ECB lends banks $639 billion over 3 years

9:40 AM Banks, billion, lends, years No Comments

FRANKFURT, Germany — Struggling banks snapped up €489 billion ($639 billion) in cheap loans from the European Central Bank on Wednesday, a sign of just how hard or expensive it has become to borrow from each other.

The huge demand for newly available three-year loans comes as fears rise that heavily indebted European governments could default and force banks and other bond holders to take big losses.

The loans to 523 banks surpassed the €442 billion ($578 billion) in one-year loans extended in June 2009, when the global financial system was reeling from the collapse of the U.S. investment bank Lehman Brothers. It was the biggest ECB infusion of credit into the banking system in the 13-year history of the euro.

The ECB wants banks to use the money to help pay off or refinance some €230 billion ($300 billion) in existing loans early in 2012. Without the special support from the ECB, banks would have had to cut back on loans to businesses and further squeeze the European economy.

While the loans will help stabilize banks and make it easier for them to lend to businesses, they do not attack the root of Europe's financial crisis — heavily indebted governments face unsustainable borrowing costs. Many economists believe that to solve that problem the ECB needs to become the lender of last resort to European governments, buying up their bonds in large quantities in order to lower their borrowing costs. ECB President Mario Draghi has said governments should not depend on a central bank bailout.

Markets initially rose after the amount of the ECB borrowing was announced; it was far higher than the €300 billion ($392 billion) expected. But the optimism faded as investors weighed the broader problems facing Europe's economy and financial system. The broad Stoxx 50 index of European shares fell 0.5 percent. Indexes in Germany and Italy closed about 1 percent lower. The euro fell nearly 2 cents, to $1.3023 from $1.3198 earlier Wednesday. U.S. stocks traded lower as well.

"The good news is, the ECB's efforts to increase liquidity are working," said Jennifer Lee, an analyst at BMO Capital Markets. "The bad news is, high demand for the loans creates worries that banks are urgently in need of funds to boost liquidity."

There was some speculation that the loans could indirectly help governments. In theory, banks could borrow from the ECB at an interest rate of 1 percent and then use that money to lend at much higher rates to European governments.

But many analysts think it was unlikely that banks would increase their exposure to government bonds, given ongoing fears of a possible default among troubled eurozone nations. Many banks have struggled to cut their holdings of debt from governments in financial trouble.

"We still believe it is difficult to reconcile a government desire for banks to continue buying debt with the need for banks to reduce risk exposure associated with government debt," said Chris Walker, an analyst at UBS.

Many economists think that the eurozone is heading toward at least a mild recession. Data released Wednesday showed that Italy, the eurozone's third-largest economy, contracted 0.2 percent in the third quarter.

The deeper the economic slowdown is in the eurozone, the more tax revenues may suffer — and the harder it will be for Europe's indebted governments to handle their debt loads.

Italy and Spain have been at the center of investor concerns in recent months as their borrowing costs have risen amid concerns over their debts. Both are considered too big to bail out with the current eurozone bailout funds, which have some €500 billion ($654 billion) in financing.

A default on debt payments by either could ignite a new financial crisis and send the global economy into a slump.

Some of that European rescue money is already committed to bailouts of smaller Greece, Ireland and Portugal, which needed outside financial help after default fears drove their borrowing costs to unsustainable levels.

Italy alone has some €1.9 trillion ($2.5 trillion) in outstanding debt.

In making the loans, the ECB was playing its role of supplier of liquidity to banks, a typical job for central banks.

ECB president Mario Draghi has stressed the central bank's role in supporting the banking system but has balked at suggestions it should be offering the same level of support for indebted governments themselves by buying up their risky bonds. Draghi says governments must be the ones to reduce their spending and deficits.

The 37-month term of the loans permits the banks to stock up on money for a much longer period and reduces stress on their finances. Draghi has said the extra-long credit period will allow banks to lend for longer periods and not cut credit to businesses.

Alongside efforts to shore up banks, the ECB has also been cutting interest rates to support the ailing eurozone economy. It has reduced its main refinancing rate from 1.5 percent to 1.0 percent over the last two months in the hope that lower borrowing costs will stimulate growth by making credit cheaper.

Under the terms of Wednesday's loans, the banks will pay the average refinancing rate over the three years. The ECB reviews the rate each month and it will almost certainly change. Banks also have the flexibility of repaying the money after a year if their situation improves. Wednesday's offering was the first of two that the ECB has planned.

European officials have said banks need to raise €115 billion ($150 billion) in new capital in 2012. But finding that money is not an easy task in the current environment of fear. Investors are leery of putting more money into banks and it would be politically unpopular for debt-strapped governments to do it either.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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6 things to know when choosing a bank

10:30 AM choosing, Things No Comments

| By Constance Gustke, Bankrate.com

Your bank is there to serve, but don't forget that it's also serving itself. Here are some things to consider when you're looking for a place to put your money.

Should you trust your banker to watch out for you?

Not always. They have incentives and goals to meet, such as referring a specified number of clients each month to a department that handles mortgages or car loans, says Robert Laura, president of Synergos Financial Group in Howell, Mich.

The dilemma: A banker's bottom line may not be the same as yours. "For banks, it's about gaining wallet share," Laura says.

The remedy is to know exactly what banking products you need. Here are six things to keep in mind when shopping for a bank.

Many bank programs have tiered interest rates for higher deposits, Laura says. For example, jumbo certificates of deposit, which usually have $100,000 minimum deposits, typically offer higher yields than CDs in smaller amounts, he says. "Bankers want to capture more dollars," Laura says.

Multimillion-dollar clients may even get additional insurance over the $250,000 deposit limit per bank set by Federal Deposit Insurance Corp. How? A bank may offer a Certificate of Deposit Account Registry Service, or CDARS, says Greg McBride, CFA, senior financial analyst at Bankrate. Banks belonging to the CDARS network let wealthy investors spread large CD deposits among different banks while still being insured.

Currently, more than 3,000 financial institutions -- largely medium and small banks -- offer this extra insurance protection.

If you plan to travel often, beware of extra ATM costs. Bank of America belongs to the Global ATM Alliance, which offers free ATM withdrawals internationally at member banks. This can reduce fees overseas if you have an account at one of those banks. But banks that don't belong to the alliance may charge processing fees that quickly add up.

In certain countries, you might be charged differently when using a debit card versus the credit card side of a debit card. Ask your bank what these additional fees might be before you travel overseas.

Beware, you may not see these fees until you get your monthly statement, says Paul Schaus, president of bank consulting firm CCG Catalyst in Phoenix. "Read your account disclosure statement before you go," he says.

Longtime customers with multiple accounts can secure better account deals, such as getting fees waived or nabbing higher yields, McBride says. "And branch managers have the power to negotiate them," he adds.

Some banks even have overdraft fee-waiver policies, granting a set number of two or three each year. Still, repeat offenders are less likely to get waivers.

Also, online banking customers may get better terms than in-branch bank customers. The reason is the bank's lower cost of service online, which can be passed along to customers, McBride says.

"Everything is negotiable," Laura says. "You may get a 5- or 10-basis-point increase on a CD yield, if you ask."

Schaus says smaller banks and credit unions are the most likely to give higher rates and waivers. "When dealing with big banks, you're just a number," he says.

Banks may charge an annual percentage rate on a credit card as high as 30 percent, Laura says. And reasons for the high rate run the gamut, from missing a payment window by just one day or skipping a payment. To find out what penalties can be levied, check the credit card pamphlet that states terms and conditions, he says.

"When reading it, you may wonder why anyone uses a credit card," he says.

Relationship pricing, where banks reward consumers with multiple accounts, may be more beneficial for consumers than just stand-alone bank accounts, McBride says. "But you still need to shop around," he says. "Compare each account against the competition."

Some banks put clauses in their contracts that mandate the use of arbitration rather than jury trials when disputes arise.

"Banks would rather go through arbitration than trials, because jury members see deep pockets when judging a company," Schaus says. Arbitrators tend to compromise more, he says.

Bankrate's McBride offers this final tip: Become an educated consumer, so you can discern a good offer from a less competitive one.

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Germany, France agree on Europe bank bailout

6:15 PM agree, bailout, Europe, France, Germany No Comments

BERLIN — The leaders of Germany and France, the eurozone's two biggest economies, said Sunday they have reached an agreement about how to strengthen Europe's shaky banking sector amid the region's debt crisis.

"We are determined to do the necessary to ensure the recapitalization of Europe's banks," German Chancellor Angela Merkel following talks with French President Nicolas Sarkozy in Berlin.

A "comprehensive response" to the eurozone's debt crisis will be finalized by month's end, including a detailed plan on recapitalizing the banks, Sarkozy said at Berlin's chancellery.

"The economy needs secure financing to ensure growth. There is no prospering economy without stable banks," he said. "That is what is at stake."

However, both leaders declined to name a price tag for the new measures or elaborate further, saying the proposal must first be discussed with other European leaders.

Analysts have urged the eurozone to identify all the banks in the region that need to replenish their capital reserves, then decide whether to compel them to raise that money on the open markets and to provide government financing to the ones that can't.

Many experts say the capital cushions of many European banks must be strengthened in order to withstand a possible government bond default by Greece. Some analysts fear that a Greek default could cause a severe credit squeeze that would even threaten banks not exposed directly to Greece's debt because banks could be afraid to lend to each other.

The credit freeze following the collapse of U.S. investment bank Lehman Brothers in 2008 choked off lending to the wider economy and caused a deep recession.

Merkel did not provide details Sunday about how the recapitalization would work, saying only that all banks across the eurozone would be measured by the same criteria in coordination with, among others, the European Banking Authority and the International Monetary Fund.

