Britain’s antitrust authorities said on Friday that they expected to open a formal investigation into the country’s retail banking industry, citing potential barriers to competition that include the control of a national network of branches by four big banks that offer free banking to many customers, the International New York Times DealBook blog reported. If the inquiry proceeds as expected, it could challenge the dominant role of Britain’s big four: the Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays. Together, these banks control more than three-quarters of the market in personal accounts despite the government’s concerted efforts to bring smaller rivals into play. For years, policy makers have complained about a lack of choice in retail banking in Britain, where few customers are inclined to switch among big players that offer similar products and control most branches. Critics argue that the relationship of many Britons with their bank often outlasts their marriages. Yet British consumers tend to like the fact that banks offer free banking to those who do not overdraw their accounts. And so the public might not welcome an inquiry into whether such a practice distorts competition. On Friday, the Competition and Markets Authority, the antitrust regulator, published a preliminary report and said it would consult on its “provisional decision” that there should be a full inquiry into personal and business accounts which, it said, are together worth about 10 billion pounds, or $17 billion. Theoretically, that could lead to the breakup of the four big banks, although such an outcome is unlikely. Read more. (Subscription required.)
Daily Insolvency News Headlines
Mon., July 21, 2014
Creditors of a bankrupt Spanish motorway business delayed a meeting to decide whether to liquidate it on Friday, two sources close to the talks said, giving the government more time to find a way to prevent billions in debt going on to its books, Reuters reported. After more than a year of negotiations between ministries, banks and construction companies, the government has yet to find a way of saving nine bankrupt motorways, without debt of more than 4 billion euros ($5.4 billion) hitting its deficit. If the creditors of the AP-36, a motorway owned by builders Ferrovial and Sacyr, had decided to put the business into liquidation, the government would have had to pay its debts of around 500 million euros under Spanish law. The other eight could then follow suit. "The judge has put off the meeting until the 19th of September," one of the sources said. The request was made by the counsel for the state, a legal body which represents the interests of the state, the sources said. Spain has pledged to reduce its public deficit to about 3 percent of gross domestic product (GDP) by 2016, implying some 35 billion euros will have to be found in the three years from end-2013 to end-2016 to meet the target. A hit of 3 billion euros would make this challenging task even harder. Under Spanish legislation drawn up more than 40 years ago, when a private motorway goes bust, the state has to repay owners for the cost of the land and the construction. Spain wants to minimise the effect of any rescue on Europe-agreed deficit targets. The government has sought a way of funding its obligations through public debt, rather than through the government's budget deficit. Read more.
Espirito Santo International, one of the holding companies of Portugal’s Espirito Santo banking family, filed for creditor protection in Luxembourg on Friday as the business empire’s problems also spilled over to Angola, where the central bank said the local unit of Banco Espirito Santo would need more capital to deal with bad loans, the International New York Times reported. Banco, Portugal’s largest-listed lender, faces scrutiny because disclosures of financial irregularities at Espirito Santo International, or ESI, have raised the possibility of destabilizing losses at the bank itself. ESI indirectly holds the largest stake in Banco, at 20.1 percent. Earlier this week one of ESI’s holdings, the conglomerate Rioforte, failed to repay over 1 billion euros in debt to Portugal Telecom. In Angola, the government had guaranteed €4.2 billion, or 70 percent of the loan portfolio of Banco’s subsidiary, but that deal ends next year, leaving the markets worried about what happens next. Read more. (Subscription required.)
European markets recovered quickly from the spasm caused by the funding crisis that has gripped Portugal’s Banco Espírito Santo. But the episode demonstrated investor nervousness over how far shares and bonds in peripheral European banks had rallied, and shows the market remains on the lookout for anything that could trigger a resumption of the eurozone crisis that has abated but not been finally resolved, the Financial Times reported. “It shows what a crazy financial system we have created when one small financial institution can cause such shockwaves around the world,” says Gary Jenkins at LNG. “It also demonstrates that European politicians who so famously said they would break the link between banks and sovereigns have singularly failed to do so.” Bank shares outperformed the rest of the European market for most of the first half of this year as investors identified them as a geared play on European economic recovery. A big element in this trend was the success of banks in countries such as Greece, Spain and Portugal over the past year in funding themselves via capital markets, especially smaller ones that were shunned during the crisis. Read more. (Subscription required.)
The government fund that owns a majority stake in Malaysia Airlines is increasingly leaning toward taking the company private, after the carrier lost a second plane in five months, according to people familiar with the matter. Khazanah Nasional Bhd., Malaysia's state investment fund and holder of a 69% stake in flag-carrier operator Malaysian Airline System Bhd., had already been considering a purchase of the rest of the company, along with other restructuring proposals, even before a full flight from Amsterdam to Kuala Lumpur crashed in Ukraine on Thursday. The loss of Flight 17, along with a subsequent plunge in Malaysia Airlines's stock price and the threat of plummeting revenue if passengers abandon future flights, is strengthening the case for taking the company private—although other options remain on the table, said the people familiar with the matter. A plan for Khazanah Nasional to buy the rest of Malaysia Airlines's shares may be announced as soon as early August, one of the people told The Wall Street Journal. Khazanah Nasional owns assets worth $40 billion in about 50 firms spread across sectors as diverse as banks, telecommunications, hospitals and theme parks. Read more.
Greece’s return to bond markets after a four-year exile hasn’t convinced economists it can avoid a third bailout. Six out of 10 economists in a Bloomberg News survey said Greece will need to top up the 240 billion euros ($325 billion) of loans received from Europe and the International Monetary Fund since 2010, when it lost access to bond markets. The IMF forecasts Greece will have a 12.6 billion-euro financing gap next year. “Greece’s ability to generate sufficient funds to cover that is not sufficient,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London, referring to the financing shortfall. “Eventually the European partners will have to come up with something to basically bridge the funding needs that Greece has from now to the time in which it can establish a regular and sizable market access.” Read more.