Commentaries

Retail no answer for bank capital dearth

August 25, 2009

How does a bank raise capital when institutional investors are steering clear of hybrid debt? The dilemma may be particularly acute for Deutsche Bank, which is still in bad odour with some fund managers for not repaying some subordinated debt at the first opportunity this year as expected.

Don’t underestimate the European Commission

August 20, 2009

Will RBS and Lloyds have to follow Northern Rock and defer coupons on their hybrid debt? There’s a nagging fear that any bank that has needed large amounts of state-aid may have to make subordinated bondholders take some of the pain.

Latvia: let the lat go

July 29, 2009

Do as you would be done by. This excellent rule surely applies as much in monetary affairs as it does in other fields of human endeavour. Those who loudly urge Latvia not to devalue its currency should reflect upon it.

GM dumps Chinese in Opel race, standoff looms

By Paul Taylor
July 23, 2009

Two things Opel junkies need to know in today’s news.

1) General Motors has dumped Chinese state-owned carmaker BAIC’s long-shot bid to take over GM’s main European arm. That leaves a two-horse race between Canadian-Austrian car parts maker Magna and Belgium-based financial investor RHJ, loosely associated with U.S. private equity firm Ripplewood.

Kroes hits right note on EU bank aid

By Paul Taylor
July 22, 2009

Neelie Kroes, the EU Competition Commissioner, is right to be taking a hard line on state aid to banks, which will distort competition if not repaid. However, she will have to fight member states like Britain and Germany, which are desperately encouraging banks to lend locally, nursing large losses on their capital injections or trying to avoid massive upheaval in their banking industries.

Polish EU vision breaks the mould

By Paul Taylor
July 22, 2009

At last — a Polish vision of the future of the European Union that does not involve refighting
World War Two or dying in a ditch for outsized voting rights.

Lufthansa milks EU drama for cost cuts

By Paul Taylor
July 20, 2009

Lufthansa <LHAG.DE> is milking an antitrust standoff with the European competition regulators to extract maximum cost cuts from Austrian Airlines <AUAV.VI> as it seeks to cement its dominance of central Europe’s skies.
The German flag carrier has held back key concessions to the European Commission needed to secure approval for the takeover of the ailing airline while it squeezes further concessions from Austrian’s workforce and its biggest shareholder, the Austrian government. It won another 150 million euros in savings from job cuts agreed in a third round of AUA cost-cutting this week.
The EU regulator, which supports airline consolidation in principle, is right to insist that the creation of a central European mega-carrier should not be at the expense of consumer choice on key routes such as Vienna-Frankfurt.
Lufthansa, which has set its own deadline of July 31 to clinch the deal, has the Austrians in a tight spot because the cost to the Austrian taxpayer would be far higher if it walked away. The Austrian government holding company, OIAG, says this could cost about 1,400 jobs and imply total costs of 840 million euros. The state has promised to assume 500 million euros of AUA’s 1 billion euros of debt as part of a Lufthansa deal.
The German giant needs to reduce the cost of acquisitions it launched last year before the financial crisis hit air travel.
It has already beaten down Sir Michael Bishop to lower the cost of his majority stake in British carrier BMI [BMI.UL] and has snapped up Brussels Airlines, the successor to bankrupt Belgian flag carrier Sabena.
In the latter case, Lufthansa made concessions to the Commission on routes and take-off and landing slots to avoid restricting competition. But it has balked so far at the most important remedies for the Austrian deal, which concern what would be a monopoly on nine daily flights between Vienna and Geneva, operated jointly with another subsidiary, Swiss, and above all on feeder flights to its Frankfurt Airport hub to connect with its more lucrative transatlantic routes.
If the Commission does not stand firm on these issues, it risks being overturned by the EU’s Court of First Instance, to which rivals Air France-KLM <AIRF.PA> and former Formula 1 racing ace Niki Lauda’s latest venture, Fly Niki, would undoubtedly appeal.
Of course, Lufthansa could let the Austrian deal founder on EU competition concerns in hopes of picking up the pieces of a shrunken or bankrupt AUA later. But it might face competition were the airline’s assets to be sold out of bankruptcy. Both Air France and a consortium of Air Berlin and Fly Niki were interested last time.
So the betting must be that, as with the Belgian deal, it will yield to Brussels’ demands to clinch the deal in the end.

Politics, economics collide over Opel

By Paul Taylor
July 20, 2009

Political and economic logic are set to collide in the byzantine decision-making over the future of German carmaker Opel, the main European arm of fallen U.S. auto giant General Motors.
If politics prevail, as seems likely, the cost to German taxpayers will be higher and the chances of commercial success lower.

IMF undermines EU fight for Lativa peg

By Paul Taylor
July 16, 2009

 Just when it looked as if Latvia’s currency peg to the euro had weathered the storm, the International Monetary Fund has raised fresh doubts by withholding funds for the Baltic European Union newcomer. 

Neelie Kroes lays down the law on bank rescues

By Paul Taylor
July 16, 2009

Neelie Kroes is laying down the law. The European Union’s competition chief may be lenient on timing, but she is sticking rock-hard to the principle that institutions which get public money during the financial crisis must be shrunk, broken up, sold off or wound up to avoid distorting competition. That is the main message of guidelines for restructuring state-aided banks drafted by EU regulators and obtained by Reuters on Thursday.