An interesting development in the Italian banking sector today – Alessandro Profumo, the former chief executive of UniCredit, has today been indicted in a tax fraud case, according to reports from Milan.
Profumo is one of 20 bankers charged with alleged tax fraud. According to Bloomberg, several other former Unicredit execs are also facing trial, along with some former staff from Barclays. Details here.
The European Union has said that the G7 conference call (due to start in 25mins) will allow the EU to update its partners on the region's response to the ongoing crisis.
At the regular midday briefing, an EU spokesman also explained that the G7 call is part of a "regular exchanges of views", so we shouldn't panic just because finance ministers are talking.
It's not clear, though, which EU officials will be on the call:
EU says cannot yet confirm if EU's Rehn will take part in the G7 call
— Fabrizio Goria (@FGoria) June 5, 2012
City analysts and traders hope that the G7 can make some headway in their conference call at noon BST, but they aren't terribly confident.
Michael Derks, chief strategist of currency trading site FxPro, commented:
Frankly, given the incredibly fragile sentiment evident over recent weeks, the G-7 needs to come up with something fairly convincing to soothe the nerves of traders and investors alike.
A man walks past a board showing graphs of Japan's stock price indexes outside a brokerage in Tokyo, earlier today. Photograph: Toru Hanai/Reuters News of the talks did help push shares higher in Japan overnight, where the Nikkei finished 1% higher. There's less optimism in Europe, though, with German shares lower, and Wall Street expected to open slightly lower (but that could change, depending on how the G7 call goes)
Another piece of poor economic news – German industrial orders fell by 1.9% in April. That is the biggest drop since last November, and worse than expected (economists had predicted -1.1%)
Yet another sign that the eurozone economy has deteriorated in recent months - although the German economy ministry did point out that March had seen surprisingly strong growth, so a fallback in April shouldn't be a shock.
Reuters is reporting that G7 finance minister will hold their conference call to discuss the eurozone crisis at 11am GMT, so in an hour and half's time.
More euro economic gloom -- retail sales across the single currency region fell by 1.0% in April, compared with March. That's the biggest monthly fall since last December.
On a year-on-year basis, retail sales were 2.5% lower than a year ago.
Howard Archer of IHS Global Insight said it was "a dismal day for the Eurozone on the economic front" (with the service sector shrinking at its fastest rate in almost three years).
After an early rally, European stock markets have dropped back, with Germany's DAX in the red again:
DAX: down 54 points at 5923, - 0.9%
CAC: up 7 points at 2962, + 0.26%
IBEX: up 20 points at 6260, + 0.29%
That follows the news that Eurozone private sector shrank again last month (see 9.36am)
Traders work at the stock exchange in Frankfurt yesterday. Photograph: Daniel Roland/AFP/Getty Images German shares also fall yesterday, on concerns that its exporters will suffer from a global economic slowdown, or worse, if the eurozone crisis is not resolved.
Europe's service sector has suffered its worst monthly decline in almost three years, in the latest evidence that the region's economy is shrinking.
Markit reported its latest PMI data this morning, and the picture across Europe was pretty bleak. Germany's service sector grew at its weakest amount for six months in May, while most other countries' sectors shrank:
Germany: 51.8 (where >50= growth, and <50=contraction)
Spain: 41.8
Italian: 42.8
France: 45.1
When combined with last Friday's manufacturing data (which was also grim), the data shows that the Eurozone's private sector shrank at its fastest pace since June 2009. At 46.0, May's 'composite PMI' was the fourth month in a row to show a contraction. Even Germany's output fell, although at a slower rate than the rest of the eurozone.
Latest economic data shows Europe's economy is shrinking. Chris Williamson, Markit's chief economist, said the data suggests eurozone GDP will fall by as much as 0.5% this quarter (having stagnated in Q1).
There is some convergence among member countries, but unfortunately only in the sense that all of the largest are now experiencing downturns. While Germany is contracting only marginally, alarmingly steep downturns are evident in Spain, Italy and now also France.
