Monte Paschi Said to Seek Fast Sale of Bad Debt After EU Consent
bySonia Sirletti
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andLuca Casiraghi
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March 7, 2017 7:18 PM EET
Banca Monte dei Paschi di Siena SpA wants an accelerated sale process of about 28 billion euros ($29.6 billion) of bad loans to start as soon as European authorities approve its new business proposal, according to people familiar with the matter.
Monte Paschi intends to sell all of the loans in a single block and it will only give bidders one month to analyze the debt before requesting bidding offers, said the people, who asked not to be identified because the plans are private. The bank may sell the portfolio for less than 25 percent of its gross book value, the people said.
The troubled Italian lender is drafting a new business plan that needs to be validated by the European Commission so the bank can get aid from the Italian government. State intervention became necessary after efforts to find anchor private shareholders failed in December.
The EC will only approve the plan if it meets European regulations that seek to reduce state intervention in banks. The commission, which is working with the European Central Bank and Italian authorities, hasn’t said when it will approve of the government-led recapitalization for Monte Paschi.
The bank is already contacting international funds to gauge appetite for the debt, the people said. Sales of soured loans typically take several months, with at least two bidding rounds for interested parties.
A representative for Monte Paschi in Siena declined to comment on the plan.
Monte Paschi has about 46 billion euros of bad and doubtful debt on its balance sheet, representing 34.5 percent of all its loans as of December, according to company statements. That compares with an average of 16 percent for the other five largest Italian banks, according to data compiled by Bloomberg.
The EC approval of the new business plan will determine what size losses Monte Paschi can book as a result of the sale without breaching minimum capital requirements, the people said. That will help to determine the exact amount of bad loans it can ultimately dispose of, they said.
Greek Firms Have Found a Way to Dodge Payroll Charges
bySotiris Nikas
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andAntonis Galanopoulos
More stories by Antonis Galanopoulos
March 7, 2017 4:03 AM EET March 7, 2017 6:39 PM EET
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Creditors want labor reform as Greece sees more exploitation
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Labor market reform among sticking points in bailout review
When Maria’s employer, a large communications company in Athens, gave her additional tasks at one of its new units, it told her she wouldn’t be paid for the work in euros.
“I was informed that this extra payment of 150 euros per month would be in coupons that I can use in supermarkets,” said the 45-year-old, declining to provide her last name for fear of losing her job.
Payments in kind are among practices companies are using in Greece as they seek to cap payroll costs, undermining efforts to balance the books of the country’s cash-strapped social security system. As creditors push the government to boost its budget surplus, companies avoiding payroll charges and effectively expanding the shadow economy are making the task harder. By some estimates, the so-called black market already accounts for as much as a quarter of Greece’s economy.
“Such practices help companies to avoid social contributions, but the burden for the economy is huge,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business. “Less contributions for pensions means more budget transfers to them which then leads to more austerity measures to meet fiscal targets, measures that will probably hit pensioners.”
Greek officials have been meeting in Athens with representatives of the euro area and International Monetary Fund to set out the policies the country must undertake to unlock more bailout loans. The government foresees an accord in March or early April, but the scale of pending issues raises concerns they may be politically hard to sell at home. Greece has agreed to target for a budget surplus before interest payments equal to 3.5 percent of gross domestic product for 2018, which could mean more belt-tightening.
Greek bailout talks are progressing, though an agreement before the next meeting of euro-area finance ministers on March 20 is unlikely, a European official familiar with the negotiations said. The main impediments to a staff-level agreement include pension cuts, labor market reform and offsetting measures, said the official who asked not to be named as the talks are private.
Labor Differences
Prime Minister Alexis Tsipras’s government finds itself between a rock and a hard place as it tries to appease creditors while avoiding mass protests. After an anemic recovery, the Greek economy shrank again in the fourth quarter, raising the specter of growing tensions at home even as European creditors and the IMF push for more austerity.
With an economy that has shrunk by more than a quarter in the last seven years, Greece has an unemployment rate of 23 percent, close to a historic high. Creditors, meanwhile, are demanding greater labor-market flexibility that would make it easier for companies to hire and fire people. They want the threshold of collective dismissals to be doubled to 10 percent and demand that Athens not revoke any of the measures legislated during the crisis.
Rising Complaints
The government is pushing back, concerned about a rise in exploitative employer methods, like payments in kind and unilateral firings. It is seeking to reintroduce collective bargaining, asking that the issue be addressed during the second bailout review, which is slated to be concluded within the next two months.
“Reality proves the necessity of reinstating the collective bargaining framework and having strong collective agreements that will protect employees from such arbitrary phenomena,” Labor Minister Efi Achtsioglou said, conceding that employers are increasingly cutting corners. “When collective and sectoral agreements exist, there is less delinquency and the workforce has more tools to fight for their rights.”
Thanos Vasilopoulos, the vice president of the Private Workers’ Federation, says employee complaints have been mounting.
“There are complaints from employees that they’re made to sign individual contracts under which they agree to reduced payments and for a part of their salary to be paid in coupons,” Vasilopoulos said in an interview. “There have been complaints for five companies. Among them is a big shipping company. On the same list you can see a company in the services sector, one in logistics and insurance companies.” He declined to provide names.
For overtaxed Greek companies, dodging social security contributions through payments in kind has become a way to make ends meet. According to the latest available data from the Organization for Economic Co-operation and Development, the average single worker in Greece faced a tax wedge of 39.3 percent compared with an average of 35.9 percent among developed economies. About half of the burden falls upon employers.
