UPDATE 1-Polish Millennium loosens credit policy in H1

July 28, 2010 By Leave a Comment

WARSAW, July 27 (Reuters) – Bank Millennium BIGW.WA, one of Poland’s lenders hardest hit by the global financial crisis, said on Tuesday it had loosened its credit policy in the first half on an improving economic environment.

The bank, which is controlled by Portugal’s Millennium bcp (BCP.LS), slammed the brakes on its lending more than a year ago after interbank markets dried up and the Polish zloty tumbled, hurting its credit book, which included a large number of foreign currency mortgages.

“The change of the economic situation confirmed by the economic indicators and the improved condition of corporations in the first quarter of 2010 allowed for a change in internal credit policy of the bank taken on at the turn of 2008 and 2009,” Millennium said.

The bank, which boosted its capital by 1 billion zlotys ($318 million) at the beginning of this year, said its first half net profit rose to 138 million zlotys from 21 million in the same period of 2009 thanks to lower bad loan provisions and stronger revenue.

Analysts expected Millennium to earn 134 million zlotys, according to a Reuters poll of nine analysts.

Millennium is the first Polish lender to report results after the second quarter.

It did not break out a quarterly earnings figure for the three months ending in June, but according to Reuters calculations it stood at 70 million zlotys.

Millennium shares have risen 13 percent this year compared with a 7 percent gain of Warsaw’s banking index .BNKI. ($1=3.142 Zloty) (Reporting by Chris Borowski; editing by Simon Jessop)

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S.Africa’s rand holds firm vs dlr, futures edge up

July 28, 2010 By Leave a Comment

JOHANNESBURG, July 27 (Reuters) – South Africa’s rand touched a 3-month high against the dollar on Tuesday and looked set to hold its ground, helped by firmer stocks and speculation of a possible purchase of local group Nedbank by HSBC.

The JSE’s Top-40 September futures contract ALSIc1 ticked up just 0.17 percent ahead of the start of trade on the local bourse at 0700 GMT. European shares looked set to open flat after reaching a five-week high in the previous session.

At 0642 GMT the rand ZAR=D3 traded at 7.3460 to the greenback, off just 0.08 percent from Monday’s close at 7.3400.

The domestic currency briefly flirted with 7.3201/dollar earlier on Tuesday, the strongest it has been since April 30, Reuters data shows.

“I think there’s some interim support around these levels of 7.33/34, but overall there’s still very positive equity markets and positive sentiment,” foreign currency dealer based in Johannesburg said.

“Combined with rumours of some more FDI … with foreign suitors for Nedbank, the rands looks to be in good shape. I think that resistence will now come in at 7.38/40 and in this move we should target around lower 7.20′s.”

Government bonds were firmer in earlier trade, pulling the yield on the benchmark 2015 ZAR157= note three basis points lower to 7.60 percent hile that for the longer-dated 2036 ZAR209= dipped half a basis point to 8.64 percent. (Reporting by Stella Mapenzauswa; Editing by Patrick Graham)

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Bank of America Merrill Lynch Announces Enhancements to Wholesale Banknotes Business

July 23, 2010 By Leave a Comment

Investment in Global Banknotes Highlights Commitment to Corporate Banking and
Treasury Services Worldwide
CHARLOTTE, N.C.–(Business Wire)–
Bank of America Merrill Lynch (BofA Merrill) today announced enhancements to its
wholesale banknotes platform that will provide clients with greater
customization and improved functionality, demonstrating the bank`s strong
commitment to Global Banknote Services.

BofA Merrill`s Global Banknote Services business facilitates the import and
export of U.S. dollars and other foreign currencies for financial institutions
and corporates. It also supports such industries as hospitality, cruise lines,
gaming and theme parks. Building on its leading position in the industry, BofA
Merrill has developed several enhancements that will provide more efficiency,
security and flexibility for clients.

The new version of the Cruise Line Global Foreign Currency (GFC) Offline
Application allows more efficient management of foreign currency on cruise
ships, while “Live Rates” capabilities within the GFC system will enable clients
to retrieve currency rates in real time during currency transactions. Other
enhancements this year will add currency images online and improve the bank`s
internal efficiencies.

“As one of the world`s leading providers of global banknote services to
financial institutions, Bank of America Merrill Lynch is dedicated to giving our
clients the highest level of service,” said Kathleen Gowin, Global Wholesale
Banknotes executive and head of Americas Financial Institutions Treasury Sales
at BofA Merrill. “These enhancements show our commitment to banknote services,
and our global footprint allows us to provide clients with all tradable
currencies.”

BofA Merrill provides banknote services in more than 75 countries, with an
inventory of 120 currencies and several strategically located foreign currency
vaults, which are electronically connected to expedite access worldwide. The
bank also has extensive relationships with several central banks and other large
foreign financial institutions, which leverage BofA Merrill`s global
infrastructure to reduce their own commitments of capital and human resources.

“Bank of America Merrill Lynch is a leading global provider of treasury services
to financial institutions, corporates and governments,” said Paul Donofrio, head
of Global Corporate Banking at BofA Merrill. “The enhancements to our banknotes
business will help drive growth in key markets and enable us to provide full
service, state-of-the-art integrated capabilities across paper and electronic
products to our clients around the world.”

Bank of America

Bank of America is one of the world’s largest financial institutions, serving
individual consumers, small- and middle-market businesses and large corporations
with a full range of banking, investing, asset management and other financial
and risk management products and services. The company provides unmatched
convenience in the United States, serving approximately 57 million consumer and
small business relationships with 5,900 retail banking offices, more than 18,000
ATMs and award-winning online banking with 29 million active users. Bank of
America is among the world’s leading wealth management companies and is a global
leader in corporate and investment banking and trading across a broad range of
asset classes, serving corporations, governments, institutions and individuals
around the world. Bank of America offers industry-leading support to
approximately 4 million small business owners through a suite of innovative,
easy-to-use online products and services. The company serves clients through
operations in more than 40 countries. Bank of America Corporation stock (NYSE:
BAC) is a component of the Dow Jones Industrial Average and is listed on the New
York Stock Exchange.

