Debt Crisis in Eurozone Averted…. For Now

Posted by Jeff in Finance

Debt crisis in Europes Eurozone had threatened to derail the world economy, but an agreement reached in Brussels boosts the markets and buys some more time.

The debt crisis deal that was thrashed out by members of the Eurozone was aimed at preventing the crisis that has engulfed Greece from spreading to larger economies, principally Italy and Spain.

The details of the new debt crisis deal are sketchy but the main components are that the banks holding Greek debt would accept a 50% loss and all banks must raise more capital to protect against possible future defaults.

The Greek Prime Minister hailed the debt crisis deal as a new day for Greece and for Europe as it cut his countries debt down by a massive 50%.

The raising of more capital by banks could mean that further help is needed by Governments to make this happen. Another bank bail-out would not go down well with an angry public.

The Eurozone bailout fund will also be boosted from 440 billion euros to about 1 trillion euros (approx. $1.4 trillion) although the mechanism for that has yet to be worked out, a critical and controversial idea in itself.

The side effect of all this quick political and financial crisis management is that the eurozone is beginning to look more and more like a super state.

The situation and the intended course of action by those political leaders involved inevitably leads to even tighter integration between the countries financial mechanisms.

Already a new ‘euro commissioner’ position with great powers has been announced and it is possible that people in the street will look back on this moment and it might suddenly hit them what the long term implications for their independence could be. Political leaders might say they had no choice.

The markets and the euro reacted positively to the news, for the moment they seem happy that after months of deriding policy makers for not doing enough to tackle the euro crisis, they have finally confronted the problem.

Photo: Davide “Dodo” Oliva

UBS Trader, Kweku Adoboli, Loses $2 Billion

Posted by Clive in Finance

UBS trader in London, Kweku Adoboli, has been charged with fraud after allegedly losing $2 billion.

The astronomical sum is thought to have been lost over the past year in large numbers of small trades. The case brings back memories of Jerome Kerviel who lost 4.9 billion euros, Yasuo Hamanaka who lost $2.6 billion and Nick Leeson who lost $1.4 billion.

How or why bosses were not aware of the losses has yet to be investigated but it is thought that Kweku Adoboli had previously worked in UBS’s back office before becoming a trader.

This knowledge and insight into the inner workings of their systems could have enabled him to cover the trail. Jerome Kerviel managed to hide his losses because of his knowledge of both front and back offices.

It seems that UBS only knew of the problem once Kweku Adoboli had confessed to colleagues, not through any internal detection systems.

The financial watchdog and police are investigating the case and Kweku Adoboli is expected to appear before a hearing on 22nd September.

In 2008 UBS lost around $50 billion and had to be bailed out by Swiss taxpayers. The $2 billion loss will not mean further bailouts as the bank has enough resource to cover the losses, it made $6.4 billion in the last 12 months, but it is likely to face a downgrade in it’s credit rating.

UBS has recently made 3,500 people redundant and in all likely hood the savings from that exercise will be wiped out by the $2 billion loss. Now, further job losses are likely, probably starting with those supposed to be monitoring the traders.

The revelations will also lead to even louder calls for investment arms of banks to be split off from their retail operations in order to safeguard normal business operations for millions of customers.

The move is being fought, most recently in the UK, by the banks who are pushing for any changes to be implemented in decades rather than months or years. No doubt they hope subsequent changes to Governments and the economic environment will erode the proposed changes over time.

Credit Score Scale Drop For US As S&P Downgrades Credit Score Range

Posted by Clive in Finance

In the credit score scale, a triple A has been the preserve of the US economy since it began. Yesterday S&P downgraded it to the next rung in the credit score range, AA+

S&P, or Standard and Poor to give it it’s full title, are one of the worlds leading credit rating agencies and it’s no wonder that the unprecedented move of pulling the US down the credit score scale has caught world wide attention.

The company have cited the fact that the deficit reduction plan passed this week did not go far enough to halt the slide down the credit score scale.

Sliding down the credit score scale really matters in the financial and investment worlds. An AAA rating for a country means that it is effectively classed as a risk free borrower.

A downgrading on the credit score range says loud and clear that the risk has increased that the US may one day have difficulty in paying back it’s borrowings.

For the man in the street, local official bodies and the Government itself this move could trickle down into higher interest payments.

