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from Breakingviews:

Shock loss at BES makes bail-in a real risk

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

A solution to the Banco Espirito Santo debacle looks increasingly likely to involve creditors. The troubled Portuguese lender revealed a much bigger-than-expected 3.6 billion euro loss on July 30 and warned of possible past law-breaking. If the kitchen-sinking was intended to help fill BES’s capital deficit with private investment, it may not work.

BES’s 4.2 billion euros of provisions were around 1.5 billion euros more than could reasonably be expected from its known problems. Over 2 billion euros have now been made against direct loans and indirect guarantees made to its Espirito Santo Group parent; 460 million euros to prepare for euro zone stress tests; and 450 million euros for other problems, such as Angolan exposures.

Less anticipated was a 1.2 billion euro provision against debt sold to BES clients but booked off-balance-sheet through special purpose entities – seemingly without the knowledge of BES’s outside directors. The Bank of Portugal has now suspended senior management in risk, audit and compliance, and is assessing whether previous board members and executives should bear criminal responsibility.

from MacroScope:

Sanctions tighten

Britain's PM Cameron, Portugal's PM Passos Coelho, Germany's Chancellor Merkel and Finland's PM Stubb attend an EU leaders summit in Brussels

EU leaders failed to get anywhere on sharing out the top jobs in Brussels last night but did manage another round of sanctions against Russia.

This time they will target Russian companies that help destabilize Ukraine and will ask the EU's bank, the European Investment Bank, to suspend new lending for Russia and seek a halt to new lending to Russia by the European Bank for Reconstruction and Development.

from Breakingviews:

Portugal Telecom pays the price for weak controls

By Fiona Maharg-Bravo and Christopher Swann

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

The show will go on. Portugal Telecom and Brazil’s Oi are forging ahead with their planned merger after an Espirito Santo group company failed to repay a $1.1 billion loan to PT. The Portuguese telco is paying the price for its weak controls over its own cash management. Its shareholders will now hold a smaller stake in the group it planned to form with Brazil’s Oi.

from Breakingviews:

Banco Espirito Santo could lure periphery bulls

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Euro zone periphery bulls should be eyeing up Banco Espirito Santo. The troubled Portuguese bank’s shares were at one point down 20 percent on July 15, and it needs capital to stabilise itself. For hedge funds looking to profit from Europe’s banking recapitalisation, or an acquisitive bank, this is the moment to pounce.

from MacroScope:

Draghi vs Weidmann

draghi.jpg

European Central Bank President Mario Draghi makes a lengthy appearance in the European Parliament in Strasbourg. He will doubtless reassert that the ECB would start printing money if necessary but, as we reported last week, policymakers are fervently hoping they won’t have to and that a raft of measures announced in June will do enough to lift the economy and inflation.

Bundesbank chief Jens Weidmann fired another broadside over the weekend, saying rates were too low for Germany and policy should remain expansive for no longer than absolutely necessary.

from Breakingviews:

Portugal in race against time to sort out BES

By George Hay and Neil Unmack

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Lisbon needs to sort out Banco Espirito Santo – fast. Despite a recent successful rights issue, Portugal’s second-largest bank by value has a troubled major shareholder and a large exposure to shaky Angolan loans. With Portuguese bond yields up 40 basis points since July 7 and domestic bank shares tanking, a speedy restructuring is needed.

from MacroScope:

Bank of England, the first mover?

carney.jpg

After the European Central Bank kept alive the prospect of printing money and the U.S. economy enjoyed a bumper month of jobs hiring prompting some to bring forward their expectations for a first U.S. interest rate rise, the Bank of England holds a monthly policy meeting.

There is no chance of a rate rise this time but the UK looks increasingly nailed on to be the first major economy to tighten policy, with the ECB heading in the opposite direction and the U.S. Federal Reserve still unlikely to shift until well into next year. Minutes of the Fed’s last meeting, released yesterday, showed general agreement that its QE programme would end in October but gave little sign that rates will rise before the middle of 2015.

from MacroScope:

Balance tilted in Ukraine?

slaviansk.jpgUkrainian forces pushed pro-Russian rebels out of their stronghold of Slaviansk on Saturday. Its re-capture represents Kiev's most notable military victory in three months of fighting in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.

The regions of Donetsk and Luhansk are likely to be next in the government forces’ crosshairs.

from MacroScope:

ECB: talk but no action

EThe European Central Bank holds its monthly policy meeting and after launching a range of new measures in June it’s a racing certainty that nothing will happen this time. However, ECB President Mario Draghi has plenty of scope to move markets and minds in his news conference.

We are still waiting for details of the ECB’s new long-term lending programme which is supposed to be contingent on banks lending the money on to companies and households. Last time they got a splurge of cheap money, the banks largely invested in government bonds and other financial market assets. With euro zone yields now at record lows, the ECB would not like to see a repeat.

from MacroScope:

A call to arms

The prospect of U.S. and Iranian intervention in Iraq looms larger.

Baghdad has asked the United States for air support to counter Sunni militants who have seized major cities in a lightning advance that has routed the Shi'ite-led government army. And Iranian President Hassan Rouhani has signalled that Tehran was prepared to intervene to protect Iraq's great Shi'ite shrines.

As of last night, ISIL fighters were in control of three-quarters of the territory of the Baiji refinery north of Baghdad and some international oil companies were pulling out workers.

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