Reuters blog archive
By Neil Unmack
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The world’s oldest bank is limping into the 21st century. Banca Monte dei Paschi di Siena’s stock jumped after the Italian bank proposed removing the voting rules favouring the foundation that is currently its majority owner. The move will help the stricken lender to attract new capital. All it needs now is a buyer.
Quite how long MPS would remain the world’s oldest bank has been up in the air since its disastrous 2007 takeover of Banca Antonveneta and losses from dodgy derivatives forced it to take a total of 4 billion euros in state bailouts. During that agony, the bank’s largest shareholder, the charitable foundation of Siena, clung to control, despite having to sell shares to repay debt. It risks dilution when the bank starts repaying state aid. MPS’s management was already planning a 1 billion euro capital raise over the next three years. It may double that amount, due to a sickly Italian economy, according to Reuters. Extra cash could also help unwind the two controversial derivative transactions, nicknamed Alexandria and Santorini, which are an eyesore for a bank propped up with state money.
MPS stood no chance of raising capital without refining an archaic governance limiting the voting rights of ordinary shareholders - excluding the foundation - to 4 percent. Changing the rules will be highly controversial in Siena. The foundation only recently changed its statute to tweak a clause that forced it to keep MPS headquartered in the medieval Tuscan town. The European Commission - which must still approve the state aid - may leave it with little choice. If the 2 billion euro capital increase was to proceed at current prices, it could find its stake shrivel to less than 15 percent from the current 33 percent.
The major euro zone event of the week starts on Tuesday when Germany’s top court – the Constitutional Court in Karlrsuhe – holds a two-day hearing to study complaints about the ESM euro zone bailout fund and the European Central Bank’s still-unused mechanism to buy euro zone government bonds.
The case against the latter was lodged by more than 35,000 plaintiffs. Feelings clearly run high about this despite the extraordinary calming effect the mere threat of the programme has had on the euro debt crisis. Some in Germany, including the Bundesbank, are worried that the so-called OMT could compromise the ECB's independence and would be hard to stop once launched.
By Olaf Storbeck
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Industrial groups go through a time of strength, a time of privilege and a time of vanity, the late Italian entrepreneur and Fiat Chairman Giovanni Agnelli once remarked. “For me the first is the only one that counts”, he added. His grandson John Elkann, the chairman and chief executive of Exor, the Agnelli family’s investment group through which it controls Fiat, seems to concur.
Euro zone unemployment figures will emphasize just how far the currency bloc is from recovery while inflation data due at the same time could push the European Central Bank closer to new action. If price pressures drop further below the target of close to but below two percent we’re moving into territory where the ECB has a clear mandate to act, although the consensus forecast is for the rate to push up to 1.4 percent, from 1.2 in April.
Market attention is focused on the ECB cutting its deposit rate – the rate banks get for parking funds at the ECB – into negative territory to try and get them to lend. But will that do much? Despite being in a world awash with central bank money and stock markets in the ascendant, the fact that safe haven bond markets such as Bunds and U.S. Treasuries haven’t sold off much – and are now starting to climb after Ben Bernanke’s hint that the Federal Reserve could soon start slowing its money-printing programme -- denotes ongoing nervousness among banks and investors. Data this week showed bank loans to the euro zone's private sector contracted for the 12th month in a row in April.
Today’s big setpiece is a meeting of German Chancellor Angela Merkel and French President Francois Hollande ahead of a June EU summit which is supposed to lay the path for a banking union. The traditional twin motor of Europe has sputtered – not least because the French economy is so much more sickly than Germany’s – but also because of real differences of opinion.
When the Franco-German relationship was running smoothly, the two countries’ leaders routinely met before EU summits to prepare a joint position which more often than not prevailed (much to the annoyance of some of their partners). But Merkel and Hollande have conspicuously not done so on a number of occasions since the latter took power a year ago.
Today sees the release of the European Commission’s annual review of its members’ economic and debt-cutting policies. It’s a big moment.