Bank of America Merrill Lynch is the marketing name for the global banking and
global markets businesses of Bank of America Corporation. Lending, derivatives,
and other commercial banking activities are performed globally by banking
affiliates of Bank of America Corporation, including Bank of America, N.A.,
member FDIC. Securities, strategic advisory, and other investment banking
activities are performed globally by investment banking affiliates of Bank of
America Corporation (“Investment Banking Affiliates”), including, in the United
States, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, which are both registered broker-dealers and members of FINRA and
SIPC, and, in other jurisdictions, locally registered entities. Investment
products offered by Investment Banking Affiliates: Are Not FDIC Insured * May
Lose Value * Are Not Bank Guaranteed

www.bankofamerica.com

Reporters May Contact:
Jefferson George (North America and Europe), Bank of America, 1.980.683.4798
jefferson.george@bankofamerica.com
Prakash Muthukrishnan (Asia), Bank of America, +65 6331 3085
prakash.muthukrishnan@baml.com

Copyright Business Wire 2010

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Q+A: What next after IMF/EU suspend Hungary’s review?

July 19, 2010 By Leave a Comment

(Reuters) – The International Monetary Fund and the European Union have suspended a review of Hungary’s 20 billion euro ($26 billion) financing agreement, but left the door open for more talks with the new center-right Fidesz government.

The decision means Hungary, which uses the package as a safety net, will not have immediate access to undrawn funds of 5.5 billion euros from the financing deal slated to expire in October.

Here are some questions and answers on what lies ahead:

WILL THERE BE A MARKET BACKLASH?

The forint, central Europe’s second-worst performing currency behind the Serbian dinar this year, is bound to weaken, probably in excess of 1 percent, and government bond yields will rise when local markets reopen on Monday.

That will increase Hungary’s borrowing costs and heightened market volatility may also force the central bank, which will discuss interest rates at a regular rate meeting on Monday, into adopting a more hawkish line.

The bank kept interest rates at a record low of 5.25 percent at the past two meetings after 10 months of easing worth 425 basis points. All 25 analysts in a Reuters poll on Thursday expected the bank to hold fire again.

But some analysts said that after Saturday’s unexpected suspension of talks with lenders, the bank may consider a rate hike if markets plunge on Monday.

Falls in the forint will also put pressure on Hungarian households holding trillions of forints worth of foreign currency mortgages, primarily in the volatile Swiss franc, which hit record highs versus the forint in July.

With scarce details on the government’s plans for reforms and no clarity on its 2011 budget plans, a sustained period of uncertainty would have a negative impact on Hungarian markets.

WILL THERE BE AN AGREEMENT WITH LENDERS?

Analysts said despite the talks falling through this week, the government should eventually come to an agreement with the IMF and the European Union, but a deal may not materialize until local government elections due on October 3.

That will give more time for Fidesz to formulate plans on the 2011 budget and on how it wants to transform loss-making state transportation companies into viable businesses able to remain afloat without constant state support.

Analysts said the lack of agreement may also have been a tactical move by the government to postpone the announcement of painful budget cuts needed to cut the deficit below the EU’s 3 percent ceiling next year until after the October poll.

Hungary’s government must also seal a review of the current deal if, as announced earlier, it wants to secure a two-year precautionary agreement worth 10-20 billion euros to serve as a safety net in 2011-12.

DOES HUNGARY NEED IMF MONEY RIGHT NOW?

Hungary has been able to finance itself from the markets since last year and has all of its foreign issuance plans for this year already covered.

Earlier this week debt agency AKK sold all bonds on offer at an auction and raised its 10-year offer by 5 billion forints, with yields dropping about 25-30 basis points across the curve from the previous tenders two weeks earlier.

So far the state has drawn about 12.8 billion euros of the 20 billion available in the IMF/EU package and analysts have said it could safely finance this year’s budget deficit with the help of its available unspent IMF and EU funds worth about 3.5 billion euros. On top of this the central bank has called down 1.4 billion euros from the package and put it in its reserves.

CAN HUNGARY AFFORD TO ESCHEW AN IMF DEAL BEYOND 2010?

The government itself has said it would use a new agreement with the IMF and the EU as a safety net, and not rely on it to cover its funding needs for the next two years.

Analysts said not having a new agreement with international lenders after the current one expires in October would be risky as the deal would be an important credibility anchor but Hungary could still be able to finance itself from the markets.

In a worst case scenario, however, the lack of an agreement with lenders now may trigger a negative market reaction which would leave the government with no choice but to seek the IMF’s good graces again.

(Editing by David Holmes)

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FACTBOX-Ratings agencies’ warnings on Japan’s growing debt

July 14, 2010 By Leave a Comment

(Reuters) – Japan faces political gridlock after the ruling party’s poor showing in an election on Sunday, which could thwart efforts to curb a huge public debt and get the economy in shape, as well as putting Prime Minister Naoto Kan’s job at risk. [ID:nTOE66A01V]

Standard & Poor’s rates Japan’s long-term local and foreign currency debt AA, both with a negative outlook.

Moody’s Investors Service rates its foreign currency and local debt at Aa2, with a stable outlook for both.

Fitch Ratings has the long-term foreign and local currency issuer default ratings at AA and AA-minus, respectively. The outlook on both ratings is stable.

At 883 trillion yen ($9,960 billion) as of the end of the fiscal year that ended in March, Japan’s public debt pile is nearly twice the size of its economy — the largest debt-to-GDP ratio in the industrialised world.

The following are comments by the agencies since mid-2009:

July 13, 2010 – Fitch Ratings says the ruling party’s poor showing at Sunday’s elections will make it more difficult for the country to push through fiscal consolidation and a delay in a credible plan beyond the year-end would increase the risk of a rating downgrade. [ID:nTOE66C043]

July 12, 2010 – Standard & Poor’s says it may lower Japan’s sovereign ratings if the government’s fiscal position erodes further or there is a lack of concrete measures aimed at fiscal consolidation.

It said in a statement that stabilising the political environment is a key challenge for Japan to implement meaningful and sustainable fiscal consolidation. [ID:nTOE66B066]

March 30, 2010 – Fitch says it needs to see a sustained downtrend in debt ratios before considering positive rating action. [ID:nTKW006875]

Feb. 25, 2010: Moody’s says Japan’s sovereign debt rating could come under pressure if the economy performs poorly and the government fails to draw up convincing fiscal plans. [ID:nTKF106864]

Feb. 22, 2010: Standard and Poor’s says Japan is unlikely to suffer a credit rating downgrade this year, although it cannot be ruled out.

