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Wed., May 16, 2012

Greece Teeters as Talks Fail
Wed., May 16, 2012

Greece's future in Europe's common currency was in doubt after a last-ditch effort to form a new government failed and the country's political turmoil sparked a dramatic increase in bank withdrawals, The Wall Street Journal reported. After a week of fruitless negotiations, Greece's political parties couldn't agree on a governing coalition, leaving the country in political limbo until new elections next month. The delay could deprive Athens of badly needed international aid and deepen Greece's economic depression. In a potent sign of Greeks' rising anxiety, depositors withdrew €700 million ($898 million) from local banks on Monday alone, according to the country's national bank—a significant escalation in capital flight from the country. The steady outflow of deposits from Greek banks hasn't yet turned into a full-blown bank run, and the European Central Bank has nearly limitless capacity to provide banks with additional liquidity. But economists have long warned that a run on banks could develop if the population fears Greece's departure from the euro is imminent and that their savings would evaporate. A bank run could trigger the euro exit if it reaches a scale that forces Greek authorities to freeze bank accounts and print their own currency to keep the financial system alive. What is more, if Greece fails to comply with the conditions of its bailouts, the ECB would likely cut off the liquidity support for its banks, a move that could cause the banking system's collapse. Read more. (Subscription required.)

Merkel, Hollande Press To Keep Eurozone Together
Wed., May 16, 2012

French President Francois Hollande and German Chancellor Angela Merkel stressed their desire to keep the eurozone together on Tuesday in key talks just hours after France's new leader was inaugurated, Agence France-Presse reported. With all eyes on their first-ever talks, the two leaders also vowed that the two European powerhouses were aware of their responsibilities and ready to help find solutions to the eurozone crisis. Hollande, the newly inaugurated French Socialist, arrived late for his first talks with Merkel after his plane was apparently struck by lightning and had to return to Paris where he changed aircraft. Hanging over the meeting was the grim news from Athens, which is now set to hold another round of elections likely on June 17 after efforts to form a government after inclusive polls foundered, setting up yet another month of brinkmanship at the crippled heart of the eurozone. But the eurozone's two biggest economies want Greece to stay in the single currency, Merkel said a joint press conference with Hollande. Paris and Berlin were prepared "to study the possibility of additional growth measures in Greece" if Athens said they needed them, she added. Hollande for his part called for "balanced" and "respectful" relations with Germany, while adding he was prepared to put "everything on the table" at an informal EU summit next week, including eurobonds, a point of friction with the Germans. The anti-austerity message sent by Greek voters has made the future of the deal for a massive EU-IMF bailout to rescue Greece's finances uncertain. International Monetary Fund head Christine Lagarde raised the possibility on Tuesday that Greece could leave the currency union in the clearest sign yet that leaders are preparing the ground for the exit. Read more.

Greece To Pay Out Foreign Law Bond
Wed., May 16, 2012

Greece's government said Tuesday that it would honor in full a maturing, foreign-law bond that was not included in the country's recent debt restructuring but said the payment would not necessarily set a precedent, Dow Jones reported. "The Hellenic Republic today announced that it would make timely payment of the principal as well as the interest due on approximately EUR435 million of bonds maturing on May 15," the finance ministry said in a statement. "The decision weighed carefully all relevant factors and implications as well as the current conjuncture," it added. "Today's decision does not prejudice future decisions on the treatment of the remaining bonds not tendered in the [debt restructuring]." Although the upcoming redemption is small, it is the first such bond since the debt restructuring was completed. A move not to pay out those bond holders was seen as setting a worrying precedent for European debt markets that could further rattle investors. Last month, Greece completed a mammoth debt restructuring demanded by its European partners and the International Monetary Fund in exchange for a new EUR130 billion bailout. Some EUR199 billion worth of Greek government debt has now been restructured, representing 96.9% of the EUR205.5 billion in government debt held by private-sector creditors. But investors holding some EUR6.4 billion worth of Greek government bonds issued under foreign, not Greek, law, or bonds issued by Greek state-owned enterprises and guaranteed by the government, refused to participate in the debt write-off. The government has repeatedly warned that it won't give more favorable terms to investors that have snubbed the deal, and European officials have recently signalled they will back Greece if it decides not to pay them. But privately, Greek government officials say defaulting on the bond could entangle future Greek governments in years of legal wrangling with bond holders who had rejected the deal and were likely to sue for repayment. Read more. (Subscription required.)