This is the point at which we get confirmation that France, Spain, Slovenia and others will be given more time to get their budget deficits down to target. We already know that France will get an extra two years, while Spain will get another two extra years (to 2016) to bring back its deficit below 3 percent. That comes on top of the 1-year leeway given last year.
It’s raining central bankers today which is well-timed after Federal Reserve Chairman Ben Bernanke dropped the bombshell that the Fed could take the decision to begin throttling back its money-printing programme at one of its next few policy meetings. If that’s the case, and it’s not yet a done deal, then it will be the Fed that will move first in that direction, presumably putting further upward pressure on the dollar and send financial markets into something of a spin.
European stock futures look set to open sharply lower – 1.5 percent or more down – buffeted by suggestions that the Fed could soon change tack. Safe haven German Bund futures have opened higher for the same reason, though in a much more measured fashion. One of Bernanke’s colleagues, James Bullard, speaks in London today. Another, Charles Evans, is in Paris.
It looks like a week short of blockbusters, particularly today with much of Europe on holiday. But there will be plenty to chew over over the next few days on the state of the euro zone and whether newly-printed central bank money lapping round the world risks throwing things off kilter.
Flash PMIs for the euro zone, Germany and France for May, plus the German Ifo index, follow first quarter GDP data which showed Europe’s largest economy just about eked out some growth but nobody else in the currency bloc did. That trend is likely to be reaffirmed with the harsh winter, having curbed German activity in Q1, allowing for a rebound in sectors like construction in Q2. France and the rest of the pack are unlikely to be so lucky.
from Global Investing:
ECB chief Mario Draghi returns to London next week almost 10 months on from his seminal “whatever it takes” speech to the global financial community in The City – a speech that not only drew a line under the euro financial crisis by flagging the ECB’s sovereign debt backstop OMT but one that framed the determination of the G4 central banks at large to reflate their economies via extraordinary monetary easing. Since then we’ve seen the Fed effectively commit to buying an addition trillion dollars of bonds this year to get the U.S. jobless rate down toward 6.5%, followed by the ‘shock-and-awe’ tactics of the new Japanese government and Bank of Japan to end decades.
And as Draghi returns 10 months on, there's little doubt that he and his U.S. and Japanese peers have succeeded in convincing financial investors of central bank doggedness at least. Don't fight the Fed and all that - or more pertinently, Don't fight the Fed/BoJ/ECB/BoE/SNB etc... G4 stock markets are surging ever higher through the Spring of 2013 even as global economic data bumbles along disappointingly through its by now annual ‘soft patch’. Looking at the number tallies, total returns for Spanish and Greek equities and euro zone bank stocks are up between 40 and 50% since Draghi's showstopper last July . Italian, French and German equities and Spanish and Irish 10-year government bonds have all returned about 30% or more. And you can add 7% on to all that if you happened to be a Boston-based investor due to a windfall from the net jump in the euro/dollar exchange rate. What’s more all of those have outperformed the 25% gains in Wall St’s S&P 500 since then, even though the latter is powering to uncharted record highs. And of course all pale in comparison with the eye-popping 75% rise in Japan’s Nikkei 225 in just six months!! Gold, metals and oil are all net losers and this is significant in a money-printing story where no one seems to see higher inflation anymore.
Evidence that Europe’s austerity policies are not working was in ample supply this morning. The euro zone as a whole is now in its longest recession since the start of monetary union. France has succumbed to the region's retrenchment. Italy’s GDP slump is now the lengthiest on record. And Greece, still in depression, shrank another 5.3 percent in the first quarter.
To understand why this is happening, Brown University professor Mark Blyth says it is necessary to forget everything you think you know about the euro zone crisis. The monetary union's troubles are not, as often depicted, the result of runaway spending by bloated, profligate states that are finally being forced to pay the piper. Instead, argues Blyth, it is merely a sequel to the U.S. financial meltdown that started, like its American counterpart, with dangerously-indebted risk-taking on the part of a super-sized banking sector.