Any solution must be "sustainable," Merkel added.

Sarkozy said the French-German accord on the proposal "is total."

Germany and France will now submit their proposal to shore up Europe's shaky banking sector to other European Union governments ahead of an Oct. 17-18 summit of the bloc's 27 leaders in Brussels, they said.

Both leaders expressed confidence that a comprehensive European response to the crisis will be finalized before a summit of the G-20 most developed nations in France Nov. 3-4.

"The global economy needs this summit to become a success, and the European Union will do its part" to ensure a positive outcome, Merkel said.

The IMF has said banks across the continent might need up to €200 billion ($267 billion) in new capital. The EU disputes the IMF's estimate, but has warned that lending between banks and from banks to businesses is threatening to freeze up.

Earlier this week, Merkel said that banks must first seek to raise new capital on the market before turning to their government, insisting that the eurozone's newly strengthened €440 billion ($590 billion) bailout fund would then only serve as a backstop if a member state can't cope with shoring up its banks' capital.

France, however, was reported to favor turning to the fund's resources right away instead of relying on a national facility to re-capitalize its banks — who are among the biggest holders of Greek bonds.

But Sarkozy sought on Sunday to dispel the notion of different approaches regarding the European Financial Stability Facility, saying "there are no disagreements."

German Finance Minister Wolfgang Schaeuble and his French counterpart, Francois Baroin, also took part in the two leaders' discussions.

Merkel and Sarkozy were set to have a working dinner following the news conference they gave at the chancellery.

Germany and France, which together represent about half of the 17-nation currency zone's economic output, regularly hold talks before EU summits to chart out joint positions.

The implosion of Belgian lender Dexia following its sizable exposure to Greek and other eurozone sovereign debt, meanwhile, added a sense of urgency to the talks.

France, Belgium and Luxembourg announced Sunday they had approved a plan for the future of the embattled bank, but they offered no details. France and Belgium became part owners of the bank during a €6 billion ($7.8 billion) 2008 bailout.

While an all-out Greek default appears unlikely, bondholders might still face severe losses, with some analysts maintaining that Greece's debt must be cut by about 50 percent or more to attain a sustainable level.

Private bondholders agreed in July to take about a 20 percent cut on their holdings of Greek bonds as their participation in a second international €109 billion bailout for the country.

But Finance Minister Schaeuble on Sunday joined Merkel and other eurozone officials in hinting that the agreement might have to be renegotiated.

"It is possible that we have so far assumed an insufficient percentage of debt reduction," he told German newspaper Frankfurter Allgemeine Sonntagszeitung.

Such a move will be discussed after the so-called troika of Greece's international creditors — European Central Bank, European Commission and IMF — submits its next progress report later this month, Schaeuble was quoted as saying.

Greece is currently struggling to meet budget and reform targets, but it needs an over all positive progress assessment by the troika to qualify for the next €8 billion ($11 billion) installment of its €110 billion package of international bailout loans to avoid bankruptcy.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Advised expect central bankers investors less

2:55 PM Advised, bankers, central, expect, investors No Comments

BASEL, Switzerland investors should prepare itself for smaller profit margins as banks away more capital to an another global financial crisis to avoid Stow, on Sunday cautioned the world's major central banks.

She are advised also central banks all over the world, that interest rates may soon rise to the need to bring inflation under control.

Said the Bank for international settlements-new rules for banks, after its capital increase pillows would likely lead to more predictable and are smaller.

But the Bank, an umbrella organisation for the world's most important central banks, in its annual report, also said that bank managers and shareholders expectations still not accordingly adjusted.

It said may be caused because "A more stringent global monetary policy is needed to fight included off inflationary pressure and financial stability risks."

Jaime Caruana, General Manager of the Bank, said the global financial crisis 2008-2009 throws long shadows, but there is evidence of a return of to excessive risk-taking.

He warned of threats by unsustainable public debt soaring energy and commodity prices and inflation, which already meet many countries and threaten others.

He said "to respond during investors, some of the risks was promoting part of crisis management, there are indications that investors are going too far in some areas can again,".

Caruana said that while budgetary problems in highly indebted eurozone Nations such as Greece, Ireland and Portugal are the most visible, other major economies must be also careful and quickly improve, prevent their permanent another great global crisis triggered.

Interest rates, he proposed to rise.

Caruana said "Is there a need to normalize monetary policy," reporters in Basel. "Globally, short-term interest rates already negative, fell in the past year further." "Normalization would reduce the incentives for excessive risk-taking prices and necessary structural and balance sheet would support adjustments."

The so-called Basel III rules that require large cash buffer to a further shock to the global financial system to prevent when Lehman Brothers collapsed in 2008.

Keep more capital would in the money that banks borrow and invest but improved capacity, to withstand the blow, cut if loans or investments go sour.

The Bank said in its annual report that accelerate Nations comply with the rules, if banks are profitable and will credit flow should not be restricted.

On Saturday, one of the establishment of the Basel committees proposed rules the largest banks in the world, an additional 1 to 2.5 percent of the capital on their balance sheets, depending on their size to keep.

The aim is to discourage banks before that so big that their failure would destabilise global financial system.

The cash buffers that should hold huge global banks would be in addition to an existing request that all banks hold 7 percent of their assets in the reserve.

Copyright 2011 associated press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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As crisis widens, Europe's leaders keep talking

4:26 PM crisis, Europes, leaders, talking, widens No Comments

Getty Images

French President Nicolas Sarkozy and German Chancellor Angela Merkel met over the weekend and told reporters Monday they had worked out yet another plan to contain the widening financial crisis sweeping the continent. But they deflected questions about the plan's details.

By John W. Schoen, Senior Producer

More than a year after European officials began squabbling over solutions — and the continent's worst financial crisis since World War II has begun to engulf the banking system — the talking continues.

On Monday, Dexia, an embattled Franco-Belgian bank, became the first victim of the credit squeeze battering European lenders. European leaders moved to save the bank as the leaders of France and Germany emerged from yet another weekend of "emergency talks" on a coordinated plan to backstop European lenders.

“We are determined to do everything necessary to ensure the recapitalization of Europe’s banks,” Chancellor Angela Merkel said in Berlin after meeting with President Nicolas Sarkozy of France.

But the two leaders provided no details, leaving investors with little confidence that the plan will work.

"Now we have a plan to have a plan for recapitalization," said Steen Jakobsen, chief investment officer at Saxo Bank, a Danish investment bank. "We so many have plans for plans that I'm getting confused."

Though solutions remain murky, the problems facing Europe were brought into sharper focus by Dexia's failure. With no unified backstop in place, France and Belgium stepped in with $120 billion in loan guarantees for Dexia, which was taken over by the Belgian government.

As the crisis spreads, it's unclear how many more banks are at risk of being swamped by losses on holdings of government bonds issued by heavily indebted countries like Greece.

Now, as individual governments are forced to backstop their banks, the debt issued by those countries is being called into question. Moody's warned on Monday that it was reviewing Belgium's credit rating for a possible downgrade.

The risk is that Europe's governments find themselves caught in a vicious cycle. As Europe slides into recession, banks holding government bonds face losses if those bonds default. But without a coordinated plan to backstop failing banks, the burden will fall to individual governments. That cost of bank bailouts would further strain those government's budgets, increasing the risk of default.

"The governments that have problems with sovereign debt are recapitalizing banks that have problems with sovereign debt," said Adrian Schmidt, an investment strategist at Lloyds Bank. "It's getting somewhat circular."

Merkel and Sarkozy said Monday they would finalize the plan to backstop Europe's banks by the end of the month. But they offered no details, including the possible price tag for a unified program to provide more cash to the banking system.

There's widespread agreement that Europe's banks need more capital to weather the ongoing financial crisis. But there's little consensus over just how much they need. The problem is compounded by the steep drop in the price of Europe's bank stocks, which has made it harder for them to sell stock to raise cash.

The hope is that government pledges to backstop failing banks will help calm investors and provide bankers with more sources of private funding. But investors remain leery.

"I do not think being guaranteed by governments is any guarantee these days," said Jakobsen.

The announcement from Sarkozy and Merkel that a plan was near follows multiple failed attempts at a coordinated solution. Those have included a European version of the U.S. Troubled Asset Relief Program launched in 2009 to bail out American banks. Last year, European leaders cobbled together a so-called "financial stability facility," but that fund is now widely seen as too small to cover potential losses.

"We've been talking about Europe and potential solutions for months," said Scott Nations, President of NationsShares. "First it was leveraging the stability facility. And then they were going to do euro TARP. They're not coming to any conclusions or any solutions."

It remains to be seen how the latest plan will resolve the underlying threat of a debt default by Greece and other weaker economies. As the crisis has widened, the European Union's 17 member governments have remained split over a basic question: who should foot the bill?

Europe's leaders are running out of time to resolve that long-simmering debate. Over the weekend, Greek officials wrapped up the latest round of talks on the next $11 billion installment of an aid package needed to stave off a debt default. Without the payment, Athens is expected to run out of cash in the next few weeks. The latest round of proposals may be Greece's last chance to head off the financial collapse that has been looming for over a year.

But for now, the talking continues. On Monday, the EU announced that its next regular summit would be postponed by six days to Oct. 23 to allow time "to finalize our comprehensive strategy on the euro area sovereign debt crisis", according to European Council President Herman Van Rompuy.

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The next Bank of America to buy

2:30 PM America No Comments

| By Charley Blaine, MSN Money

Before it too large, was doomed to failure Bank of America was on financial services for the little guy. These days, smart regional banks fill this role and see off as good buys.

