Decision day for second Greek bailout despite financing gaps

BRUSSELS (Reuters) – Euro zone finance ministers are expected to approve a second bailout for Greece on Monday to try to draw a line under months of uncertainty that has shaken the currency bloc, although there is work to be done to make the figures add up.
Diplomats and economists say they do not expect the package to resolve Greece’s economic problems. That could take a decade or more, a bleak prospect that brought thousands of Greeks onto the streets to protest austerity measures again on Sunday.
The ministers need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they say an agreement on Monday will help restructure the country’s vast debts, put it on a more stable financial footing and keep it inside the 17-country single currency zone.
Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro ($171-billion)program, including a debt sustainability analysis critical to the International Monetary Fund.
While there is skepticism in Germany and other countries that Greece will be able to live up to its commitments – including implementing 3.3 billion euros of spending cuts and tax increases – officials said momentum was building for approval of the deal.
French Finance Minister Francois Baroin said all the elements were in place to reach an agreement.
“It cannot wait any longer … Greece has debt payments in March and could find itself in bankruptcy, something which France has been trying to avoid for the last 18 months,” he told Europe 1 radio on Monday.
Finnish Finance Minister Jutta Urpilainen said Greece had done all that had been asked of it.
“There are many open details … A big issue is that we have to get Greece’s debt on a level that is sustainable and enables Greece to survive,” she told reporters in Helsinki.
A euro zone official in contact with junior ministers involved in the Sunday conference call said the financing gaps were not so large that they risked derailing the whole process.
“I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage,” he said.
“The gut feeling is that this is going to go through – everyone feels the pressure this time to deliver,” he said, indicating that the Netherlands, Finland and Germany, which have been the most critical of Athens’ ability to commit, looked likely to come on board if the financing gaps could be closed.
GREEK ANGER UNABATED
Several thousand Greeks demonstrated on Sunday against the austerity measures to reduce the country’s debt, although the numbers were much lower than earlier protests.
Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital’s central Syntagma square.
Riot police shielded the national assembly to prevent a repeat of riots a week ago when masked youths torched buildings and looted shops across Athens.
Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.
Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.
The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.
The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and to ensure that Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.
A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in.
The overall objective is to reduce Greece’s debts from 160 percent of GDP to around 120 percent by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.
MEETING THE TARGET
The focus of Monday’s finance ministers’ meeting will be what “around 120 percent” means in practice.
A debt sustainability report delivered to euro zone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129 percent by 2020.
The IMF has said if the ratio cannot be cut to around 120 percent, it may not be able to help finance the Greek program.
U.S. Treasury Secretary Tim Geithner urged the International Monetary Fund to support the program.
“This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF,” Geithner said in a statement on Sunday.
As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125 percent in 2020 would be sustainable.
“If we can get it down to 123 or 124 percent, I think everyone’s going to be okay with that,” the euro zone official said after the Sunday conference call. “Everyone will find a way to tweak the numbers.”
A number of measures, including restructuring the accrued interest portion or reducing the “sweeteners,” are being considered to move the figure closer to 120, a euro zone official familiar with the negotiations said.
There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010 – the first package of support – to lighten the financing burden on Athens.
Central banks could help too.
The ECB is weighing up whether to allow Greek bonds held in euro zone central banks’ investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.
The central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying program. It has also signaled it could forego the profits made on the latter at some point.
If the finance ministers do succeed in reaching an agreement, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.
But no one is pretending it will end Greece’s problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.
The troika, responsible for monitoring Greece’s reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground.
Already there is concern that at any one of those reviews of the new program – if it is approved on Monday – Greece will be found to be behind, especially if GDP continues to slump.
That will again raise the threat the country will have to default if it cannot meet its obligations, and invite questions about its ability to remain in the euro zone.
($1 = 0.7597 euros)
(Additional reporting by Daniel Flynn in Paris, Terri Kinnunen in Helsinki and George Georgiopoulos in Athens; writing by Mike Peacock; editing by Elizabeth Piper)http://tourism9.com/    http://vkins.com/