Italy seems to be faring the worst, with its PMI consistent with GDP falling by more than 1% in the second quarter.
Spain's Treasury minister has caused some disquiet this morning by stating that the country is effectively shut out of the bond markets -- just two day before it holds a debt sale.
Cristobal Montoro also appeared to signal that Spain needs international help, but not a full bailout, in an interview with Spanish broadcaster Onda Cero.
Montoro told the radio station that:
The risk premium says Spain doesn't have the market door open...The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt.
Spain's 'risk premium', measured by the difference between the yield on its 10-year bonds and the German equivalent hit record levels last week. As I type, the spread between the two bond yields is 515 basis points - a massive difference in borrowing costs.
Spain is due to auction €2bn of medium-term debt on Thursday.
Montoro expressed strong support for Europe to create a closer "banking union", saying a decision should be taken at the next EU summit at the end of June. He also argued that "European institutions" should provide funding to help recapitalise its banks, saying Spain needs to show how it will strengthen its banking sector.
That's why it's so important that the European institutions open up and help us achieve, help facilitate, that figure because we're not talking about astronomical figures.
Bloomberg reckons this is the first time a Spanish minister has called for outside funds. Prime minister Mariano Rajoy has long argued that the European Stability Mechanism should be able to recapitalise European banks directly (rather than via the state), without going as far as to state that Spain needs their help.
Montoro also said it was 'technically impossible' to bailout Spain itself – an acknowledgement that Europe's firewall isn't strong enough.
Britain saw its credit rating cut by one notch last night, by ratings agency Egan Jones.
Egan Jones slashed the UK's rating by one notch to AA-minus, from AA, and left a negative outlook on the rating. It warned that Britain may fail to trim its deficit as quickly has planned, saying in a statement that:
The over-riding concern is whether the country will be able to continue to cut its deficit in the face of weaker economic conditions and a possible deterioration in the country's financial sector
Not a very nice way to mark the Queen's Diamond Jubilee...
Egan Jones isn't one of the Big Three rating agencies, and at present it rates many countries as more of a credit risk than Moody's, S&P or Fitch.
Our Europe editor, Ian Traynor, argues in today's Guardian that a "United States of Europe" may be the only way to save the eurozone. Here's a flavour:
The USE – United States of Europe – is back. For the eurozone, at least. Such "political union", surrendering fundamental powers to Brussels, Luxembourg and Strasbourg, has always been several steps too far for the French to consider.
But Berlin is signalling that if it is to carry the can for what it sees as the failures of others there will need to be incremental but major integrationist moves towards a banking, fiscal, and ultimately political union in the eurozone.
It is a divisive and contested notion which Merkel did not always favour. In the heat of the crisis, however, she now appears to see no alternative.
The next three weeks will bring frantic activity to this end as a quartet of senior EU fixers race from capital to capital sounding out the scope of the possible.
As Rainman2 points out in the reader comments, three of Portugal's banks are being recapitalised to the tune of €6.6bn.
The move will mean Banco Commercial Portugues, Banco BPI and Caixa Geral de Depósitos can all hit Europe's tougher capital reserve requirements. The money is coming from Portugal's €78bn bailout (agreed last year, which included €12bn for its financial sector).
Crucially, Portugal is still meeting the terms of its rescue package, despite fears that a second bailout might be needed. Its Troika of lenders announced last night that the Portuguese financial reform programme "remains on track amidst continued challenges." That decision means Lisbon will receive its next tranches of aid, totalling €4.1bn.
The financial markets, though, are still pricing Portugal as a serious risk. It's 10-year bonds are trading at a yield of around 11.5% today, deep into the 'danger zone'.
Canada's finance minister Jim Flaherty. Photograph: Chris Wattie/Reuters The news that G7 finance chiefs are to hold a teleconference call today is a clear signal from the world's largest economies that the Eurozone must take rapid steps to stem the crisis.