After the 1906 San Francisco earthquake devastated the city, Amadeo Pietro Giannini, President of the Bank of Italy, a portable Office eingerichtet-- a Board about two barrels. He took in cash and borrowed money for the reconstruction of a rule with only a handshake. He made each loan was paid.

In 1928, shortly before the stock market crash Giannini merged his bank-which he had Anna-with another in Los Angeles in San Francisco founded and took over the Bank name: Bank of America. As the name represented his ideal. He wanted to build a bank that have large and small businesses across the country with savers and investors.

Today, Bank of America is working with customers in more than 150 countries internationally, in 50 States and more than 40 countries. It has $2.2 trillion in assets and 12% of all bank deposits in the United States. It is the fourth-largest U.S. mortgage lender.

But Giannini might not recognize it. It would be certainly some of the decisions of recent years appalled. The disastrous acquisition of Countrywide Financial. The acquisition of Merrill Lynch , the $45 billion of Government help and$ 118 billion in loan guarantees, to conceal decline of the company required.

The bank notes low on customer service surveys, including a no. 1-ranking in MSN Money "Customer Service Hall of Shame." And is shares, which traded over $50 before the banking crisis, in the vicinity of 12 US dollars per share.

Charley Blaine

Which raises the question: there is a next Bank of America, where you bank or without investing concerns? The answer is Yes, at least for investors; among the best alternatives are BB & T (BBT), U.S. Bancorp (USB) and PNC Financial Services (PNC). Here is the reason.

The alternate fit not just the model, the Giannini presented, but they are much closer than what has become A B.

This model is a basic commercial banks nationwide practiced every day by more than 6,000 banks. Take deposits. Pay interest on savings deposits and Sparbriefe--admittedly not much now. Lend money to corporations new inventory pick, buy lots to build houses, on and to buy new plants and equipment. The loans can farmers and local businessmen to finance their operations. The banks risk management and, if all goes well, they grow, preferably add branches, which can diversify their risks to your company and to build capital.

A.P. Gambaro small bench some banks not always did: serve the little guy as even the rich. His bank took in deposits of immigrant merchants, to lend money to dealers and peddlers, payment of interest on their savings and them.

And, another important idea was Richard Sylla, the Henry Kaufman Professor of the history of financial institutions and markets of New York University says Giannini, a former produce wholesaler and American son of Italian immigrants. Giannini used the Bank of its customers to bring California's liberal law on branch banking. Today, the Giannini model runs through American banks.

Bank of America was a key figure in the development of the economy. The Bank helped to build the State wine industry Golden. It was a player in the financing of films. He bought the bonds, the Golden Gate bridge built. When Walt Disney more than $2 million budget make "snow white and the seven dwarfs" was Bank lent the money, him BofA to stop what should be a classic. The Bank was an early lenders for Hewlett-Packard (HPQ), the classic Silicon Valley startup.

It was perhaps important, a pioneer of the bank credit cards with the BankAmericard, the in Visa (V). In response, MasterCard (MA) invented the Bank competitors.

Giannini began also Transamerica, had the banks in the West, and Giannini would extend across the country are happy. But local bankers resisted change of State laws, particularly in the South and East.

The bank holding company Act of 1956 needs Transamerica and Bank of America, to go their separate ways. Transamerica by banks were what First Interstate Bancorp, now part of Wells Fargo (WFC) was outsourced.

But even the original Bank of America was not immune to problems created by too much growth. You suffered huge losses in the 1980s, when Latin American loans went bad. It suffered additional problems with the mortgage, securities transactions and the like. That gave Group, Charlotte, N.C., Bank, banks in the South and Northeast, an opening of Gambaro buy greedy Bank was. Group took the name of Bank of America, as well as Giannini.

Along the way become anything other than a small bench for the little guy.

The new owners continue to aggressively until the crash of 2008 to buy housing banks and other institutions. Bank of America was offering, as Lehman Brothers was denied, Merrill Lynch itself deeply problematic, because Merrill Lynch supports a risky bet on getting a major dealer in securities of subprime mortgages mortgages to borrowers with little, or had made even no credit histories.

The nationwide $4 billion – the "dumbest" of tenders, purchase by far was, says analyst Richard Bove Rafferty capital. (NYU Sylla is right.) Litigation of fraudulent foreclosures, horribly bad paperwork and fines have amounted to more than $40 billion, not to mention that the Bank absorbed by society losses as portfolio went south the subprime loans in the countrywide.

And you did that Bank of America's stock price-fall 95% from a peak of $54.90 in November 2006.

It is founded in history over the past years an important lesson about banks, at the very least, Bank of America. The enormous financial organizations which grew under deregulation proved to be extremely difficult to understand and even harder to manage. Citigroup (C) almost broke in 2008, hobbled by many of the same problems, the Bank of America charged. In the year 2012, JPMorgan Chase (JPM) suffered a loss deeply embarrassing trade. UBS (UBS), the Swiss Bank, have been forced to impose.

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Severe weather in China earn?

10:30 AM China, Severe, weather No Comments

| By Jim Jubak

The slowing of the world's second-largest economy is sending shock waves around the globe. Here's what investors need to watch for as they try to stay out of the storm's path.

I can see a potential perfect storm brewing in China that could -- please note that "could" -- send chaos sweeping over global financial markets and economies.

I can see the conditions for the storm in place -- just as during hurricane season we can see a tropical depression building in the warm waters between Africa and South America. The question now, as with any hurricane, is whether that depression will build into a weak storm -- a Category 1 that lashes countries in its path with rain but doesn't result in much damage -- or escalate to a Category 4 or 5 that leaves a wide swath of destruction in its path.

And, of course, there's the important question of which countries lie in the storm's most likely trajectory.

At this point, I'd say the storm brewing in China is likely to rise to a Category 2 and cause damage to China's economy and stock market, as well as to stock markets and economies dependent on China's economy for growth, including commodity economies such as Australia, Brazil and Canada; Asian trading partners such as South Korea, Malaysia and Indonesia; and global export economies such as Germany.

Beyond that? Well, the timing of this storm adds to the possibility of it rising well above a Category 2, and the vulnerabilities of China's banking system say a Category 3 is well within the odds. For the storm to climb beyond that to the perfect storm level isn't impossible, but given the still rudimentary connections between China's banking system and global financial markets, the global economy would have to be very unlucky for this storm to inflict significant damage on markets and economies outside my list.

At this point, I'd say cut back on exposure to the markets and economies that are most likely to take a hit from even a Category 2 storm. And watch the weather map carefully to see how the global financial weather develops over the rest of the summer.

Jim Jubak

The starting point for watching the buildup of China's potential perfect storm is the country's July 15 report that second-quarter GDP came in at 7.5%. First-quarter growth had come in at an annualized 7.7% rate, (barely) above the official government target for the year of 7.5%.

As I've written before, the readings pointed to rough weather ahead. In June, to take one instance, China's exports fell by 3.1% year over year. That was the first drop in exports since the beginning of 2012 and the biggest monthly drop since October 2009.

There are good reasons to believe the data pointing to a slowdown in growth. For example, the European Union, China's biggest trading partner, is in recession. And, most importantly for storm watchers, the People's Bank of China engineered a cash squeeze in China's banking system designed to get credit growth under control.

In the week that ended June 21, the People's Bank produced a liquidity crunch by refusing to inject significant cash into the banking system, sending interbank lending rates (the interest rate that banks charge each other on short-term loans) to double digits. The overnight rate climbed to 28% intraday on June 20. When the bank did start to inject cash into the system, the overnight repurchase rate fell to 5.83% by June 26. But that still left the interbank rate about twice as high as normal. And when the People's Bank did inject cash, it didn't treat all banks equally. Most of the liquidity went to the country's five biggest state-owned banks. Midsize banks still reported a cash crunch.

This engineered cash crunch is a key source of energy for a developing storm in China.

First, the move makes capital scarcer and more expensive, and that's likely to lower growth in the economy.

Second, while the People's Bank did move to expand liquidity again, it didn't completely reverse its policy. Big banks got cash, and other parts of the financial system were left in a crunch. Since the big state-owned banks lend primarily to big state-owned enterprises, this has left small and midsize companies, which depend on the shadow banking system for capital, facing an extreme cash crunch.

And third, the policy suggests that the government in Beijing might be willing to accept lower growth -- even growth below the target growth rate -- in order to get China's shadow banking sector under control. Fitch Rating's analyst Charlene Chu estimates that a third of all outstanding credit in China is held in channels outside of loans from regulated banks.

The calendar also contributes significantly to the energy driving the development of a storm in China. The second-quarter numbers released July 15, showing that growth had slowed to 7.5%, don't include the entire effect of the ongoing credit crunch. Many of the effects of the June move by the People's Bank are still working their way through the economy, so we still don't know how hard the People's Bank actually stepped on the brake.

For example, we do know that second-tier Chinese banks have faced higher borrowing costs and, as the cost of buying credit default swaps to insure against the chance that loans would go bad have climbed, second-tier Chinese banks have had trouble borrowing funds from Asian banks outside China.

In other words, second-quarter numbers on growth are only the beginning of the story and not the end. Investors, traders and speculators looking at the second-quarter data can't be sure how low growth will go in the next quarter or for the rest of 2013.

That doubt has been exacerbated recently by confusing statements by officials ranging from Finance Minister Lou Jiwei to Premier Li Keqiang that mentioned 7% growth as if it might be a new target. Officially, the government's economic growth target for 2013 remains at 7.5%, and China's official Xinhua News Agency corrected Finance Minister Lou's quotation mentioning 7% growth in a July 12 story. But the "accidents" have made markets wonder if the Chinese government is setting up expectations for lower than 7.5% growth -- without a big government effort to stimulate the economy to get growth above target again.

