IN CONCLUSION : The statement from the EU heads of state does not provide the hard details that the markets might have hoped for. It starts by stating the obvious: "Measures for restoring confidence in the banking sector are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector". It makes clear that more needs to be done to guarantee funding for banks – and, as my colleague in Brussels David Gow revealed earlier, requires banks to hold a 9% capital by June 30 2012. The memo spells out: "Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, overcapitalization should be funded via a loan from the EFSF in the case of Euro zone countries." The paragraph that is important for UK banks, which found themselves bound by state rules during the October 2008 bail out, re latest to whether banks receiving state aid this time round will also be subjected to tough rules. Lloyds, for instance has to sell off 632 branches and Royal Bank of Scotland has been forced to sell off branches, entire businesses and wind down parts of its balance sheet to meet Brussels rules. On first reading, the memo appears to show a more tolerant approach on this score. "Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis." No doubt, the lawyers are about to get busy.
Access Investments-Building Awareness - European Union-ROMANIA
Wednesday, October 26, 2011
IN CONCLUSION : The statement from the EU heads of state does not provide the hard details that the markets might have hoped for. It starts by stating the obvious: "Measures for restoring confidence in the banking sector are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector". It makes clear that more needs to be done to guarantee funding for banks – and, as my colleague in Brussels David Gow revealed earlier, requires banks to hold a 9% capital by June 30 2012. The memo spells out: "Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, overcapitalization should be funded via a loan from the EFSF in the case of Euro zone countries." The paragraph that is important for UK banks, which found themselves bound by state rules during the October 2008 bail out, re latest to whether banks receiving state aid this time round will also be subjected to tough rules. Lloyds, for instance has to sell off 632 branches and Royal Bank of Scotland has been forced to sell off branches, entire businesses and wind down parts of its balance sheet to meet Brussels rules. On first reading, the memo appears to show a more tolerant approach on this score. "Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis." No doubt, the lawyers are about to get busy.
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With negotiations ahead of Wednesday evening's (23 October) EU and eurozone summits in "chaos", EU officials have confirmed that yet another EU emergency summit may be called this weekend. A senior figure close to the discussions told EUobserver: "Nothing has been decided yet. The idea has been put out there to put the frighteners on some of the actors to encourage a deal today." Separately, an official in the cabinet of EU Council President Herman Van Rompuy, when asked if another summit will be called, said only there is "no news ... there is a summit today. We'll see." The bare bones of an agreement may be delivered at the end of the Wednesday or weekend summit, with the technical details to be decided at a lower level in the following days. "There was technical work to be done upstream and there will be technical work to be done downstream,” Olivier Bailly, a spokesman for the European Commission told reporters on Wednesday. Convergence has been reached on the scale of a second bail-out of Europe’s banks - somewhere in the range of €110 billion. But agreement is still far off on two other key elements of a "comprehensive solution" - the size of a haircut on bank holdings of Greek public debt and how to boost the firepower of the eurozone's rescue fund, the EFSF.
The offering prices of 64 issues of a popular retail structured equity product were, on average, almost 8% greater than estimates of the products’ fair market values obtained using option pricing methods. Under reasonable assumptions about the underlying stocks’ expected returns, the mean expected return estimate on the structured products is slightly below zero. The products do not provide tax, liquidity, or other benefits, and it is difficult to rationalize their purchase by informed rational investors. Our findings are, however, consistent with the recent hypothesis that issuing firms might shroud some aspects of innovative securities or introduce complexity to exploit uninformed investors.
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