The call was first revealed by Canadian finance minister Jim Flaherty last night. He told reporters that ministers and central bankers from Canada, the US, Britain, Japan, Germany, France and Italy would hold a special conference call to discuss the eurozone crisis, explaining that:
The real concern right now is Europe of course – the weakness in some of the banks in Europe, the fact they're undercapitalised, the fact the other European countries in the eurozone have not taken sufficient action yet to address those issues of undercapitalisation of banks and building an adequate firewall.
This mesage was reiterated by the US government, with White House press secretary Jay Carney warning that "more steps need to be taken" to address the crisis and reassure the financial markets.
And overnight, Japan's finance minister, Jun Azumi, also confirmed that concerns over the eurozone crisis are now dangerously high, warning:
We have reached a point where we need to have a common understanding about the problems we are facing.
G7 conference calls are usually confidential, so Flaherty's decision to go public may indicate that world leaders are keen to apply the maximum pressure to the eurozone. We don't yet know when the call is taking place.....
Here's a quick agenda of some of the main events and economic data coming up:
• G7 finance ministers hold conference call: timing currently unknown
• Eurozone purchasing manager index on services for May: 9am BST
• Eurozone retail sales for April: 10am BST / 11am CEST
• German factory orders for April: 11am BST/ noon CEST
• Bank of Canada's interest rate decision: 2pm BST/ 9am EDT
Good morning, and welcome back to our rolling coverage of the eurozone financial crisis.
After a day off yesterday to toast her Majesty and put up more bunting, we're back to track the latest action across Europe. The key development this morning is that G7 finance ministers are due to hold emergency talks on the euro zone debt crisis later today. More on this shortly.
Across Europe, pressure is growing on Germany to accept a 'banking union' across Europe. As my colleagues Ian Traynor and Giles Tremlett report:
Europe's leaders appear to be edging towards an ambitious and controversial new blueprint for a federalised eurozone after Paris and Brussels threw their weight behind Spain's pleas for an EU rescue of its beleaguered banks.
At the start of three weeks likely to be crucial to the survival of the euro, the new French government and the European commission voiced strong backing for a new eurozone "banking union" to save the single currency.
The plan could see vast national debt and banking liabilities pooled – and then backed by the financial strength of Germany – in return for eurozone governments surrendering sovereignty over their budgets and fiscal policies to a central eurozone authority.
A "gang of four" – the European council president, the commission chief, the president of the European Central Bank and the head of the eurogroup of 17 finance ministers – has been charged with drafting the proposals for a deeper eurozone fiscal union, to be presented to an EU summit at the end of the month.
Things may be quieter than normal, with the UK enjoying another bank holiday today. But other European markets will be trading as usual, after a mixed day yesterday, so there should be plenty to report. There's also some interesting economic data due, covering the world's service sectors, eurozone retail sale, and German factory orders.
G7 finance chiefs gather round Spain’s sick bed - EurActiv.com
With Greece, Ireland and Portugal all under international bailout programs, financial markets are anxious about the risks from a seething Spanish banking crisis and a 17 June Greek election that may lead to Athens leaving the euro zone.
"Markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen. So we obviously believe that more steps need to be taken," White House press secretary Jay Carney told reporters.
Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.
"The real concern right now is Europe of course - the weakness in some of the banks in Europe, the fact they're undercapitalized, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalization of banks and building an adequate firewall," Flaherty told reporters.
The disclosure of the normally confidential teleconference came as European Union paymaster Germany said it was up to Spain, the latest euro zone country in the markets' firing line, to decide if it needed financial assistance, after media reports that Berlin was pressing Madrid to request aid.
A G7 source, speaking on condition of anonymity because of the sensitivity of the issue, said there were concerns about the risk of a bank run in Spain, which is struggling to recapitalize nationalized lender Bankia and smaller banks stricken by the collapse of a property bubble.
