EU-DIGEST

Europe Has `Urgent' Need for Bank-Failure Plan, Economists Say - by Scott Lanman

European officials have an ``urgent'' need of plans to cope with a failing bank, particularly in countries where lenders' assets exceed the size of the economy, according to a paper presented today at an annual Federal Reserve conference. Failure of a large bank in Belgium, Switzerland or a similar country would require cooperation across borders to avert broad economic damage, Franklin Allen of the University of Pennsylvania and the University of Frankfurt's Elena Carletti wrote in the paper.

Labels: Banking, EU, EU Economy

Crédit Agricole to cut investment banking - by Adam Sage

Crédit Agricole will scale down its investment banking business after stunning investors with the announcement of a €5.9billion (£4.6billion) capital increase following a new round of sub-prime writedowns yesterday. The move came as Société Générale, the rival French bank, also declared huge writedowns as the credit crunch rumbled across Europe. With Crédit Agricole's share price tumbling in the wake of a fresh debacle, Marc Litzler, the chief executive of Calyon, its investment unit, is set to be pushed aside this week.

Labels: Banking, Crédit Agricole, EU Economy

Europe's Biggest Banks Forecast Huge Losses

Europe's biggest banks are revealing more damage from the risky assets they piled on when times were good. As those assets go sour, Germany's biggest bank, Deutsche Bank, says it expects to lose about $4 billion this quarter. The losses were much bigger for Switzerland's largest bank, UBS, which says it's losing $19 billion from bad real estate investments. That's on top of $18 billion in losses last year. The Swiss bank's CEO is stepping down, and the bank is now looking for outside investors for an emergency cash infusion.

Labels: Banking, Economy, EU

UK, France want action on credit crunch, U.N. reform

British Prime Minister Gordon Brown and French President Nicolas Sarkozy will build on a new spirit of Anglo-French cooperation this week by calling for action to halt financial turmoil and by urging U.N. reform.
They will also discuss a possible French role in building new British nuclear power plants, action on illegal immigration and how to square French wishes for a greater EU role in defence with Britain's staunch support of NATO.
Sarkozy arrives in Britain on Wednesday for a two-day state visit, the first by a French president since Jacques Chirac in 1996. He and his new wife Carla Bruni will be guests of Queen Elizabeth at Windsor Castle, near London.

Labels: Banking, Britain, EU, France

Dutch-Belgian Financial group Fortis takes 1.5-billion-euro subprime hit

Dutch-Belgian financial group Fortis said Friday 2007 net profit fell 8.2 percent after it took a 1.5 billion euros (2.3 billion dollar) hit because of the US subprime home loan crisis. "This result is based on a prudent approach to impairments, using stringent assumptions on super senior collaterized debt obligations (CDOs) with subprime exposure," Fortis said in a statement. Fortis said it had a 2007 net profit of 3.9 billion euros but this included 900 million euros from the sale of its CaiFor unit to Spanish bank Caixa. Excluding this exceptional gain left a net profit 3.06 billion euros, a 30 percent drop compared to the 2006 figure. Together with its partners Royal Bank of Scotland (RBS) and Spain's Santander, Fortis recently took over Dutch bank ABN Amro, for a record sum of around 71 billion euros.

Labels: Banking, EU, Fortis, subprime, US Economy

Capitalist Meltdown - by Michel Rocard former PM of France and leader Socialist Party

All the ingredients seem to be in place for a long and powerful perfect storm of economic decline and social unrest. We in the developed world live in democracies. Every four or five years, the legitimacy of the system needs to be confirmed by elections. But is the system being so delegitimized by the economic and social turmoil that elections will no longer be viable?

Of course, capitalism remains more compatible with personal freedom than communism ever was. But it is now blindingly obvious that capitalism is too unstable to survive without strong public regulation.

Labels: Banking, Capitalism, Economy

Plastic time bombs in your wallet
A special EU-Digest report on the credit card industry and their member banks

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, Credit Card Companies, European Parliament, US Senate

Sharif University of Technology, west of Tehran, played host to the International Conference on Islamic Finance Proceeding Monday. Attended by a host of domestic and foreign officials and experts, the get-together aimed to explore avenues to use huge financial resources of Muslim states, to introduce policies on Islamic finance, to hold training courses for managers, and to share achievements and experiences of industrial organizations.Seyyed Hamid Purmohammadi, deputy minister of economic affairs and finance for banking and insurance affairs, for his part, said Iran was the first country that passed riba-free (usury-free) banking law in 1983 and established Islamic banking system.

Today and tomorrow he conference will be followed by two workshops entitled “Hedging in Islamic Finance” and “Sukuk: Principles, Structure & Performance”.

