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Sources say... No.7889

DG Communication Brussels, Thursday, 22 September 2011, at 10:45

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BARNIER WANTS CAPITAL INJECTIONS INTO BANKS PRIVATE, NOT PUBLIC (Reuters) - If some European banks need to be recapitalised, the European Commission would prefer that the support come from the private sector, the EU's internal market commissioner said in a newspaper interview. Michel Barnier told le Figaro in an interview published on Tuesday that he could not rule out that some European banks would need state aid. "The days are behind us when the banks can be bailed out with taxpayer funds," he said. "But it cannot be ruled out that some banks will need state help. The European Commission is prepared for such a scenario and will oversee it." Investors have sold off European banking shares in recent months, spooked by concerns over whether financial institutions could withstand a default of Greece as well as another economic downturn. The IMF recently urged Europe to move towards recapitalising its banks, but officials in Europe have resisted such across-the-board calls. Asked whether it was time to recapitalise Europe's banks, Barnier replied: "The IMF was correct to emphasize the risks of a second global recession. But I do not share its view on the capital needs of the banking sector." Barnier pointed out that nine banks had failed stress tests carried out in July, and 16 "barely made it" and needed to be recapitalised. "We would prefer this to be done first through private means," he said.

BNP PARIBAS SEEKS INVESTORS FROM THE MIDDLE EAST(AFP) = La première banque française, BNP Paribas, a envoyé des émissaires au Moyen-Orient pour sonder l'intérêt de potentiels investisseurs au cas où elle devrait se résoudre à effectuer une augmentation de capital, a affirmé jeudi le quotidien Financial Times. Le journal économique britannique, qui cite des personnes proches du dossier, souligne qu'une telle levée de fonds reste pour l'instant très hypothétique, le directeur général de la banque Baudouin Prot estimant que son groupe est pour l'heure correctement capitalisé. Selon le journal, BNP Paribas pourrait chercher à lever auprès d'investisseurs du Qatar ou d'Abou Dhabi jusqu'à 2 milliards d'euros. Parmi les personnes dépêchées dans le Golfe figurerait notamment l'ancien directeur général du Fonds monétaire international, Jacques de Larosière. Réagissant auprès de l'AFP, un porte-parole de la banque n'a pas commenté ces informations mais a tenu à préciser que BNP Paribas effectue chaque année des présentations "dans le monde entier pour promouvoir ses actions auprès des investisseurs". "Il n'y a aucun pays significatif dans lequel nous n'allons pas", a-t-il ajouté. Dans une interview au quotidien Les Echos jeudi, M. Prot ne dit mot d'un tel projet. Il mentionne toutefois préférer une stratégie reposant sur "un double effort de mise en réserve des bénéfices et de réduction de la taille du bilan" de la banque, plutôt que sur une augmentation de capital. Très exposée à la dette des pays de la zone euro les plus vulnérables, comme la Grèce et l'Italie, BNP Paribas est particulièrement chahutée en Bourse ces dernières semaines, à l'image des autres banques françaises, comme la Société générale ou le Crédit agricole.

STANDARD & POOR'S DOWNGRADES SEVEN ITALIAN BANKS(AP) - Standard & Poor's has downgraded seven Italian banks due to sovereign debt risk. Just days ago, the agency downgraded Italy's credit rating, citing political weakness. In a statement released Wednesday, Standard & Poor's said it was acting "in accordance with our criteria applicable to the relationship between the ratings on financial institutions and their related sovereign in the European Economic & Monetary Union." It said it was "lowering our long-term ratings on seven Italian banks and assigning negative outlooks to the long-term ratings on these banks."