Investors, traders and speculators will be able to get a better read on the dimensions of the China story over the next few months by watching what happens to big Chinese companies that run into trouble.

China faces massive overcapacity in key industrial sectors (China's steel industry is running at just 80% of capacity, for example) that makes it impossible for companies in such sectors as steel, solar, shipbuilding, aluminum and automobiles to make a profit. China Confidential estimates that 75% of the companies in Chinese heavy industries face overcapacity in their sectors. Companies in these sectors survive only because local government officials need the jobs that these state-owned enterprises produce and because they have access to capital from state-owned banks. If state-owned banks stop providing unlimited loans, some companies in these sectors will go belly up (whatever that means in China, since the country does not have a working system for handling formal bankruptcies).

China Rongsheng Heavy Industries, among China's biggest shipbuilders, is a highly visible test case. Rongsheng is among the roughly one-third of China's 1,600 shipyards with no new orders. The company has 15 billion yuan in loans that come due this year. Net debt is now 168 times shareholder capital. Overdue receivables have climbed by 68 times since 2011. Not surprisingly, the company has applied for government help. The company is theoretically private but Jiangsu province owns a 48% interest. Will Beijing and the province let Rongsheng and its 6,500 jobs go under?

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If Rome burns, US will feel the heat

10:30 PM burns No Comments

 

Antonio Calanni / AP

A woman walks past the window of a clothes store announcing 50% discounts in downtown Milan. Italy's borrowing rates spiked to a new euro high as pressure mounted on Premier Silvio Berlusconi to resign.

By John W. Schoen, Senior Producer

The financial fires raging in Europe threatened to consume Italy Monday, as investors fled the country’s debt, driving up borrowing costs and pressuring Premier Silvio Berlusconi to resign.  Unless those fires can be contained, the U.S. and the rest of the world will soon feel the heat.

After multiple failed attempts by Berlusconi’s government to reform Italy’s debt-heavy budget and after weekend reports that the government may fall, the financial markets pummeled Italian bonds Monday morning, sending interest rates approaching 7 percent. At those rates, the cost of periodically rolling over Italy’s $2.6 trillion in outstanding debt would quickly swamp its already strained budget.

Nearly two years after similar broken reform promises by Greece, the epicenter of the current financial crisis, the widening turmoil poses a much bigger threat.

"Italy has much more systemic implications than Greece, its debt is larger than the rest of the periphery put together, it is too big to fail, too big to save,” Thanos Vamvakidis, a financial market analyst at Bank of America Merrill Lynch. “The markets don’t believe Berlusconi at this point.”

To cope with losses expected on Greek debt, European officials are in talks to expand a $320 billion bailout fund to shore up European banks or buy Greek bonds outright. Some analysts have warned that European banks don’t have enough capital to withstand losses on their holdings of Greek debt. A default by Italy, the world’s third largest issuer of government debt behind the U.S. and Japan, would dwarf those losses and swamp even an expanded bailout fund.

The financial crisis sweeping Europe has already taken an economic toll, pushing the euro zone to the brink of recession. Spending cuts by debt-laden governments have put the brakes on growth. Now, weakening consumer and business confidence in the once-strong “core” economies of Germany and France are slowing growth.

On Monday, Germany reported a sharp 2.7 percent contraction in industrial production from the month before, far worse than analysts had been expecting. The report follows other economic indicators showing that the European economy is near, or now entering, a recession.

“The folks who think that the U.S. economy or the financial markets are immune and will simply ride out the storm are dreaming in Technicolor,” Gluskin Sheff chief economist David Rosenberg said Monday.

While U.S. officials insist that American banks are reasonably well insulated from the crisis, the U.S. and European economies are the two largest, most closely interrelated in the world. So are the U.S. and European financial systems.

Roughly half of top U.S. banks surveyed by the Federal Reserve reported having made loans or extending credit to European banks. The findings from a quarterly lending poll released Monday show that, though American banks have relatively small direct exposure to Greek and Italian debt, the financial turmoil in Europe poses a significant overall risk to the U.S. banking system, 

Though U.S. banks and other financial institutions are believed to be relatively better positioned against possible debt defaults than their European counterparts, the collapse of MF Global last weekend highlighted the potential impact of making too many bad bets on European sovereign debt.

Less is known about a form of bond default insurance known as credit default swaps written to backstop the risk of a bond issuer not being able to make payments. U.S. banks have written about $400 billion in CDS contracts on European sovereign debt, according to the Bank for International Settlements. Those payouts would be triggered if Greece or Italy defaults. Because financial institutions are not required to report their CDS holdings, little is known about which banks or investment firms are on the hook, and for how much.

Italian leaders now face the same downward spiral that forced Greece, Ireland and Portugal to seek bailouts from their stronger eurozone counterparts. The yield on Italy's 10-year bonds soared Monday to 6.58 percent, the highest since the euro was established in 1999. That raises the cost of issuing fresh debt, further straining the governments’ already stretched budget.

As the Greek debt crisis has demonstrated, Italian officials face limited options in coping with that spiral. Deep budget cuts have sent Greece’s economy in reverse and cut into tax revenues, forcing the government to cut spending further. The contracting economy also makes it  harder to comply with European conditions for aid that are tied to the ratio of total debt to gross domestic product. As GDP shrinks, that number rises.

Aside from the immediate impact on the U.S., the widening European debt debacle may be a harbinger of what lies ahead for politicians in Washington. The wider issue for the governments of all developed countries is the rising cost of paying for social programs created a generation ago. From Japan to Europe to the U.S., those programs are becoming increasingly unsustainable as life expectancies continue to rise for new retirees.

“The great thing is they are getting to live longer, and it's great to live longer, but it's not free,” said Constance Hunter, chief economist at Aladdin Capital Holdings. “But everybody wants it to be free. They want to still get all of the benefits and promises they had when the life expectancy was 10 or 15 years shorter. So this problem is not going to go away unless we figure out how to address it at its core.”

With the debt crisis threatening Italy and Berlusconi's status up in the air, what's next for the market? Louise Cooper, BGC Partners, discusses.

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Banks take aid plan taken to thrash out Greece

1:35 AM Banks, Greece, taken, thrash No Comments

By Paul Taylor and Alex Chambers

Meeting contribute LONDON/PARIS (Reuters) - international banks and insurance companies on Wednesday to a plan for the private sector to Greece bailout efforts, fears grow that will derail the proposal taken to thrash out.

The Institute of international finance (IIF)-lobby group said that it will lead the meeting of private sector of creditors.

It must be resolved, such as a business by rating agencies without it is as a default value, be maintained and employ such as accountants.

A lot must still be done and meet Wednesday are not critical, said multiple sources.

"It is a process." The new French Finance Minister said today that it will take weeks, in the summer. It is complex. It overnight can be resolved, ", said one French private sector source in the talks involved."

He said, there was hardly a single "one size fits all solution", but rather several options are given the number of different holders and stakeholders.

"The problem is so complex that we need more time," added a German banking industry source.

French banks, large holders of Greek Government bonds have voluntarily renewing Greek bonds proposed, recorded at maturity. Bondholders would reinvest at least 70 percent of the proceeds of bonds due to the end of 2014 in new 30-year Greek debt.

A new proposal, said the financial times, sweetened more attractive for Greece, will meet on Wednesday, lowering the interest rate and increase the share of debt, specifically would submitted for rollover in the French plan.

The interest rate would come up at less than 5.76% instead of the range of 5.5-8, 0 percent originally proposed, the FT.com report said.

Politicians and Bankers Trust last week expressed, the French proposal would not trigger a standard, but rating agency standard & poor's said on Monday that losses to the holders of debt, most likely make it Greece a "selective default" evaluation would include.

The S & P statement comes from the makers of the EU as "A message to the plan does not, it ditch review", an EU source said.

"The French plan not obvious political reasons will be left because Member States have to give something to their national parliaments", said the source.

The IIF said on Friday that banks supported proposals to support the Greece and were under a small number of options taking into account. Creditors now trying information hammer.

A meeting with some banks was in an informal discussion to resolve problems, people familiar said the matter on Tuesday in Paris held.

There is also concern you that the private sector, the goal of get can of 30 billion euros (42.6 billion$) trigger from the plan, if a device is private sector contribution proposed 2 billion euros.

She made major pension funds, hedge funds and insurance companies as well as the French source said banks, including it.

According to Reuters data, there are 82.6 billion euro of Greek Government bonds until the end of 2014 due.

The European Central Bank and other central banks of the euro area an estimated 25 billion euros of that debt keep left over 58 billion in private hands. But not all creditors participate.

France's new Finance Minister Francois Baroin said he would go to Berlin on Thursday, the second Greek bailout with his German colleague Wolfgang Schauble to discuss.

"The target date at the end of summer (for an agreement) during the month of September," said Baroin.

Clarity about the treatment of France plan always remains to get a key issue dynamics, it said.

How to move too far from market prices on a wide range could lead to an impairment, but too small a step would it too costly for Greece.

The IIF, representing insurance companies and other financial companies and banks, including BNP Paribas, Deutsche Bank, HSBC and Societe Generale, is coordinating international banks to consensus about the participation of the private sector of in a bailout debt-ridden Greece plays an informal role.

Wednesday meeting will be chaired by Charles Dallara, Managing Director of IIF. It is part of a series of meetings that the IIF is coordination, see in tandem with technical discussions since an IIF meeting in Rome a week ago.

