemployment from record levels, Reuters reported. Ascometal, whose roots lie in the former French steel firm Usinor that was later absorbed by No. 1 global steel giant ArcelorMittal, has been hurt by an economic downturn in Europe, particularly in the automotive sector. Declining demand in Europe, where Ascometal generates most of its sales, has undermined a 2011 takeover of the company by U.S. investment fund Apollo Global Management, and put Apollo at odds with banks that helped finance the deal. Friday's decision by a commercial court near Paris to put the company in administration came after Apollo failed to reach an agreement with the banks on a debt restructuring. France's industry minister said the government would aim to find a long-term industrial solution for Ascometal and had already received expressions of interest. Read more.
Spain's government on Friday approved new rules to help struggling companies cut debt and avoid bankruptcy as the country heads into economic recovery with weak job growth, Reuters reported. The overhaul is designed to ease loan refinancings by making it harder for small creditors to veto deals. It also creates a mechanism for creditors to write off part of a borrower's debt. "The aim is to prevent a liquidity problem or temporary solvency issue from forcing a company with good earnings and growth perspectives ... from having to shut down," Deputy Prime Minister Soraya Saenz de Santamaria said at a news conference following a cabinet meeting. Spain's economy is emerging from two recessions, but record high bankruptcies are expected to continue as tens of thousands of small companies struggle with debt left over from the crisis. Unemployment is also stubbornly high at 26 percent of the workforce, and the government is trying to keep employers afloat. Spain had few tools to help companies cut their debts ahead of a formal bankruptcy process through the courts. Once firms enter that process, they usually can try and renegotiate or write off loans, but many are in such bad shape by that stage that they end up being liquidated. Read more.
The amount of debt globally has soared more than 40 percent to $100 trillion since the first signs of the financial crisis as governments borrowed to pull their economies out of recession and companies took advantage of record low interest rates, according to the Bank for International Settlements, Bloomberg reported. The $30 trillion increase from $70 trillion between mid-2007 and mid-2013 compares with a $3.86 trillion decline in the value of equities to $53.8 trillion in the same period, according to data compiled by Bloomberg. The jump in debt as measured by the Basel, Switzerland-based BIS in its quarterly review is almost twice the U.S.’s gross domestic product. Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression. Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index. Read more.