Daily Insolvency News Headlines

Tue., December 16, 2014

Tue., December 16, 2014

Spain has unveiled a series of measures to combat long-term unemployment, including a new monthly payment for about 450,000 jobless who currently receive no form of state support and face a growing risk of social exclusion, the Financial Times reported. The package comes amid rising concern over the fate of Spain’s long-term unemployed, and warnings that the country is facing a deepening social crisis. The measures were announced less than a year before a general election, and follows intense pressure on the government to show that ordinary voters are benefiting from the country’s economic recovery. While the government has made assurances that the economic recovery — now in its second year — remains on track, Prime Minister Mariano Rajoy has acknowledged that the return of economic growth had so far failed to lift the nation’s more vulnerable residents. Read more. (Subscription required.)

Tue., December 16, 2014

Germany could be left with a €500 million compensation bill after a Munich court ruled that property lender Hypo Real Estate (HRE) falsified accounts and misled investors about its exposure to the financial crisis, the Irish Times reported. The German lender and its Dublin subsidiary Depfa went into a tailspin after the collapse of Lehmann Brothers in September 2008. The HRE group survived only after a state-led bailout before it was eventually nationalised. After a 10-month hearing, Munich’s higher regional court ruled yesterday in favour of a group of investors squeezed out in 2009. In a civil test case, their lawyers claimed HRE manipulated data in 2007 and 2008 to mask the bank’s exposure to risky US investments. This misinformation, they argued, saw them lose their investment during the later squeeze-out of private investors after the nationalisation. “From our perspective, HRE acted incorrectly and against accounting provisions. We see the whole thing as account manipulation,” judge Guido Kotschy said in his ruling, saying the board’s actions had been to “draw a veil” over the perilous state of the bank’s finances. The HRE holding group insisted the ruling was “not right” and it expected a reversal on appeal. Lawyers for the former investors in HRE welcomed the ruling as a “complete victory” that strengthened shareholder rights and Germany’s reputation as a place to invest. Read more.

Tue., December 16, 2014

Russia has a new enemy: the currency markets. Russia’s government is in the middle of an all-out fight to preserve the value of the ruble in the face of plummeting oil prices and Western sanctions over the Ukraine crisis, the International New York Times reported. In the boldest move yet to stanch the bleeding, the Central Bank of Russia announced a stunning interest rate increase in the middle of the night. Its main deposit rate is now 17 percent, up from 10.5 percent when Russian banks closed for business on Monday. The rate increase, one of the largest ever announced by the central bank, echoes the drastic measures taken during the 1998 crisis when Russia defaulted on its debt and devalued the ruble. The question is whether the move — announced on the central bank’s website at 1 a.m. in Russia — will appease the markets. If it doesn’t, investors may view the rate increase as a sign of increasing disarray. Some economists are concerned that Russia is now stuck in the quagmire of stagflation, or high inflation and low growth. The government expects inflation of 10 percent or more by the end of this year and for the country to fall into a recession next year. Read more. (Subscription required.)

Tue., December 16, 2014

A key gauge of household debt in Canada climbed to a record high in the third quarter as Canadians accumulated debt faster than their incomes grew, illustrating what the central bank has deemed the top risk to the domestic financial system, The Wall Street Journal reported. The ratio of household credit-market debt to personal disposable income rose to 162.60% from a revised 161.45% in the second quarter, Statistics Canada said Monday. That means Canadians owe roughly 1.63 Canadian dollars ($1.41) on every dollar of disposable income. The result is the highest in records dating to 1990 after taking into account revisions for data from 2011 through the second quarter of 2014 as the value of mortgages owed by households were adjusted downward. Mortgages account for the biggest share of the total, followed by consumer credit such as credit cards and lines of credit, and nonmortgage loans. Last week, the Bank of Canada said in a semiannual report assessing risks to the financial system that household debt and a housing market that it estimates to be overvalued by as much as 30% remain the key threats. Read more. (Subscription required.)

Tue., December 16, 2014

The Central Bank has urged banks to adopt caution when writing back problem loans due to the improving property market, as it also warns that the forthcoming maturity of a large proportion of bank debt could impact negatively on bank profitability, the Irish Times reported. At the publication of the Central Bank’s second Macro Financial Review for 2014, the Central Bank urged banks “to be cautious” when it comes to releasing loss provisions. While the regulator is not prescriptive on the approach that banks should take to provisioning, it would like them to take a cautious approach when drawing conclusions on the basis of house prices. Earlier this year for example Ulster Bank released provisions of the order of £300m, and noted that the potential exists for future releases in future. Another risk to the banking sector identified in the report is the fact that “a large proportion” of bank debt is due to mature in the first quarter of 2015. “A rise in the cost of funding could impact negatively on net-interest margins and on bank profitability,” the report states, although the regulator noted that it “wouldn’t overplay” the extent of this risk. Read more.

Tue., December 16, 2014

German Burger King restaurants that were shut down last month in a row between their operator and the U.S. fast food company will re-open this week, Burger King Germany said on Monday, Reuters reported. Twenty-six of the 89 outlets will open their doors again on Monday and the rest by Wednesday, it said in a statement. Burger King had told Yi-Ko Holding, formerly the biggest operator of the restaurants in Germany, to shut down the restaurants immediately last month, saying the franchisee had violated its rules on the treatment of employees. Last week, Yi-Ko filed for insolvency, putting 3,000 jobs at the restaurants at risk. Burger King has now given insolvency administrator Marc Odebrecht a temporary license to operate the outlets under the company's brand and has provided a loan for the business. There are 688 Burger King restaurants in Germany. Read more.

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