MOODY'S DOWNGRADES TOP U.S. BANKS (AP) - Three of the top U.S. banks are likely to start paying more to borrow money. Moody's Investors Service on Wednesday lowered its debt ratings for Bank of America, Wells Fargo and Citigroup. The ratings agency said it has become less likely that the U.S. government would step in and prevent the three lenders from failing in a crisis. "The probability of government support for the banks is less now than during the financial crisis," said David Fanger, senior vice president at Moody's. The downgrades were widely expected after the ratings agency placed the three banks on review in June. The cuts also stem partly from new laws taking effect under the Dodd-Frank Wall Street Reform Act. The new law ended the possibility of the government bailing out a large financial firm and created a process that would allow a financially troubled bank to fail and liquidate its assets. Bank of America Corp. was hit worst. Moody's downgraded its key long-term debt ratings two notches, to Baa1 from A2. Wells Fargo & Co.'s long-term debt rating fell one notch to A2 from A1, while Citigroup Inc.'s rating remained the same at A3. Moody's did downgrade Citi's short-term debt. Bank of America's ratings are the lowest among the three. All three of the banks' debt is still rated investment grade. A downgrade is a warning to buyers of debt that the chance that they won't get their money back has increased, however slightly. The downgrades couldn't have come at a worse time for the banks, whose stocks have been pounded this year on uncertainty over how the European debt crisis will affect them. The KBW bank index, which serves as a benchmark of the banking sector and tracks the stock prices of 24 bank stocks, is down 30 percent this year. Moody's also downgraded Bank of America's long-term deposit ratings to A2 from Aa3. The deposit ratings reflect the level of risk faced by customers whose deposits are not insured and the bank's ability to make them whole in the event of a crisis. Currently, the Federal Deposit Insurance Corporation insures deposits up to $250,000. So the rating downgrade affects deposits larger than that. Moody's downgraded the short-term rating of Citigroup to Prime-2 from Prime-1. Moody's said its downgrade of Wells Fargo was driven solely by the reduced government support. Its stock fell 3.9 percent to close at $23.71. Besides its long-term debt, Moody's also downgraded Wells Fargo's bank deposit ratings to Aa3 from Aa2. (See Bank of America Corp. downgraded to Baa1; Bank of America N.A. downgraded to A2; P-1 rating affirmed Wells Fargo and Company's long-term ratings downgraded (sr debt to A2); P-1 rating affirmed Citigroup's short-term rating (P-2) downgraded; Citibank's P-1 rating affirmed; all long-term senior ratings confirmed)

EU'S SYSTEMIC RISK WATCHDOG WARNS OF RISING DANGERS(AP) - The risks to the EU's financial system from the continent's government debt crisis have increased considerably in the past 90 days, Europe's crisis watchdog said Wednesday. The European Systemic Risk Board urged "decisive and swift action" from eurozone nations, including passage of anti-crisis measures agreed on by leaders in late July and still awaiting final votes from parliaments. Fears of a government default have driven up borrowing costs for several European governments and raised questions about their financial viability, doubts which in turn push up borrowing costs even more. Meanwhile, some banks are struggling to get the financing they need to operate. Parliaments are being asked to approve new powers for the euro countries' bailout fund. If they say yes, it will be able to prop up government bond markets and help put new capital reserves against losses in banks. "Over the last months, sovereign stress has moved from smaller economies to some of the larger EU countries," the board said after a meeting. "Signs of stress are evident in many European government bond markets, while the high volatility in equity markets indicates that tensions have spread across capital markets around the world." Europe's debt crisis is both a banking crisis and a government debt crisis. A default by an indebted government such as Greece could inflict large losses on banks there and elsewhere. Meanwhile, bank losses could force governments to bail them out, worsening government finances even more. Greece, Ireland and Portugal have already been bailed out by other eurozone governments. But default fears have driven up borrowing costs for Italy, regarded as too big to bail out, and for Spain. The risk board is chaired by Jean-Claude Trichet and its vice chairman is Bank of England head Mervyn King. The statement said that risks were even higher than at the June 22 meeting. After that meeting, Trichet said that the warning light was flashing "red" for danger. Since then, eurozone leaders have had to agree on a second, € 110 billion bailout for Greece after a May 2010 rescue did not put the country back on its feet. They also agreed at a July 21 eurozone summit to give their bailout fund the power to hold off market turmoil by buying government bonds in the secondary market and to provide money to re-capitalize banks. But national parliaments have not yet voted to ratify what the heads of state and government agreed. Delays, along with questions about whether Greece is meeting the terms of its bailout, have raised fears that Greece may default on its debts and roiled stock markets as well. (See 21 September 2011 - European Systemic Risk Board Meeting)

FITCH EXPECTS GREECE TO DEFAULT BUT STAY IN EURO ZONE (AFP) = La Grèce, embourbée dans la crise de la dette, va se retrouver en défaut de paiement mais ne quittera pas la zone euro, car les coûts d'une telle décision seraient trop élevés non seulement pour Athènes mais pour l'ensemble de l'Europe, a indiqué mercredi Fitch. "Fitch s'attend à ce que la Grèce se retrouve en défaut de paiement, mais (le pays) ne va pas quitter la zone euro", a indiqué l'agence de notation dans une étude. "Si la Grèce quittait (la zone euro), cela établirait un précédent qui pourrait mortellement déstabiliser l'ensemble de la zone euro", a ajouté l'agence, qui a attribué une note de dette à long terme "CCC" à la Grèce, soit un émetteur présentant un véritable risque de non-remboursement. "L'implication du secteur privé qui a été convenue en juillet (...) signifie qu'il y aura un échange de titres de dettes par les grandes banques détentrices de dette grecque. Nous estimons que cela équivaut à un défaut de paiement", a expliqué à l'AFP Douglas Renwick, analyste à Fitch. En juillet, des banques et assureurs créanciers de la Grèce, membres de l'Institut de la finance internationale (IIF), ont offert à Athènes de réduire volontairement leurs prétentions afin d'aider le pays à sortir de la crise économique, une mesure qui les obligerait à renoncer à 20% des montants prêtés, selon les analystes. Même avec une implication du secteur privé, prévue par le nouveau plan de soutien à la Grèce, le niveau d'endettement d'Athènes sera encore "extrêmement élevé".