(Reporting by Alex Chambers, markets IFR, London;) Paul Taylor in Paris; Additional reporting by Steve Slater in London, Julien Toyer in Brussels, Philipp neck trick in Frankfurt am Main and Jean-Baptiste vey in Paris; (Editing by Hans-Jurgen Peters and David Hulmes)

Copyright 2011 Thomson Reuters.

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NYT: S & P says that Greece in default risk is

5:26 AM default, Greece No Comments

Greece risks be assessed in the on its debt obligations, if banks are forced to bear part of the pain, said standard & poor's Monday, suggesting that current proposals for the rescue of the euro zone may be reconsidered most vulnerable Member States.

In particular said S. & p a by the French Government and proposed banking plan "requiring debt restructuring could private sector in a way that we would view as an effective standard," in a statement.

The impact of Greek default would be felt all over the world. The country's debt of 330 billion euros may not be large enough, set off to a new financial crisis, but once the precedent of the euro zone had been set by default, investors would probably the debts of the other members are fighting, including giving up Portugal and Spain.

Alarming is to have the Western banks, including the giant of Wall Street, a tower of credit default swaps built - in the main insurance - the debt of these countries and the costs of payment up to in a standard-would be enormous. While the French and German banks have the most direct exposure to the Greek debt, it is American banks and insurance companies, which has the largest commitments to cover the payments to the guests with SWAps.

Identification of the credit rating agencies standard would have to E.C.B. impose discounts, known as hairdressers, on the Greek debt, which has accepted it as collateral. She would hold more financial pain on banks causing that debt.

Euro-zone finance ministers agreed over the weekend to Athens with funding of EUR 8.7 billion to provide, or $ 12.6 billion from 110 billion euro bailout agreed last year to help the Greek Government function through the summer. The view is attributable to a short-term standard of new aid.

But the Finance Ministers, how a second rescue mission reportedly € up to 90 billion estimated, to keep the country running until 2014, if it is to be hoped that Greece can return to the credit markets.

The sensitive issue of sharing the pain with the private sector suggests that the discussion of the second bailout for months could continue.

French President Nicolas Sarkozy announced June 27, French banks under which banks the most income of establishments which due until the year 2014 to new Greek reinvest securities would Greek debt had agreed to a plan.

"If it voluntary," Mr. Sarkozy said at the time "it would be considered as a standard-sized danger of an increase in the crisis."

Roles on some of the Greek debt agreed operations to Germany's largest banks.

But standard & poor's said Monday that it "" certain types of debt Exchange and similar restructuring as equivalent to a default views: If a transaction is considered a "tortured instead of purely opportunistic" and if it results in "get less value than the promise of the original securities investors."

It was said that both conditions seems on the French proposal.

S. & p. Greece long-term rating CCC, has cut already deep in the junk-e-region.

European officials are anxious that setting from one of said standard, Gilles Moec, an economist at Deutsche Bank in London, to avoid, since that could lead to a crisis in relations with the European Central Bank.

The E.C.B, which itself holds has billions of euros of Greek debt, said it could accept only, the participation of the bondholders any restructuring it would be "completely voluntarily."

The Central Bank - which has Greece help by buying its debt on the secondary market - "do not want to endanger his record, more public", said Mr Moec. "It's one thing to say she will accept Greek Government bonds, it is another thing, something in its balance sheet, which ceased to be paid, the definition is the standard."

"It means not the Greek securities does not want to be paid", he said, adding: "the E.C.B. in would be able to accept it if the final structure was relatively healthy." "One thing that does not want the E.C.B. is any violation of his right to the security to decide, that takes it."

This article, "S. & p. Bank warns plan would cause Greek default," originally in the New York Times appeared.

Copyright © 2011 New York Times

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EU officials to warn of another credit crunch

12:20 AM another, Credit, crunch, officials No Comments

The EU's most senior finance officials will warn ministers this week about the threat of a renewed credit crunch as a "systemic" crisis in sovereign debt spills over to banks, according to EU documents.

In one a series of bluntly worded reports prepared by officials for a meeting of EU ministers on Sep. 16 and 17, they warn: "While tensions in sovereign debt markets have intensified and bank funding risks have increased over the summer, contagion has spread across markets and countries and the crisis has become systemic."

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This highlights a "risk of a vicious circle between sovereign debt, bank funding and negative growth".

In the documents, the influential Economic and Financial Committee, which prepares the agenda for discussion among ministers, levels harsh criticism at countries including Spain for not doing enough to reinforce its banks following dismal results in stress tests.

One of the reports, dated Sep. 13, cautions that the "spill-over effects" could feed "a dangerous negative loop between the financial and the real sectors (of the economy), whereby funding problems and ... risk aversion ... may lead to ... deleveraging by banks, thereby generating a credit crunch, in some Member States".

Outlining what they describe as spreading contagion and a sovereign debt crisis which they say has "entered a new phase", officials highlight the difficulties experienced by European banks in borrowing.

"Despite the considerable strengthening of capital positions compared to the levels of 2008-2009, European banks have recently experienced market funding difficulties resulting amongst others from stress on wholesale liquidity markets, high spreads in secondary markets, and, for some EU banks, growing difficulties in accessing funding from U.S. counterparties," one of the reports says.

Europe's woes raise global recession risk

To counteract dwindling confidence in EU banks, officials recommend to ministers that "a further reinforcement of bank resources is advisable at this juncture".

They criticise some countries for not taking such measures -- which would include state-backed capital injections in flagging lenders -- after recent stress tests.

"This is important for banks that have failed the stress test, but also for those that have passed the test but with capital levels close to the relevant threshold."

Copyright 2011 Thomson Reuters.

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Big banks targeted as rate-fixing probe widens

8:30 AM Banks, probe, ratefixing, targeted, widens No Comments

An international probe into alleged interest rate fixing that led to $453 million in fines against Barclays Bank is taking aim at four other banks, including Citigroup, UBS, HSBC and Royal Bank of Scotland, British officials said Thursday.

Investors were punishing bank shares amid worries that the banks will also be hit with hefty fines.

British Treasury chief George Osborne said the four banks were being probed for allegedly providing false figures on key interest rates upon which mortgages and consumer loans are priced.

On Wednesday, U.S and British regulators imposed the fines on Barclays for manipulating the so-called LIBOR — the London interbank offered rate — to its advantage from 2005 to 2009.

The probe is part of a multiyear investigation into whether banks manipulated the key rate during the financial crisis to help boost profits and hide their ailing financial condition. The Wall Street Journal, which initially raised questions about the rate in a series of stories in 2008, said the fine against Barclays was the biggest victory yet for regulators in the probe.

Barclays made the deal with regulators in the U.S. and in Britain.

"Banks were clearly acting in concert," said Andrew Tyrie, a British lawmaker, who is also chairman of the influential Treasury Committee in the House of Commons. "I fear it's not going to be the end of the story, that we are going to find that other banks have been involved."

Tyrie said his committee would summon Barclays chief executive Bob Diamond to explain what happened at the bank.

Diamond has decided to waive his 2012 bonus in wake of the fines and is facing calls to step down.

Prime Minister David Cameron, when asked whether Diamond should resign, said he thinks "the whole management team have got some serious questions to answer. Let them answer those questions first."

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities.

"Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multiyear provisions that could run into the billions," Chen said.

The LIBOR is an average rate set by banks each morning that measures how much they're going to charge each other for loans. That rate, in turn, affects rates on many loans for consumers and businesses.

The U.S. Justice Department said Barclays would not face criminal prosecution, subject to certain conditions, but individual employees or officers could be prosecuted.

Diamond waived any bonus for this year, as did finance director Chris Lucas, chief operating officer Jerry del Missier and Rich Ricci, the chief executive of corporate and investment banking. Diamond said the decision reflected "our collective responsibility as leaders."

Martin Taylor, who was CEO of Barclays between 1995 and 1998, said the bank's board will have to make a decision whether Diamond can carry on in his post.

Though Taylor does not believe Diamond ordered anyone to fiddle the rates, and thinks Diamond should stay if he can "help clean out the stables," he told BBC radio that only the board can make that judgment.

The traders involved in the manipulations worked in Barclays Capital, the investment bank which Diamond headed between 2005 and 2009.

Former Barclays chief Taylor said he was confident that Diamond hadn't sanctioned the misbehavior in the unit, but added that the company's culture might have been a factor behind the misdemeanors.

"Bob runs an extraordinarily competitive and aggressive ship, and that is one reason why Barclays Capital has been very successful in the first decade of the century," Taylor said.

"And I think that when people are pushed to go to the limit, you know what traders are like, they sometimes go beyond it. They don't need to have an instruction from headquarters to go beyond it, they think it is what the bank might expect, perhaps."

"Somebody at senior level somewhere will certainly have known. I can't believe that Barclays haven't identified who that is," Taylor added.

Reuters contributed to this report.

CNBC's Kelly Evans reports Barclays has serious questions to answer over an investigation on whether the banking giant manipulated interbank lending rates over several years.

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$22 Billion Saudi feud who knew what?

11:19 PM billion, Saudi No Comments

LONDON — Mohammed Algosaibi often turns the palms of his hands up as he talks, as if asking for understanding.

He is trying to explain one of the biggest but least reported failures of the financial crisis. This has split his family, one of Saudi Arabia's richest, cost some of the world's biggest banks billions of dollars and is now being slugged out in courts from London to the Cayman Islands.

Some family members face travel bans linked to the case, so it has fallen to the 32-year-old to defend the Algosaibi empire since the 2009 collapse of two Bahraini banks left more than 100 banks including Deutsche Bank, HSBC and Societe Generale owed an estimated $22 billion.