“We do not have the exact picture,” said Nasos Iliopoulos, an official in Greece’s Labor Ministry. “But it is clear that it is not legal to replace payments with coupons. It is only permitted to give coupons as an extra bonus. Companies are seeking to gain from lower social contributions and also from not paying for extra working hours.”
For many employees, battling such methods in the face of the country’s high unemployment seems impossible. Take Ino, for example. The 50-year-old who works for a large conglomerate was told when she was hired that only a part of her compensation would be made through official channels.
“So, out of a monthly salary of 1,000 euros, only 300 euros is legal,” she said, declining to reveal her last name for fear of being fired. After Greece put capital controls in place in the summer of 2015, the company stopped paying her for two months. When payments resumed, she was forced to take a 20 percent cut and offered 100 euros in coupons as a “good-will” gesture.
For Professor Tsakloglou, who was Greece’s representative at the euro area’s Eurogroup Working Group between 2012 and 2014, such practices don’t bode well, trapping the country in a vicious cycle of bailouts and austerity it desperately needs to break out of.
“Greece needs new investments to create new jobs and address these issues,” he said, adding that the only way to do that “is to put an end to the uncertainty that exists due to the endless bailout review talks. Otherwise, a number of competitive advantages such as low asset prices and substantially reduced labor cost, will be wasted.”
These Economies Are Getting More Miserable This Year
Venezuela tops the list once again, but it's the moves in the middle that matter
byCatarina Saraiva
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andMichelle Jamrisko
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March 3, 2017 7:01 AM EET
People try to cross the border into Colombia as members of the Bolivarian National Guard hold a checkpoint in Urea, Venezuela, on Dec. 18, 2016.
Photographer: Carlos Becerra/Bloomberg
If 2016 was the year of political shocks, this year could be when we find how they'll impact the global economy. Bloomberg's Misery Index, which combines countries' 2017 inflation and unemployment outlooks, aims to show us just that.
For the third year in a row, Venezuela's economic and political problems make it the most miserable in the ranking. The least miserable country is once again Thailand — in large part due to its unique way of calculating employment — and the rest of the ladder features noteworthy moves by the U.K., Poland and Mexico, to name a few.
Economic woes have plagued Venezuela for years. Sluggish oil prices, the country's only significant export, have fueled a crisis that has left grocery store shelves empty, hospitals without basic medication and violent crime rampant as desperation leads to anger. While the country has not reported economic data since 2015, Bloomberg's Cafe Con Leche Index, which aims to track inflation via the cost of a cup of coffee, shows a price surge of 1,419 percent since mid-August. Economists estimate that prices will rise almost six-fold this year, according to the median estimate in a Bloomberg survey.
A turn for the worse
Moving closer to Venezuela territory — though no country even comes close to its score of nearly 500 — are a handful of central and eastern European countries.
Poland, which experienced the biggest negative move in the rankings, clocks in at No. 28 among this year's 65 economies, from a rank of 45 in last year's index of actual performance. The higher the ranking, the more miserable the economy. Though it's seen a steady decline in its unemployment rate since the financial crisis, inflation rose to 1.8 percent in January after Poland's longest period of deflation on record. Similar price increases in Romania, Estonia, Latvia and Slovakia drove large jumps in the countries' Misery Index rankings.
The misery also has deepened in Mexico, according to the index. After finishing 2016 at No. 38, it's slated to rise to 31st place as inflation balloons to a forecast of 5 percent in 2017 from an average 2.8 percent last year. A combination of the end of government fuel subsidies and the peso's 11 percent decline against the dollar since the U.S. presidential election in November is pressuring prices.
The U.K.'s move by two notches toward more misery comes on the heels of the Brexit vote. The popular referendum that cemented the start of the country's move out of the European Union has driven the pound to a more than 30-year low, pushing up the cost of imports and, along with it, inflation. Price growth has been sluggish in the U.K. since oil prices fell at the end of 2014.
Looking Up
Making strides to become less miserable is a diverse cast of characters: Norway, Peru and even China.
Norway's economic woes could at least lower prices for consumers this year, allowing the country some room to improve on last year's mediocre performance and become less miserable by 18 spots. Economists see oil spending slipping in 2017 while unemployment holds at around 4.8 percent — the latter perhaps a credit to the government's spending spree.
Peru also is poised to impress with a noteworthy 13-position move toward a happier economy this year. Again, this is good news for bad reasons: Peru was more miserable than expected in 2016 as a drought sparked food-price inflation and weak domestic demand weighed on the labor market. Economists appear to agree with Peru's central bank, which sees improvement in investment and trade on the horizon.
Rounding out the most-improved in the rankings this year should be Hong Kong, Taiwan, the Netherlands, China, Ecuador and Russia — each set to move down nine spots or more. A rosier outlook in China, the world's second-biggest economy, is a boon for global prospects. The U.S. remained among the 20 least miserable countries (at No. 49), though now a few spots worse than China, with which it tied in 2016.
For full rankings, please see the table. Bloomberg's misery index comprises 65 countries and is calculated by adding together the forecasts for a country's rate of inflation and unemployment. A higher score indicates more 'misery.'
With assistance from Andre Tartar, Cynthia Li, Sarina Yoo and Harumi Ichikura.
