Europe’s banking union is set to face a challenge in Germany’s constitutional court, a development that threatens to generate renewed uncertainty over one of the main responses to the eurozone’s financial crisis, the Financial Times reported. Five German academics have filed a case claiming that the EU’s banking union is illegal under German law because it was created without the necessary treaty changes. The constitutional court, which this year rejected a complaint against the European Stability Mechanism, the eurozone bailout fund, has a record of broadly supporting EU and eurozone integration. However, the new case, which could spend months winding its way through court hearings, will almost certainly force officials from the European Commission and the European Central Bank to defend the newly-created structure just as it begins to be implemented. The suit highlights the determination of a group of eurosceptic German economics, finance and law experts to challenge the institutions underpinning the eurozone’s growing financial and economic integration. Read more. (Subscription required.)
Daily Insolvency News Headlines
Mon., July 28, 2014
Ireland has “no chance” of securing a deal on its legacy bank debt, one of the most influential figures in German politics has told the Irish Times. Joachim Pfeiffer, who is the economic policy spokesman for the parliamentary group of the ruling Christian Democrats, said the euro zone’s new bailout fund had not been established for nor would be it used for retroactive bank recapitalisation. “There is no chance Ireland’s legacy assets will be paid by the European Stability Mechanism (ESM). This instrument is only an instrument for emergency.” His comments appear to punch a hole in the Government’s long-standing campaign to be compensated for the €25 billion it pumped into Bank of Ireland and Allied Irish Banks at the height of the crisis. Read more.
Argentines are poised for a default on Wednesday – their third in just over three decades. The trigger would be a missed $539m interest payment after mediated talks between the government and a group of “holdout” creditors made no apparent progress last week. The growing prospect of default has begun to focus minds on what would come next. Economists broadly expect a recession in the country would deepen, inflation to rise and capital flight – possibly triggering a second devaluation of the peso this year. Still, few believe the consequences of a default would be as dire as 13 years ago, when unemployment reached nearly 25 per cent and forced tens of thousands of Argentines on to the streets to scavenge for cardboard to sell to recycling plants. The economy is not in as deep a crisis as in 2001, when Argentina had suffered from a four-year recession before defaulting. The size of the forgone debt would also be smaller – a maximum of $30bn compared with $80bn. Read more. (Subscription required.)
China’s government is authorizing developer debt sales for the first time in five years in a bid to avoid bankruptcies as the property market cools, Bloomberg News reported. Jiangsu Future Land Co., a builder of homes in eastern China, sold 2 billion yuan ($323 million) of five-year AA rated bonds last week to yield 8.9 percent. That’s less than the average 9.73 percent on trust products that many developers relied on for financing after authorities stopped approving onshore note issuance in 2009. The China Securities Regulatory Commission reversed course in April when it granted four real estate companies the right to sell the securities, after the collapse of a builder south of Shanghai the previous month underscored financing strains. The government allowed the first mortgage-backed debt sale since 2007 last week, in the latest step to ease restrictions on the industry as new home prices drop in a record number of cities. “The issuances are obviously an easing signal,” said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “The CSRC will probably approve more note sales as long as developers have fund-raising demand. It would be helpful because bond costs are lower than trusts.” Read more.
Deutsche Bank AG and BNP Paribas SA, which hold almost half of the hard-to-value assets on the books of the euro area’s 10 biggest banks, are facing a reality check that could impose losses, Bloomberg News reported. As part of its review of 128 lenders, the European Central bank is studying less-actively traded loans and securitized products that banks value with minimal external data. The unprecedented scope of the exercise gives the ECB, which is taking on a supervisory role this year, insight that has eluded investors: comparing how the biggest investment banks value complex assets. The findings, to be released in October, could require Deutsche Bank, BNP Paribas and other firms to restate the value of assets, driving down equity and slowing efforts to boost capital levels to meet demands set by regulators, according to Martin Hellmich, a professor of risk management and regulation at the Frankfurt School of Finance & Management. ECB President Mario Draghi, seeking to show the assessment will be credible, has said some lenders need to fail its stress test. Read more.
Britain’s Serious Fraud Office said on Friday that it would pay 3 million pounds, or about $5.1 million, to settle civil claims brought by a property developer following a flawed investigation into the collapse of the Icelandic bank Kaupthing during the financial crisis, the International New York Times DealBook blog reported. The S.F.O., which prosecutes fraud and corruption cases,dropped the property tycoon Vincent Tchenguiz as a suspect in its investigation in June 2012 after it admitted that the way it had handled some seized material in the case “was flawed and thus unlawful.” The S.F.O. later dropped the investigation against his brother, Robert, and was criticized by the High Court of Justice for the way it handled the case. Vincent Tchenguiz and his brother, Robert, were arrested in a dawn raid by police in 2011 and materials were seized from their offices after a search. Neither man was charged in the matter and the brothers maintained their innocence throughout the investigation. At the time, the S.F.O. had been working with special prosecutors in Iceland to determine whether some creditors, shareholders and executives benefited financially in the days before the collapse of Kaupthing, which had large operations in Britain. Read more. (Subscription required.)