Overnight Markets -Leading News -Update 2

Santander Among 16 Spanish Banks Downgraded by Moody’s

Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA, Spain’s biggest lenders, were cut three levels by Moody’s Investors Service, which cited a recession and mounting loan losses in downgrading 16 of the nation’s banks.

Nine firms were cut three grades and seven were kept on review for further reductions, Moody’s said yesterday in a statement. Santander’s U.K.-based subsidiary also was cut.

The moves followed Moody’s May 14 downgrade of 26 Italian banks and its Feb. 13 cut of Spain’s sovereign debt. The main drivers for the Spanish bank downgrades were a surge in soured loans, the recession, restricted funding access and the reduced ability of the government to support lenders as its own creditworthiness diminishes, Moody’s said.

“Banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness,” the ratings firm said. “The Spanish economy has fallen back into recession in first-quarter 2012, and Moody’s does not expect conditions to improve” this year.

Shares in the lenders rebounded today after sliding for a week on concern that the nation’s financial system is deteriorating in the wake of Bankia SA’s nationalization on May 9. Santander rose as much as 2.7 percent in Madrid trading, its first gain since May 10. BBVA (BBVA) climbed as much as 3.2 percent, CaixaBank SA rose 1.8 percent and Banco Popular Espanol SA rose 2.3 percent..

http://www.bloomberg.com/news/2012-05-17/santander-among-16-spanish-banks-cut-by-moody-s-on-economy.html

$-WSJ- Spanish Bad Loan Ration 17 Year High

http://online.wsj.com/article/BT-CO-20120518-704051.html

Spain Crisis Lender for Regions Can Tap ECB to Fill Coffers

The Spanish government’s bank channeling aid to cash-strapped regions can keep a lid on its funding bill by tapping the European Central Bank for loans that cost it a fraction of the amount bond investors will charge.

While Instituto de Credito Oficial has sold 60 percent of the 20 billion euros ($25 billion) in bonds it planned to issue in 2012, the lender is also able to use its banking license to access the ECB’s facilities, said Antonio Cordero, its head of funding and treasury. That allows the institution to access money at 1 percent, compared with a cost of more than 5 percent from investors for its three-year debt.

“Like any other bank, the ICO can pledge loans as guarantees to obtain Bank of Spain funding,” Cordero said in a May 11 interview at the lender’s headquarters in Madrid. “Potentially most of our balance sheet is eligible.”

ICO, a government-owned development bank created in the 1970s, has become the main tool used by Prime Minister Mariano Rajoy to bolster regional finances as he struggles to meet Spain’s 2012 budget-deficit target. The institution’s access to the ECB shows the reach of emergency measures that pumped more than 1 trillion euros into the euro area’s banking system.

“We have 5 billion euros of prefunding from 2011, and we have a banking license and access to so-called non-conventional funding,” Cordero said. “As efficient managers we try to take advantage of the best opportunities markets offer.”..

http://www.bloomberg.com/news/2012-05-17/spain-s-crisis-lender-for-regions-can-tap-ecb-to-fill-coffers.html

FITCH cuts Greece rating on risk of euro zone exit

http://www.reuters.com/article/2012/05/17/greece-ratings-fitch-idUSL1E8GHA0K20120517

Schaeuble Sees Two Years of Turmoil as G-8 Leaders Meet

German Finance Minister Wolfgang Schaeuble said turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy.

More than 2 1/2 years after Greece revealed its bloated budget deficit, Europe has “known a lot of crisis,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. “It’s practically normal.” Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said.

t the same time, German Chancellor Angela Merkel’s government has a duty to voters to prepare for a potential Greek exit, Finance Ministry spokeswoman Silke Bruns said. “People have the right to expect the government to make preparations for all eventualities,” Bruns said at a regular government press briefing in Berlin today.

Merkel and fellow European leaders face pressure from their G-8 counterparts to do more to quell the crisis after almost $4 trillion was wiped from global equity markets this month amid speculation that Greece will exit the euro. The U.S., which hosts the G-8 summit starting today, faces economic challenges from the “damaging” situation in Europe, Treasury Secretary Timothy F. Geithner said yesterday.

European stocks headed for their biggest weekly decline since November and the euro touched a four-month low amid investor concern that the crisis is worsening.

Video Call

Europe’s G-8 chiefs — Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and U.K. Prime Minister David Cameron, plus EU leaders Herman Van Rompuy and Jose Barroso — held a video call on the crisis yesterday and agreed that fiscal rigor and economic growth are mutually compatible, Merkel’s office said.

