EU-DIGEST

Labels: Banking system, Economy, EU, euro

Eastern European banks given €24.5bn aid - by David Charter

A €24.5 billion (£21.8 billion) bailout of Eastern European banks was announced yesterday as efforts were stepped up to prevent the economic downturn causing a damaging East-West split on the Continent. The funds will come from the European Bank of Reconstruction and Development (EBRD), the World Bank and the European Investment Bank (EIB). The EBRD, set up to help former Iron Curtain countries to make the transition from communist rule, will be providing up to €6 billion for the financial sector in 2009-10. The EIB will commit €11 billion and the World Bank €7.5 billion.

The move came as European leaders prepared for a summit tomorrow called by the Czech Republic, which holds the rotating presidency of the European Union.

Labels: Banking system, Eastern Europe, EU Economy

UK - The mad world of shadow bankers -by Ian Macwhirter

The madness of the shadow banking system became apparent over a year ago when Northern Rock was nationalised, but regulators ignored the implications. The Treasury minister Yvette Cooper discovered to her dismay that Northern Rock didn't own half of its own mortgages: £50bn had been hived off to a Jersey-based company, Granite, registered as a charity benefiting Down's syndrome children in the north-east of England. Needless to say, the charity didn't get any cash - this was a special-purpose vehicle that allowed the Rock to trade in complex securities without having to meet the stringent capitalisation requirements of a normal bank. But it wasn't just the Rock. Most banks and other financial institutions did exactly the same, setting up "orphan companies", often under charitable trusts, that did not appear on their published balance sheets. This is one reason why such apparently well-capitalized and solvent institutions as Royal Bank of Scotland collapsed so suddenly. Their true liabilities had been hidden for years in the shadow system while they made huge profits from lending.

How did they get away with it? If you or I set up fictitious offshore identities to evade tax and conceal high-risk financial activities, we would end up in jail. But the regulators turned a blind eye, partly because they didn't fully understand structured finance, and partly because the government believed that it must be a good thing, as it generated so much profit and tax revenue. This was the regime of "light-touch regulation" of the City that turned the British economy into a cross between a Liechtenstein tax haven and a giant hedge fund.

Labels: Banking system, Britain, EU, Fraud

Europe to suspend banks mark-to-market accounting- "Legalizing Banking Fraud"

European leaders have agreed to seek measures to suspend so-called "mark-to-market" accountancy rules in order to stabilise bank balance sheets, a statement said on Sunday. According to an action plan released by the 15 leaders of the eurozone single-currency bloc, equities held by banks will no longer be recorded at their current values on the world's severely depressed markets. "Under the current exceptional circumstances, financial institutions should be allowed to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets, may no longer be appropriate," the statement said.

The leaders hope that by suspending this requirement, banks balance sheets will look more healthy and the risks will be reduced that they be swept away by a run on the markets.

Labels: Banking system, EU, Eurozone, meltdown

France - Banque Populaire and Caisse d'Epargne in tie-up talks - by Scheherazade Daneshkhu

Groupe Banque Populaire and Groupe Caisse d'Epargne, two of France's biggest savings banks, have entered into merger talks in an attempt to weather the financial market turmoil. If successful, the merger between the mutually owned banks would create France's second-biggest retail bank after Crédit Agricole, which took over Crédit Lyonnais in 2003. It would have a network of 8,200 branches and, according to the banks, €480bn ($656bn) of savings and deposits.

Labels: Bank Mergers, Banking system, EU, France

Unicredit CEO: Italian banks "absolutely solid"

UniCredit SpA (UCG.MI) Chief Executive Officer Alessandro Profumo said in an interview published Tuesday that Italy's banking sector, including the bank he leads, is "absolutely solid." "We've had some problems, but the bank has always been very solid and now it's even more solid," Profumo told Rome daily La Republica.

Labels: Banking system, EU, Italy

ECB liquidity injections not working - by Leigh Phillips

The billions of euros the European Central Bank has been injecting into money markets since the start of the crisis in an attempt to get banks to start loaning money to each other and other businesses is not working.Instead, banks are redepositing some of the monies back with the ECB itself - over €100 billion overnight as of Tuesday (30 September - the latest available figures) - as they are worried that the central bank is the last safe place left to stash their cash.

As of last Tuesday (23 September), banks had "parked" €1.4 billion with the ECB's "deposit facility." By Thursday, the figure had climbed to €4.2 billion and jumping to €28 billion the next day. On Monday, banks were now depositing €44 billion with the ECB and as of yesterday, the latest figures available, the cash placed with the bank for safekeeping had more than doubled to €102.8 billion.

Labels: Banking system, ECB, EU

Little Crisis for Europe's Banks - by Carol Matlack

Suddenly, stodgy banks are looking smart. And with former Wall Street giants toppling almost daily, some European banks are starting to look especially wise. European banks are holding up pretty well amid the turmoil sweeping the industry. None of the Old World's biggest banks appears likely to fail or put itself on the block, analysts say. Indeed, the Europeans are more likely to be buying: London-based Barclays (BCS) on Sept. 17 inked a $1.75 billion cash deal to buy the investment banking and trading businesses of bankrupt Lehman Brothers.

Labels: Banking system, EU Economy

Labels: Banking system, China, EU

As faith in bank bailouts dims- by Pedro Nicolaci da Costa

The nightmare scenario for U.S. economic authorities is here: confidence in their ability to rescue the country from a housing-led financial panic is now at its lowest level since the crisis began. This means losses for investors, already totaling nearly half a trillion dollars, could mount even further over the next few months, with implications for business investment and the overall health of the economy. "You see a massive potential for financial meltdown on a global scale," said T.J. Marta, fixed-income strategist at RBC Capital Markets.

