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Wednesday newspaper review: December 17, 2014
By Finfacts Team
Dec 17, 2014 - 10:43 AM
Russia has lost control of its economy and may be forced to impose Soviet-style exchange controls after "shock and awe" action by the central bank failed to stem the collapse of the rouble.
“The situation is critical,” said the central bank’s vice-chairman, Sergei Shvetsov. “What is happening is a nightmare that we could not even have imagined a year ago."
The currency crashed to 100 against the euro in the biggest one-day drop since the default crisis in 1998 as capital flight gathered pace, despite a drastic rise in interest rates to 17pc intended to crush speculators and show resolve.
Yields on two-year Russian bonds spiralled to 15.36pc, while credit default swaps are pricing in a one-third chance of a sovereign default. The shares of Russia’s biggest lender, Sberbank, fell 18pc.
ULSTER Bank and its parent company, Royal Bank of Scotland, have taken a hit of more than €4.5bn after it sold a huge property portfolio yesterday.
The bank, which is majority owned by the British government, will sell its Project Aran portfolio of loans to US investor Cerberus Capital Management for €1.4bn.
That is about 76pc below the par value of the loans, which were originally worth as much as €6bn.
The deal is by far the biggest Ulster Bank has done as it seeks to offload billions of euro in bad loans it made during the Celtic Tiger.
Unlike other Irish banks, Ulster is owned by the UK's Royal Bank of Scotland (RBS) so none of its loans have been transferred to Nama.
At its first public hearing this morning, Finnish academic Peter Nyberg said Ireland was gripped by "real estate mania" in the last decade, but this was not a phenomenon limited to Ireland.
Ireland's banking crisis was systemic but was not unique, the Oireachtas Banking Inquiry's first witness has said.
In relation to the decision by the Fianna Fáil led government to issue the €440bn blanket bank guarantee, Mr Nyberg said it was the culmination of years of mistakes.
"It was the culmination of a lot of mistakes that were made several years before and not only by the government," he said.
He told the inquiry that the guarantee is "not surrounded by a lot of documentation.
After the single worst day in Russia’s nine- month-old financial crisis, the fallout is spreading across global markets.
PIMCO is facing mounting losses on its Russian bond holdings; almost every bullish ruble option contract registered in the US has been made worthless; and foreign-exchange brokers in New York and London told clients they’re no longer taking rouble trades.
Sergey Shvetsov, a first deputy central bank governor, expressed astonishment at the scope of the collapse during a conference in Moscow. “We couldn’t imagine what’s happening in our worst nightmare even a year ago,” Shvetsov, who oversees financial markets at Bank of Russia, said yesterday. He said the surprise interest-rate increase in the middle of the night, a 6.5 percentage-point move that failed to stem the run on the ruble yesterday, was a choice between a “very bad” option and a “very, very bad” option.
Finfacts: Russia sells reserves to support rouble
The Economic and Social Research Institute has questioned moves by the Central Bank to damp down the housing market, saying immediate measures to restrict mortgage lending could curtail the supply of new homes.
Although the ESRI argues that a new mechanism to counter excess credit would provide the “only real protection” against another credit-fuelled bubble, it has taken issue with the specific plan advanced by the Central Bank.
In a submission to the bank’s consultation on proposed mortgage restrictions, the think tank said it was not clear that new loan-to-value and loan-to-income caps were “fully warranted” in current market conditions.
The banking inquiry faces into a mammoth task today as public hearings finally begin in Leinster House. At issue is whether the committee can cut through the fog of complexity and swingeing limitations on its work to hold key protagonists to account and provide a coherent explanation of the forces behind the debacle.
The crash is the nightmare from which we are still trying to awake, the single greatest crisis to confront the State since the second World War. A supersized public bailout of the banking system magnified recession as taxpayers shouldered the losses of a small number of private corporations, inexorably leading to the loss of fiscal sovereignty and astringent retrenchment to assert order over the public finances. This is what we talk about when we talk – and we do, incessantly – of radically increased taxes and severe spending cutbacks.
Politically a Seanad defeat is potentially a nightmare scenario.
The partisan politicisation of the Ceann Comhairle’s role is symptom, not cause of the dysfunction of unfit institutions.
In the event of a no-confidence vote he can stand and win as one means to uphold his office.
Alternatively he may emulate the action of President Cearbhall Ó Dálaigh in 1976.
Occupying an office above politics, that president choose to honour it by resigning.
Sinn Féin previously considered, but backed off attempting to unseat the Ceann Comhairle.
The latest furore follows clashes with Róisín Shortall last week.
Euro Topics: Financial markets fear deflation: The stock markets continued their downwards spiral on Monday. The investors' scepticism should be taken seriously, especially in Europe where despite low oil prices and the ECB's planned bond-buying programme deflation still has the upper hand, the liberal Italian business daily Il Sole 24 Ore warns: "The long-term forecast for inflation rates has been lowered from 1.87 to 1.67 percent. So from the point of view of the financial markets neither the ECB's money 'bazooka' nor the positive impact of falling oil prices are enough to boost private household consumption and raise the inflation rate in the medium term. The financial markets can make mistakes. But their assessment is not without its logic: until private households receive a little security (also in terms of taxes) demand will have a hard time recovering. Because the insecurity will make people save instead of spending. This is why the investors are willing to speculate with the ECB's bazooka but they won't bet a cent on demand and inflation."
Uber raises doubts about high taxi fares: The French government reaffirmed on Monday that online rideshare services like Uber will be banned in France once the new passenger transport legislation comes into effect on 1 January 2015. With this move Paris is reacting to the latest taxi driver strike. But they too need to demonstrate the value of their services, the Catholic daily La Croix admonishes: "The company wanted to set up shop in France because it saw a chance to get a slice of the passenger transport profits through intelligent use of new communication technologies. ... But to establish a presence on a difficult market, the Californian firm tried to get around the regulation that hinders access to the market. However this regulation isn't just there to protect suppliers already active on the market. It's also a guarantee of service quality. And it remains to be seen if the quality corresponds to the level of the prices paid by today's consumers."
No welfare reform without a trade-off: Matteo Renzi must accept that reforms can't be boxed through without offering the citizens something in return, the left-liberal French daily Libération warns: "With his reforms Renzi wants to please middle-class voters. However he's overlooking social welfare organisations, parties, unions and even employers' associations in the process. And this form of direct democracy supported by an ubiquitous media presence has its risks. Nine months after his investiture and the hopes it inspired, the results are meagre. In Italy as in France, if the social-liberal left wants to bring about the necessary reforms it can't simply do away with a social system that although obsolete has withstood the test of time without giving something in exchange in terms of jobs and growth. Otherwise, as the labour confederation of CGIL puts it: 'cosi non va', 'it won't work out'.
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