GREECE COULD TRIGGER GLOBAL BANKING CRISIS, SAYS CANADA(Reuters) - A global banking crisis will erupt unless Europe properly deals with Greece's debt problems, Canadian Finance Minister Jim Flaherty said on Wednesday, notably hardening his criticism of European authorities. Flaherty said finance ministers of the Group of 20 nations would focus on Greece when they meet in Washington on Thursday. Finance ministers from the smaller Group of Seven also discussed Greece when they met in France earlier this month. "The number one thing we'll talk about tomorrow night at dinner -as we did in Marseilles with the G7- is that Europe has to pick a lane here, they've got to deal with that issue respecting Greece," he told the Canadian Broadcasting Corp. "Otherwise the markets will get ahead, we will have some sort of a crisis, it will become a banking crisis, it will affect banks all around the world, we could be into another credit crisis which will cause contraction in the real economy. So we've got to deal with that," he said.RAISING THE BAILOUT FUND TO € 1 TRILLION IS THE SOLUTION Flaherty said European nations could "get ahead of the game" if they were prepared to increase the euro zone's bailout funds to 1 trillion euros from 440 billion euros. The BRICS emerging economies -Brazil, Russia, India, China and South Africa- might offer support to the euro area, possibly by buying bonds, although it is unclear if they would come up with a firm plan to do so. "The G20 is a wider group, which is good for this discussion. We may want the BRIC countries participating through the IMF," said Flaherty, without giving details.

SLOVAK PARLIAMENT HEAD WANTS TO BE THE HERO THAT SINKS EU BAILOUT FUNDS (AFP) - Le chef du Parlement slovaque Richard Sulik a assuré mercredi que son parti était prêt à torpiller le Fonds de sauvetage de la zone euro (FESF), censé éviter la faillite de la Grèce, afin d'arrêter ce qu'il a appelé la "fête" de la dette de la zone euro. "La récession va de toutes façons arriver mais si on arrête cette fête, la gueule de bois sera moins douloureuse que si on continue à vivre sur la dette", a déclaré M. Sulik dans une interview à l'AFP à Bratislava. "Ce serait mieux si un pays plus important que la Slovaquie bloquait le renforcement du FESF avant qu'on ne le fasse, mais si je n'ai pas d'autre possibilité, je pourrais aussi bien le faire", a-t-il ajouté. Le gouvernement du Premier ministre slovaque Iveta Radicova est pour le renforcement du Fonds européen de stabilité financière. Mais ce gouvernement de coalition de centre droit, qui dispose de 79 des 150 sièges au Parlement, ne peut espérer faire approuver ce plan de sauvetage sans le soutien des 22 députés du mouvement libéral Liberté et Solidarité (SaS) de M. Sulik, parti junior de la coalition. Le renforcement du FESF doit être ratifié par les 17 pays de la zone euro. A Bratislava, la date butoir pour cette ratification est le 11 octobre, selon le ministre des Finances Ivan Miklos. "Si la Grèce tombe, certaines banques vont probablement s'effondrer également et des gens vont probablement perdre leurs économies. Les gouvernements devraient sauver l'argent de ces gens, ce serait bien moins cher que de sauver des pays endettés", a estimé Sulik, 43 ans. Il s'est cependant refusé à préciser à quelles conditions son parti pourrait finalement dire oui au plan de sauvetage: "Ce serait une erreur de répondre à cette question. Pour l'instant nous disons non". "Je ne pense pas que l'Union européenne va éclater si nous bloquons le renforcement du FESF", a dit M. Sulik, se déclarant optimiste que les 27 pays de l'UE "finiront par trouver une solution pour que le FESF puisse fonctionner sans la Slovaquie".

