Daily Insolvency News Headlines

Mon., October 27, 2014

Mon., October 27, 2014

Italy’s banking system had the highest number of lenders flunking the European Central Bank’s review of eurozone banks, reflecting the country’s unremitting economic malaise, the International New York Times reported. Italy’s two largest banks, Unicredit and Intesa Sanpaolo, passed the tests comfortably. However, the central bank said that nine of the 15 Italian lenders under the review had capital shortfalls at the end of 2013 and four of them still must raise more capital, including Monte dei Paschi di Siena. Considered the world’s oldest continuously operating lender, Monte dei Paschi must raise 2.1 billion euros, or $2.7 billion, the largest of any individual bank covered by the review, released on Sunday. ‘‘Italian small banks are taking the toll of the longstanding recession,’’ said Pietro Reichlin, professor of economics at LUISS University in Rome. ‘‘Their conditions are aggravated by credits they can’t recover, and the only clients who are seeking credit are the ones in difficulty economic situations, and thus risky loans.’’ The Bank of Italy, the country’s central bank, emphasized that the shortfall represented only 0.2 percent of Italy’s gross domestic product, and that Italian banks underperformed only in a severe macroeconomic contraction that is very unlikely to happen. The Bank of Italy added that the Italian economy is stagnant and that the European Central Bank’s stress test model has more serious consequences for countries with already weak growth. Read more. (Subscription required.)

Mon., October 27, 2014

Monarch Airlines has agreed a rescue deal that will result in Switzerland’s Mantegazza dynasty, who started the business with just two aircraft in Luton in 1968, selling up completely, The Telegraph reported. Family patriarch Sergio Mantegazza is understood to have become impatient with the airline’s financial troubles after Monarch asked for a third bailout in July despite already injecting £75m into the business in 2011, just two years after putting £45m into the business. Investment firm Greybull Capital has now agreed to pump £125m of permanent capital and liquidity facilities into Monarch, which has been anchored by a £50m investment. As a result Greybull, which sees the deal as a "long-term investment", will own 90pc of the airline, with the remaining 10pc held by Monarch’s pension protection fund. The carrier’s pension fund reportedly has a deficit of more than £300m by some calculations. Read more.

Mon., October 27, 2014

Some of the strongest ripples from the European Central Bank's landmark stress tests could be felt in eastern Europe as multinational lenders short of capital mull the future of their Balkan operations, while others face extra losses, Reuters reported. The 25 banks that failed the health check included four which own subsidiaries in eastern Europe. Some banks that passed were found to have overvalued their assets in the region by a significant margin, something that will force them to hold more capital and makes them likely to eventually face extra losses. "The Greek banks have relatively profitable units in eastern Europe and selling them off looks like the easy and fast way to ensure capital. This is a possible option," said Lachezar Bogdanov, an economic analyst with Sofia-based think-tank Industry Watch. Greece's Eurobank, Piraeus Bank and National Bank of Greece all failed the ECB's test based on the narrow definition of not having enough capital at the end of last year. They will have to issue little if any new equity, but they will have to stringently stick to their restructuring plans which involve reducing Balkan and other international holdings. Read more.

Mon., October 27, 2014

Indian banks have only two quarters left to restructure stressed assets without significantly dragging down their profits—a fact that’s prompting banks to step up the recast of loans that may eventually need restructuring, Livemint.com reported. Effective 1 April 2015, the Reserve Bank of India’s regulatory forbearance, under which banks were allowed to qualify restructured assets as standard, will come to an end. For now banks are setting aside 5% of the value of the loan to cover the risk of default on any restructured assets. Starting in the next financial year, when all restructured assets will be termed as non performing assets (NPAs), or bad loans, the requirement will increase to a minimum 15%. The change will also mean banks’ bad-loan portfolio will swell. In fact, fearing an increase in bad assets once change takes effect, bankers have already started asking RBI to extend the forbearance for another year, the Business Standard reported on 15 October. The bankers, according to the report, have told RBI that if the window is not extended, their gross NPA ratio will rise to 10% from 4% in March 2014. Read more.

Mon., October 27, 2014

The finance ministry yesterday handed parties the drafts of three bills concerning the insolvency framework, seen as providing an extra ‘safety net’ to debtors who have fallen on hard times, CyprusMail reported. The framework will be made up of six bills. The ministry has asked party experts to a meeting on October 31 to discuss the drafts, just as the Supreme Court is expected to hand down a verdict on the validity of the foreclosures bill demanded by the troika of international lenders. The Cyprus News Agency said the drafts concern the liquidation procedure, debt restructuring of viable businesses, and administration. All parliamentary parties apart from AKEL have appointed one member to join a team of technocrats drafting the insolvency framework. Read more.

Mon., October 27, 2014

When Chinese property developer Agile Property Holdings Ltd. said this month that its chairman was taken into custody by authorities, the disclosure was a shock to Western banks that lent the company money, The Wall Street Journal reported. Foreign lenders in China have been stung by a string of suspected fraud cases and problem loans in the country as Beijing investigates company executives and seizes assets in a crackdown on corruption. Agile Property has a large debt payment due in December and has been scrambling to raise funds. It is in discussions with bankers at HSBC Holdings PLC and its unit Hang Seng Bank Ltd. , and Standard Chartered PLC for an extension of the $475 million loan. The company canceled plans at the start of the month to raise 2.75 billion Hong Kong dollars (US$355 million) through a rights issue. A few days later, the company said it would try again, this time with the fundraising backed by the controlling family, meaning they would have to buy any shares not bought by investors. Half a dozen Western lenders are also locked in legal battles over exposures of around $1 billion linked to a suspected fraud at Qingdao port. Read more.

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