~BRUSSELS (Reuters) – European Union regulators are scrutinising four EU countries' treatment of banks' deferred tax assets (DTAs) to see if they constitute potentially illegal state aid, the European Commission said on Tuesday.
The EU executive said it had contacted authorities in Spain, Italy, Portugal and Greece following requests from some lawmakers in the European Parliament and other parties about state guarantees on such assets.
A deferred tax asset is an asset used to reduce the amount of tax subsequently due, such as from a loss-making period, to a future period of profit when tax would normally be due.
Under globally agreed Basel III capital rules, banks will not able to include DTAs that rely on future profitability to demonstrate their ability to absorb losses. These assets will have to be deducted by 40 percent this year, rising to 100 percent from 2018.
Their treatment is significant because local accounting behaviour, such as allowing DTAs to be converted into tax credits, can boost banks' core capital and so help prop up a country's financial sector.
European Competition Commissioner Margrethe Vestager has authorised a letter be sent to each member state requesting information. The Commission said this did not amount to a formal investigation.
"To be clear, the process is at a very early stage. We cannot prejudge whether a formal investigation is needed or the outcome of the Commission's assessment of these measures," the EU regulator said.
~~ECB reaches money-printing target in first month
FRANKFURT
(Reuters) – The European Central Bank bought almost 61 billion euros ($66 billion) of government bonds and other assets in March, it said on Tuesday, just beating its target in the first month of a program designed to revive the euro zone economy.
The ECB has committed to buying 60 billion euros of assets a month with newly created money until September 2016, or longer if needed to get inflation back on track to hit its target of just below 2 percent.
Purchases of public-sector bonds started on March 9, while those of other assets such as covered bonds and asset-backed securities began earlier.
An ECB spokesman said that for March alone, net asset purchases reached 60.953 billion euros.
"QE is doing its magic," said ING economist Carsten Brzeski. "This is a very encouraging start and defies scepticism about whether they will make the target."
Weekly data earlier in March had already shown the ECB exceeding its purchase targets.
Figures for the week ending April 3 showed a fall in government bond purchases, but economists attributed this to reduced liquidity in bond markets in the run-up to the Easter holidays in western Europe, rather than a more permanent shortage of bonds.
Some economists had raised concerns that a shortage of bonds that met the ECB's purchase criteria could pose a problem.
Brzeski said the asset purchase data coincided with upbeat data on financing conditions and confidence, which suggested QE was succeeding in lifting morale in the euro zone.
But RBC economist Timo del Carpio said it was not possible to draw firm conclusions, either on the sustainability of the QE program or its benefits.
"Over time they may choose to reduce the scale due to market liquidity conditions, but at the start of the program they seem to have hit the ground running," he said.
The ECB said it bought 11.5 billion euros of government bonds in the fourth week of its program, down from 14.7 billion euros in the third. Total purchases since March 9 stood at 52.555 billion euros.
The ECB said that in addition to the public-sector bonds, it had settled 64.670 billion euros in total covered bond purchases as of April 3, and 4.888 billion euros in purchases of asset-backed securities (ABS). Both those programs were announced in September.
* The ECB and other central banks in the euro zone will lend many of the bonds they buy back into the financial markets. This minimizes any shortage of the securities that are important as collateral for interbank lending.
The ECB published a list of these securities on Tuesday, which is available on this page: here
To read a breakdown of buying on a country-by-country basis, click on this link: here
($1 = 0.9213 euros)
(Reporting by John O'Donnell and David Milliken; editing by John Stonestreet)
Eurozone bond-buying hits €52.5bn in first month
Claire Jones, Frankfurt
The eurozone’s central bankers bought €52.5bn-worth of government bonds in the first month of their landmark quantitative easing programme, according to figures published by the European Central Bank on Tuesday.
A breakdown of the purchases shows central bankers bought €11.1bn-worth of German government bonds, and €8.75bn and €7.6bn in French and Italian bonds respectively.
