• Spike in borrowing from emergency fund highest for 20 months
• No details given of bank or banks involved
• Possibility that request was due to short-term liquidity problem
Fears are swirling around Europe's debt markets that a eurozone bank is in trouble after figures showed one or more lenders had borrowed €16bn (£13.4bn) from the European Central Bank's emergency overnight cash facility.
The increase in borrowing intensified speculation that one of the eurozone's many ailing banks was in a worse than expected position and needed to tap cash set aside by the ECB for banks unable to borrow on the open market.
The last time overnight borrowing exceeded €10bn was in June 2009, when it climbed to €28.7bn, the highest ever. This year, emergency overnight borrowing has risen above €1bn only twice.
Investors have become increasingly worried that a number of European banks could need rescuing as the continent's economies slow and bad debts from mortgage arrears get worse.
Spanish and Portuguese banks, many of them saddled with billions of euros of mortgage debt, are considered vulnerable to a slowdown in economic growth. Likewise, some French and German banks have struggled to emerge from the financial crisis.
The ECB gives no breakdown of the borrowing figures and declined to comment when asked for an explanation for the sudden jump in overnight borrowing.
Traders were unsure whether the spike was due to a serious funding issue or whether a bank had simply made an error earlier in the week by not borrowing enough at the ECB's regular weekly funding handout.
If a bank, or a number of banks, did not get enough funding, and were unable to make up the difference in the open markets, they would be forced to use the ECB's emergency facility until the next ECB tender came around. The next ECB offering is on Tuesday and any change in bank funding would be evident in figures published early on Thursday.
"As no bank or banking group from any eurozone country is aggressively seeking money in the interbank market at the moment, it is likely that something went wrong at the main refinancing operation," one trader on the eurozone money market told Reuters.
But he added: "The bank or banking group needs to tap the ECB for the money whether they like it or not – or they are doing that so as not to appear active on the money market and to thereby be stigmatised."
In recent weeks, the ECB has talked about winding down its emergency facility as bank finances improve. Banks borrowed the lowest amount since June at a tender last week.
ECB president Jean-Claude Trichet said in a recent interview that the health of money markets had improved, although Belgium's national bank governor Guy Quaden said this week that liquidity support remained necessary.
UniCredit analyst Luca Cazzulani said: "If the increased use of the marginal borrowing facility is due to new problems in the banking system this would call for an extension of the ECB's liquidity support."
A banking source in Italy, speaking on condition of anonymity, told Reuters that the increase in borrowing was a sign that money markets were still not functioning correctly and remained geographically split in the wake of the global financial crisis. The source added the Italian banking system continued to have good access to money markets, while a high-level Spanish financial source said the jump in borrowing was not down to Spanish banks.
Sourced from The Guardian
- EU agrees bank bonuses limit deal
Under a deal agreed with the European Parliament, bankers will receive no more than 30% of their bonus immediately and in cash, or 20% for larger bonuses.
The remaining bonus payments will be delayed and linked to long-term performance, with 50% paid in shares.
Hedge funds will also be covered by the new rules, the BBC has learned.
That will place the pay of hedge fund managers in the City of London under regulation for the first time, the BBC's business editor Robert Peston said.
"The new rules won't make a big difference to bankers based in London," he said.
'End to risk-taking'
"The Financial Services Authority has already imposed conditions on them which many bankers would see as tougher.
"But the rules will have a big impact on hedge funds and other asset management firms."
The new rules have been agreed by EU member states and the European Parliament, though the parliament will hold a formal vote next week.
The agreement includes proposals to link bonuses more closely to salaries and the long-term performance of the bank.
Large severance packages for departing executives will also be limited.
"These tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk taking," said Arlene McCarthy, one MEP involved in negotiating the deal.
The limits will apply to all 27 EU member states, although similar rules are already in place in countries including the UK.
However, the rules do not limit the size of bonuses that can be paid to bankers, only the proportions that must be paid in cash and shares, and the timing of those payments.
That reflects the agreement reached by the G20 countries last year, which fell short of imposing caps on the amounts bankers could be paid in bonuses.
The inclusion of hedge funds in the new European rules is likely to alarm many in the City of London, where 80% of European funds are based.
Last month EU finance ministers agreed tougher regulation for the industry, despute objections from the UK government.
The EU's plans are the latest sign of a tightening of global regulation of the financial industry since the catastrophic financial crisis in the autumn of 2008.
In the US, Congress has still to vote on legislation designed to overhaul its financial sector in order to prevent excessive risk taking.
A final vote by the Senate is now not expected until next week, due to Republican opposition.
But the lack of strong plans to regulate bonuses has also drawn criticism from Democrats.
sourced from the BBC
Stock markets anxiously await European loan results
If it turns out banks need to borrow more than €300bn, it will be taken as a sign by markets that liquidity has dried up once more.
