Headlines

Household and corporate debts are continuing on an upward trend, spawning fears that they will combine to create a toxic cocktail for the Korean economy with the prolonged slump in the real estate market, The Korea Times reported. The central bank said Tuesday that households and corporate lending reached 1,409 trillion won ($1.2 trillion) in June, as a low interest rate led them to take out loans from financial companies.

The bailout of beleaguered building society Irish Nationwide is likely to exceed the original estimated cost of €2.7 billion by up to one-fifth, said Patrick Honohan, governor of the Central Bank, The Irish Times reported. Speaking in Beijing, China, Mr Honohan put the net cost to the Government of recapitalising Anglo Irish Bank at “about €22-€25 billion”, and on top of this, he said, would be added about €4 billion “mainly to cover one small building society”.

Regulators, suspecting that banks and trusts are secretly repackaging old loans and moving them off bank balance sheets, are concerned that financial institutions in China may have engaged in the same sort of financial engineering that got Western banks into trouble. On Aug. 10, government overseers acted again, ordering banks to move any off-balance-sheet loans back onto their books and to make provisions to safeguard against a rise in bad loans, according to a copy of the government order given to The New York Times by an industry expert.

Life insurance and pension provider Aegon NV on Tuesday soothed market fears that it could need a capital increase after saying it aims to repay the remaining €2 billion ($2.56 billion) it owes the Dutch state before the end of June 2011, The Wall Street Journal reported. The repayment details came just before Aegon received final approval from the European Commission for receiving state aid during the financial crisis. The commission cleared the aid later Tuesday, saying it was satisfied that the insurance company's restructuring plan will lead to a viable company.

Peru's government bankruptcy agency, Indecopi, said Tuesday it has officially opened an investigation into Doe Run Peru's financial situation, Dow Jones Daily Bankruptcy Review reported. An Indecopi spokeswoman said creditors have 30 days as of Monday to file credit recovery paperwork. The government has taken a hard line against the company in recent weeks, saying it would start the legal and regulatory process of removing Doe Run's ownership of the plant in the town of La Oroya.

The global economy won't suffer if banks are forced to adopt tighter standards on capital and liquidity, the Financial Stability Board and Basel Committee for Banking Supervision said in a joint statement Wednesday, The Wall Street Journal reported. The statement summarizes an interim report on the long-term effects on the economy of forcing banks to hold more capital and more liquid assets, relative to their overall balance sheet. The findings rebut banking sector complaints that such requirements would crimp lending to the real economy.

China faces the threats of faltering demand for exports, rising wages and the risk of bad loans from record lending after surpassing Japan as the world’s second- biggest economy last quarter, Bloomberg reported. The boost to China’s “national pride” from the second- quarter milestone may not count for much if it fails to boost domestic consumption and reduce its reliance on exports and investment for growth, said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong.

Compania Mexicana de Aviacion, Mexico’s biggest airline by passengers, agreed to return at least eight leased airplanes and a U.S. judge put off ruling on a bid to shield the company from creditors, Bloomberg reported. Mexicana agreed to return three planes to Wells Fargo & Co. One was returned in July, Arthur Rosenberg, a lawyer for Wells Fargo Bank Northwest NA, said today in an interview. U.S. Bankruptcy Judge Martin Glenn in Manhattan today postponed ruling on Mexicana’s request for a preliminary injunction barring legal actions by creditors.

General Motors Co. agreed to pay employees of its European division up to €1.1 billion, or about $1.4 billion, if it fails to honor commitments to invest billions into new cars and trucks in the region through 2014, according to a regulatory filing Monday, The Wall Street Journal reported. GM said in the filing it expects to have a final deal with European labor unions in place by Sept. 30. The auto maker and unions reached tentative agreements earlier this year.

For years, Denmark was held out as a model to countries with high unemployment. The Danes, despite their lavish social welfare state, managed to keep joblessness remarkably low. But now Denmark, which allows employers to hire and fire at will while relying on an elaborate system of training, subsidies for those between jobs and aggressive measures to press the unemployed into available openings, is facing its own strains. As a result, it is beginning to tighten up, The New York Times reported.