“During the G-8, it’s very important to see that the Europeans form a common position as quickly as possible,” Schaeuble said in the radio interview. “In recent years we haven’t been quick enough” at doing that.

Cameron called for more to be done “to persuade euro-zone countries to take really decisive action” to deal with the problems rather than “kicking the can down the road,” he told ITV television today. The U.K. is not part of the 17-nation euro area.

‘False Promises’

Geithner, in a speech in Baltimore, highlighted the debate in Europe over encouraging growth, as demanded by Hollande, and the need to consolidate budgets and reduce debt insisted upon by Merkel. Merkel and Hollande said two days ago at their first meeting that they would consider measures to spur growth in Greece as long as voters there committed to the austerity demanded to remain in the currency region.

“We want Greece to stay in the euro,” Schaeuble said. “But that presupposes that Greece does on its side what is necessary to develop its economy.” Policy makers are open to “every suggestion targeting more growth,” he said. “It’s up to the Greek politicians to explain reality, not make false promises.”

European officials are working on contingency plans to deal with a possible Greek exit, European Union Trade Commissioner Karel De Gucht told the Belgian newspaper De Standaard in an interview published today.

“A year and a half ago, there might have been the danger of a domino effect, but today there are both within the European Central Bank and the European Commission officials who are working on the emergency scenarios in case Greece doesn’t make it,” De Gucht was quoted as saying by the newspaper.

Greek Downgrade

Greek political leaders began campaigning today for the June 17 election, the second vote in six weeks, after a rise in support for anti-austerity parties scuppered the formation of a government. Greece’s credit rating was downgraded one level by Fitch Ratings late yesterday on concerns the country won’t be able to muster the political support needed to sustain its membership in the euro area.

“An exit would require two conditions: for a Greek government to reject the terms of the EU/IMF program and for the rest of the region to take a hard line in any renegotiation process,” David Mackie, chief European economist at JPMorgan Chase & Co, said in a note. “Recent developments suggest that both of these conditions may now be falling into place.”

http://www.bloomberg.com/news/2012-05-18/g-8-meets-as-schaeuble-says-markets-face-two-years-of-turmoil.html

EU, ECB working on Greece exit contingency: trade commissioner

Reuters) – The European Commission and the European Central Bank are working on scenarios in case Greece has to leave the euro zone, EU trade commissioner Karel De Gucht has said.

Speculation about such planning has been rife, but the comments in a newspaper interview, confirmed by a person close to De Gucht, appear to be the first time an EU official has acknowledged the existence of contingency plans being drawn up in case Greece has to drop out of the currency bloc.

“A year and a half ago there maybe was a risk of a domino effect,” De Gucht told Belgium’s Dutch-language newspaper De Standaard, referring to the threat of Greece leaving the euro.

“But today there are in the European Central Bank, as well as in the Commission, services working on emergency scenarios if Greece shouldn’t make it.”

He added: “A Greek exit does not mean the end of the euro, as some claim.”

The source close to De Gucht said the commissioner was explaining that EU institutions had not been sitting on their hands for the past two years, and that they were now better prepared than they had been.

Concern has grown that Greece may decide to leave or be forced out of the 17-country currency bloc after a rise in popular opposition to an EU-IMF program of fiscal austerity and structural reforms undermined attempts to form a government after May 6 elections.

Greeks are scheduled to go the polls again on June 17. A victory by the far-left, anti-bailout coalition SYRIZA – which some opinion polls suggest is likely – would increase the possibility of the country leaving the euro.

However, one opinion poll on Thursday showed the pro-bailout New Democracy party in first place, several points ahead of the SYRIZA, which has pledged to tear up the bailout agreement.

The prospect of SYRIZA winning the election has sent the euro and markets across the continent tumbling this week.

Earlier this week, the country’s president said Greeks had withdrawn up to 800 million euros ($1 billion) from banks as the political uncertainty deepened.

In a further blow, the European Central Bank said it had halted liquidity operations with some Greek banks because their capital was too depleted.

De Gucht told De Standaard he thought Greece would stay inside the euro zone, but that the crucial question until the next election was what conditions the ECB would set for guaranteeing the liquidity of Greek banks.

“The endgame has begun, and how it will finish I do not know,” he said. “The question is can everyone maintain their sangfroid over the coming weeks.”

Asked earlier this week about any contingency planning for a Greek exit, the spokeswoman for the European Commission replied:

“There are many, many questions arising and many questions open about Greece and most answers have to come from Greece and we have to respect the ongoing political process.

