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Thu., May 17, 2012

UK PM: Euro Zone At A Cross-Roads
Thu., May 17, 2012

The euro zone is at a cross-roads and must tackle its crisis or face potential break-up, U.K. Prime Minister David Cameron is due to say Thursday in a stark warning of the crisis in its key trading partner, Dow Jones reported. "Either Europe has a committed, stable, successful euro zone with an effective firewall, well capitalised and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the euro zone. Or we are in unchartered territory which carries huge risks for everybody," he will say according to extracts of a speech he is due to deliver later. The prime minister gave parliament a sneak preview of the most headline-grabbing phrase in the speech when he told lawmakers Wednesday that the euro zone, "either has to make up or it is looking at a potential break-up." Concerns about the future of the euro zone in its current form have intensified after the failure of Greek politicians to form a government raised fresh fears about the country's willingness or ability to pay its debts. "We are living in perilous economic times. Turn on the TV news and you see the return of a crisis that never really went away: Greece on the brink...the survival of the Euro in question," Cameron will say. The prime minister's warning about the potential break-up of the single currency area comes despite his treasury chief, Chancellor of the Exchequer George Osborne, saying Monday that open speculation about the future of some countries in the euro zone was damaging the European economy. On Wednesday Bank of England Governor Mervyn King said the U.K. was drawing up contingency plans for the break-up of the euro zone, warning that the currency union's escalating debt crisis is the single biggest threat to the U.K.'s recovery. Cameron will reiterate that it is in Britain's interests for the euro zone to sort out its problems. "But be in no doubt: whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system," he will say. Read more. (Subscription required.)

ECB Stops Regular Operations With Four Greek Banks
Thu., May 17, 2012

The European Central Bank has reacted to uncertainty over Greece’s future in the euro zone by excluding four of the country’s banks from its regular liquidity-providing operations, The Globe and Mail reported. The move raises the pressure on Greece to stick to its international bailout by highlighting the risk that euro zone central bankers could pull the plug on its financial system. It reflected ECB fears that a planned recapitalization of Greece’s banks could be delayed. The four Greek banks – which the ECB did not name – will have to rely instead on “emergency liquidity assistance” – a special temporary facility provided by the Greek central bank but subject to ECB approval. The ECB “continues to support Greek banks,” a spokesman said. European leaders are attempting to turn Greece’s repeat national election next month into a referendum on the country’s membership of the euro, a high-stakes political gamble that officials believe can win back voters disillusioned by the tough bailout conditions but eager to stay in the single currency. “We want Greece to remain part of our family, of the European Union, and of the euro,” José Manuel Barroso, president of the European Commission, said at an unscheduled news conference. “This being said, the ultimate resolve to stay in the euro area must come from Greece itself.” Speaking in Frankfurt, Mario Draghi, ECB president, said the ECB’s “strong preference” was for Greece to remain in the euro zone, which suggested the ECB would maintain its support for its banks as long as possible The decision on the Greek banks was taken by the ECB’s governing council on Tuesday but had been in preparation since the country’s inconclusive May 6 election. Under Greece’s bailout plan, some €25-billion ($31.8-billion U.S.) of funds has already been transferred from the European Financial Stability Facility to Greece to strengthen its banks. But its deployment has been held up by a dispute between Athens and its banks over future control of banks. Read more.

Cerberus Closes German Property Deal
Thu., May 17, 2012

Private equity investor Cerberus has agreed to acquire roughly 22,000 German flats from insolvent Speymill Deutsche Immobilien (SDIC), Reuters reported. As part of the deal, Cerberus is restructuring 985 million euros ($1.25 billion) in SDIC's debt and will inject an undisclosed sum of fresh capital, the administrator and the private equity investor said in a joint statement on Wednesday. International investors, including private equity, are flocking to the German property market, attracted by a steady rise in values in the last couple of years, which contrasts with the boom-and-bust of Spanish and Irish real estate markets. Private equity also has a track record of investing in German real estate. Goldman Sachs, Cerberus and Goldman-advised Whitehall Funds held 40 percent of GSW Immobilien until they started reducing their stake last year. The assets consist of the remaining three portfolios of SDIC with properties throughout Germany after Benson Elliot said in March it had bought a first portfolio with 3,000 flats. The value of SDIC's property assets was 1.4 billion euros at the end of June 2010, according to the latest published annual report of the group. Read more.