Why USB Is Up and PNC Is Down

This morning saw a slew of earnings from the financial sector. Here we take a brief look at the results from regional lenders US Bancorp (NYSE: USB  ) and PNC Financial (NYSE: PNC  ) .
Why US Bancorp is upShareholders of US Bancorp should be happy this morning. According to the bank’s press release, fourth-quarter earnings at the Minneapolis-based lender jumped 39%.
The bank’s net income increased $376 million to $1,350 million compared with net income of $974 million from the same period a year ago. This was on the back of an 8.1% year-over-year increase in net revenue.
In terms of the numbers more generally, three things stick out.
First, the bank’s average deposits grew by 17.3% over the same period a year ago — 11.7% excluding acquisitions.
Second, average total loans in the quarter grew by 5.9% over the fourth quarter of 2010. This was in line with results at Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , and Wells Fargo (NYSE: WFC  ) , three of the four largest banks in the country. Citi’s loans grew 14%. JPMorgan’s increased 4%. And Wells Fargo’s improved 2%.
Third, the bank set aside only $497 million in loan-loss provisions compared with $912 million a year ago. Indeed, in what hopes to be a harbinger of things to come for the broader economy, the bank’s total nonperforming loans decreased by a staggering $1 billion from the same quarter in 2010.
In terms of the balance sheet, the bank’s book value per share increased 14.4% to $16.43 a share. And its tier 1 common equity ratio, an important measure of a bank’s capital position, increased to 8.6% from 7.8% last year.
The bank also reiterated its commitment to returning a significant amount of its earnings to shareholders through dividends. While it currently returns 29% of its earnings through both dividends and share buybacks, its stated long-term goal is to do so with a “majority of our earnings.”
Why PNC Financial is down
Shareholders of PNC Financial won’t be similarly rejoicing, as fourth-quarter profits at the Pittsburgh-based regional bank plunged 42%. For the quarter, the bank reported earnings of $476 million, down from a year-earlier profit of $823 million. On a per-share basis, this equates to $0.85 and $1.50, respectively.
For the year, meanwhile, the bank reported net income of $3.1 billion, or $5.64 per share, a decrease of 8.8% compared with 2010 net income of $3.4 billion, or $5.74 per share.
According to the bank’s press release, a number of factors contributed to a decrease in fourth-quarter revenue from $3.9 billion in 2010 down to $3.5 billion in 2011. These included a nonrecurring $160 million gain realized in last year, as well as lower debit card and commercial service fees recorded this year.
The silver-lining to PNC’s results concerns the performance of its loans. The ratio of non-performing loans to total loans decreased 73 basis points to 2.24%, down from 2.97% from the year-ago period. And along these lines, the bank set aside $71 million less in provisions for credit losses.
In addition, the bank progressed on the balance-sheet front. Its book value per share increased 9.3% from $56.29 last year to $61.52 today. And its tier 1 common equity ratio improved to 10.3% from 9.8% last year.
Next upThe next big bank to report is Bank of America, which releases its fourth-quarter earnings on Thursday.
Here at The Motley Fool, it’s expected that the quarter may have been ugly for the nation’s second-largest bank by assets because of the size of its investment banking and global business. Indeed, despite growing their loan books, both Citigroup and JPMorgan Chase reported worse-than-expected results as a consequence of capital market exposure via these business segments.
Looking for a smaller, simpler bank?Check out our recently released free report detailing one bank stock that Warren Buffett may be interested in if he were a small investor. Learn the identity of this bank for free.
http://tourism9.com/    http://vkins.com/

How to Restore Communities Blighted by Subprime Loans

Hill’s latest book Reimagining Equality: Stories of Gender, Race, and Finding Home was published in October 2011.