It warns that a premature rise in the consumption tax aimed at shoring up Japan’s finances could hurt the economy, undermining budget consolidation efforts. [ID:nTOE61L03K]

Jan. 26, 2010: Standard and Poor’s cuts the outlook for government debt to negative from stable, citing reduced wiggle room on fiscal policy and voicing disappointment with the government’s budget consolidation plans.

A weak economic performance and lack of policy initiatives that could lift medium-term growth could bring about a cut in Japan’s ratings by a one notch, it says, adding that such an action could occur in the next two years.

On the other hand, policies that would help get government debt back under control would allow the ratings to remain at current levels. [ID:nSGE60P08I]

Jan. 13, 2010: Moody’s says fiscal policy has become more uncertain following a change in the finance minister to Naoto Kan from Hirohisa Fujii the previous week.

It says the outlook on Japan’s Aa2 rating depends on whether the government can achieve stronger economic growth and a return to a gradual course of deficit reduction and debt containment in the medium term. [ID:nTOE60609M]

Jan. 5, 2009: Fitch says Japan’s fiscal burden is expected to increase over the coming years but risks to its credit ratings are being offset by a strong external balance sheet. [ID:nTOE604087]

Dec. 30, 2009: Moody’s says the direction of Japan’s rating largely depends on the government’s efforts to consolidate its finances in the medium term and cut its deficit, warning that “at some point” investors will demand a risk premium to fund such large gaps.

It says that while the expansionary fiscal policy in 2010 was not surprising given entrenched deflation, the bigger concern was about government finances after 2010 than about growth prospects. [ID:nTOE5BT043]

Nov 10, 2009: Fitch warns it would review its AA- rating on government bonds if there were a material increase in debt issuance above the current 44 trillion yen in the fiscal year starting in April 2010. [ID:nT286946]

Sept. 3, 2009: Fitch maintains Japan’s long-term foreign and local currency issuer default ratings at AA and AA minus, respectively, saying its deteriorating public finances were offset by an exceptionally strong external balance sheet.

The outlook on both ratings is stable. [ID:nT240632]

July 1, 2009: Standard & Poor’s affirms its AA rating on long-term local and foreign currency debt, saying the world’s second-largest economy could withstand rising fiscal pressure from government stimulus policies.

S&P said the ratings were supported by the strong net external asset position but that Japan was suffering from a political stalemate that could harm fiscal consolidation and structural reforms. [ID:nT153618]

May 18, 2009: Moody’s cuts Japan’s foreign currency rating by two notches to Aa2 from AAA but raises the local debt rating to Aa2 from Aa3, saying the domestic market was able to absorb new borrowing from the government.

The agency describes the upgrade on the local rating as a largely technical one but also says Japan is in a worse situation than many other governments in its top ratings bracket. [ID:nT185687] ($1=88.65 Yen) (Compiled by Rie Ishiguro and Kazunori Takada; Editing by Michael Watson)

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UPDATE 1-Fitch says Japan fiscal consolidation harder now

July 14, 2010 By Leave a Comment

HONG KONG, July 13 (Reuters) – Japan’s ruling party’s poor showing at Sunday’s elections will make it more difficult for the country to push through fiscal consolidation and a delay in a credible plan beyond the year-end would increase the risk of a rating downgrade, Fitch Ratings said on Tuesday.

Prime Minister Naoto Kan’s ruling coalition suffered a major blow in Sunday’s upper house election, putting his policies to deal with the country’s massive debt at risk. [ID:nTOE66B066]

“If we don’t see a credible plan come through by the end of the year, it will send a negative signal for its rating, adding pressure to the credit rating,” Andrew Colquhoun, Fitch’s sovereign analyst for Japan, told Reuters.

Fitch has rated Japan’s foreign currency debt AA and its local currency debt at AA-minus, both with a stable outlook.

However, Colquhoun said he was not pessimistic about the government’s ability to draw up such a plan and said the public had not turned its back on fiscal consolidation as a policy objective.

“The election will make it more difficult for the government to draw up and implement such a plan, but I am not too pessimistic as I do not read the election results as a rejection of fiscal consolidation,” he said.

This was reflected in the better showing by the main opposition Liberal Democratic Party (LDP), which has said that Japan should raise the 5 percent consumption tax to 10 percent, he said.

In Sunday’s upper house poll, Prime Minister Naoto Kan’s ruling Democratic Party of Japan (DPJ) won 44 seats and its tiny coalition partner none, losing their majority in parliament’s upper house. That was fewer than the 51 seats won by the LDP.

Rival rating agency Standard & Poor’s has warned it might cut Japan’s sovereign grade as the ruling party’s mauling in a weekend election posed new hurdles for Kan’s plans to cut public debt.

Colquhoun said Japan’s rating was under pressure in the medium term from a declining domestic savings rate and this was reflected in the recent pension fund selling of Japanese government bonds (JGB).

Japanese public pensions turned net sellers of JGBs for the first time in nine years in the fiscal year that ended in March, the Nikkei business daily said on Tuesday.

Japan’s outstanding public debt is the largest among industrial nations, approaching twice the size of its gross domestic product, so any indication that there will be less investment flows into JGBs could be a worry.

But Colquhoun said there was no financing pressure in the near term as the domestic savings rate was still positive and resources were being generated for JGB purchases.

“The banking system, pension funds and insurance companies all have a strong appetite for JGBs, but there is a risk in the medium term,” he said. (Reporting by Umesh Desai; Editing by Jacqueline Wong and Jonathan Hopfner)

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Fitch says Japan fiscal consolidation harder now

July 14, 2010 By Leave a Comment

July 13 (Reuters) – Japan’s ruling party’s poor showing at Sunday’s elections will make it more difficult for the country to push through fiscal consolidation and a delay in a credible plan beyond the year-end would increase the risk of a rating downgrade, Fitch ratings said on Tuesday.