“Clearly, the future of Greece is in the euro zone. We are working on that.

http://www.reuters.com/article/2012/05/18/us-eurozone-greece-degucht-idUSBRE84H0AR20120518

China Home Prices, Car Inventory Add to Signs of Slowing

China Home Prices, Car Inventory Add to Signs of Slowing

By Bloomberg News – May 17, 2012 10:22 PM PT

China’s home prices fell in a record number of cities last month and car dealers posted inventory levels that foreshadowed deeper price cuts, adding to signs of slowing growth in the world’s second-largest economy.

Prices of new homes fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said today. Dealerships for Honda Motor Co., Chery Automobile Co., BYD Co. (1211) and Geely Automobile Holdings Ltd. had more than 45 days of inventory at the end of last month, according to an official from the government-backed China Automobile Dealers Association.

Goldman Sachs Group Inc. today joined banks including Citigroup Inc. and UBS AG in lowering its estimate for China’s second-quarter growth after weaker-than-forecast economic data released last week. The nation’s expansion may drop to a 13-year low this year, a Bloomberg News survey this week showed, as Europe’s debt crisis crimps exports and a campaign to rein in property speculation curbs domestic demand.

“There is no doubt that the level of activity growth in April is significantly below the government’s comfort zone,” Goldman economists Song Yu and Michael Buchanan wrote in a report distributed today. “It is clear that there is a consensus within the government that policy should be loosened further.”

China cut banks’ reserve requirements by 50 basis points for the third time in six months on May 12 to spur lending. Analysts forecast a further 100 basis-point reduction over the rest of the year, according to the Bloomberg survey.

Yuan Drop

China’s benchmark Shanghai Composite Index fell 1.2 percent as of 1:17 p.m. local time. The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell 37 basis points this week, poised for the biggest drop since November. The yuan was headed for its largest one-week drop since January.

Goldman Sachs lowered its estimate for second-quarter growth to 7.9 percent from 8.5 percent and cut its full-year forecast to 8.1 percent from 8.6 percent.

Authorities should consider cutting benchmark lending rates to alleviate funding costs and anchor inflation expectations, economists led by Fan Jianping wrote in the China Securities Journal today. The researchers, from the government’s State Information Center, estimate economic growth may drop to 7.5 percent this quarter.

The eastern city of Wenzhou led declines in new-home prices last month with a 12.3 percent drop from a year earlier, according to statistics bureau data. Prices in Beijing fell 1 percent and in Shanghai slid 1.3 percent.

Maintaining Curbs

A housing ministry official said the country will steadfastly continue curbs on the residential real-estate market and won’t flip-flop on its policies, the Shanghai Securities News reported yesterday. The comments followed a pledge by China’s State Council, or Cabinet, last month to stick with existing property controls implemented over the past two years that have included higher down-payment requirements and restrictions on the number of homes families can buy.

“The general price trend as a result of developers cutting prices and regulatory environment is continuing this month,” Chris Brooke, chief executive officer for China at CBRE Group Inc., a commercial real-estate services company, said in a Bloomberg Television interview from Beijing. “The objective is to remove the speculative element from the market.”

Car dealers have cut prices this year to spur sales after the government repealed tax incentives introduced in 2009 to counter the effects of the global financial crisis. A monthly survey of 36 major Chinese cities by the National Development and Reform Commission showed average car prices fell 1.9 percent in April from a year earlier, a fourth straight decline this year.

‘Fiercer’ Competition

“Competition will get fiercer,” said Huang Wenlong, a Hong Kong-based analyst with BOC International Holdings Ltd. “China’s auto demand will definitely slow down with the decline of the economic growth rate.”

Price cuts may deepen as inventories of unsold cars increase to levels that industry officials including Su Hui say are unsustainable.

“Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west,” Su, vice president of the auto market division at the automobile dealers association, said in a phone interview yesterday from Beijing. “It’s like a contagious disease that will spread.”

http://www.bloomberg.com/news/2012-05-18/china-home-prices-car-inventory-add-to-signs-of-slowing.html

China Home Prices Fall in More than 50 pc of Cities Tracked -Ouch!

China’s home prices fell in a record 46 of 70 cities tracked by the government in April from a year earlier as officials pledged to keep restrictions on property purchases that have sapped buyer demand.

The eastern city of Wenzhou led declines with a 12.3 percent slump in values from a year earlier, while Beijing dropped 1 percent and Shanghai prices declined 1.3 percent, according to data released by the statistics bureau today…

http://www.bloomberg.com/news/2012-05-18/china-home-prices-fall-in-more-than-half-cities-tracked.html

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