Central bankers bought government bonds from all member states except Greece and Cyprus, which are banned from QE until the member states comply with the terms of their EU bailout programmes, and Estonia.
Officials across the currency area started buying their government’s debt on March 9 after policy makers unleashed a controversial €1.1tn QE programme on January 22 to tackle the threat of economic stagnation.
Policy makers on the ECB’s governing council said at the time they would buy €60bn-worth of private and public sector assets between March and September 2016. The better news on the eurozone economy has sparked speculation that the ECB will begin to taper its bond-buying before the autumn of next year.
Yves Mersch, a member of the ECB’s executive board, on Tuesday signalled policy makers would consider paring their bond buying should inflation show signs of hitting the ECB’s target of below but close to 2 per cent earlier than expected.
Prices fell by 0.1 per cent in the year to March, but the ECB expects inflation to hit 1.8 per cent by 2017. Mr Mersch told Börsen Zeitung, a German newspaper: “If we were to see that this process brings us to our goal earlier, then we are naturally not so tied to our decisions that we could not adjust things.”
Some market players have voiced concerns the ECB would struggle to buy bonds in the amounts needed because of a lack of issuance of debt by major eurozone governments.
“With the first month of its expanded asset purchase programme complete, the ECB can look back at a success,” said Christian Schulz of Berenberg Economics. “The operational implementation has been smooth and the policy effectiveness probably exceeded the ECB’s own expectations.”
However, eurozone central bankers have privately acknowledged that it may become tougher for the ECB to buy in the volumes needed during the second half of the programme, set to end in the autumn of 2016.
Since QE was announced the outlook for the eurozone’s recovery has improved, partly because of the impact of the policy in weakening the euro against the dollar. The slump in the price of oil, as well as the cheaper euro, has helped boost expectations that 2015 will be the year when the eurozone’s lacklustre recovery strengthens.
The average maturities of the national bonds bought ranged from six and-a-half years to more than 11 years.
The ECB has also bought €4.89bn-worth of asset-backed securities and €64.7bn in covered bonds since last autumn, which are included in the €1.1tn set aside for QE.
Расте натискът върху украинския корпоративен дълг
Войната на Киев с про-руските сепаратисти и дълбоката икономическа нестабилност на Украйна разклатиха доверието на инвеститорите в платежоспособността на местните банки и компании, а някои от най-големите корпоративни играчи водят битка да погасят дълговете си. Въпреки че украинското правителство подписа договор за спасителна финансова инжекция с МВФ и преговаря с кредиторите за преструктуриране на държавните задължения, корпоративният сектор на страната е изолиран напълно от международните капиталови пазари. А облигациите, емитирани от някои от най-големите местни компании, се могат да се купят за по-малко от 50% от номиналната им стойност.
В тези екстремни условия на подозрителни международни вложители в украински книжа и падаща гривна, които оскъпяват деноминираните в щатски долари дъгове, украинският корпоративен сектор се бори да спечели време. Някои ключови играчи от него вече започнаха доброволно преструктуриране на задълженията си след преговори с кредиторите.
Ukraine’s corporate sector is playing for time as international bondholders hover and its falling currency — the hryvnia — inflates dollar-denominated debts.
Some key industrial players have already entered into voluntary restructuring with creditors, including the biggest iron ore miner Ferrexpo, and the largest steel producer, Metinvest, which controls half of Ukraine’s steel market, both for bonds worth $500m.
The biggest private energy company, DTEK, is seeking to restructure a $200m bond, after many of its power plants and mines, which are concentrated in the conflict zone in the east, were damaged and destroyed by shelling from rebels and the Ukrainian army.
The energy group’s owner and Ukraine’s richest man, Rinat Akhmetov, has seen $5.8bn wiped off his fortune in the past year, according to Forbes.
“Two years ago, bond trading was driven by balance sheets,” said Mr Bagnenko. “But when the situation was really deteriorating, everyone in the market changed into geopolitical analysts.”