Bloomberg reports: ``Hopes for a bottom'' this year in home construction ``are rapidly fading,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. The housing recession ``has been spilling over to manufacturing for months,'' contributing to ``recessionary conditions,'' he said. Commodity on line reported: "A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality".

Labels: Banking system, US Economy

US Economic Meltdown - Credit card crises now looming in America: - by Danny Bubp Ohio State Representative

"Credit card companies have dozens of reasons, I should call them excuses, for raising our interest rates. I have read that these large banks have formulas for their computers to automatically raise rates when they can determine that a family is trapped in a debt too large to handle. Some of these large banks are as bad as loan sharks. When the banks' computers detect that a consumer is near the maximum on his card and is only making the minimum payment, the rates are raised. Why would credit card companies push someone who is already in trouble into deeper trouble? Because they can. These large banks are now protecting themselves just like they did with the sub-prime mortgage fiasco. They are transferring their risk on bad credit card loans to insurance companies. We could very easily find ourselves in another national financial crisis. And this crisis would be handed to the taxpayers, just like the mortgage crisis was. However, the gigantic banks that control most of our banking systems are only interested in short-term profits and are working against the long-term health of the US economy."

Labels: Banking system, Credit Cards, US Economy

An ailing America awaits Bush's successor - by Robert L. Jamieson Jr.

Whichever candidate eventually wins the White House faces a world of woe, courtesy of a Bush administration that can't exit stage right fast enough. Leftover trouble will come at the next president -- "at 100 miles per hour, like a cannonball to the chest," said Congressman Jim McDermott of Seattle, who made the rounds in town last week.On Jan. 20, 2009, the fresh quest begins -- a new president's push to cure America on its sickbed.

Labels: Banking system, Credit Cards, Economy, US

A special report on the credit card industry

EU-Digest Special Report: Credit Card Industry and Member Banks Sticking It To The Consumer

There are plastic time bombs sitting in your wallet - they are called credit cards. The "bargain" you bought at your favorite store with your credit card will increase in price by at least 28 percent, within a year, if you keep that purchase on your credit card by not paying off your credit card monthly.

The situation in the credit card industry is getting out of hand on both sides of the Atlantic. In Europe earlier this year the European Commission's antitrust regulator said in a draft summary it would possibly investigate banks and payment card providers for colluding on prices and using practices aimed at keeping competitors out of their markets. Also, according to the report, credit card fees and interest rates vary between countries, which indicate that there is limited cross-border competition.

In the US, this past Tuesday, the Merchants Payments Coalition, which groups about 30 associations, representing almost 2.7 million stores in America, applauded a congressional hearing on unfair credit card practices in the United States. The hearing, held by the US Senate Permanent Subcommittee on Investigations, is one of several meetings already held this year to investigate the allegedly unfair practices imposed on consumers and merchants by credit card companies and their member bank companies. "This hearing is another example of how serious the issue of credit card abusive practices is for everyone", said a Senator on the Subcommittee. "The credit card industry is profiting from outrageous fees". During the Tuesday Subcommittee meeting the discussion also focused on the so-called "interchange" fee, which represents a percentage of each transaction that American Express, Discover Visa, MasterCard and their member banks collect from retailers every single time a credit or debit card is used to pay for a purchase. The fee varies with the type of merchant, transaction, and card, but averages out to roughly 2% per transaction. This fee is the reason why some merchants require a minimum purchase of X amount before they will permit a customer to make their purchase using a credit or debit card. Unfortunately, the US Congress so far has only held discussions, but has done nothing to actually reduce or limit the exorbitant fees, sky-high penalties, and above normal interest rates being charged to cardholders. The need for action is becoming more and more pressing. Specially now the US Federal Reserve has cut benchmark interest rates. The credit card companies and their member bank companies have not followed suit after the interest rates were dropped and are still charging abnormally high interest rates and ridiculously bloated service fees.

In the US the five banks that issue most Visa and MasterCards include JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC. Surveys show all these banks have a poor reputation for making their Customers pay outrages fees for services and far higher than normal interest rates. The Household Bank MasterCard has a cash advance rate of 25.15 percent. Blue from American Express and Sun Trust’s Visa charge 23.34 percent. On top of that, there usually is a transaction fee of 3 percent or more. Someone using their Chase credit card to get a $1,500 cash advance will pay about $465 in interest and fees for this so-called "service" within the first year.

During the past months the Central Banks from all over the world have pumped billions of hard currency into the world-wide banking system to fight off liquidity problems, mainly the result of their own making and poor judgment. So far, the benefits of the Central Banks bailout have not trickled down to the US consumer, where household debt continues to rise, after it reached $14.2 trillion in the third quarter, or a record 138% of US household disposable income, up from 113% in 2002.

Therefore it seems that one of the areas which urgently needs to be looked at by governments world-wide is the unregulated credit card industry.

Figures today show that the average American owes about euro 6,872 ($9.900.00) in credit card debt, which amounts to a staggering total of euro 639bn ($920bn)for the whole US. In Europe, according to the BBC and the Credit Action Group the average European has about euro 2,185.00 ($ 3,147) of unsecured/credit card debt. One third of the total European credit card debt involves British credit card owners. Banks in Britain generally apply American credit card policies and standards.

Given these facts and the steady rise in the use of credit cards and consumer debt in the EU, the European Parliament would do EU consumers and the economy a service to also open an investigation into the practices of the credit card industry, but hopefully with better results than the US Senate Permanent Subcommittee on Investigations has achieved so far for American citizens.

Labels: Banking system, Credit Card Companies, EU Economy, Legislation, US Economy