Prime Minister Naoto Kan’s ruling coalition suffered a major blow in Sunday’s upper house election, putting his policies to deal with the country’s massive debt at risk. [ID:nTOE66B066]

“If we don’t see a credible plan come through by the end of the year, it will send a negative signal for its rating, adding pressure to the credit rating,” Andrew Colquhoun, Fitch’s sovereign analyst for Japan, told Reuters.

However, Colquhoun said he was not pessimistic about the government’s ability to draw up such a plan.

“The election will make it more difficult for the government to draw up and implement such a plan, but I am not too pessimistic as I do not read the election results as a rejection of fiscal consolidation,” he said.

Fitch has rated Japan’s foreign currency debt AA and its local currency debt at AA-minus, both with a stable outlook. (Reporting by Umesh Desai; Editing by Jacqueline Wong)

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UPDATE 1-KSK Power posts higher profit

July 13, 2010 By Leave a Comment

July 12 (Reuters) – KSK Power Ventur Plc (KSK.L) posted a higher full-year pretax profit, driven mainly by forex gains, and said it remained on course to meet market expectations in 2011.

Analysts on average are expecting a pretax profit of $78.1 million on revenue of $186.4 million for fiscal 2011, according to Thomson Reuters I/B/E/S.

KSK, which operates power projects in India, said the pretax profit included a forex gain of $31.8 million, mainly due to a restatement of its foreign currency facilities.

For the year ended March 31, the company posted a pretax profit of $76.9 million, compared with $8.6 million in the year-ago period.

Operating profit increased nearly 118 percent to $23.1 million, while revenue was nearly flat at $52.9 million.

Shares of KSK were up 3.1 percent to 500 pence at 0715 GMT on Monday on the London Stock Exchange. (Reporting by Anirban Sen in Bangalore; Editing by Roshni Menon)

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EURO GOVT-Bunds up on weak Chinese data, Spain eyed

July 2, 2010 By Leave a Comment

July 1 (Reuters) – German Bund futures opened higher on Thursday with weak Chinese data adding to global growth fears and euro zone sovereign debt worries in focus after rating agency Moody’s placed Spain’s Aaa rating on review for a cut. Signs that economic growth in China was slowing saw U.S. government debt rally and equities fall sharply in Asian trading as investors sought out safe-haven assets.

“The weak Chinese PMIs have weighed on Asian stocks… risk assets are going to be under pressure early on,” said a trader in London.

At 0610 GMT, the Bund future FGBLc1 was 19 ticks higher at 129.57. The 10-year German bond yield DE10YT=TWEB was at 2.557 percent, down 2.5 basis points while the two-year Schatz yield DE2YT=TWEB was flat at 0.607 percent.

Moody’s Investors Service said late on Wednesday that it may cut Spain’s triple-A local and foreign currency government bond ratings after a three-month review. Ratings agency Fitch cut Spain’s triple-A credit rating to AA-plus in late May.

Spain will issue up to 3.5 billion euros of bonds later in the session.

“Today’s auction of the SPGB 3 percent April 15 may well turn out as a very important yardstick regarding how comfortable the investor community is with the outlook for Spain,” said Commerzbank analysts in a note.

The 10-year Spanish bond yield spread over German bunds had narrowed in the previous session after a lower-than-expected take up of European Central bank funds had soothed some worries over banks’ reliance on ECB funding.

Emergency 12-month loans worth 442 billion euros will be repaid to the ECB, while the central bank will offer banks a further opportunity to borrow funds at a six-day tender later in the session.

The result of the six-day tender will give a clearer picture of the excess liquidity within the euro system after money market rates rose in anticipation of a liquidity squeeze after Wednesday’s low borrowing.

The EONIA overnight unsecured lending rate EONIA= jumped to 0.542 percent at its daily fixing, up from 0.325 percent on Tuesday. (Reporting by William James)

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RPT-UPDATE 2-Moody’s puts Spain top rating on review for cut

July 2, 2010 By Leave a Comment

MADRID/NEW YORK, June 30 (Reuters) – Moody’s Investors Service said on Wednesday it is reviewing Spain’s ratings and may lower them by as much as two levels due to sliding growth expectations and mounting fiscal challenges.

The rating’s agency, the only major agency that still maintains a top rating for Spain, said it was conducting a three-month review of the country’s Aaa local and foreign currency government bond ratings.

The rating agency also cited concerns over the impact of rising funding costs over the medium term.

“If at the conclusion of the review, Spain’s ratings are lowered, it would most likely be by one, or at most two, notches,” Moody’s said.

Spain has been the target of intense speculation in sovereign debt markets as the next country in the euro zone to need European Union help after Greece, though the government has firmly denied it had any problem meeting financing obligations.

Moody’s senior risk analyst Kathrin Muehlbronner said the review should not be taken out of context and Spain remained a highly rated country.

“The contagion has been so dramatic in the markets in the last few months people forget really what a gulf there is between Spain and Greece … Spain is a very highly credit worthy country,” Muehlbronner said in a telephone interview with Reuters following the announcement.

“The policies that the government is now proposing to pursue should eventually reach in to the conscience of the market … but the issue where the deficit and debt has increased and we’re looking at a situation that is somewhat more difficult to unwind than it was before.”

Spain’s had a public deficit of 11.2 percent of gross domestic product in 2009 while the debt-to-GDP ratio stands at around 55 percent, which Moody’s said it expects it to rise to 80 percent of GDP by 2014.

The government announced in early June a 15 billion-euro ($18.35 billion) savings plan to help cut the deficit to 3 percent of GDP by 2013, though the rating’s agency said low growth forecasts would make this difficult.

Moody’s sees Spain’s average growth at 1 percent over the 2010-2014 period compared to the government’s projections of around 3 percent by 2013.

“Moody’s believes that more fundamental adjustments to key spending items will be required in order to achieve the government’s budget deficit targets,” said Muehlbronner in a statement.

RISING COSTS

The cost to insure Spain’s debt with credit default swaps had tightened earlier on Wednesday to 260 basis points, or $260,000 per year to insure $10 million in debt for five years, from 273 basis points on Tuesday’s close, according to Markit Intraday.

Spain’s 10-year bono spread against the German bund stood at around 202 basis points late on Wednesday, off a recent high of 238 bps, but well above around 80 bps in April.