Soon a federal judge in California is likely to approve the “largest residential fair-lending settlement in history” ever reached by the Department of Justice in a bias case. The agreement requires Countrywide Financial Corporation to pay $335 million to African American and Latino borrowers who DOJ found to be the victims of Countrywide’s racially motivated fraud and deceit. Attorney General Eric Holder’s pursuit of the mortgage giant’s practices as conduct that “undercuts the notion of a level playing field for all consumers” is laudable. But without Countrywide’s admission of fault for overcharging and steering minorities into high cost loans when they qualified for conventional loans, it’s uncertain whether the agreement will stave off future unlawful behavior. Moreover, it certainly won’t be enough to repair the damage that has been done to those individuals and the communities in which they reside.
(MORE: 25 People to Blame for the Financial Crisis)
To begin with, the $10,000 compensation some of the 200,000 Countrywide customers covered in the settlement are entitled to is likely not enough to put them back in their homes, let alone rebuild their neighborhoods. No one is more aware of this than Illinois Attorney General Lisa Madigan. Madigan’s investigation into Countrywide and Wells Fargo Bank began in March of 2008. From 2004 until 2007, at the height of subprime and high-cost lending, Countrywide was the state’s most prolific mortgage banker. During that same period, Wells Fargo aggressively embraced the increasingly lucrative subprime mortgage market as well. Madigan had been tipped off to huge disparities in the numbers of risky loans given to African Americans and Latinos by an investigation conducted by the Chicago Reporter. The Reporter found that African Americans, even those with six-figure salaries, were as much as three times more likely to get subprime or high-cost loans from the two lenders than whites or Asians and that the preponderance of those loans were given out in black and Latino neighborhoods. These practices, combined with the targeting of specific neighborhoods, wound up bankrupting poor working- and middle-class communities of color.
Madigan’s pleadings in a 2009 lawsuit filed against Wells Fargo outline how this discrimination siphoned off equity in neighborhoods until they became drags on municipalities and, over time, the state. Ongoing lawsuits against Wells Fargo in Baltimore and Memphis paint a similar picture and make clear the short-term and long-term negative impact of era’s lending tactics on the safety and security and the tax-based funding of schools in blighted neighborhoods. There is no reason to believe that Wells Fargo and Countrywide were the only banks engaged in such behavior.
Madigan flanked Holder at the news conference when he announced the settlement with Countrywide, which ends the state of Illinois claim against that bank. Yet, as she contemplated “the enormous amount of work that needs to be done to rebuild communities and our economy,” Madigan’s endorsement of the DOJ’s settlement agreement was understandably measured. Illinois’ suit against Wells Fargo continues. In it the state alleges that Wells Fargo broke a number of its consumer-protection and human-rights laws and asks for what could amount to much as $110,000 for every violation of credit and civil rights protections. Unlike the DOJ settlement, that compensates individuals, Baltimore and Memphis ask that a jury determine the amount of compensatory and punitive damages owed the cities for Wells Fargo’s actions.
(MORE: Hill: The Stories I Carry with Me)
Yet, even if Madigan and the cities of Baltimore and Memphis prevail, more needs to be done. Relief is in order for countless other cities which the DOJ acknowledges continue to suffer losses attributable to the reckless practices of lenders leading up to the foreclosure crisis. Ultimately, after the financial market collapsed, the government bailed out the banking industry, including Bank of America, which now owns Countrywide. The industry rebounded because the government concluded that a secure banking system was in the public’s interest. Yet, the playing field won’t be level as long as American communities pay for the corrupt decisions made by lenders. A federal effort targeted at restoring blighted neighborhoods is needed to clean up the mess left behind by such egregious predatory practices as those alleged in the Department’s reports and pleadings. The establishment of a pool of money, drawn from fines for violation of the laws and modeled after the Environmental Protection Agency’s Superfund, to be distributed by the DOJ in collaboration with state and local governments, is also in the public’s interest. The process for prioritizing communities set for restoration and structuring relief could be coordinated with other agencies under the DOJ’s direction.
Speaking before Congress in April 2011, Attorney General Holder acknowledged that “communities of all kinds, in every state, from coast to coast” have been touched by the foreclosure crisis. But Holder noted that “communities of color [had] been hit particularly hard, and [had] suffered greater consequences” as the basis for his establishment of the agency’s enforcement of fair housing laws. Funding to restore the neighborhoods Holder’s team of attorneys, economists and mathematical statisticians have identified would enhance the DOJ’s effectiveness as well as assist state and local governments currently dealing with costs associated with these sites. As importantly, it would show our federal government’s commitment to the protections enshrined in our Constitution and laws.

Hill, author of Reimagining Equality, is a professor of social policy, law and women’s studies at Brandeis University. The views expressed are solely her own.

 

http://tourism9.com/