Headlines

Banca Monte dei Paschi di Siena SpA, the Italian lender facing a government probe into money-losing structured deals, had its credit rating cut by Standard & Poor’s on concern the investigation may lead to bigger losses. The losses “may be higher than initially anticipated” and demonstrate “a risk of management weaknesses,” S&P said today in a statement. The Siena-based lender had its long-term grade cut to BB from BB+ and remains on watch negative, which means the company may be downgraded again.

Indonesia's commercial court has declared budget carrier Batavia Air bankrupt just months after AirAsia, Southeast Asia's top low-cost airline, aborted a deal to invest in it, officials said Thursday, the Associated Press reported. Agus Iskandar, presiding judge at the Jakarta Commercial Court, said a bankruptcy petition filed by U.S.-based International Lease Finance Corporation was approved on Wednesday after Batavia Air failed to pay a $4.7 million debt that was due Dec. 13. Flights abruptly stopped just after midnight, stranding hundreds of passengers across the country.

The French government, buoyed by a recent agreement on changes to labor laws, wants workers and employers to tackle another flashing alarm signal in the country's public finances: a gaping hole in the welfare system, The Wall Street Journal reported. The euro-zone debt crisis has ground growth in France to a halt, pushing unemployment to a 13-year high and driving up state-backed jobless-insurance payments.

The secret document at the heart of the Monte dei Paschi banking scandal lay for months in a concealed safe in a 14th century Tuscan palace, Reuters reported. Chief Executive Fabrizio Viola said he learnt about the safe's contents only last October, a full 10 months after he had been called in to sort out Italy's third biggest bank. The 2009 document revealing derivatives deals that have run up huge losses for Banca Monte dei Paschi came to light in the office of Viola's predecessor at the bank's headquarters in Siena.

Spanish Prime Minister Mariano Rajoy said he would send parliament a plan to stimulate the economy and put young people back to work, his government's first big initiative to ease the pain of a long-running economic crisis that deepened in the final quarter of last year, The Wall Street Journal reported. Spain's fourth-quarter gross domestic product fell 0.7% from the third quarter and 1.8% from the year-earlier period, the National Statistics Institute said in a preliminary reading on Wednesday. Output for the whole of 2012 fell 1.4% from 2011, it said.

Banks' "legacy assets" sound innocent enough but in the context of Europe's debt crisis, and particularly for Ireland and Spain, the question of how to deal with existing bad debts is a time bomb that has not been defused, Reuters reported in an analysis. In the months since the term entered the EU's lexicon, efforts have been made to parse it or play it down.

Romanian state-owned chemical producer Oltchim will enter insolvency, after the Ramnicu Valcea court approved its request today (January 30). The decision can be further appealed for seven days, Romania-Insider.com reported. The company will be assigned a judiciary administrator to establish the next steps and help it re-organize. “For the time being we are waiting for administrator to talk. The factory is functional, and there’s not a question of protests. We will sit down and talk to the judiciary administrator about what needs to be done.

The number of firms going bust in recession-hit Portugal jumped 41 percent last year, but the toll should fall in 2013 after rising for seven years, credit insurance company Cosec said on Wednesday, Reuters reported. Cosec, Portugal's largest insurer, said in its annual report 6,688 companies were unable to pay their debts and declared insolvency in 2012, nearly a third of them in the construction and real estate sector. Three-fourths of the insolvent companies were small businesses.

Irish banks are still dragging their feet when it comes to dealing with mortgage arrears, the Central Bank has warned. In its first quarterly bulletin of the year, the bank said lenders were not doing enough to tackle “the long-term nature” of arrears, the Irish Times reported. While acknowledging that more debt resolution measures were being rolled out by banks, the Central Bank said the level of implementation, through either debt restructuring or loan recovery, was far from adequate.

The European Central Bank's balance sheet shrank to its lowest level in nearly a year, signaling a more restrictive monetary policy that could drive the euro's exchange rate higher and further threaten the region's economy, The Wall Street Journal reported. ECB officials have welcomed the decline as a sign of stability in financial markets. As banks become less dependent on ECB loans for funding, the central bank's balance sheet gets smaller.