"There is concern on whether there will be a bank run in Spain that could have repercussions beyond the euro zone," the source told Reuters.
Spanish Prime Minister Mariano Rajoy is pressing for a direct European rescue for his country’s banks with moral support from the European Commission, but Germany appeared to rule out such a "bailout lite" for the euro zone's fourth biggest member.
A source with knowledge of the matter said Madrid is working along with European institutions to find a way to directly refinance banks using rescue funds without the government having to come under a full EU/IMF bailout programme.
"Right now the most urgent issue is the banks, and there are negotiations to refinance the banks directly without it being an intervention. It's a mechanism for all [European] banks, not just for Spanish banks," the source said.
Under current rules Spain can get a loan from the European rescue fund, or EFSF, but it would come with tough conditions and intrusive supervision, with a high political cost for Rajoy. The new permanent European rescue fund, the European Stability Mechanism (ESM), due to enter into force in July, can lend to banks but the request still has to be made by the state.
The source with knowledge of the matter said Spain believed the European Union's executive could take a plan for bank aid to a summit of the bloc's leaders on 28-29 June.
EU Economic and Monetary Affairs Commissioner Olli Rehn said Brussels was considering direct bank recapitalisation by the ESM to break the link between weak sovereigns and ailing banks, but it was not possible under the treaty currently being ratified by member states.
"This is not part of the ESM treaty for the moment, in its present form, but we see that it is important to consider this alternative of direct bank recapitalisation as we are now moving on in the discussion on the possible ways and means to create a banking union," Rehn said.
Germany, the main contributor to the bailout fund, opposes changing the ESM treaty to allow direct bank recapitalisation and has veto power. Berlin contends that only a formal programme approved by national parliaments permits proper international supervision of how aid funds are spent.
Islamic Finance set to mobilize trade and investment flows between Asia and the Middle East - AME Info
The two day WIBC Asia event, held under the official support of the Monetary Authority of Singapore, kicked off today with an inaugural address by H.E. Ravi Menon, Governor of the Monetary Authority of Singapore.
The inaugural address was immediately followed by an opening keynote session which featured H.E. Dr. Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank and Edy Setiadi, Executive Director of the Directorate of Islamic Banking, Bank Indonesia. The session addressed the challenges and opportunities inherent in the increasingly global geographic footprint of Islamic finance and also discussed the national and international initiatives that will ensure consistency and foster greater interconnectedness across key jurisdictions for Islamic finance.
A key highlight of WIBC Asia 2012 was the high profile Power Debate session led by internationally respected CEOs and industry leaders. Moderated by Haslinda Amin of Bloomberg Television, the session analyzed the expanding role of Islamic finance as a conduit for trade and capital flows between Asia and the Middle East and also discussed how Islamic financial institutions can better develop the capacity to structure large-scale multi-currency and cross border transactions. The Power Debate session featured Toby O'Connor, Chief Executive Officer, The Islamic Bank of Asia; Hussain AlQemzi; Chief Executive Officer, Noor Islamic Bank and Group Chief Executive Officer, Noor Investment Group; Muzaffar Hisham, Chief Executive Officer, Maybank Islamic Berhad; Dato' Jamelah Jamaluddin, Chief Executive Officer, Kuwait Finance House (Malaysia) Berhad (KFH Malaysia); Syed Abdull Aziz Jailani Bin Syed Kechik, Chief Executive Officer, OCBC Al-Amin Bank Berhad; Shamsun Anwar Hussain, Director - Consumer Banking, CIMB Islamic Bank Berhad; and Wasim Saifi, Global Head, Standard Chartered Saadiq, Consumer Banking.
Speaking to the media present at the event, David McLean, Chief Executive of the World Islamic Banking Conference: Asia Summit noted that "Asia is becoming an increasingly attractive destination for investments that are Shari'ah compliant. To reap the full benefit of the region's rapid expansion and robust development, there is a need to press on towards achieving global connectivity and deepening economic cooperation with various key centres for Islamic finance. In order to better facilitate cross-border relationships, more intensive international co-ordination of regulatory approaches, supervisory oversight and industry practices is needed."
