Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times

EU regulators name 91 ‘stress test’ banks
By Patrick Jenkins in London, Nikki Tait in Brussels and Daniel Schäfer in Frankfurt
Copyright The Financial Times Limited 2010
Published: July 7 2010 19:48 | Last updated: July 7 2010 20:40
http://www.ft.com/cms/s/0/64d1609a-89f0-11df-bd30-00144feab49a.html


European regulators late on Wednesday released more details of the keenly awaited exercise to stress test the Continent’s banking industry, publishing the names of the 91 banks being probed and a broad idea of the stress scenario.

After a day of sometimes heated talks between national watchdogs, the Committee of European Banking Supervisors, the umbrella body for Europe’s banking regulators, said the banks – including 27 institutions in Spain, 14 in Germany and six in Greece – would be subjected “on aggregate [to an] adverse scenario [that] assumes a 3 percentage point deviation of [gross domestic product] for the EU compared to the European Commission’s forecasts over the two-year time horizon”.

However, CEBS did not reveal the nature of the stress test for the banks’ sovereign debt holdings, the biggest area of concern for investors. Transparency on this and other measures has been intensely controversial, particularly for Germany, whose public-sector Landesbanken are among the weakest banks in Europe.

There had been an outcry among German and French banks over an idea to impose a similar haircut, of about 3 per cent, on all eurozone sovereign bonds.

“We’ve heard the voices of concern about the credibility of the exercise,” said one European regulator. “We recognised that something bland and indiscriminate would not have addressed the market’s concerns.”

In private, regulators and banks said the sovereign debt stress scenario would now make a distinction between the weakest countries, such as Greece, and the strongest, such as Germany.

Rumours of that toughened stance boosted markets, with Spanish banks leading a recovery in eurozone financial stocks. “A lot of US short investors have closed out their positions,” said one market strategist.

Bankers and regulators said the stress scenario on Greek sovereign debt had been set at 17 per cent for banks’ trading books, with additional stresses imposed on the banking book, where investments are held to maturity. “That would increase the stress to 20 per cent -30 per cent in total,” one banker said. Portuguese sovereign debt would attract an 8 per cent trading book haircut, with 5 per cent for Spain.

The haircut on German debt would be negligible, German bankers said.

Banks began their work to calculate the effect of the new stress test scenarios on Monday, after national regulators began sending out questionnaires and complex matrices of the sovereign debt stress scenarios.

People close to the exercise predicted that between 10 and 20 of the 100 banks being tested could fail to pass the hurdle tier one capital ratio of 6 per cent. CEBS said the results would be published on July 23.

Additional reporting by Gerrit Wiesmann and Ralph Atkins






EU rules PT golden shares unlawful
By By Nikki Tait in Brussels, Peter Wise in Lisbon, Mark Mulligan in Madrid and Andrew Parker in London
Copyright The Financial Times Limited 2010
Published: July 8 2010 09:50 | Last updated: July 8 2010 15:51
http://www.ft.com/cms/s/0/c9e5cf52-8a6d-11df-bd2e-00144feab49a.html


The “golden shares” held by the Lisbon government in Portugal Telecom have been ruled unlawful by Europe’s top court.

The decision comes just days after Lisbon used its special veto rights to override other shareholders and block Telefónica’s €7.15bn offer to buy PT out of Vivo,, their Brazilian mobile phone joint venture.

Judges at the European Court of Justice said on Thursday that the 500 special “golden” shares were a restriction on the free movement of capital and gave the government an unjustified influence over the company.

José Manuel Barroso, president of the European Commission and himself a former Portuguese prime minister, said he was confident the Lisbon government would fully comply with the court’s ruling as soon as possible.

However, Portugal maintained that the court’s decision had not brought about “any concrete change”. The court had not ruled the “golden shares” illegal, but only their “configuration” within the company, said Pedro Silva Pereira, a government minister.

He added that the ruling was not retroactive and thus did not affect Portugal’s decision to veto the Vivo deal. It also did not affect Portugal Telecom’s company statutes, which recognise the state’s special rights, he said.

Portugal respected the court’s ruling, he said, and would “seek solutions that were in full compliance with Community law and that also defend the country’s national interests”.

He said this could involve transferring the “golden shares” to Caixa Geral de Depósitos, a state-owned Portuguese bank and Portugal Telecom shareholder.

If the Lisbon government does drag its heels in implementing the court’s decision, the ultimate option for Brussels would be to bring infringement proceedings against Portugal, taking the matter back to the European courts.