Small wonder he appears uncomfortable. During an interview with Reuters, five advisers -- two accountants, two PR advisers and a lawyer -- dominate, interrupting when he tries answering a question.

The missing money, he says, was taken by his uncle Maan al-Sanea, who married into the Algosaibi family 30 years ago and was put in charge of its financial businesses. Al-Sanea used his insider's access, Algosaibi and his advisers say, to siphon off billions of dollars through a money-laundering maze.

As a result the Algosaibis, who say they have been left some $9.2 billion worse off through unauthorized borrowing, are suing al-Sanea in the Cayman Islands for fraud, forgery, and masterminding a massive Ponzi scheme following the collapse of the Bahraini lenders, one of which was owned by the family and the other by al-Sanea.

Accounts of the case so far have focused on the Algosaibi version of events. Al-Sanea has always categorically denied these allegations, and declined to comment for this story.

But new evidence presented by five banks suing the Algosaibi family company in a separate case at the High Court in London -- published here for the first time -- raises doubts about the family's claim that it did not know what al-Sanea was doing.

Banks have compiled a mountain of e-mails, resolutions and what look like transcripts of telephone conversations for their suit, which centers around deals they struck with units in the family partnership Ahmad Hamad Algosaibi & Brothers (AHAB). The documents show that the Algosaibi's own accountant had been sounding alarm bells about al-Sanea and his business methods for years.

"I am really disturbed from your careless and unprofessional position in dealing with this situation," accountant Salah Ayouti told patriarch Abdulaziz Algosaibi, the second of the partnership's three founding brothers, in a letter about al-Sanea sent in May 1994.

I am "hoping that it will not turn a disaster if you will keep behaving in careless way rather than dealing with it strongly and seriously."

The banks say the documents show that al-Sanea built his empire with the full knowledge of his wife's family and is now being made a scapegoat for schemes his in-laws knew existed -- and realized were flawed -- all along.

This new evidence and the countless legal cases shine a rare light on the practice of "name lending" in the Gulf Arab region, in which a person's name is sufficient collateral to win a loan or a business deal.

"It's something that happened in a lot of emerging market countries. It tends to be because of government relations or ties with powerful, rich figures," said Andrew Andrijanovs at investment banking boutique Exotix.

"One person's connections or their status in society did lead to large sums being lent, sometimes without the proper risk management. That has been a big lesson for western banks -- although investors do have short memories."

Deb concerns
Family and business have been intertwined in the Gulf for generations, a situation epitomized by the Algosaibis. The roots of their wealth lie in a conglomerate of export and import and trading businesses, as well as in land.

Based in the east of the country, the family built construction firms and later won the concession to run the Pepsi-Cola bottling plant.

Some 60 years ago they also started financial businesses, though on a modest scale. The Money Exchange served expatriate workers in the nascent oil industry around oil company Aramco with cash remittance and currency exchange services.

When al-Sanea married Sana Algosaibi, one of patriarch Abdulaziz's five daughters, in 1980, he was made a partner in the Money Exchange and took control of the Algosaibi financial businesses.

Saud Algosaibi, Abdulaziz's only son, resented the fact Sana's husband rose to power. In a sign of how deep the rift has since become, Saud's sister refers to him in her affidavit for the Cayman court as somebody with a "general tendency to avoid any responsibility".

His brother-in-law wasn't the only one unhappy about al-Sanea. Ayouti, the accountant, expressed worries about him on various occasions and was concerned that his debts could hurt AHAB, whose financial business was centered around the Money Exchange.

"To date, no decision has been reached as to who will settle that indebtedness," he said in a 2000 auditors' report.

As early as 1997, the accountant wrote that the Money Exchange suffered a "permanent" liquidity shortage -- so much so that it needed to borrow not just to meet the needs of "the partners and their affiliated companies," but also to service existing debt.

Three years later, Abdulaziz stepped in to reassure the accountant -- and creditors who may have been worried about the Exchange. "In his capacity as chairman and a partner of AHAB," Abdulaziz backed "the entire debts of Maan Al Sanea and his companies," says a March 2000 document described as a "pledge."

The court documents in the London case also show that Abdulaziz's only son, Saud, played an active role and seemed to keep tabs on al-Sanea and his plans. Saud met bankers, dealt with the family's financial businesses, and was in frequent conversation with al-Sanea.

Saud could be demanding.

"Tried to reach you several times last month and this month," he wrote to Al-Sanea in 2005, according to a court submission. "I understand where you come from, however think the analysis missed several points ... would like to suggest meeting with someone from Money Exchange to discuss a workable plan and come up with a scenario."

Page after page of such exchanges is proof, the banks argue, that the Algosaibis knew what was going on and are therefore responsible for setting things right.

AHAB said it would not comment on statements made in the London court so far, repeating that "the notion that they knew or cooperated in the looting of their business has no logical or legal basis".

The good life
Despite the family concerns, Al-Sanea clearly enjoyed the fruits of running an important part of the business, basing many of his companies in the Cayman Islands, where he held much of his wealth.

Al-Sanea had a private plane fitted with plush white carpet, a master bedroom hung with expensive artwork and a bathroom with gold fixtures, says Ninfa Arellano-Smith, a Cayman Islands banker working for HSBC. She met al-Sanea in 2006 through her husband -- the director for the Civil Aviation Authority -- and started working for him.

Al-Sanea, an elegant dresser, has a down-to-earth and easy sense of humor, while his wife Sana dressed like a typical Western woman on a beach holiday in the Caymans, Arellano-Smith recalls.

"Sana is a very caring lady and soft spoken, but you know she still runs things. It's how they interact between them: She will pat him on the arm in a joking manner or something. They are a very caring, strong couple."

The al-Saneas took up an entire floor at the luxurious Ritz-Carlton resort on their 2008 vacation, Arellano-Smith said, flying into Grand Cayman with an entourage that included friends, butlers, caretakers and pilots.

Al-Sanea also inspected the resort's 20,000-square-foot penthouse with panoramic views of the world famous Seven Mile Beach and an asking price of $44 million. "He liked it, but it was too small," Arellano-Smith said.

Glenn Stewart, an American banker who was hired by al-Sanea in 1989, says diversification led to rapid growth of the Algosaibi business, and a need for new funds.

At Algosaibi Investment Holdings in Bahrain, Stewart said he was given the task of raising $100 million in credit facilities from Islamic banks for the Algosaibi partnership as the family added canning factories to its bottling plant, and bought land.

This was a far cry from Stewart's days at Oxford University, where he directed actor Rowan Atkinson, who would win fame as Blackadder and Mister Bean.

"I wanted to work in the Middle East. I wanted to have some adventures," Stewart said in his deep baritone during one of three long interviews.

The business grew rapidly for a decade.

Then came the 9/11 attacks on the United States in 2001. America clamped down on money exchanges in Saudi Arabia -- unregulated businesses it feared could be used as a source of funding for terrorist groups. Stewart said the Algosaibis worried they might have to amalgamate their exchange with those of other families.

As a possible way out, they applied for a license to operate as a bank in Bahrain, he said. When they won approval in 2002, they set up The International Banking Corporation (TIBC), which Stewart headed "from day one."

The Algosaibis contest the view that they were involved in TIBC. "It is false that the family had sought to set up or operate a Bahraini bank. The documents do not support it," a spokesman for the family said. The family "had absolutely zero involvement in the running of the bank or in meeting with regulators."

Again according to Stewart, Bahrain-based TIBC could not lend money there, so its customers came through the Money Exchange in Al-Khobar.

"The Money Exchange was responsible for dispersing advances to the customers and for collecting interest," Stewart said.

While Stewart ultimately reported directly to Al-Sanea, the working relationship between the two men -- based at different ends of the bridge that connects Bahrain to Saudi Arabia -- remained very much at arm's length.

"As a non-family member you didn't have any rights. If you questioned their business decisions you just ended up with them jumping down your throat," Stewart told Reuters.

Invisble customers
One man who did question the family was English banker Mark Hayley. He was the general manager at the Money Exchange for more than a decade until 2009. His testimony in the Caymans court is a pivotal building block in the Algosaibi argument.

Hayley, now 60, said the Money Exchange did not appear to have any customers. "Any borrowing was to service existing debt and to fund the Saad Group. Nor did the Money Exchange have any significant business lending to customers," he said in a 2010 affidavit to the Cayman court.

"The Money Exchange does not possess any customer details, contact information or any other information which would normally be contained on a customer file."

There was also the matter of a forged letter.

Hayley, who now lives in Britain and refused to talk to Reuters, told the Caymans court that in the early 2000s, he returned from a holiday to find a letter on his desk that used his signature but that had been written when he was still away.

"I telephoned Mr al-Sanea's switchboard and someone put me through to him. I was so angry that I yelled at him. This was the first time I had raised my voice to him, but I was incensed," Hayley told the court.

"Mr al-Sanea tried to placate me. He subsequently told me that (al-Sanea's personal assistant) Mr Sohail had forged my signature and ... would be fined one month's salary."

It was the credit crunch which triggered the unraveling of al-Sanea's empire. TIBC raised its funds against its loan book. Most of its money came through interest-rate swaps and foreign exchange and Islamic finance deals.

This was a risky way to run a bank. Like Lehman Bros., TIBC needed to constantly roll over short-term maturities. When banks stopped lending, the game was up. In May 2009, TIBC defaulted on a foreign exchange deal with Deutsche Bank.

The bank was put in administration, as was Awal bank, the separate company owned by Maan al-Sanea. It was then that the scale of the losses became clear for the first time. Administrators put the amount owed to the banks at $22 billion.