The euro slightly pared gains versus the dollar after the Moody’s announcement.

Moody’s said one of the key reasons for the review was concern over the impact of rising funding costs in the medium term as reforms of the labour market, the banking system and the pension system took time to restore investor confidence.

The labour market reform is currently in parliament for review, and Muehlbronner said she hoped legislators would strengthen the bill, which aims to make hiring and firing easier and put more young people to work.

Spain suffers the highest level of unemployment in the euro zone at over 20 percent, while more than 40 percent of those under age 25 available for work are unemployed.

On the banking system restructuring process, which the Bank of Spain said on Tuesday was close to completion, the analyst said she did not think the government would need to recapitalise the banks much more than had been already earmarked.

“We don’t expect that there is a massive extra recapitalisation need for the banks above what the government has stated, and hopefully the stress tests that come out will help calm the markets,” Muehlbronner told Reuters.

The Bank of Spain has said it will publish a stress test for the banks soon.

The consolidation of Spain’s mostly unlisted savings banks could cost as much as 30 billion euros, the government has said, though the current round of bank mergers has tapped the bank restructuring fund for just over 10 billion euros so far.

Investor nerves have also been tested over a Spanish debt redemption hump of 16.2 billion euros by the end of July.

The government claims they will not need to tap the market to meet the repayment, but there are concerns they will struggle to meet payments.

“We don’t see July’s redemption as being a problem,” Moody’s senior analyst Kristin Lindow told Reuters.

Fitch Ratings cut Spain’s credit ratings to AA-plus, the second highest level, from AAA on May 28, saying its economic recovery would be more muted than a government forecast, pushing world equities and the euro lower.

The downgrade followed a cut by Standard & Poor’s in April. (Additional reporting by Walden Siew, John Parry and Karen Brettell)

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Sun TV founder to buy into SpiceJet; make open offer

June 15, 2010 By Leave a Comment

(Reuters) – The founder of Sun TV (SUTV.BO) Kalanithi Maran and his unlisted aviation firm Kal Airways have agreed to buy 37.7 percent in budget airline SpiceJet Ltd (SPJT.BO) and will make an open offer for a further 20 percent, SpiceJet said on Monday.

Maran will buy the stake from U.S. investor Wilbur Ross and Royal Holdings Services Ltd, owned by the Kansagra family, for 47.25 rupees a share for a total consideration of about 7.39 billion rupees, the airline said in an advertisement in the Business Standard paper.

The deal has been struck at a discount of over 14 percent to the current market price.

Maran, who runs 20 television channels and two general newspapers in south India, will buy 30.23 percent from Ross, who holds stake through foreign currency convertible bonds, and 7.49 percent from the Kansagra family, SpiceJet said.

Last week SpiceJet had allotted 41.8 million shares to various funds held by WL Ross & Company, on partial conversion of FCCBs.

The airline’s board had approved Maran’s acquisition proposal on June 12, it said in a statement to the BSE.

Maran will make the mandatory open offer for 82.98 million shares at 57.76 rupees a share, SpiceJet added.

“It’s a positive for the shareholders as they are making the open offer at around the market price itself and even the fundamentals of the company are quite strong,” said Sharan Lillaney, analyst with Angel Broking, who has an “accumulate” rating on the stock.

SpiceJet had swung to a net profit of 274 million rupees in Jan-March against a loss of 78 million rupees a year ago, as air traffic surged.

“It does appear to be a good time for Maran to enter the Indian aviation space. But we need to understand what his future course of action will be,” another Mumbai-based airline analyst said.

Rapid economic growth and a surge in air traffic has renewed interest in India’s aviation sector.

Globally, too, the outlook is changing with the International Air Transport Association (IATA) expecting its members to report a collective $2.5 billion in profit this year versus an earlier prediction of a loss of $2.8 billion.

At 10:32 a.m., SpiceJet shares were up 0.18 percent at 56.15 rupees in a firm Mumbai market.

(Reporting by Aniruddha Basu; Editing by Sunil Nair)

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European banks rely on short-term USD funding -BIS study

June 14, 2010 By Leave a Comment

June 13 (Reuters) – The sovereign debt crisis has made European banks rely on short-term U.S. dollar funding, according to research by the Bank for International Settlements, published on Sunday.

The study also said establishing central counterparties for foreign exchange swaps could help the situation.

“With concerns about exposures to fiscally challenged sovereigns on the rise, European banks have apparently found it difficult to roll over their short-term U.S. dollar funding positions,” said the paper, which was published in the BIS quarterly review but has not been formally endorsed by the bank.

“The funding patterns … point to an ongoing, large-scale reliance of European banks on sources of wholesale cross-currency funding.”

As a result, banks are required to roll over significant parts of their funding at relatively short maturities, which are bound to become even shorter if conditions deteriorate, the paper by Ingo Fender and Patrick McGuire said.

Reduced access to outright funding in individual currencies could force banks to rely even more heavily on foreign exchange swap markets for any additional foreign currency funds or require the transfer of collateral across jurisdictions.

“Such funding patterns put a premium on contingency funding arrangements for international banks and underline the need for further diversification in banks’ funding profiles.”

“In particular, they point to potential benefits from improvements to FX swap market infrastructure, such as the use of central counterparties to allow multilateral netting and more efficient collateral management.”

Making it easier to use collateral across borders in central bank refinancing operations or employing regional swap arrangements on the basis of reserve pooling could also reduce funding pressures, the research paper said. (Reporting by Sakari Suoninen; Editing by Susan Fenton)

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Timeline: South Korea’s foreign exchange regulations

June 14, 2010 By Leave a Comment

(Reuters) – South Korea unveiled on Sunday new curbs on financial institutions’ currency trading, saying it aimed to smooth volatile capital flows, particularly linked to short-term foreign borrowing.

South Korea

Following is a timeline of major changes in South Korea’s foreign exchange regulations after it had opened up its capital markets in several tranches following the 1997-98 Asian financial crisis.

————————————————————-

Nov, 2009 – The authorities announce a first set of tighter regulations on currency trading, including new standards for foreign exchange liquidity risk management, restrictions on currency forward transactions of non-financial companies, and mandatory minimum holdings of safe foreign currency assets by domestic banks.

