Daily Insolvency News Headlines

Fri., October 31, 2014

Fri., October 31, 2014

China’s shadow banking sector continued to grow at breakneck speed in 2013 and now ranks as the third largest in the world, a report released by the Financial Stability Board showed on Thursday, the Irish Times reported. The country vaulted ahead in the rankings under a new, more targeted definition of shadow banking adopted by the FSB, a task force set up by G20 economies in the wake of the 2008/09 global financial crisis to improve financial regulations. The report comes amid a series of shadow banking defaults in China, including that of a 4 billion yuan ($652 million) credit product backed by China Evergrowing Bank in September, which brought increased scrutiny of the industry and the risks it poses to the world’s second-largest economy. China’s government is now weighing new rules to tame this less-regulated, riskier type of lending, while trying to ensure that more money from the shadow banking system is invested in the real economy rather than speculative activities. Read more.

Fri., October 31, 2014

Austria’s nationalized lender Hypo Alpe-Adria-Bank International AG said Thursday it has split itself between a wind-down unit, called Heta Asset Resolution GmbH, and its southeastern European network of banks, The Wall Street Journal reported. The split is part of the lender’s restructuring plan approved by the European Commission. Under the plan, the Austrian government—Hypo Alpe-Adria’s current owner—must sell off all of the bank’s assets or transfer them into a wind-down unit by mid-2015. Hypo Alpe-Adria was nationalized in 2009 after overextending itself in southeastern Europe. After months of indecision, the government decided in March 2014 to establish a bad bank to wind down the lender rather than let it become insolvent. The bank’s southeastern European network, made up of six banking units across five countries and with assets of around €8.4 billion ($10.69 billion), has been transferred to SEE Holding AG. Read more. (Subscription required.)

Fri., October 31, 2014

On October 29th the World Bank released its annual “Doing Business” report, ranking 189 economies by how attractive they are to firms. That Singapore led the list again this year, with Eritrea stuck in last place, was less surprising than the fact that Ukraine leapt up the rankings, The Economist reported. This was in part due to improvements to its tax-collection system, introduced before its conflict with Russia flared up. The World Bank’s indicators seek to cover many aspects of a country’s business climate, but not the risk of invasion by a belligerent neighbour. The report’s most interesting data—on the time it takes to settle a commercial dispute or to wind up a company—shed light on the problems facing Europe’s periphery since the global financial crisis. Countries where it is quick and easy to do these things are usually more attractive to investors than places with lethargic legal systems. In much of southern Europe, which has been hit hard by the crisis, the courts are far slower than places such as France and Germany. This helps to explain why investment has been slow to revive there. Read more.

Fri., October 31, 2014

Now that Greece has said it will seek a credit line from the eurozone’s bailout fund once its rescue program runs out at the end of the year, the difficult negotiations on how to make the new aid palatable to both Athens and other European capitals have begun, The Wall Street Journal Real Time Brussels blog reported. The Greek government is looking at early elections next spring if Prime Minister Antonis Samaras fails to find a supermajority (in other words add an extra 25 lawmakers to his 155-delegate-strong coalition) to back a new president by March. That vote for the new president could easily be won by the anti-austerity Syriza party — a situation that both Mr. Samaras and the eurozone want to avoid. To boost his chances with voters, Mr. Samaras initially announced that he’d seek a “clean exit” from Greece’s bailout program at the end of the year. That would have meant letting the eurozone program run out as planned and foregoing an extra €9 billion from the International Monetary Fund in 2015 and 2016 (assuming that €7 billion scheduled from the IMF for this year is actually paid on time). Some €11 billion in eurozone money still sitting in Greece’s bank-rescue fund would also have to be returned at that point, reducing the country’s debt load by around 6% of gross domestic product. Mr. Samaras’s plan didn’t go down so well. In mid-October, just as new polls were showing Syriza in the lead, investors started dumping Greek bonds and Mr. Samaras said his country would seek a credit line to ease its return to full market funding. Read more. (Subscription required.)

Fri., October 31, 2014

Argentina’s central bank tapped a currency swap line with its Chinese counterpart for the first time Thursday, requesting the equivalent of about $814 million at a time when its hard currency reserves are under pressure, The Wall Street Journal reported. Argentina and China agreed to the 70 billion yuan currency swap during a state visit by Chinese President Xi Jinping in July. Argentine officials say the agreement will make it easier for Chinese companies to invest in Argentina and strengthen the central bank’s depleted reserves. “Under this agreement, the central bank could request additional currency exchanges equivalent to a maximum of $11 billion,” the bank said in a statement Thursday. The three-year currency swap allows the two central banks to lend as much as 70 billion yuan and the equivalent in Argentine pesos to each other for up to 12 months. China is Argentina’s No. 2 trade partner after neighboring Brazil. The yuan can be exchanged for dollars or euros in international financial centers such as Hong Kong, London or Singapore, the central bank said. President Cristina Kirchner needs all the hard currency she can get her hands on to avoid a major devaluation before she steps down at the end of her second term in December 2015. Read more. (Subscription required.)

Fri., October 31, 2014

Britain's banks will be forced to maintain significant financial safety nets under rules announced on Friday that industry leaders say could raise the cost of mortgages and penalise building societies, The Telegraph reported. The Bank of England is expected to go beyond global standards in revealing the leverage ratio – the level of financial reserves banks must hold to protect against a downturn – it expects banks to adopt. Banking sources expect the Financial Policy Committee (FPC) to announce a leverage ratio of between 4pc and 5pc for “systemically-important” banks, compared to a 3pc floor proposed by the Basel Committee on Banking Supervision, the international watchdog. A 4pc ratio means they must hold £1 in reserve for every £25 of lending. The leverage ratio is one of the key pillars of regulators’ attempts to strengthen the financial sector in the wake of the financial crisis. Industry groups have warned that burdensome measures would increase the cost of mortgage repayments and encourage risky lending. Unlike capital ratios – the current standard of a bank’s financial buffers – leverage ratios are not adjusted for the safety of a bank’s loans. Read more.

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