The Algosaibi family claimed they had no knowledge of the foreign exchange transactions, and didn't even know that TIBC existed. Al-Sanea, they alleged, had stolen billions of dollars and put it into his own Saad Investment Co Ltd (SICL).

Blame game
The two years since have spawned a series of lawsuits around the world. Besides the cases in London and the Cayman Islands, legal proceedings are taking place in New York, Saudi Arabia, the United Arab Emirates, Bahrain and Geneva. The Algosaibis have also sued Glenn Stewart in Los Angeles, where they describe him as the main architect of al-Sanea's fraud. "TIBC was a sham bank and had no real customers," they say in their claim.

Stewart denies those charges and says the banks who loaned TIBC money were all told where it was going, into real estate, hedge funds and into bank shares, and were given counter-guarantees.

"I certainly refute any allegations in that regard. We had no control over any money or assets of the bank and we had no discretionary power to do anything," Stewart said.

Stewart ignored orders to stay in Bahrain and fled after the collapse of TIBC and Awal. In March, the Bahrain public prosecutor charged him, Al-Sanea and others for breaches of the country's commercial companies law.

The chief operating officer of Awal bank, 63-year old Tony James, was one of those held in the country, only allowed to leave just before last Christmas, following diplomatic pressure from the UK.

The bankers who were detained have filed a complaint with the United Nations Human Rights Council & Treaties Division and are also suing a UK private detective firm for defamation, over a report it wrote for the Central Bank of Bahrain, and which became public in court proceedings.

They suspect the hand of the Algosaibis.

"The Bahrain authorities, and in particular the (Central Bank) have been complicit in permitting the mechanisms of the state to be used to further the private political ends of a powerful family," they say in a the UN complaint.

The al-Sanea and Algosaibi businesses are so entangled that it is difficult to work out who is owed what. The banks suing in London hope that by bringing into doubt the Algosaibis' story, a narrative that has so far dominated the case, they might have a better chance of getting something back.

One option being considered in the wider dispute is to pool assets across the two groups, sources familiar with the situation but not involved in the lawsuit told Reuters. This could be used to pay banks a small part of the $22 billion they are owed.

That may be wishful thinking -- Saudi banks owed money by Saad may already have been paid out in real estate assets, leaving foreign banks behind.

Adding to the confusion was the death of Suleyman Algosaibi at the height of the financial crisis.

Suleyman, the last of the three founding partners of AHAB, took over when his brother Abdulaziz died in 2003. That was a fairly smooth transition. But what happened in Suleyman's last few hours is a crucial plank of the Algosaibi defense in the many court cases around the world.

The family claims that some of Suleyman's last-ever signatures must be forgeries, as the dying man was incapable of signing anything.

But al-Sanea's wife Sana told the Cayman court that her brother Saud had hastily traveled to Zurich, hoisted Suleyman out of bed, and had him sign the documents.

"My brother Saud took documents to Zurich for my uncle Suleyman to sign only days before his death, getting uncle Suleyman out of his bed and into a wheelchair so that he could sign and smoke a cigarette," she said.

The dispute over Suleyman's signature highlights the way family companies in the Gulf often operate on the trust and word of patriarchs.

"Name lending," as it is known, enables banks to lend to family conglomerates in the Middle East even if the deals do not meet normal corporate governance standards.

"We are Saudis and we are Muslims. Concepts that are born and bred within us will be unknown to the Cayman court," Sana said in her testimony.

Copyright 2011 Thomson Reuters.

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Blame given the answer to this mess may be

7:21 AM answer, Blame, given No Comments

 In America’s unenlightened past, men who couldn’t pay their debts were imprisoned. Languishing behind bars deprived them of any chance to repay their creditors, so the practice was stupid as well as cruel. During college, I came upon a trove of heartrending petitions to the Connecticut General Assembly from women seeking to have their debtor husbands released from jail. The petitions were, by and large, rejected.

Society has come a long way since, but not far enough. There is still a presumption that blood can be squeezed from a stone. That’s true in the U.S. housing market, where banks continue to insist that they will be able to collect full repayment of wacky mortgage loans that they never should have made in the first place. And it’s true in Europe, where creditor nations and banks are dragging their heels on writing down the sovereign debt of Greece, Ireland, and Portugal.

Why does this matter? Because debt — public and private, foreign and domestic — is the No.?1 issue of 2011. The perceived danger posed by debt dominates the political conversation in Washington and is the reason for the British government’s austerity program. In the absence of strong economic growth, debt burdens around the developed world will remain onerous for years to come — and yet while countries are single-mindedly focused on paying down their debts, it will remain harder for them to implement pro-growth policies. Getting the global economy moving again means accepting that some debts will never be repaid — and the sooner they’re forgiven, the better. “This will be the story going forward,” says Daniel Alpert, managing partner of Westwood Capital, a New York investment bank.

This is not an argument for welching by debtors who just don’t feel like paying up. Because the U.S. government, for example, is fully capable of covering all of the $14.3 trillion it owes, it should. And it will: The debt ceiling has been raised, albeit grudgingly, and even Standard & Poor’s still gives the U.S. a near-perfect AA+ rating. The real problem for the U.S. lies ahead. If it doesn’t bring revenues and expenses in line in coming decades, it really will be in a bad fix.

In contrast, there are some outstanding debts for which there is no prayer of full repayment. Collectively, U.S. consumers have reduced debt by more than $1 trillion since 2008, but for some, the burden remains intolerable. Start close to home, with American residential real estate. According to CoreLogic of Santa Ana, Calif., about 23 percent of mortgaged residences in the U.S. were worth less than the mortgages on them as of the end of March. In Nevada, the figure was 63 percent. Many of those homes’ owners can’t sell and move elsewhere to take a job because they can’t raise the funds to pay off the loan. In a very real sense, “an underwater home is a new version of a debtor’s prison,” says Edward Leamer, an economist at the University of California at Los Angeles.

Better options exist. Mortgage lenders could let families stay in their homes, but as renters, or reduce what people owe to around the current value of the homes. (Banks could demand to capture the upside if the home price rebounds.) Writedowns would enable people to sell if they need to. That would also lessen the chance that they simply walk away, which forces the banks to take on a vacant and nearly unsellable piece of real estate. Banks have preferred to extend terms or lower rates, rather than write down principal.

Banks resist writedowns because acknowledging the losses would leave them severely undercapitalized, and this is a lousy time to repair their balance sheets by selling equity. Bank of America shares are down more than 40 percent this year as the extent of its real estate problems has become apparent. To break the stalemate, Alpert says the government should let banks record the one-time hit to capital in equal installments over 10 years.

There’s a precedent for debt forgiveness. In the early 19th century, bankruptcy codes began to replace debtors’ prisons, giving people a welcome chance to set things right. A business that seeks protection from creditors in court is given a chance to start again with a lighter debt burden, provided it can demonstrate that it’s worth more to creditors intact than in liquidation. Households get a break from the hounding of debt collectors while they arrange a plan to pay as much of what they owe as is reasonably possible. The system is rational and orderly.

But the principles of bankruptcy law aren’t applied as widely as they could be. First-lien loans on primary residences are exempted, so bankruptcy judges can’t force lenders to share the pain with other creditors when someone goes bust. Their special status emboldens banks to lend unwisely and then to resist restructurings that would benefit other parties, says Barry Zigas, director of housing and credit policy at the Consumer Federation of America.

There’s no bankruptcy court for sovereign nations, either, though international lenders are gradually coming to see the merits of debt relief, at least when it comes to the world’s poorest countries. Since 1996, when the Heavily Indebted Poor Countries Initiative began, 22 nations have been promised debt relief totaling $100 billion, according to Jubilee USA. Zambia used some of the freed-up funds to control disease in livestock and reduce fees to attend school — spending that had clear public benefits.

The poorest countries are attractive candidates for forgiveness, since they owe relatively little and most of their loans are from official institutions like the International Monetary Fund and the World Bank. Middle- and upper-income countries like Greece, Spain, and Italy are less sympathetic victims, and their levels of indebtedness present much bigger risks to the global economy. Spain and Italy can probably skate by paying everything they owe at subsidized rates or extended terms. But Greece has no chance. Only writeoffs will do.

True, the Greeks are not without sin; tax evasion is rampant. But draconian budget cuts made at the insistence of European authorities and the IMF are simply making matters worse, depressing the economy and tax revenues, and potentially setting the stage for a disorderly default.

The July aid package for Greece takes a tentative step toward writedowns. Greece was promised €159 billion of new aid with lower interest rates and longer repayment terms, with private banks chipping in €50 billion of that through supposedly voluntary bond exchanges and buybacks. That will cut the amount Greece owes by at least €13.5 billion, according to the Institute for International Finance. But it’s not enough; Greece’s debt, at roughly one and a half times GDP, will still be unsupportably large. Will creditors stand for more of a cramdown? Yes, if it’s the only alternative to a flat-out, Argentina-style default, which it may well be.

As recession threatens in the U.S. and Europe, Band-Aids will no longer suffice. The Federal Reserve announced on Aug. 9 that it would keep the federal funds rate at a microscopic zero percent to 0.25 percent for at least two more years. That’s dangerously close to zombie economics — propping up weak debtors by enabling them to roll over their loans for almost nothing. Better to clean out the rot and get a fresh start, with interest rates determined by the market, not the central bank.

The classic argument against debt forgiveness is that it encourages bad behavior in the future. Borrowers will tend to take out stupid loans because they have reason to believe they will get bailed out again. But lenders can succumb to moral hazard as well, if they’re protected from the consequences of foolish lending decisions. Hand-over-fist lending to Greece during the boom times is a good example. Banks had an incentive to lend to Greece because under the Basel banking rules they didn’t have to hold capital against sovereign loans.