Markets are nervous ahead of the European Central Bank (ECB) bank debt refinancing. Photograph: Boris Roessler/EPA
Stock markets remained jittery today amid fresh fears over the global economic recovery and ahead of a crucial repayment by European banks of a €442bn (£362bn) European Central Bank loan.
In London, the FTSE 100 edged up about 10 points to 4924.64 in early trading. On Tuesday it lost 3% to close at its lowest level since last September.
All major Asian stock markets sold off, following a 2.65% decline in the Dow Jones industrial average last night, while the S&P 500 fell 3.1% and the Nasdaq lost 3.85%. Japan's Nikkei ended the day nearly 2% down at 9382.64 while Hong Kong's Hang Seng dropped 0.6% to 20,129.30 and the Taiwan stock market finished 1.3% lower at 7329.37.
Traders were nervous this morning ahead of the results expected at 10.15am of European banks' attempts to refinance a €442bn loan that has kept the system afloat for the past year. In place of the deal about to expire, the ECB is offering funds for three months at 1%.
"The take up will be interesting to see as it will provide an indication of the short-term funding requirements that is not satisfied by the interbank market," said Gary Jenkins at Evolution Securities.
If it turns out that banks need to borrow more than €300bn, it will be taken as a sign that liquidity has once against dried up and that banks are refusing to lend to each other in a potential re-run of the 2008 banking crisis.
The rates at which banks lend to each other have already risen to their highest levels in 10 months ahead of the ECB refinancing amid concerns that some banks would find it difficult to function without the support of the central bank.
"In the current climate to order the repayment of last year's one-year loan of €442bn [today], the ECB was taking a real chance, particularly as wholesale money markets are moribund," said David Buik at BGC Partners. He noted that the range of what capital banks are thought to need varies between €200bn estimated by Commerzbank, €250bn-€300bn by Barclays Capital and RBS above €300bn. "The market hopes RBS is wrong. If the amount required was above €300bn, foreign exchange and equity markets would be disquieted."
In a dismal session yesterday, all 56 listed European banks lost some of their value: Credit Agricole 7%, Barclays 6.3%, BBVA 7.2%, Santander 6.8%, Société Générale 6.5% and BNP 6.9%
Sourced from The Guardian
EU to publish bank data in drive to calm markets
EU leaders have agreed to publish "stress tests" of banks next month to show investors where any potential risks lie.
EU Commission President Jose Manuel Barroso said the results would be published "on a bank by bank basis - this should reassure investors".
The announcement came after EU summit talks dominated by the debt burden weighing on many member states.
The EU is wrestling with Europe's worst public debt for decades.
Leaders are intent on preventing contagion from the Greek budget crisis.
The summit came amid particular concern about public finances in Spain, the fifth biggest eurozone economy.
Bank levy plan
"Stress tests of banks will be published at the latest in the second half of July," European Council President Herman Van Rompuy said.
On Wednesday, Spain published the results of stress tests showing how its financial institutions would behave in a future crisis.
Now, overcoming German reluctance, all EU countries said they would do the same. The BBC's Oana Lungescu in Brussels says it is an unprecedented move which they hope will restore market confidence in the battered euro.
The leaders also agreed on the need for a bank levy, to ensure that any future bail-out is funded mainly by banks, rather than taxpayers.
Although details remain unclear, they will urge the US and other major economic powers to embrace a bank levy system at the G20 summit next week.
"In the G20 we will also propose to explore and to develop the introduction of a financial transaction tax," Mr Van Rompuy said.
"There is no need to create new [EU] institutions, it is... a matter of working better together," he added.
Both he and Mr Barroso have spurned suggestions by German Chancellor Angela Merkel that EU treaty changes might be necessary to enforce budget discipline.
Cooked breakfast
The EU leaders agreed on tighter collective supervision of individual member countries' budgets.
In addition, the rules governing debt levels among the 16 eurozone countries will be strengthened.
Earlier, British Prime Minister David Cameron, attending his first EU summit, promised to play a "positive" role in the bloc.
"We will of course always defend our national interests, as others do, and our national red lines," he added, speaking alongside Mr Barroso.
Both Mr Cameron and Mr Barroso said the EU should be focusing on "substance" rather than institutions.
At their early morning meeting Mr Barroso served up an English cooked breakfast of bacon, sausage and egg for Mr Cameron.
As the summit got under way the cost of borrowing for the Spanish government hit a record high, reflecting doubts about Spain's ability to repay its debts.
The government admitted this week that foreign banks were refusing to lend to some Spanish banks.
French President Nicolas Sarkozy insisted however that "there is no problem with Spain, we are showing full confidence in the Spanish authorities".
Budget surveillance
Spain has been forced to deny reports that it is in talks with the IMF over a bail-out package to help it manage its debts.