He also said that "as interest in Islamic finance expands across Asia, an increasing number of Middle Eastern investors are looking at opportunities to deploy their capital in the region and Islamic finance is perfectly positioned to act as a catalyst to further bridge capital flows between Asia and the Middle East."
"An ongoing dialogue between key regulators, industry practitioners and market participants representing the two key centres for Islamic finance, i.e the Middle East and Asia, is vital to achieve greater international harmonization in the architecture for Islamic finance", he added.
A similar view was expressed by Hussain AlQemzi, Chief Executive Officer, Noor Islamic Bank and Group Chief Executive Officer, Noor Investment Group, who said that "in order to ensure an orderly evolution of Islamic finance from a niche segment into the mainstream international financial markets, it is vital to further enhance the industry's capabilities for cross-border activities, which in turn will encourage innovative product development, robust and standardised regulatory frameworks and the long term stability of the industry. What the industry lacks at the moment is the breadth and depth that investors enjoy in the conventional market. An inter-linkage between the key Islamic financial centres will facilitate investor access to a wider range of Shari'a-compliant products beyond those available in their domestic market."
He also said that "the annual World Islamic Banking Conference: Asia Summit is becoming an increasingly important platform that facilitates dialogues between the two key centres for Islamic finance - Asia and the Middle East. The theme for this year, "Islamic Finance in Asia: Strengthening International Connectivity and Capturing Cross-Border Opportunities", highlights the tremendous potential for significant cross-border transactions which the Islamic finance industry must tap into. As a key industry player we are keen on exploring these unique opportunities."
Commenting on their participation at the event, Toby O'Connor, Chief Executive Officer of the Islamic Bank of Asia said that "the theme for the 3rd Annual World Islamic Banking Conference: Asia Summit (WIBC Asia 2012), "Islamic Finance in Asia: Strengthening International Connectivity and Capturing Cross-Border Opportunities", highlights a significant opportunity that IB Asia is focused on. We hope that the high-level discussions at this important forum in Singapore will foster new business relationships between key growth markets for Islamic finance. We are once again delighted to renew our partnership as a Platinum Strategic Partner of WIBC Asia."
WIBC Asia 2012 continues on the 6th of June and will features an exclusive keynote address by Jaseem Ahmed, Secretary-General of the Islamic Financial Services Board (IFSB), and a special address by Daud Vicary Abdullah, President and Chief Executive Officer of INCEIF- The Global University of Islamic Finance.
Ridsdale: ‘Finance changes will boost PNE’ - Lancashire Evening Post
Preston North End chairman Peter Ridsdale has said changes in rules over club finances will benefit the Deepdale club.
The Lilywhites’ supremo said the club would be “in the top three or four” clubs with the highest turnover in League One next season following the promotion of Sheffield Wednesday, Charlton Athletic and Huddersfield Town.
He said this meant the club would benefit from new financial fair play rules which introduce limits on loss-making and investment from shareholders from the start of next season.
The changes, introduced as part of a push by governing body UEFA to ensure clubs are financially viable, will see the amount clubs are permitted to lose in a financial year shrink in the coming years.
Mr Ridsdale said: “As a ‘big club’ in League One, we will benefit from having a higher turnover which will allow us to spend more than our competitors.
“This is particularly true of some of the smaller clubs in the division which have a lower turnover.
“We are in a position where we can work smarter and benefit from the transfer market, as we have shown in recent weeks.”
The club’s manager Graham Westley has signed 12 players ahead of the start of the new campaign in August.
A study compiled by accountants Deloitte last week showed North End posted a turnover of £10.8m during the 2010/11 season when they were relegated from the Championship.