July, 2009 – The minimum amount of deposits for foreign currency margin trade raised to 5 percent of transaction value from 2 percent in an effort to clamp down on speculative forex trading by individual investors.

June, 2008 – A $3 million limit on individual investment-purpose foreign property deals removed, a move seen as containing the won’s advance.

Dec, 2007 – The authorities ease currency forwards trade rules to help foreign investors mitigate risks from settlement mismatch, in the process of selling South Korean securities and futures positions, and exchanging the proceeds in the won into another currency.

- Exempts financial services companies from reporting foreign exchange-related over-the-counter derivative transactions to the authorities.

May, 2006 – Seoul bumps up South Korean banks’ currency position caps to 50 percent of own capital from 30 percent.

March, 2006 – Limit on South Korean banks’ currency positions set at 30 percent of own capital

Dec, 2005 – The authorities abolish a rule requiring permission prior to cross-border capital transaction.

Jan, 2004 – Seoul limits the ability of South Korean institutions to trade in non-deliverable forwards (NDF), in a move seen as easing upward pressure on the won.

June, 2002 – South Korea allows brokerage and insurance companies to participate in interbank foreign exchange market, and lets brokers initiate over-the-counter FX derivative trades.

(Reporting by Kim Yeon-hee; Editing by Tomasz Janowski)

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Factbox: South Korea unveils forex controls

June 14, 2010 By Leave a Comment

(Reuters) – South Korea on Sunday announced long-anticipated curbs on banks’ currency trades, saying it aimed to rein in short-term foreign debt and volatile capital flows that posed a risk to the world’s ninth-biggest exporter.

South Korea

The new steps will cover all currency derivatives trades, including non-deliverable forwards (NDFs), cross-currency swaps and forwards.

Following are new measures announced jointly by the Ministry of Strategy and Finance, the Financial Services Commission, the Financial Supervisory Service and the Bank of Korea:

FX DERIVATIVES POSITIONS AT BANKS

- Foreign bank branches will not be allowed to hold foreign-exchange derivative contracts in excess of 250 percent of their equity capital in the previous month.

- The limit for domestic banks and other financial companies was set at 50 percent of their equity capital.

- The measures will be finalized next month and come into force three months later, so most likely in October.

- Financial institutions will have up to two years to comply with the new requirements. The actual grace period will depend on individual requests and discussions with regulators.

- Foreign-exchange derivatives contracts held by foreign bank branches amounted to 301.2 percent of their equity capital at the end of April and those held by domestic banks stood at 15.6 percent.

- Authorities will review the curbs every quarter and may adjust the ceilings.

LIMITS FOR COMPANIES

- The ceiling on foreign exchange forwards, swaps and other derivatives of domestic non-financial companies will be reduced to 100 percent of their physical trade from a 125 percent cap introduced in November 2009.

CURRENCY LENDING BY BANKS TO DOMESTIC NON-FINANCIALS

- Banks’ lending to domestic non-financial companies in foreign currency will be limited to companies that need foreign exchange to pay for overseas transactions. The restriction aims at limiting borrowing to finance speculative financial trades.

- Small and medium-sized manufacturing companies will be allowed to roll over their existing borrowings.

- The new measure will come into force in July

FX LIQUIDITY RATIOS

- Domestic banks have to own long-term foreign-currency assets sufficient to fully cover their long-term foreign liabilities. This requirement has been tightened from a 90 percent requirement introduced in November 2009.

- Foreign bank branches are not subject to the required ratio but will be recommended to set their own standards to the similar effect.

- Foreign bank branches will be totally exempt from liquidity management obligations if their head offices submit guarantees to provide sufficient liquidity in emergency.

(Reporting by Kim Yeon-hee and Cheon Jong-woo; Editing by Yoo Choonsik and Tomasz Janowski)

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Analysis: Hungary tax cuts offer long term gain

June 12, 2010 By Leave a Comment

(Reuters) – Tax cuts could boost Hungary’s growth and make its finances more sustainable but the government must first deliver on budget goals to regain investor confidence shaken by ill-worded comparisons with Greece.

Greece

Hungary was the first European Union country to need International Monetary Fund help when the global crisis deepened in 2008, and will probably need to keep some kind of IMF safety net even after its current IMF/EU loan expires in October 2010.

Although the new government’s measures announced on Tuesday include some that pose risks to growth in the near term, the planned tax cuts could boost growth a few years down the line by discouraging illegal employment and improving tax compliance, ultimately making it easier to reduce the country’s debt burden.

“The important thing is that Fidesz (ruling party) gets the sequencing right: the government must first show that they can reduce the deficit and thereby reduce debt,” said Christian Keller at Barclays in London.

“Then confidence will be established and better growth will help to make the further debt reductions even simpler — a virtuous cycle.”

The center-right government, seeking to banish the specter that officials raised last week of a Greek-style debt crisis, proposed steps which include a flat 16 percent income tax, a hefty tax on banks, and a ban on new foreign currency lending.

While much depends on the details, analysts said plans such as the flat income tax and a cut in the corporate tax on small and medium firms to 10 percent will bolster longer term growth.

TAX EVASION

However the tax on banks and the ban on foreign currency loans will curb lending and hamper growth in the short term. A planned freeze in public sector costs and a cut in some public wages could also hurt domestic demand this year.

“In the short term, I don’t think this package will boost demand next year in the economy, but on the whole the incentives in the tax regime to work more and employ more people legally could move things in a positive direction,” said Zsolt Kondrat, economist at MKB Bank in Budapest.

Eszter Gargyan at Citigroup said tax cuts could give consumption a one-off boost but other measures could partly offset that. “Long-term competitiveness gains may also require structural reforms in the labor market and a stable economic environment,” she added.

Hungary’s economy shrank by 6.3 percent last year, but grew 0.9 percent in the first quarter compared to the last quarter of 2009 thanks to rising exports and manufacturing.

Once a magnet for foreign investment in central Europe, Hungary’s competitive edge has eroded partly due to its high labor tax wedge, which according to the OECD was smaller only than Belgium’s in the EU, at around 55 percent in 2008.