The country has announced budget cuts and unpopular labour reforms to avoid a Greek-style meltdown.
The eurozone has set up a 750bn-euro (£623bn; $920bn) bail-out mechanism as a safety net in case any more countries suffer a similar debt crisis to Greece.
The draft summit document mentions EU member states presenting their budgetary plans to the European Commission each spring, "taking account of national budgetary procedures", BBC Europe editor Gavin Hewitt reports.
The UK has made it clear that its budget must go before the British parliament before being presented to EU officials for scrutiny.
However, the UK's pre-budget report is already fed into EU finance ministers' discussions before the full budget appears in April, a UK diplomat told the BBC.
The EU leaders also discussed a new 10-year strategy for jobs and growth, drafted by the Commission, called "Europe 2020".
It sets out a range of targets for employment, training and investment. Spending on research and development would reach 3% of gross domestic product (GDP) under the plan.
Euro under new pressure after Spain's debt rating is downgraded
• Markets set to fall after ratings agency Fitch strips Spain of AAA score
• French debt rating also threatened, says budget minister François Baroin
The euro is expected to come under further pressure tomorrow as Spain's minority government teeters on the brink of collapse and traders fear contagion throughout the eurozone after a senior French minister admitted that his country's top-notch credit rating was under threat.
Stock and debt markets are likely to take a battering after the decision on Friday by the ratings agency Fitch to strip Spain of its coveted AAA credit score, the second downgrade in a month.
Fitch's decision was announced after the markets in Europe closed, so traders will have their first chance tomorrow to react, although London and New York will be sidelined by bank holidays.
Weekend polls in Spain showed that support for austerity measures introduced by the government of José Luis Rodríguez Zapatero is vanishing fast, with many voters believing that he will be forced to call an early election. Zapatero's administration, which squeezed a new cuts package through parliament by only a single vote last week, also faces a potential general strike. A deadline to agree a deal over labour reforms is looming this week.
Pressure on the country's banking system is also increasing. Spain's second-biggest savings bank, Caja Madrid, and five smaller lenders were last night racing to complete talks aimed at creating a €228bn (£193bn) banking group before a midnight deadline set by the government, which wants to see the country's 45 regional savings banks reduced to just over a dozen.
Investors and economists fear that Spain may succumb to a Greek-style debt crisis, putting the very future of the euro in jeopardy as speculators push economy after economy over the edge in a domino effect. Italy, Portugal and Ireland are all seen as likely next targets, and even the largest European economies are coming under increasing pressure.
In a television interview with Canal+ today, France's budget minister, François Baroin, admitted that "the objective of keeping the AAA rating is a stretch, and it is an objective that, in fact, partly informs the economic policies we want to have".
The French government is trying to reform state pension benefits, having already announced that central government spending – apart from pensions and interest payments – will be frozen between 2011 and 2013.
"We must maintain our AAA rating and reduce our debt to avoid being too dependent on the markets, and we must do this for the long term," Baroin said.
In the UK, the weekend's resignation of the Treasury chief secretary, David Laws, is likely to be pored over by ratings agencies this week. Laws was a prime mover behind plans to curb public spending in order to get the public deficit under control, and his departure will be seen as a blow to the coalition government. Ratings agencies have already made it plain that they will be keenly watching the UK's 22 June budget.
In Spain, meanwhile, the most pressing issue for the minority government is labour reform. The deadline, initially set for tomorrow, has been pushed back a week because the three parties involved – the government, business and unions – could not agree. However, Zapatero's administration has made it plain that if agreement cannot be reached, the government will propose its own changes at a cabinet meeting scheduled for 11 June. Union leaders have warned that if reforms are imposed, rather than negotiated, they will hold a general strike.
A poll conducted for El Mundo, the right-of-centre newspaper, showed that Spain's opposition Popular party (PP) would grab a 45.6% share of the vote in an immediate election, 10.5 points ahead of Zapatero's Socialist party. In the election two years ago, the socialists had a three-point lead over the conservative PP. Another opinion poll, published in the El Periodico newspaper yesterday, put Zapatero's party eight percentage points behind the PP.
The government has pledged to reduce the deficit from 11.2% to 3% of GDP by 2013, but parliamentary support is waning. Zapatero's €15bn austerity plan was narrowly voted through, and there are fears that by the time he tries to push through his 2011 budget, in September, support may have vanished altogether. He would then have to rely on backing from smaller parties, such as the Basque Nationalists (PNV), to pass the budget.
The PNV voted in favour of this year's budget but voted against the socialists last week. As a result their support later in the year cannot be relied on, meaning that Zapareto may be forced into an early election, which would cause even greater concern in the financial markets.
According to the El Mundo poll, half of Spaniards expect general elections to be brought forward from 2012, and the PP and the Catalan party CiU have already called for an early poll.
Sourced from The Guardian
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