Last year, several companies went bankrupt, including agricultural firm Mriya Agro and VAB Bank, and further defaults will follow if the background situation does not improve, according to Moody’s, one of the world’s leading credit rating agencies.
The hryvnia has lost 50 per cent in the past six months and emerged as the world’s worst performing currency this year, making it more expensive for companies that borrowed in dollars but earn money in hryvnia to service their debts.
Meanwhile, the tightening of Kiev’s foreign currency controls at the start of March, as well as capital flight and weak banks, has left the country’s corporate sector facing a liquidity squeeze.
“There’s a credit crunch in the banking system, deposits have fled and there’s a lack of demand from an already low level — even before this latest crisis began, the economy was under-developed,” said Richard Segal, analyst at Jefferies.
Jason Trujillo, emerging markets analyst at Invesco, said the operating environment for companies in Ukraine had become extremely challenging over the past 12 months.
“Perhaps one of the biggest problems, is that, across sectors, foreign suppliers of key input materials, such as fertiliser, are demanding upfront payments before sending goods. This is a significant departure from the previous standard of 60-day payment terms,” he said.
Some of the biggest investors in Ukrainian corporate bonds include Ashmore, a UK-based emerging markets fund manager, and Franklin Templeton, a US fund manager.
“In time, the market will learn how to live in parallel with a slow brewing, frozen conflict, but as long as the risks are there that the conflict could boil over, it won’t be stable,” said Mr Bagnenko.
Подозрителни движения на австралийския долар
Here Are the Suspicious Moves in the Australian Dollar That Set Off an Investigation
The Australian dollar is up today after the Reserve Bank of Australia announced interest rates would remain unchanged, surprising most traders who were expecting a cut. However, regulators noticed that the spike actually began before the announcement was officially released. Even more bizarre, it's the third month in a row that the aussie has made a sharp move just moments before a monetary policy decision was made public.
As you can see of this chart of the minute before and after the 2:30 p.m. local release (22:30 U.S. Eastern Time) on February 3, the Australian Dollar Spot fell about 0.6 percent in the final seconds before the announcement was made.
On March 3, it jumped 0.6 percent:
And today, it was a 0.7 percent climb:
Securities regulators in Australia say they will investigate the situation to see why this keeps happening. However, the fact that the moves happened right before the announcement doesn't necessarily mean someone is getting the information early. Sean Keane, an Auckland-based analyst at Triple T Consulting, told Bloomberg News that a lack of liquidity in the moments leading up to the news release could be distorting the algorithms of some high frequency traders. With no buyers in those final few seconds before 2:30 p.m., the algorithm keeps amping up the price until it finds a match.
The Great American Invasion Into Europe’s Debt Market Has Begun
Just when debt-addicted American companies were starting to worry that Federal Reserve Chair Janet Yellen was going to take their proverbial punch bowl away, along came Mario Draghi.
The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger U.S. corporate-bond market. Borrowing in euros is all the rage these days because it’s about 2 percentage points less expensive to do so.
About 65 percent of the record 60 billion euros of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the U.S.
“The appeal of Europe is likely to continue throughout 2015,” Fitch Ratings analysts Michael Larsson and Monica Insoll wrote in an April 1 report. They predict non-European issuers will sell twice as much euro-denominated debt this year than they did in 2014.
The trend comes down to basic math.
Yields on investment-grade bonds in Europe have fallen to 0.99 percent, compared with 2.9 percent on those in the U.S., according to Bank of America Merrill Lynch index data. Debt is so cheap in Europe that U.S. companies are saving money even if they buy currency hedges that have gotten expensive as the dollar’s soared versus the euro, according to Fitch.
Junk Bonds
And it’s not just top-rated companies. Speculative-grade borrowers including Huntsman Corp. and IMS Health Holdings Inc. have also headed to Europe to raise cash, according to Fitch.