High taxes have built a black economy. About 740,000 of Hungary’s 10 million people work in the state sector and in the private sector hundreds of thousands — some just on paper, to evade taxes — are employed on the minimum monthly wage of 73,500 forints ($374).

The previous Socialist government cut employers’ social taxes to 27 percent from 32 percent, but a February OECD report said tax remains “exceedingly high” and described “a classic vicious circle of burdensome taxation that induces evasion and participation in the grey economy.”

IMF FINANCING ANCHOR

The government wants to collect 200 billion forints from the financial sector through a new tariff this year alone.

It also wants to ban foreign currency lending — an engine of domestic demand which turned into a huge vulnerability.

“We view a three-year bank tax … as negative for growth,” said Peter Attard Montalto at Nomura.

But Hungarians, who endured their second major austerity package last year since the 1989 collapse of the communist regime, have welcomed an income tax cut and are cautiously optimistic.

“Maybe we’ll be able to pay our mortgage easier. It has been pretty tough for us. Although … I’m sure the banks will pass on their own extra tax to us,” said Eva Kelemen, 40, a teacher in Budapest.

“I will surely be better off with a 16 percent flat income tax,” said Beatrix Vegh, who works in the private sector.

Investors, who had high hopes for the new government after April elections, want to see it honor this year’s 3.8 percent deficit target and control the deficit next year as well.

Even then, they want Hungary to agree a new deal with the IMF, given a public debt burden of around 80 percent of gross domestic product.

“If the government presents an acceptable economic plan, market funding is likely to be sufficient to cover public funding needs,” said Gargyan at Citigroup.

“Nonetheless, given the uncertainties related to global financing conditions and the weak credibility of the government, the renewal of the IMF program is likely to … provide an anchor for investors and a funding buffer in case of severe tightening in external liquidity conditions.”

(Reporting by Krisztina Than; Editing by Ruth Pitchford)

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MONEY MARKETS-South Korean swaps stabilise, eyes on new fx rules

June 12, 2010 By Leave a Comment

HONG KONG, June 11 (Reuters) – South Korean cross currency swaps stabilised on Friday following this week’s slide in anticipation of new foreign currency controls to curb the won’s volatility.

Dollar funding costs inched lower, continuing to steady after last month’s sharp rally in reaction to bank’s hesitancy to lend especially to European institutions as a debt crisis ravaged the continent.

South Korea’s government will unveil new foreign currency controls over the next few days aimed at reducing the won’s sharp swings and the risk of a rapid reversal in capital flows, a senior government official said on Thursday. [ID:nTOE65901Y]

The controls may include currency borrowing limits for foreign banks’ branches, which are the dominant currency swap investors in South Korea.

The news rattled the foreign currency markets as banks unwound their sell-buy dollar-won forward positions and the spot rate also weakened.

Cross currency dollar/won swaps (CCS) KRWCRS=KMBC, which reflect the cost of won funds for foreign investors swapping dollar funds into won, steadied after Thursday’s fall.

The one year contract which had fallen 15 basis point this week until Thursday, rose 2.5 bps as calm returned to the market somewhat.

“It has been pretty much factored in, the CCS will now move in reaction to the European situation,” said a trader in Seoul.

Standard Chartered Bank said in a report the focus will be on the grace period granted to foreign banks to comply with the rules, and this may be up to two years.

“If it is short and banks have to unwind their positions rapidly then the new rules would exacerbate rather than reduce market volatility.”

“It would more conducive to calmer market conditions if the authorities allowed a relatively long grace period,” while adding that onshore forwards should fall and the CCS-IRS basis should widen after the rules are announced.

The cross-currency basis, the difference between cross-currency swaps and interest rate swaps or the approximate returns for foreigners swapping dollars for won and receiving interest rate swaps, continued to widen.

The one year gap was 203 basis points, up a basis point from Friday and up 15 bps from the week’s lows.

“The basis is widening because the IRS is moving higher, due to paying which is coming from the front the of the curve due to the hawkish BOK yesterday,” said the Seoul trader.

Bank of Korea Governor Kim Choong-soo on Thursday repeated his upbeat assessment on the economy and highlighted inflationary risks, making clear his aim to normalise rates. [ID:nTOE65803V]

In Singapore, three-month dollar funding SIUSD3MD=ABSG costs fell just a tad marginally to 0.53875 percent from 0.53918 percent pulling away from an 11-month peak of 0.54667 percent struck in May after a 20 basis point rise, triggered by the upheaval in Europe.

This follows the decline in three-month dollar Libor USD3MFSR= which slipped to 0.53644, having stabilised just below 0.54 percent following a steep climb in May.

“Basically it’s a risk-on market. There is nothing of interest for money markets besides the rally in equities last night,” said a trader in Singapore. (Editing by Jan Dahinten)

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S.Korea to give banks time to meet FX steps-report

June 11, 2010 By Leave a Comment

June 10 (Reuters) – South Korea plans to give banks, both domestic and foreign, two years to adjust their currency forward positions when it announces restrictions on such trades early next week, an online media outlet reported on Thursday.

The government also plans to cut the ceiling on currency forwards by export companies down to 100 percent of their physical trades from 125 percent at present, the EDaily report quoted an unnamed finance ministry official as saying. (Reporting by Yoo Choonsik; Editing by Jonathan Hopfner)

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China’s Sany Heavy, Yitai Coal plan $1 billion HK IPOs

April 26, 2010 By Leave a Comment

(Reuters) – China’s Sany Heavy Industry Co Ltd and Inner Mongolia Yitai Coal Co announced Hong Kong initial public offerings that could raise more than $1 billion each as mainland firms increasingly tap Hong Kong for funds.

Deals | China

Sany Heavy (600031.SS) said it would sell H-shares totaling up to 15 percent of its expanded capital, which would be worth up to about 8.5 billion yuan ($1.25 billion) at its current market value. The company gave no fund-raising target.

The Shanghai-listed construction machinery maker, which earlier this year announced plans to invest $200 million in a manufacturing base in Brazil, said the funds would be used to expand production capacity and overseas operations, as well as to upgrade technology.

It said the share sale received shareholder approval but still required the green light from regulators.

Inner Mongolia Yitai Coal Co (900948.SS) said its planned Hong Kong initial public offering would fund the purchase of 8.45 billion yuan of coal assets from its parent company.