GREECE'S EXIT FROM EURO ZONE EASY TO DO, SAYS CZECH PRESIDENT (AFP) - Le président tchèque Vaclav Klaus a dit lors d'un entretien à la télévision américaine imaginer facilement l'abandon de l'euro par la Grèce, estimant que la procédure pourrait être "relativement simple". "J'arrive à imaginer qu'un pays de la zone euro sorte de la zone euro. Techniquement, administrativement, c'est possible", a déclaré M. Klaus sur CNBC, interrogé en marge de l'Assemblée générale des Nations unies. "Je me souviens de notre division de la couronne tchécoslovaque, au moment de la séparation entre République tchèque et Slovaquie. Et la partition entre les deux monnaies a été une procédure relativement simple techniquement", a-t-il expliqué. Il a voué l'Europe à une longue période de "stagnation économique" si elle persistait à maintenir la Grèce dans la zone euro. "Je ne pense pas qu'il y ait de solution pour la Grèce à l'intérieur de la zone euro, j'entends avec l'euro comme monnaie. Donc il y aura une improvisation permanente, des transferts budgétaires permanente d'une partie de l'Europe vers l'autre", a-t-il dit. "J'ai bien peur que les dirigeants européens dépensent encore sans compter pour la Grèce", a prédit cet eurosceptique. "Nous souffrons des problèmes de la zone euro, et je pense que la zone euro n'est pas capable de résoudre le problème de la zone euro (...). Ce sera une stagnation économique de très long terme pour l'Europe. Et nous ne pouvons pas échapper à ce destin-là", a-t-il déploré.

GREECE READY TO IMPLEMENT REFORMS, SAYS EU TASK FORCE HEAD (Reuters) - Greece has shown that it is willing to implement reforms to tackle its debt crisis, the head of a European Union task force to help Athens said on Thursday after a visit there. "In my talks with ministers in Greece last week I have established that there is a great willingness to really implement the reforms, not just to have them on paper," Horst Reichenbach, head of the team of technocrats, told Germany's ZDF television. He added that one of the most difficult tasks for the task force would be to help Greek banks to lend again.

PUBLIC TRANSPORT GRINDS TO HALT IN GREEK CAPITAL(AP) - Austerity-weary Greeks lashed out against more tax hikes and pension cuts with a new round of strikes, with public transport workers, taxi drivers, teachers and air traffic controllers walking off the job Thursday. The strikes come a day after the government announced yet another round of spending cuts, including plans to suspend 30,000 civil servants as it scrambles to keep international bailout payments flowing and soothe global market fears that Greece will default.

HUNGARY'S HIKE OF VAT TO 27 % LEGAL, SAYS EU COMMISSION (Reuters) - Hungary's plan to raise its top value-added tax (VAT) rate to 27 percent next year, the highest in the European Union, would not go against the bloc's rules, the EU Commission's taxation and customs spokesman said on Wednesday. "If Hungary decides to raise its VAT rate to 27 percent the Commission would not do anything because there no legal obligation to be under 25 percent," David Boublil, spokesman of the Commission for Taxation, Customs, Audit and Anti-Fraud told Reuters. Hungary's top VAT rate is currently 25 percent. He said the Commission would address Hungary's other proposal for a 35 percent "luxury" VAT rate in December, when it concludes a broad overview of the bloc's value-added taxation system.

MARKETS SCEPTICAL AFTER FED MOVE TO BOOST AILING ECONOMY(AP) - The Federal Reserve says it will sell $400 billion of its shorter-term securities to buy longer-term holdings, its latest effort to boost a weak economy. The Fed's move to rebalance its $2.87 trillion portfolio could lower Treasury yields further. Ultimately, it might reduce rates on mortgages and other consumer and business loans. The Fed also said it will reinvest its holdings of mortgage-backed securities, which would help keep mortgage rates at super-low levels. The Fed had previously reinvested the interest and principal into Treasury purchases. Fed policymakers announced the moves Wednesday after a two-day meeting. Three members dissented from the decision. "The actions the Fed has taken are helpful," says Josh Feinman, global chief economist at DB Advisors. "They will help hold down long-term rates, but they're no panacea." Stocks fell immediately after the announcement. The Dow Jones industrial average dropped 100 points. The yield on the 10-year Treasury note tumbled, and its price rose. In its statement, the Fed noted that the economy is growing slowly, unemployment is high and housing remains in a prolonged slump. As a result, the Fed has directed the New York Fed to purchase Treasurys with remaining maturities of six to 30 years, and to sell an equal amount of securities with maturities of three years or less. Many analysts have said the shift in the Fed's portfolio could provide modest help by reducing borrowing costs and perhaps raising stock prices. Others say it won't help and warn that the move could escalate inflation. In June, the Fed completed a $600 billion bond-buying program that may have helped keep rates low. Expectations that the Fed would expand its holdings of long-term securities, along with fears of another recession, have led investors to buy up U.S. Treasurys. (See Fed statement)