The other major credit rating agencies said that they had no plans at present to follow the downgrade and Washington bit back saying that the S&P financials were deeply flawed.

An unnamed source was being quoted by media agencies yesterday saying that a Treasury official had found a $2 trillion mistake in their sums. So far no one at the Treasury has elaborated.

One my also argue that credit rating agencies and their credit score scale are a fools undertaking anyway. The sub prime products that created much of the present mess in the US were rated AAA by S&P for instance, we all know how good they turned out to be.

Credit Score Scale From S&P

“A credit rating is Standard & Poor’s opinion on the general creditworthiness of an obligor, or the creditworthiness of an obligor with respect to a particular debt security or other financial obligation.”

Credit Score Range

AAA e.g. France, Germany, UK, Canada, Denmark, Austria, Australia

AA+ e.g. USA, Belgium

AA e.g. Bermuda, Abu Dhabi

AA- e.g. China, Aruba

A e.g. Czech Republic, Ras Al Khaimah

Source: S&P foreign ratings

British Couple Scoop £161 million ($260 million) on Euro Lottery

Posted by James in Finance

A British couple have decided to go public after scooping the largest Euro lottery jackpot in history. The win of £161 million (approx. $260 million) instantly makes them one of the richest couples in the UK.

The couple from Ayrshire won the euro lottery jackpot after it had been rolled over so many times that it had hit the limit of the jackpot prize, further rollovers would have trickled the money down to the lower prize tiers.

That meant that the money they received was the maximum achievable, bar any fluctuations in currency conversion, and the highest euro lottery jackpot payout that has occurred so far.

They had previously been a television cameraman and a psychiatric nurse although the couple have suffered from health problems in recent years and so haven’t been able to work or travel.

They will not have to worry about working any more but travel  is something that they will now be able to do in luxury with their windfall. In fact they could have their own private plane if they wanted to.

They say that they have always wanted to see the Great Wall of China, Ayres Rock in Australia and to visit art galleries in Russia and Paris.

The previous highest win from the UK was £113 million last October although they choose to remain anonymous, perhaps sensibility considering the amount of money involved.

People have a curious attitude to lottery winners, treating them much differently than if they had earned the money in some other way. Lottery winners also have a history of losing their winnings, going from moderate income to huge winnings overnight leaves people unable to cope with the sudden wealth.

It will take a lot of spending to get through $259,000,000 though.

The Euro Lottery Results from 12th July 2011

7, 19, 38, 42, 45, *9, *10

Greek Financial Woes Spook Markets

Posted by Clive in Finance

Greece’s continuing and growing economic crisis has spooked the market this week with London, Paris and Frankfurt markets all falling following falling asian markets.

Investors are worried about events in Greece and the possibility that Greece will default on it’s debt. In order to stop a default the Greek government is in a position where it must implement large cuts in spending and sell off some of it’s assets.

Greece’s residents have other ideas however and have taken to the streets unhappy about fast rising unemployment and increased taxes, making it difficult for the government to do to carry out any of the necessary cuts.

The euro also fell sharply and France has warned that there has to be a compromise on the Greek debt if the eurozone was to maintain stability and achieve economic growth. France’s biggest banks are exposed to the Greek debt and are facing a downgrade of their credit rating.

Photo: Christina Kekka

Ireland Moves Closer to Bailout Loan

Posted by Clive in Finance

Ireland moved closer today towards accepting that it needed to take a substantial loan in order to stabilise it’s economy.

International officials from international monetary fund, the European central bank and the EU will meet Irish officials today to try and thrash out a way forward.

The Irish government has been reluctant to accept any kind of aid package that comes with strings attached, it wants to keep control of monetary policy in Ireland which would be difficult if they had to meet conditions as part of any loan package.

Britain said yesterday that it was willing to help if needed even though it is not part of the Eurozone it said that Britain has a vested interest in a strong and stable Irish economy. Britain exports a large amount to it’s near neighbour and Britain’s banks have substantial interests in Ireland.

Any loan that is made would be substantial but would be an embarrassment for the Irish government which has insisted that it’s economy is able to cope with the demands currently placed on it.

Stock markets and the Euro were up as trading opened on Thursday morning as expectation grows that a package deal would be forthcoming in the next few days.

Photo: redspotted