Ultimately, the best argument for debt relief is that it helps to free the productive potential of the economy. Over-indebtedness stultifies growth today, just as surely as debtors’ prisons did centuries ago. It’s time to break the locks.

Copyright © 2011 Bloomberg L.P.All rights reserved.

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5 years after the crisis: Blame Washington or Wall Street?

10:44 AM after, Blame, crisis, Street, Washington, years No Comments

| By Suzanne McGee, The Fiscal Times

Five years after the crisis peaked with the collapse of Lehman Brothers, it is still possible to hear bankers claim that Washington forced them to take risks. That claim simply doesn’t have much merit, however.

It all started with a house and a mortgage.

The first is a hallmark of American society, representing the ideal of home ownership: About two-thirds of our fellow citizens own the house or apartment in which they live, encouraged to do so by factors that include being able to deduct the interest on their mortgage payments. And it is the ready availability of those mortgages that has enabled them to buy those houses in the first place.

When the financial crisis brought the entire system to its knees five years ago, the heart of the problem wasn't some esoteric investment strategy but something fairly basic: poor-quality mortgage loans, repackaged by banks and other institutions in such a way as to temporarily mask their weakness. Banks had always made these subprime loans -- issuing mortgages to borrowers with poor credit quality, or financing purchases of homes for buyers who weren't putting anything down themselves. But that had been a fraction of their business, perhaps 8% of all new mortgages in a year. By 2006, the percentage had grown to 20% nationwide, and was far higher in some parts of the country, even as homeowners were taking on debt they simply couldn't afford.

As all the postmortems take place around the fifth anniversary of the bankruptcy of Lehman Brothers, one of the most significant questions boils down to whether it was the financial institutions that made these loans and then restructured and resold them that should bear the blame for the near-meltdown of the system. Or, as others argue, was the crisis the fault of Washington (a convenient code word for politicians, regulators and their rules)?

One of those on Wall Street now viewed as having been blind to the problems that were taking shape in the mortgage world, former Citigroup (C) CEO Charles Prince, may go down in history for his comment that "as long as the music is playing, you've got to get up and dance." That is, as long as the subprime mortgage lending market was moving along and generating big profits for the industry as a whole, no bank could afford to sit it out and allow all those gains to flow to its rivals.

In the wake of the crisis, however, those who believe the blame for the near-meltdown can be laid at Washington's door seized on Prince's phrase as a way to explain what they think happened. In their view, policies ranging from the Alternative Mortgage Transactions Parity Act (which greatly increased the ranks of lenders allowed to write adjustable-rate, interest-only and other kind of mortgages that became so popular among subprime lenders) to the Community Reinvestment Act (which tried to stop discrimination in lending, but which some argue forced banks to lend to home buyers with poor credit) were responsible for the dramatic increase in subprime loans and the increase in leverage in the years leading up to the crisis. Moreover, they argue, other policies resulted in inadequate regulatory supervision of the institutions taking those risks.

Around the first anniversary of the collapse of Bear Stearns, on St. Patrick's Day of 2009, the issue came up for a formal debate at an event organized by Intelligence Squared U.S. The ranks of those arguing that Washington was more culpable included historian Niall Ferguson, who suggested that if Chuck Prince and his fellow Wall Street CEOs were dancing to the music, "you have to ask yourselves … who was playing the music." It wasn't that Ferguson didn't blame banks, he insisted, just that he and his fellow debaters blame Washington more.

Balderdash.

Five years after the crisis peaked with the collapse of Lehman Brothers, the forced merger of Merrill Lynch with Bank of America (BAC), and the near-implosion of many other institutions, it is still possible to hear bankers claim, with straight faces, that Washington forced them to take risks. That claim simply doesn't have much merit, however.

Let's first consider it from a common-sense perspective. How willing are banks to do things that they know in their gut are foolish or ill-conceived simply because the government wants them to? If anything, recent history has shown that they put their self-interest first -- and rightly so. Rock-bottom interest rates haven't sparked a flurry of new lending in the wake of the crisis; burned by the mortgage debacle, banks are guarding against credit risk more than they are abiding by the government's clear interest in seeing lending rise in order to fuel economic growth.

Historically, when banks haven't wanted to comply with a government rule or regulation, they have a tremendous track record in compelling whatever body is responsible to reverse the decision, PDQ. Remember that it was lobbying by banks, not by the government, that finally led to the collapse of the Glass-Steagall Act more than 60 years after it had been passed. If they could succeed in demolishing such a bedrock of financial regulation, could they really have been forced into acting against their best judgment by weaker, newer rules? It seems far more probable that these were rules they could live with or work around, or even rules that some of them believed would help make them more money.

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Progress? Eurozone deal is a ' great leap sideways '

12:37 AM Eurozone, great, Progress, sideways No Comments

Europe divided on Friday in a historic divide on a closer fiscal Union, the euro, with an overwhelming majority of the countries under the leadership of Germany and France approval to go ahead with a separate contract, so that the EU isolated to maintain the third largest economy of Great Britain.

By John W. Schoen, senior producer

To prevent Europe's high-profile consultation Friday spending hard to break, stack larger pile of debt can euro zone countries. It will do little to ease growing financial pressure on the European banking system from the binge of bonds, has pushed to the edge of the standard Greece, Italy and Spain.

The European financial crisis has undermined already business confidence of consumers and deposit of euro zone into a slight recession. How the American economy has strengthened in recent months, has the risk, that Europe relieved could recession the United States again in a downturn 'double dip' send. But a meltdown could constitute a serious threat to the prospects for global growth one or more of the big banks in Europe.

Under the deal in Brussels agreed on the 17 countries with a common currency introduced national spending cap would bound to introduce legislation, their deficits. Countries that exceed this limit would be taken with automatic sanctions, unless it lifted it, a majority of the members. The intergovernmental Pact, the voters approved by referendums is required, is to be ratified by mid March.

The business can investors confidence, that Europe's free spending ways of are. It offers very little head from the risk that one or more Governments default on their debt.

"This is a great leap sideways," said Daniel Gros, Director of the Centre for European policy studies think tank in Brussels. "We have a framework that could restore a certain tax order at the euro area over 10 years now." The German view is that all of this that is required is Spanish and Italian markets, debt to buy to convince. I have my doubts that it will be enough. "I think the tension further."

Earlier this week, expressed credit rating agency standard & poor's also doubt whether European Heads of State and Government could come with a convincing answer to the current crisis, warning that it may be 15 euro zone countries downgrade, including Germany and France, along with a number of large European banks. S & P said Friday it was the plan review and Woiuld a decision applies to all reviews changes int he next few days.

There were high hopes that plan the eighth sponge this year, the latest, more immediate action would to be attached to banks in Europe heavily invested backstop in shaky Government bonds. But the Summit offered little to reassure investors in this respect.

"Germany should feel pretty good about the fact that it the promise of long-term budgetary discipline," said David joy, chief market strategist for Ameriprise financial. "But, that still brings us back to: who is the lender of last resort, until we, get there in the next 18 months, 24 months." Will the (European Central Bank) strengthen? We find out during the first quarter (European governments) come to the markets with a substantial amount of debt to roles. "

Italy and Spain have the biggest debt pile in need of refinancing early next year; Italy has to sell fresh debts on loans over EUR 150 billion between February and April. Refinancing has become more expensive as investors have called for higher interest rates reduce the risk of default. , Add Italy's deficit, in turn forcing higher borrowing costs, to make more, to borrow the deficit.

Europe's central banks still shy on the idea of a more comprehensive response, the large purchases of non-performing Government bonds similar to moves reserve such as the market soothing of the Federal developed as the U.S. banking system in early 2008 until would include.  Friday news agency governing is sources Reuters that it purchases to EUR 20 billion limited his per bond.

Early in the week, Europe's central bankers announced a series of measures to try to calm the financial markets and the head from a looming credit crunch. The ECB cut its key interest rate by a quarter's point record low 1 percent. It simplifies the rules on can the quality of assets to secure loans to banks, lowered the reserves banks must hold and increased the term of the Central Bank loans to 3 years by one.

The trains may have helped the deterioration of the European banking system, now to stabilize. But they are not far enough to fix the problem, David Malpass, President of the economic research and consulting company encima global LLC and former officials, the Treasury Department to.

The UK is cut an isolated figure in Europe today after the Prime Minister David Cameron in the European Union to deal with the euro-zone crisis effectively a treaty veto. ITV political correspondent Chris ship reports.

"That are of a bandaid as a correction of the underlying fundamentals," he said. "The problem is that banks can't afford, can further depreciation of government bonds, but there is no plan by Germany to stop the infection of Greece in Spain and Italy."

European regulators, said in the meantime, this week, banks of the eurozone must lift 115 billion euros in fresh capital, the more strain on their ability to lend to businesses and consumers.

Friday of the Summit also left unresolved the fate of a combination of backup funds, if you help in could or other standard Governments. Germany has violated this bailout funds that mechanism (ESM), expand European financial stability facility (EFSF) and the European stability. German Chancellor Angela Merkel blocked a proposal to the ESM allow a banking license to borrow money from the European Central Bank.

Brussels Summit also agreed to help the International Monetary Fund, less than EUR 200 billion, Italy and Spain to lend works through the funding crunch, with those who confronted you early next year. But, that is also as a short-term solution. These funds are not nearly enough, to a full-blown standard reverse running stop; Alone in Italy, almost EUR 2 billion in total debt has outstanding.

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