“Riskier credits also achieve a larger discount than stronger names, and this is likely to boost the U.S. high-yield footprint in Europe,” the Fitch analysts wrote. Stimulus-driven “search for yield is pushing European investors into embracing a wider range of credits.”
Yields of 4.3 percent on euro-denominated high-yield bonds are about 2.2 percentage points lower than those on dollar-denominated notes, Bank of America Merrill Lynch data show.
So even if the Fed does hike interest rates this year, it may not matter too much to U.S. corporate borrowers. They’ve found, courtesy of Draghi, a new source of financing that is plenty cheap.
~~The end of milk quotas in Europe is making a discount Emmental from Germany a stronger foe to Swiss cheese.
The European Union this month scrapped restrictions on how much milk dairy farmers can produce as the 28-nation bloc seeks to liberalize agricultural markets. The three-decades-old quotas indirectly limited cheesemaking by capping the supply of the fatty food’s main raw material.
The resulting increase in EU milk production – Rabobank forecasts that farmers will squeeze as much as 8 percent more from their cows by 2020 – will gradually increase competition in cheese just as the euro’s slump slices into the value of Switzerland’s Gruyere and Appenzeller exports.
“Difficult times lie ahead for the Swiss cheese market,” said David Escher, director of Switzerland Cheese Marketing AG, a trade group. “Because of the strong franc, foreign cheesemongers were forced to increase prices for Swiss cheese to cover their costs. But at the same time, the competition seized the opportunity to cut prices.”
Switzerland exported 17 percent less Emmental last year as Europeans bought cheaper alternatives to the archetypal hole-ridden Swiss cheese.
Supermarkets sell a cave-aged version made by Emmi AG’s Kaltbach brand in Switzerland for as much as 30.40 francs ($31.74) per kilogram, compared with 8.65 euros ($9.46) for a generic German-made knockoff at French retailer Carrefour SA.
Big Cheese
Cheese is Switzerland’s most important agricultural export. Shipments rose 0.4 percent to 68,255 metric tons in 2014, with the bulk going to Germany, Italy and France, according to Switzerland Cheese Marketing.
The side effects of the EU unbridling milk production may gradually force Swiss producers to backtrack on price increases that they took to offset this year’s 13 percent slide in the euro. Some Swiss cheesemakers lifted prices as much as 20 percent in the euro zone after Jan. 15, when Switzerland’s central bank abruptly stopped trying to keep a lid on the country’s currency.
“We got hit in the head by the strong franc,” said Daniel Daetwyler, managing director at closely held specialty exporter Intercheese AG. Price pressure will increase as cheesemakers take advantage of cheaper milk to increase production, he said.
Price-Savvy
Cheaper imports are spreading into Switzerland, where milk can cost as much as double as in France and Germany. About 30 percent of the cheese consumed by the Swiss last year was made by foreign producers, which can call their cheese Emmental but can’t print a special label on it that certifies it’s from the renowned cheese region.
Switzerland Cheese Marketing singled out German imports sold for as little as 4.80 francs per kilogram to “certain sectors of the food industry whose only criteria for purchasing is price.”
Emmi, which only uses Swiss milk for its domestically produced cheese, has increased euro-zone prices about enough to compensate for the drop in the value of the common currency, said spokeswoman Sibylle Umiker. The increased milk production in the EU will probably weigh on prices of mass-market mozzarella and industrial cheese more than specialty varieties, she said.
The company, whose name is derived from the cheese-producing town of Emmen in central Switzerland, is boosting marketing efforts to convince consumers of the benefits of Swiss cheese. Emmi has forecast revenue will drop this year after margins narrowed to a six-year low in 2014. Meanwhile, it’s cutting costs.
“Emmi will not weather the difficult year entirely unscathed,” Chairman Konrad Graber and Chief Executive Officer Urs Riedener wrote in the company’s annual report. “However, given the various measures, we are confident that the losses will be within a range that is easy to digest.”
