Austria must add about 8 billion euros ($11 billion) liabilities of state-owned KA Finanz AG to its accounts, the European Union said, putting further pressure on the country’s debt burden, Bloomberg News reported. The EU’s statistics office Eurostat told Austria to change the classification of KA Finanz, the wind-down unit for failed Kommunalkredit Austria AG, and revise government statistics for the past five years, according to a letter posted on Eurostat’s website. The letter, dated July 3 and addressed to the country’s statistics office Statistik Austria, advises to make the revisions by Sept. 1. A tightened Eurostat rulebook for government accounting and another nationalized bank are already set to swell Austria’s debt this year. The biggest increase is due to the breakup of Hypo Alpe-Adria-Bank International AG, which is also set to spin off a “bad bank.” The new rules force Austria to add bigger parts of the state railway and other state-owned companies to its debt, Statistik Austria has said. Read more.
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Thu., July 17, 2014
Wed., July 16, 2014
Espírito Santo International SA's main unit, Rioforte Investments, is preparing to file for creditor protection in Luxembourg because of mounting pressure to repay debt with funds it doesn't have, The Wall Street Journal reported. In the latest sign of stress, Rioforte is unlikely to repay €897 million ($1.22 billion) in debt held by Portuguese telecom giant Portugal Telecom SGPS SA, according to a person familiar with the situation. The deadline for the majority of the debt is by midnight Tuesday. The filing for creditor protection should be made in the next few days in Luxembourg, where Rioforte is based, a person familiar with the situation said on Tuesday. That will allow the unit to sell assets and take other steps to raise funds without interference from creditors. Rioforte holds assets ranging from real estate and hotels in Portugal and Brazil to a 49% stake in Espírito Santo Financial Group SA, which holds 20% of Banco Espírito Santo SA. Read more. (Subscription required.)
Some large shareholders in Grupo Oi SA could sue partner Portugal Telecom SA if a debt investment made by the latter ends up in default, which could delay the companies' planned merger, a source close to the deal said, Reuters reported. Shareholders of Rio de Janeiro-based Oi want to push Portugal Telecom to take a smaller stake in the company resulting from the merger, depending on the outcome of the debt negotiations later on Tuesday, said the source, who declined to be identified because of the sensitivity of the issue. The merger, however, is not at risk because "both companies need each other," the source added. Going to court would be a "last resort" for the Oi shareholders, who were not informed of Portugal Telecom's 897 million euro investment in an investment vehicle controlled by Portugal's Espirito Santo family, the source said. The family is also a key shareholder in the Portuguese firm. Oi is controlled by Portugal Telecom and other Brazilian companies including Andrade Gutierrez SA, LF SA, a number of state-controlled pension funds and development bank BNDES. Read more.
Bulgaria is asking the European Central Bank to take over supervision of its lenders after runs on deposits triggered the worst financial crisis in 17 years, Bloomberg News reported. Bulgaria’s central bank has contacted the ECB’s Executive Board to start the procedure to join the Single Supervisory Mechanism, it said in an e-mailed statement today. The request follows an announcement by President Rosen Plevneliev after a meeting with leaders of the country’s biggest parties and senior government officials yesterday. “We have full consensus to immediately start a procedure for Bulgaria’s entry into the EU’s Single Supervisory Mechanism,” Plevneliev said. “Bulgarians can be confident that Bulgaria will continue its integration into Europe’s modern mechanisms.” Bulgaria joins neighboring Romania, which has already started a banking industry health check required by the ECB as a preliminary step toward oversight from Frankfurt. The ECB begins to supervise euro-area lenders in November as part of a plan to prevent a repeat of the taxpayer-funded bailouts of lenders since the financial crisis. Read more.
British regulators said on Tuesday that they planned to cap the fees and interest that so-called payday lenders can charge for short-term loans, the International New York Times reported. The Financial Conduct Authority, which began regulating consumer credit companies this year, is calling for a cap on interest and fees of no more than 0.8 percent per day on payday loans, beginning in January. Fixed default fees would be capped at 15 pounds, or about $26, and the overall cost of any loan would not be allowed to exceed the amount borrowed. There is no current limit on the interest or fees that can be charged. The restrictions come amid an outcry in Britain in the past year over the practices of payday lenders, which offer small loans for short periods, often at interest rates that can compound quickly. “For the many people that struggle to repay their payday loans every year, this is a giant leap forward,” Martin Wheatley, the authority’s chief executive, said. Read more. (Subscription required.)
Banks shouldn’t count on a fresh round of European Central Bank cash to trade sovereign debt and reap big profits, Mario Draghi said, Bloomberg News reported. “The convenience to use the ECB cheap money to buy government bonds is much less” than in a previous funding round which started in 2011, the ECB president said in testimony to the European Parliament in Strasbourg, France yesterday. “The general situation is such that these carry trades are going to be much less profitable.” As yields on government debt from Spain to Italy have fallen to record lows, a carry trade that was lucrative two years ago may now yield less, Draghi said. In a liquidity drive that pins cash to banks’ performance in extending loans to the economy, the Frankfurt-based ECB could extend as much as 1 trillion euros ($1.36 trillion) in its so-called TLTRO program starting in September. A condition of that program is that banks have to meet a benchmark on lending to businesses and households, excluding mortgages, or else hand back the money in 2016. Read more.