A number of other legal challenges involving golden shares are currently outstanding in Italy, Spain and Greece.

The court ruling came hours after Telefónica and Portugal Telecom agreed to “look for possible solutions” to the acrimonious dispute over Vivo.

In a brief statement, Telefónica said it was willing to look for “possible solutions” for its bid to buy Portugal Telecom out of Vivo so that “all interested parties felt comfortable”.

Portugal Telecom replied that it was available “to maintain a dialogue with Telefónica aimed at analysing options that optimise the advantages for all parties”.

The Lisbon government welcomed the talks as a vindication of its use of a “golden share” to block Telefónica’s bid.

“This is an opening that can lead to a positive outcome,” said António Mendonça, Portugal’s minister for public works and telecommunications. “The solution should be found at the negotiating table”.

José Luis Rodríguez Zapatero, the Spanish prime minister, has also called for a negotiated settlement.

“The opening from the management of the two companies and the blessing of the Portuguese government shows a commitment from all parties to solve the issue over the short term,” said Pedro Pinto Oliveira, an analyst with Banco BPI.

The Lisbon government used its special veto rights to overrule a majority of shareholders who voted in favour of accepting Telefonica’s €7.15bn offer on June 30. After the veto, Telefónica extended its offer to July 16.

José Sócrates, Portugal’s prime minister, criticised Telefónica for going ahead with the bid “without taking into account the strategic interests clearly expressed by the Portuguese government”.

Lisbon-based analysts said the planned negotiations appeared to be aimed at finding a solution in which the interests of the Portuguese government were given due consideration.

They said one possible solution would be to merge Vivo with Telesp, Telefónica’s under-performing fixed-line phone business in Brazil, and offer Portugal Telecom a stake in the merged group, together with a shareholder agreement guaranteeing it an active management role.

It is estimated that Portugal Telecom could end up with close to 20 per cent of a merged Vivo and Telesp in a potential deal that analysts said would be a face saving solution for Lisbon government, in which Portugal Telecom maintained large-scale operations in Brazil.

Portugal Telecom was privatised in a series of steps in the mid-1990s. All of the public shareholdings were sold except for the golden shares. That continued interest means that the Portuguese government must agree to the acquisition of any stakes in PT in excess of 10 per cent, and has a potential lock on certain management decisions, such as the acquisition or disposal of significant stakes in other groups.

Any decision amending the company’s articles of association also require the golden shares’ backing – meaning that the Portuguese government would have to agree to weaken its own position.

The arrangement had been challenged by the European Commission, which argued that it breached core European Union principles on the free movement of capital.





Surprise drop in US jobless claims
ByJames Politi in Washington
Copyright The Financial Times Limited 2010
Published: July 8 2010 14:28 | Last updated: July 8 2010 14:28
http://www.ft.com/cms/s/0/ff9731a8-8a91-11df-bd2e-00144feab49a.html


The number of US citizens filing jobless claims last week fell more than expected, offering some measure of comfort that the recovery in the US labour market was advancing, albeit slowly.

The labour department on Thursday said initial jobless claims had fallen by 21,000 to 454,000 in the week ending July 3. Economists were expecting claims to drop to 460,000.

The strength of the labour market recovery in the US has been called into question recently as payroll data showed sluggish private sector job creation for two consecutive months in May and June. Meanwhile, the unemployment rate is still 9.5 per cent, an unusually high level for the US economy.

Weekly jobless claims – which have also remained at stubbornly high levels in recent months – are a useful, if volatile, real-time indicator of the pace of job cuts by US employers. The less volatile four-week moving average was reduced from 467,250 to 466,000, also an encouraging sign.

However, most economists are looking for the level of initial claims to move closer to 400,000 as a sign of a sustained improvement in the US labour market.

Meanwhile, continuing jobless claims – which reflect the number of people still receiving benefits after their initial application – also fell more than expected, to 4.41m, the lowest level since November 2008, in the week to June 26.

“On balance, better news across the board,” said David Semmens, economist at Standard Chartered in New York, who cautioned that the drop might have been driven by the fact that about 2m people’s unemployment benefits had expired this summer and Congress had so far been unwilling to extend the expiration of those cheques.

While the improvement in weekly jobless claims may be transitory, it comes in the wake of a string of bad news on the US recovery, from last week’s disappointing jobs report to this week’s anaemic report from the Institute for Supply Management on the health of the services sector.