Noonan Links Bailout Emergence To Bank Debt
Thu., May 17, 2012

The Minister for Finance has linked a deal on Ireland’s bank debt and the State’s emergence from the bailout programme, the Irish Times reported. Michael Noonan said the International Monetary Fund would have to assess the sustainability of Ireland’s fiscal position when it is emerging from the bailout programme. The IMF conducts ongoing debt-sustainability analyses for countries in its programmes. By the end of this year, it will begin to examine Ireland’s ability to emerge from its funding programme at the end of 2013, as envisaged. Mr Noonan told a conference in Dublin yesterday on the Irish economy, organised by Bloomberg, that the IMF was “totally on our side” in relation to getting a deal on Ireland’s €30 billion Anglo Irish Bank promissory notes and the European Commission was “working in the background” on a solution. The European Central Bank was the “tough nut to crack”, he said. However, he said the bank’s interests and Ireland’s coincided up to a point and there were alternatives to re-engineering the promissory notes. There was an awareness “at all levels” in Europe that there was a legacy issue in Ireland in relation to how the banks were recapitalised and that Ireland had played a role in protecting other European banks from a contagion effect. Read more.

Russian Central Banker: Capital Flight 'Serious Problem'
Thu., May 17, 2012

Russia's top central banker warned on Wednesday that capital flight is a "serious problem," as newly released figures showed $42 billion has left the country in the first four months of the year, The Wall Street Journal reported. Meanwhile, the stock market and the ruble have slipped to their lowest levels in more than a year, dashing hopes for a rally following Vladimir Putin's re-election as president in March. "There were inflated expectations for a new Putin, who would introduce fresh policies, and this drove markets higher than they should have gone," said Vladimir Tsuprov, chief investment officer at BNP-Paribas in St. Petersburg. "Investors see that this isn't happening, and they are taking their money out." Just over a week after Mr. Putin's May 7 inauguration, the Micex index—which at the time of Mr. Putin's victory was the world's best-performing stock market in terms of percentage gains—is down almost 20% from its March highs, while the ruble has erased most of its 2012 gains and is down more than 6% against the U.S. dollar since the elections. The four-month outflow is the worst ever recorded for that period, and the second-worst four-month performance in Russia's history. While most countries' stock markets have been hammered amid Greece's sovereign-debt woes and its possible exit from the euro, the plunge in Russian stocks—which have dropped from their 2012 highs by nearly twice as much in percentage terms as the MSCI Emerging Markets Index—has been particularly fierce. Read more. (Subscription required.)

Receivership For Alburn Real Estate
Thu., May 17, 2012

Solicitor Noel Smyth’s Alburn Real Estate UK is to be put into receivership by Rothschild, ending his efforts to regain command of the heavily indebted property portfolio which has breached a number of its borrowing covenants, the Irish Times reported. The move by Rothschild follows the failure on Tuesday of Alburn, which owns 47 offices, warehouses and other properties, to meet a demand from the bank for accelerated repayment of approximately £200 million (€250 million), including interest. The 25 offices owned by the property company are valued at £94.5 million, while up to a dozen industrial warehouses are valued at £22.1 million. Two shops are worth £3 million, and the Waterdale shopping centre in Doncaster is valued at just under £10 million. In a statement to the stock exchange, Rothschild said that Alburn had “indicated its willingness to work with the loan servicer, receivers and administrators in their efforts to maximise recoveries on behalf of the company’s bondholders”. Last September, Mr Smyth sought to persuade three lenders, the Royal Bank of Scotland, Deutsche Bank and the Co-operative Bank, to extend the life of its debt by three years and agree to incentive management fees. The company, registered in Jersey, is owned by Mr Smyth and his wife, Anne-Marie. He argued in September that a longer maturity for the debt would allow time for the property market to stabilise and offer the prospect of repaying 25 per cent more of the debt. The £130 million valuation placed on the company’s assets and put against the debt and a junior loan held by the Co-operative Bank takes the securitised loan-to-value ratio to 142 per cent and the whole loan to value at 151 per cent, against covenants of 125 per cent and 135 per cent, respectively. Read more.

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