Labels: Banking, Economics, Iran, Islam

The World Economy: A US Fed Panic and a Massive Bailout of American Banks Paid for by the Entire World - by Prof. Rodrigue Tremblay

First, we must consider that the U.S. dollar is still a key reserve currency, although loosing ground to the euro, and it is still being held in massive amounts by most central banks in their foreign reserves, and also by private banks, commercial and economic entities and individuals around the world. For example, in early 2007, foreign central banks alone held some two and a quarter trillion in U.S. dollars reserves, which represented about 66 percent of their total official foreign exchange reserves, with a bit more than 25 percent being held in euros.

Since the dollar is loosing its purchasing power, both in absolute and relative terms, central banks and other foreign investors have been "taxed" by the American Fed's policy of benign neglect regarding the dollar. In real terms, the seigneurage tax on foreign holders of the dollar can be measured by taking the difference between the annual rate of depreciation of the dollar vis-à-vis major convertible currencies and the short-term rate of interest on these reserves. For example, if the annual rate of depreciation of the dollar is five percent and the short-term rate of return on U.S. T-bills is four percent, central banks are loosing some $22.5 billion on a yearly basis. Since private foreigners hold more than two trillion in dollar denominated debt, the net annual loss of foreign holders of U.S. dollars can easily reach $50 billion a year. The conclusion is easy to see: Not only have foreigners been heavily financing the large U.S. government's deficits over the last six years, but they are now being called upon to help finance the generous bailout of American financial institutions.

If old regulations are not implemented or if no new regulations are put into place, such a massive bailout will insure that American financial institutions will continue in the future to pursue the fast buck in creating risky artificial capital, without due regard to the risks involved for small borrowers and small savers, while the Fed will take responsibility for shifting losses partly on itself but mainly to holders of American dollars. In effect, the Fed is suspending market discipline for the big financial players it puts under its protection, while letting market discipline crush small homeowners and small investors who bought now foreclosed houses on shaky mortgages or who invested their savings in fraudulent and risky collateralized debt obligations (CDOs).

Labels: Banking, US Economy, World Economy

As Barclays slugs it out with Royal Bank of Scotland for ABN Amro, the focus of consolidation in the continental European banking sector switched to Italy yesterday.

The Milan-headquartered UniCredit will acquire the smaller rival Capitalia for more than euro 21.33 bn after the board of directors of both banks met yesterday to approve a deal to create the Europe's second-biggest bank by market value.

Labels: Banking, EU

Barclays PLC said Monday it agreed to buy the Netherlands' ABN Amro Holding NV for euro67 billion ($91.16 billion) in the largest ever takeover in banking history.

The merger will create a bank headquartered in Amsterdam with 47 mln customers worldwide. The combined entity expects to save euro3.5 billion annually by 2010. 12,800 jobs will be trimmed from a work force of 217,000.

Labels: Banking, Council of Europe, The Netherlands

Velkomin to the United States of Foreclosure - by Mike Whitney

The stock market is about to crash. The only question is whether it will quickly fall down the elevator shaft or follow the jerky flight-path of a man pushed down a stairwell. Either way, the outcome will be the same; stocks will nose-dive, the dollar will plummet, and the bruised US economy will be splattered on the canvas like George Foreman in "Rumble in the Jungle". Troubles in the sub-prime market have just begun to materialize and already 38 main sub prime lenders have gone kaput. Foreclosures have reached a 37 year high, and an estimated 2 million homeowners will be put out on the street in the next few years.

The storm is just ahead. The stewards of the system--Paulson, Bush, Bernanke--could care less about the public welfare. All their energy is devoted to building a lifeboat for themselves and their fat-cat buddies. Once, they’ve robbed the last farthing from the public till they’ll be gone, and we’ll still be marching along the path to national calamity.

High-flying US fund manager Jim Rogers summed up the impending crisis like this: “You can’t believe how bad it’s going to get. It’s going to be a disaster for many people who don’t have a clue about what happens when a real estate bubble pops. Real estate prices will go down 40-50% in bubble areas. There will be massive defaults. And it’ll be worse this time because we haven’t had this kind of speculative buying in U.S. history.”

Labels: Banking, Business, Economy, Government, US

Banking collapse is bigger worries that stock market crash during deflation - by Joe Weinman

No one in the market place believed the Dow could go down 400 points or more in a day during 2007. The VIX (the scare indicator of Wall Street) showed the level of complacency. What is really scary is the total confidence the people still have in the banking system. The recession during deflation is so severe that 50 to 70% of the banks can eventually go belly up from losses in real estate, investment portfolios and more. Banking collapse is probably a bigger worry than a stock market crash during deflation. The checks and ballances within the banking systems are extremely weak. The cause is similar to the past, and common sense says the effects will be similar too.

The banks and financial institutions are paying salaries and bonuses like never seen before since the decline of the Roman Empire. These are all signs of bubbles. The confidence is so high that overconfidence will eventually bring down the banking empires."

Labels: Banking