Daily Insolvency News Headlines

Fri., October 17, 2014

Fri., October 17, 2014

Regulators probing Banco Espírito Santo SA, the large Portuguese bank whose collapse rattled global markets this summer, have focused in public on relatively recent problems that doomed the lender and its affiliated companies, The Wall Street Journal reported. But the bank’s reliance on off-balance-sheet funding vehicles stretches much further back than previously reported. Back in 2002, for example, when the bank was looking to boost its capital, it turned to two British Virgin Islands entities that had been set up on the bank’s behalf. The financial vehicles, whose links to Banco Espírito Santo weren’t public, bought the bank’s shares, helping it complete a successful capital raising, according to a former board member at the bank. The move was part of a long-running pattern that may have clouded the picture of the bank’s true financial health. Over the past 15 years, the bank and its outside advisers set up several such vehicles, located in countries with minimal disclosure requirements, to help it and related companies raise money and leaving the impression that the bank enjoyed a steady supply of external funding, according to a Wall Street Journal review of financial reports and trading records, and interviews with Portuguese regulators, auditors, former officials at Banco Espírito Santo and outside service providers. Read more. (Subscription required.)

Fri., October 17, 2014

Although Venezuela has the largest energy reserves in the world, its deteriorating economy has forced Nicolás Maduro, the president, to slash imports to cover foreign debt payments amid a severe hard currency crunch that has already produced shortages of almost everything, from toilet paper to medical supplies, the Financial Times reported. “It is hard to believe, but there are worse shortages in Venezuela than there are in Syria,” said Moisés Naím, senior associate at the Carnegie Endowment for International Peace in Washington. But this week’s fall in the oil price has further fomented worries of a possible default, pushing up Venezuelan bond yields to more than 18 per cent and boosted credit default swaps to over 2,230 basis points. Oil accounts for about 95 per cent of Venezuelan export revenues. “We believe that Opec has to co-ordinate action to arrest the fall in oil prices,” said Rafael Ramírez, Venezuela’s foreign minister and the former head of state oil company PDVSA. That is “even more [so] when we are convinced this is not due to market fundamentals, but to price manipulation to create economic problems among major oil producing countries”. Read more. (Subscription required.)

Fri., October 17, 2014

Embattled West African iron-ore miner London Mining Plc said on Thursday that its board had decided to place the company into administration, Reuters reported. The company, which owns the Marampa mine in Sierra Leone, has been battling high costs, a sharp drop in iron prices and the impact of the Ebola virus on operations in West Africa. "The board and management will be working with the administrator of London Mining Plc to maintain the Marampa mine as a going concern," the miner said in a statement. PricewaterhouseCoopers, London Mining's administrator, said its focus was to ensure that a buyer was found for Marampa. London Mining warned in late September that it did not have enough cash to operate its only mine and that it was in talks about a potential "strategic investment". However, it said last Friday that the only potential investors left in the strategic process were unlikely to let the company continue as a going concern. It did not name the potential investors. Read more.

Fri., October 17, 2014

Just a few months ago, Greece appeared to be on the road to recovery. But in recent days it has helped stir up a storm in European bond markets as investors realized that Athens might not be on such a firm path after all, the International New York Times reported. Signs of instability in the Greek government and concern that it may attempt an early exit from its internationally supervised bailout program have intensified worries in global financial markets about the state of the eurozone. On Thursday more investors fled Greek bonds, driving the government’s longterm borrowing costs to nearly 9 percent. That was the highest level since January and an increase from 7 percent on Wednesday. Hoping to slow the stampede, the European Union on Thursday praised Greece’s efforts and pledged further assistance. The European Central Bank signaled that it would give Greek banks access to more funding by making it easier for them to use their holdings of government bonds as collateral for low-interest central bank loans. But those reassurances did not stop the Greek bond sell-off from spreading to other nations along Europe’s southern rim, including Portugal, Spain, Italy and France. Even in Ireland, which like Greece and Portugal took part in international bailouts, investors drove interest rates higher on Thursday in a show of panic that was reminiscent of the early days of Europe’s debt crisis. Read more. (Subscription required.)

Fri., October 17, 2014

International Monetary Fund Chief Christine Lagarde lamented last week that the world has “too little economic risk taking, and too much financial risk taking.” In the Philippines, there might be both, Bloomberg News reported. Companies in the Southeast Asian nation eager to make acquisitions and capital investments are piling on foreign debt, in the process leaving the economy vulnerable should emerging-market currencies get roiled again. By year-end, Philippine companies would take as long as a record four years to repay debt using operating earnings, said Xavier Jean, the Singapore-based director of corporate ratings at Standard & Poor’s. By comparison, the figure is one year or less for Indonesian businesses, and about two years for Malaysian ones. Philippine corporate exposure to foreign debt climbed to 26 percent of total debt last year from 15 percent in 2011, he said, citing a study of 100 Southeast Asian firms. Read more.

Fri., October 17, 2014

Borrowers are not ready for higher interest rates and could struggle to pay the bills even with a small rise in repayments, RBS chief Ross McEwan warned yesterday. Most RBS and NatWest mortgage borrowers had never experienced an interest rate rise, he said, and nationally more than 1.5m borr­owers bought their house after 2007 when rates last went up. He is setting up a task force headed by RBS senior economist Sebastian Burnside to study the impact of a rate rise, and come up with a plan to prepare borrowers. Banks already run affordability checks on borrowers to make sure they can afford the mortgage even when rates rise sharply. But that does not mean borrowers themselves are prepared. Read more.

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