CYPRUS MAIL Thursday, August 30, 2012
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Business ‘ECB action needed for stability’
Spain’s Bankia seen losing €4b in first half
THE European Central Bank must employ "exceptional measures" at times to fulfil its mandate of delivering stable prices, ECB President Mario Draghi wrote in an opinion piece yesterday aimed at calming German angst about the bank's policy course. The ECB is drawing up a new bond-buying plan to lower the borrowing costs facing Spain and Italy, which Draghi is expected to detail after a September 6 policy meeting. Germany's Bundesbank opposes the plan. Draghi wrote his opinion piece in German weekly Die Zeit after Bundesbank chief Jens Weidmann told magazine Der Spiegel the ECB bondbuying plan verged on the taboo for the bank of outright financing of governments. Juergen Stark, a former ECB chief economist, piled on the German resistance in another newspaper interview on Tuesday, saying the ECB's policy course meant it was being politicised and would ultimately no longer be able to deliver stable prices. Draghi sought to dispel those concerns. "The ECB will do what is necessary to ensure price stability. It will remain independent. And it will always act within the limits of its mandate," the Italian wrote. "The ECB is not a political institution." The independence of the ECB and the Bundesbank is highly prized in Germany, where the politicisation of monetary policy led to hyperinflation in the 1920s. "Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools," said Draghi, adding that the ECB's monetary policy is not transmitted evenly when financial markets "are fragmented or influenced by irrational fears".
Expected to announce results tomorrow By Carlos Ruano and Jesús Aguado NATIONALISED lender Bankia is expected to post first-half losses of more than €4 billion tomorrow, highlighting the need for capital from a European rescue of Spanish banks that is unlikely to arrive before the end of September. Bankia was taken over by the government in May when it asked for €19 billion of state aid after anticipating the steep losses from real estate investments which soured after the property market crashed four years ago. Spain has asked Europe for money to keep its banks afloat after a surge in bad debts as the economy sank into recession and is considering asking for a broader economic bailout. It will also set up a bad bank to take on troubled assets from the rescued banks to clean up the sector. Three analysts and a banking source with knowledge of the matter said they expected Bankia to report more than €4 billion in losses for the first half, worse than the total for the whole of 2011. "The losses will be around €4 billion taking into account the new provisioning criteria already announced by the lender (when it was nationalised last May)", the banking
The sign of Spain's Bankia bank is seen outside its headquarters in Madrid in this May 18, 2012 file photo source said. Bankia, Spain's fourth largest lender after seven different savings banks were merged into one in 2010, is expected to report results for the first half of the year tomorrow, the last day it is allowed to do so. After it took over Bankia in May, the government asked for a 100-billion-euro lifeline from the eurozone to shore up its ailing banks, burdened with an estimated €184 billion in bad loans to property developers. Banks are also facing rising loan defaults from other areas of the economy due to
sistance for Spanish banks, Spain must provide details on how the aid would be used before it is disbursed. The debt crisis has made it hard for banks in Spain and other euro zone countries to borrow from other banks so they are relying heavily on the European Central Bank for liquidity. The ECB reported record borrowing from Spanish banks in July. Bankia's first half troubles are mainly due to provisions from adjustments in its loan portfolio. "If they stick to the same criteria they used when they presented their recapitalisa-
tion plan losses will be huge due to high provisionings to clean up its credit portfolio," said Nuria Alvarez, banking analyst at Madrid-based brokerage Renta 4. Bankia originally reported a 300-million-euro profit for 2011, but after the government bailout was announced, it began writing down bad loans, repossessed property and restated the results to show a 2.979-billion-euro loss. "Losses could be even higher in the first half of 2012 than for the whole of 2011 when they had to restate their figures," Alvarez said.
Wall Street barely budges in muted market action
Rates These Bank of Cyprus rates for telegraphic transfer transactions (spot deals) apply to yesterday, but provide a good guide to today’s value against the euro. Buying Selling Pound St
0.7981 0.7901
US Dollar
1.2621 1.2495
Australian $
1.2265
Canadian Dol.
1.2573 1.2263
Swiss Fr
1.2082 1.1938
Denmark Kr
7.5427 7.3565
1.1963
Japan Yen
99.2771 98.0929
Norwegian Kr
7.4232 7.2400
Polish Zloty
4.1619
4.0591
Romanian Leu 4.5436 4.3654
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STOCKS were little changed yesterday, the third consecutive day of subdued market action as economic data did little to spark investor interest ahead of Federal Reserve Chairman Ben Bernanke's speech tomorrow. Daily volume so far this week has been low even for a seasonally slow period, with trading levels about 30 per cent below the year-to-date average, an indication of how market participants are reluctant to make any major investment moves ahead of the Fed chairman's speech. Bernanke addresses a conference of central bankers in Jackson Hole, Wyoming, and could announce new measures to boost growth. He is expected to stoke expecta-
tions for a third round of quantitative easing, though he may not detail the timing of such a measure. Further dampening trading activity was the upcoming ECB conference and a host of economic data scheduled for next week, including the payrolls report. The S&P dipped over the past two sessions, but the decline was less than 0.1 per cent on both days. It hasn't closed with a 1 per cent move in either direction since August 3. "I would not be surprised by very low volumes and a lot of action but no traction; it's something to be expected right now." said Gail Dudack, Chief Investment Strategist at Dudack Research Group in New York.
Barclays may face British Serious Fraud Office probe on deals - report OFFSHORE C O M PA N I E S
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the recession and austerity measures aimed at reducing Spain's deficit and making its debt more manageable. A number of banks are expected to need aid but Bankia is expected to be the biggest taker because it is the most exposed to the real estate sector. Europe made available emergency liquidity for Spain's banks in August, but Bankia and the economy ministry say it can wait until the publication of a new bank-by-bank stress test due by the end of September. According to the conditions attached to the European as-
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BRITAIN'S fraud prosecutors may decide this week whether to open a criminal probe into 2008 fundraising by Barclays to add to a regulatory investigation into what happened, according to a report yesterday. The Financial Services Authority is investigating the bank and four current and former senior employees, including finance director Chris Lucas, on whether sufficient disclosures were made about the fees it paid in a 2008 capital raising.
The Serious Fraud Office (SFO) may tell the bank this week that it is also opening a probe, Bloomberg reported, citing people familiar with the case. Barclays, the SFO and the FSA all declined to comment. Barclays disclosed the FSA investigation when it released half-year results on July 27. It relates to fees paid to the Qatar Investment Authority on deals in June and November 2008, when Barclays raised €11.5 billion ($18 billion).
The bank is reeling after being fined £290 million by British and US regulators in June for rigging Libor interest rates, sparking criticism about its culture and risk-taking and forcing its chairman and chief executive to quit. Barclays said yesterday management consultancy firm Boston Consulting Group was to support a review into its business practices that is being led by Antony Salz. The independent report is due by April.