That meant they achieved the tenth highest turnover of the North West’s 20 Premier League and Football League clubs.
Mr Ridsdale said the table showed the likes of Burnley and Blackpool both receiving large payments from spells in the top flight.
The chairman said: “Burnley were still receiving parachute payments from being in the Premier League, while Blackpool were in the Premier League that season.
“Our own figures will show another reduction next year because the television money League One clubs receive from Sky is lower than in the Championship.”
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FOREX-Euro falls as minister spotlights Spain funding worry - Reuters UK
* Euro falls, erasing earlier gains as Spain worries grow
* Spain's Montoro says financial markets shut to Spain
* Market awaits G7 conference call on euro zone crisis
LONDON, June 5 (Reuters) - The euro fell on Tuesday, erasing earlier gains, on growing concerns about whether Spain can restore health to its banks as a minister said high borrowing costs meant Spain was effectively shut out of the bond market.
The comments by Treasury minister Cristobal Montoro highlighted the funding problems facing Spain as investors fretted the country may have to seek external aid.
Analysts said the euro's losses may be limited before an emergency conference call of Group of Seven financial policymakers on the euro zone debt crisis, although the chances of a significant breakthrough looked slim.
The euro fell 0.6 percent on the day against the dollar to hit a session low of $1.2415. It traded more than a cent below an earlier one-week high as investors cut back hefty bets against the currency.
"People will be happy to sell into moves above $1.25," said Anders Soderberg, currency strategist at SEB in Stockholm.
The euro has rebounded from a two-year low of $1.2288 hit on Friday, but Soderberg said its recovery was only "a short-term break in what now seems to be a well-established downtrend".
In addition to the concerns about Spain, investors are worried about the risk that a Greek election in two weeks could push Athens out of the euro.
The depths of the problems facing the euro zone were highlighted by a purchasing managers' survey showing the euro zone's private sector economy shrank in May at the fastest pace in nearly three years.
The common currency faced chart resistance at $1.2545, the 76.4 percent Fibonacci retracement of its decline last week, and at $1.2570, the 23.6 percent retracement of its longer-term decline from a February high near $1.35.
"I don't expect European policymakers to come to an agreement soon. I am ready to sell the euro around $1.2550," said a trader at a Japanese bank in Tokyo.
It also erased earlier gains against the yen and was last down 0.8 percent on the day at 97.08 yen, although this still left it above Friday's 11-year low of 95.59 yen.
Against sterling, the euro was down 0.25 percent at 81.02 pence, off an earlier one-month high of 81.405 pence.
CENTRAL BANK ACTION
The G7 talks prompted some market players to speculate that the European Central Bank could opt for some form of further monetary stimulus when it meets on Wednesday.
International Monetary Fund Managing Director Christine Lagarde said in an interview with a Swedish newspaper that the ECB had room for another interest rate cut.
There has been some talk of a rate cut, although a recent Reuters poll showed only 11 out of 73 analysts polled expected a move this month.
In a sign of increasing concern about the impact of the euro zone debt crisis, the Reserve Bank of Australia cut interest rates by 25 basis points on Tuesday.
The cut was less than some had expected, however, sending the Australian dollar higher. It was last up 0.1 percent against the U.S. dollar at $0.9733, extending its recovery from an eight-month trough of $0.9581 hit on Friday.
However, some see the Aussie trapped in a downtrend as they expect the RBA to cut rates further in coming months.
Traders will also be looking ahead to testimony by U.S. Federal Reserve Chairman Ben Bernanke on Thursday for any hints that Friday's weak U.S. jobs data could prompt a further bout of quantitative easing.
The dollar was down 0.15 percent against the yen at 78.20 yen, taking it closer to Friday's 3 1/2-month low of 77.652 yen though market players were wary about the possibility of Japanese authorities stepping in to stem the yen's rise. (Additional reporting by Hideyuki Sano in Tokyo, editing by Nigel Stephenson)
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