The issue of H shares would be worth at least 15 percent of its expanded capital, it said in a statement.

A source close to the deal had said in January that the coal production and transport company aimed to raise about $1 billion in a Hong Kong IPO in the second or third quarter of this year.

Chinese companies are taking advantage of a buoyant Hong Kong market to sell shares, with banks particularly keen to raise funds in the city as they seek to replenish their capital after a lending spree.

Sany Heavy’s Shanghai-listed yuan-denominated A shares rose 0.3 percent in early trade while Yitai Coal’s Shanghai foreign-currency B shares were up 3.2 percent, compared with a 0.2 percent drop in the benchmark Shanghai Composite Index .SSEC.

(Reporting by Samuel Shen and Edmund Klamann; Editing by Jonathan Hopfner)

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Fitch sees Thai finances hit

April 13, 2010 By Leave a Comment

BANGKOK, April 12 (Reuters) – Credit ratings agency Fitch said on Monday it was “particularly concerned” about the local currency rating of Thailand after clashes between security forces and protesters that saw 21 people killed at the weekend.

Thailand’s government is expecting to post a budget deficit of 3.8 percent of gross domestic product this year, more than double that of Indonesia, after posting a deficit of over 5 percent of GDP in its fiscal year to October 2009.

“We expect a deterioration in public finances of Thailand, given the escalated political uncertainty, we are particularly concerned about the local currency sovereign rating of Thailand,” Vincent Ho, associate director of Fitch’s Asia Sovereign ratings, told Reuters by telephone from Hong Kong.

Fitch rates Thailand’s foreign currency debt as “BBB” with a stable outlook while the local currency is rated “A-minus” with a stable outlook.

Ho said it was too early to say if Fitch would change is outlook or ratings on Thailand as the current political situation was “fluid” and it was hard to predict whether it would affect fundamentals and hence sovereign creditworthiness and ratings.

“The military did not succeed in the crackdown over the weekend, which means the situation can go longer than we expect,” he said.

Saturday’s fighting, the worst political violence in the country since 1992, some of which took place in some of Bangkok’s best-known tourist areas, ended after security forces pulled back late in the night, and the capital has been calm since then. [ID:NSGE63B00V]

The “red shirt” protesters want Prime Minister Abhisit Vejjajiva to dissolve parliament and leave the country.

Ho said he was concerned as to whether capital inflows would be sustained after the deadly clashes. Thailand has seen foreign capital surge into its markets along with other Southeast Asian economies.

The country’s stock market .SETI fell nearly 5 percent in the moderate volumes in Monday’s morning session, a move that erased much of its gains in 2010.

Bond yields TH5YT=RR fell as investors bet an interest rate rise expected in the next few months could be delayed if political events derailed the economic recovery.

Ho said Thailand’s fiscal position had deteriorated since onset of the global economic recession and warned that it could worsen as the government plans to keep its expansionary fiscal policy stance over the next two years.

“This is very different from governments in other countries, in which most of them are thinking about how to restore their fiscal policy measures,” Ho said.

Thousands of red shirt protesters are still on the streets of Bangkok and in a defiant mood after the army failed over the weekend to move them from one of two Bangkok bases where they have camped out for a month. They are still demanding polls.

“If there is another election, it could be either a pro- Thaksin or anti-Thaksin government, another group will come out again. So the history will repeat itself. I don’t think it is going to resolve anything,” he said. (Additional reporting by Umesh Desai in Hong Kong; Editing by David Chance)

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Fitch sees Thai finances hit

April 13, 2010 By Leave a Comment

BANGKOK, April 12 (Reuters) – Credit ratings agency Fitch said on Monday it was “particularly concerned” about the local currency rating of Thailand after clashes between security forces and protesters that saw 21 people killed at the weekend.

Thailand’s government is expecting to post a budget deficit of 3.8 percent of gross domestic product this year, more than double that of Indonesia, after posting a deficit of over 5 percent of GDP in its fiscal year to October 2009.

“We expect a deterioration in public finances of Thailand, given the escalated political uncertainty, we are particularly concerned about the local currency sovereign rating of Thailand,” Vincent Ho, associate director of Fitch’s Asia Sovereign ratings, told Reuters by telephone from Hong Kong.

Fitch rates Thailand’s foreign currency debt as “BBB” with a stable outlook while the local currency is rated “A-minus” with a stable outlook.

Ho said it was too early to say if Fitch would change is outlook or ratings on Thailand as the current political situation was “fluid” and it was hard to predict whether it would affect fundamentals and hence sovereign creditworthiness and ratings.

“The military did not succeed in the crackdown over the weekend, which means the situation can go longer than we expect,” he said.

Saturday’s fighting, the worst political violence in the country since 1992, some of which took place in some of Bangkok’s best-known tourist areas, ended after security forces pulled back late in the night, and the capital has been calm since then. [ID:NSGE63B00V]

The “red shirt” protesters want Prime Minister Abhisit Vejjajiva to dissolve parliament and leave the country.

Ho said he was concerned as to whether capital inflows would be sustained after the deadly clashes. Thailand has seen foreign capital surge into its markets along with other Southeast Asian economies.

The country’s stock market .SETI fell nearly 5 percent in the moderate volumes in Monday’s morning session, a move that erased much of its gains in 2010.

Bond yields TH5YT=RR fell as investors bet an interest rate rise expected in the next few months could be delayed if political events derailed the economic recovery.

Ho said Thailand’s fiscal position had deteriorated since onset of the global economic recession and warned that it could worsen as the government plans to keep its expansionary fiscal policy stance over the next two years.

“This is very different from governments in other countries, in which most of them are thinking about how to restore their fiscal policy measures,” Ho said.

Thousands of red shirt protesters are still on the streets of Bangkok and in a defiant mood after the army failed over the weekend to move them from one of two Bangkok bases where they have camped out for a month. They are still demanding polls.

“If there is another election, it could be either a pro- Thaksin or anti-Thaksin government, another group will come out again. So the history will repeat itself. I don’t think it is going to resolve anything,” he said. (Additional reporting by Umesh Desai in Hong Kong; Editing by David Chance)

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