Europe moved closer to favouring big uninsured depositors over bondholders when imposing losses on a failing bank’s creditors, despite UK-led warnings that the special treatment would have a “perverse effect” on bank funding, the Financial Times reported. In a pivotal intervention during an EU finance ministers’ meeting, Wolfgang Schäuble, Germany’s finance minister, gave conditional backing for a “depositor preference” compromise, so uninsured deposits are only hit as a last resort. His qualified support increases the likelihood that deposits in Europe will be made safer than bonds – a move demanded by the European Central Bank to prevent bank runs following the botched Cyprus bailout. Reforms to bail-in bank creditors rather than tap taxpayers have been in gestation for almost four years, but finance ministers remain divided over key details, including timing and the flexibility given to national resolution authorities. Read more. (Subscription required.)
Daily Insolvency News Headlines
Wed., May 15, 2013
Austria’s central bank said Hypo Alpe-Adria-Bank International AG will likely avoid a 16 billion-euro ($21 billion) insolvency as policy makers negotiate with the European Commission over the nationalized lender, Bloomberg Businessweek reported. “The government is on a very good path with the Commission, therefore I don’t think that there is an immediate threat,” Andreas Ittner, a director at the nation’s central bank, told journalists in Vienna Tuesday. Ittner said a 16 billion-euro loss was possible if Hypo Alpe was forced by the Commission into immediate repayment of government aid that would trigger insolvency, confirming a figure first published by Profil magazine last month. Hypo Alpe is the third-biggest lender in the nations of the former Yugoslavia, which have the potential to complicate the situation by seizing local assets, according to Austrian policy makers. Joaquin Almunia, the European Union’s top antitrust official, told Austria in March that its restructuring plan for Hypo Alpe wasn’t good enough to justify retaining about 2.2 billion euros of state aid the lender has received since 2008, and he may order Hypo Alpe to pay it back. A task force led by former central bank governor Klaus Liebscher is aiming to satisfy Almunia by drafting a new plan. Read more.
The bailouts of the weakest banks in Slovenia should begin next month, the country's finance minister told CNBC on Tuesday, but he insisted that he is not concerned with the time-frame of the process. Uros Cufer said the first assets would be transferred to the nation's so-called bad bank by the end of June, with the exercise due to be completed by the third quarter. Slovenia plans to move 3.3 billion euros of bad loans from its three largest banks, NLB, Nova KBM and Abanka Vipa, to the bad bank in return for state guaranteed bonds worth 1.1 billion euros. Cufer assured investors that Tuesday's successful bond auction would not delay the country's economic reforms. The finance ministry raised almost 55 million euros in the sale, which followed a larger auction earlier in May - just two days after Moody's downgraded the country's credit rating - in which it raised 2.7 billion euros. "This [the bond auction] is not connected, we know we need to do our reforms very quickly. This is what we have explained to our investors and we are now delivering what we have promised," he said. Cufer added that the state-owned companies Slovenia has pledged to sell in order to avoid an international bailout is the first of a number of measures. Read more.
Commerzbank, Germany's second-biggest lender, said it is considering launching a platform to operate ships in a bid to recover higher values from the vessels that it seizes after shipowners fail to service their loans, Reuters reported. The goal of such a project would be to run the ships together with partners for a limited time, Commerzbank said in the prospectus of its capital increase published on Tuesday. The shipping industry is facing difficult times because of the economic downturn and a glut of new ships, which were ordered during the boom years before 2008. Charter rates have fallen below breakeven levels. The tough conditions have already bankrupted several shipping firms and forced others to restructure. Commerzbank would follow in the footsteps of German shipowners Rickmers, F. Laeisz and H. Schuldt, which earlier this year founded the firm Frachtschiff Kontor to specialise in operating ships whose income does not suffice to service debt. Frachtschiff Kontor currently operates four ships and aims to minimise losses for owners and lenders by letting shipowners avoid fire sales at times of depressed ship prices. Read more.
Australian Treasurer Wayne Swan will eschew European-style austerity as a stronger currency slows growth, wagering the government can win a Sept. 14 election fought on jobs and absorb the pain of a broken surplus promise, Bloomberg reported. The underlying cash deficit will be A$18 billion ($17.9 billion) in the 12 months to June 30, 2014, Swan said in Canberra yesterday as he released the federal budget. The A$19.4 billion shortfall this fiscal year is 1.3 percent of gross domestic product, compared with a projected A$1.1 billion surplus released in the government’s mid-year review seven months ago. The Australian dollar dropped to an 11-month low after the release. “To those who would take us down the European road of savage austerity I say the social destruction that comes from cutting too much, too hard, too fast is not the Australian way,” Swan told parliament. “The alternative, cutting to the bone, puts Australian jobs and our economy at risk.” Swan outlined a longer path back to the black that funds pledged spending on infrastructure, education and disability care, while saying restraint gives the Reserve Bank of Australia scope to cut record-low interest rates even further. Prime Minister Julia Gillard’s Labor government trails Tony Abbott’s opposition by double digits and has seen its economic credibility weakened as a stronger currency dents tax revenue and weighs on exporters and manufacturers. Read more.
A bankruptcy court on Monday approved Central European Distribution Corp's bankruptcy exit plan, putting Russian billionaire Roustam Tariko on the verge of adding one of the world's largest vodka producers to his stable of companies, Thomson Reuters News & Insight reported. Under the plan, green lighted in U.S. Bankruptcy Court in Wilmington, Tariko will receive all of the Polish company's newly issued stock in return for $277 million he is providing for the benefit of its creditors. The deal essentially creates an alliance between CEDC and Russian Standard Vodka, the rival vodka maker also owned by Tariko, according to a statement issued on Monday by CEDC. The plan is expected to become effective on May 31, the statement said. Tariko became chairman of CEDC, which makes Absolwent and Parliament vodkas, last year after striking a deal aimed at rescuing the troubled company. CEDC has a leading market share in Russia, Poland and Hungary, but ran into financial problems after restating its results. Despite an investment by Tariko, CEDC continued to be dogged by a cash crunch. It filed for bankruptcy on April 7 with a plan to cede ownership to Tariko after he outmaneuvered other potential investors for control of the company. Its current stock will be canceled, and it will cease to be publicly traded, according to the statement. CEDC will emerge from bankruptcy having shed $665 million in debt. Read more.