Kuwait's Global Seeks Further Delay On Debt Repayment
Wed., May 16, 2012

Kuwait's Global Investment House said on Tuesday that it would ask creditors to further extend a deadline for repaying debt to November from June as part of a restructuring proposal it plans to submit soon, Reuters reported. The company, which is undergoing its second debt restructuring in three years, did not specify an amount. "The main point is that Global is progressing in its negotiations with lenders," a statement filed on the Dubai bourse said. It has asked for the repayment deadline to be pushed to Nov. 10 instead of June 10, it said. Creditors had agreed to delay repayment of the principal of their debt to June, Global said in December. Shares in Global, one of the largest investment houses in the Gulf state, have not traded on the Kuwait Stock Exchange since December after the bourse suspended the stock for having accumulated losses which exceeded 75 percent of its capital. Earlier this month it reported a third straight yearly loss of 57.5 million dinars ($207.1 million). Read more.

In U.K., Spats On Pay Escalate
Wed., May 16, 2012

A shareholder rebellion over executive pay rippling through the U.K. is exposing fissures inside some of the country's biggest companies and could reverberate in boardrooms on both sides of the Atlantic, The Wall Street Journal reported. The uprising began last month when an unusually high percentage of shareholders at Barclays PLC voted against the bank's pay plan. People familiar with the matter say the vote was preceded by an internal fight on the bank's board, with some directors pushing Chief Executive Bob Diamond to forgo his bonus—an idea that was rejected. That opened the door for shareholders to openly express their displeasure. Shareholders have further turned up the heat since then, playing a role in the departure of three high-profile corporate chiefs in the U.K. The anger is expected to only intensify in coming weeks as restive investor groups train their sights on other companies, such as advertising giant WPP PLC, whose executives are enjoying big paydays. Discontent among U.K. shareholders, who have historically had a limited voice in the governance of companies they own, has been simmering ever since the financial crisis exposed excessive risk-taking among banks that continues to hobble the British economy. But the ferocity of dissent this spring surprised many executives and board members. Read more. (Subscription required.)

Deal Reached On EU Bank Reforms
Wed., May 16, 2012

EU finance ministers reached agreement on Tuesday on tougher rules to make banks safer, overcoming bitter clashes over a flagship reform to strengthen the financial system, the Financial Times reported. The breakthrough moves the EU a step closer to being the world’s first large jurisdiction to implement the so-called Basel III capital rules, an internationally agreed blueprint for avoiding another banking crisis. A deal became possible after George Osborne, the UK chancellor, dropped his vocal objections to diluted capital standards in return for winning fresh assurances that Britain could implement its planned banking reforms without EU approval. This agreement opens the way for difficult negotiations with the European parliament, which is pressing for a ban on bonuses that exceed salary and measures to increase lending to small business. To become law, the text must be approved by EU member states and the parliament. The Basel overhaul is designed to head off more taxpayer bailouts by forcing banks, over the next six years, to build up stronger buffers of equity, cash and liquid assets. There is a January deadline for implementing the international agreement. Months of tense talks among EU member states revolved around the fidelity of the legislation to Basel III and what freedom national regulators should have to impose tougher rules without EU consent. The European Commission warned that without EU controls, a country could toughen its rules and damage the single market by undermining lending in other countries. The reform has been the most divisive regulation proposal in Brussels. Margrethe Vestager, the Danish economy minister who brokered the deal, said she was confident agreement was close when everyone was “equally discontented”. Read more. (Subscription required.)

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