Banks Clash With Lawmakers on Greek Rescue

Banks are pushing back against European leaders on the size of losses they are ready to accept on Greek bonds as officials struggle to rescue the debt-laden country while avoiding a default.

There are limits “to what could be considered as voluntary to the investor base and to broader market participants,” Charles Dallara, managing director of the Institute of International Finance, an industry group that’s participating in the talks on Greek debt, said in an e-mailed statement yesterday. “Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default.”

The discussions are part of an attempt to solve the two- year-old sovereign-debt crisis that has pushed Greece toward default and roiled global markets. European Union leaders, who hold a second summit in four days tomorrow, are seeking an agreement on bolstering the region’s rescue fund, recapitalizing banks and providing debt relief to Greece to avoid contagion spreading to Italy and Spain.

Financial companies, represented by the Washington-based IIF, proposed a loss of 40 percent on Greek debt, said a person briefed on the matter who declined to be identified because the talks are confidential.

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said yesterday that talks on private-sector involvement in a second aid package for Greece are focusing on losses of 50 percent to 60 percent.

‘Defence Strategy’

“The IIF’s strategy is to say the burden is being unevenly shared and there’s a risk of a chain reaction,” said Klaus Fleischer, a professor for banking and finance at the University of Applied Sciences in Munich. “It’s an understandable positioning and defence strategy by the banks.”

Policy makers are seeking a voluntary agreement with Greek bondholders on reducing the country’s debt to avoid the unpredictable consequences of an outright default.

The IIF, whose members include 450 of the world’s biggest financial firms, said a default would risk keeping Greece locked out of international capital markets for years, further damaging the Greek economy, driving up costs for European taxpayers and triggering contagion. The group is in constant contact with the Greek authorities and banks and is working to find “constructive” solutions, Dallara said.

Australian Prime Minister Julia Gillard said today that the EU must act swiftly to contain the debt crisis and ensure banks have enough capital to restore investor confidence.

Painful Steps

“We acknowledge the steps Europe has taken and how painful they have been,” Gillard said at a Commonwealth Business Forum in Perth. “But more needs to be done and needs to be done fast.”

The euro weakened against the dollar and yen in Asian trading today. The European currency fell to $1.3903 as of 12:01 p.m. in Tokyo from $1.3929 in New York yesterday and slipped to 105.79 yen from 106.

EU policy makers are calling for larger writedowns amid a deteriorating Greek economic and financial situation, as highlighted in a draft report last week by the European Commission, the European Central Bank and the International Monetary Fund, collectively known as the troika.

Greek two-year notes currently trade at about 40 percent of face value. Under the terms of a July 21 accord with the IIF, the banks would take losses of 21 percent on the net present value of their holdings of the nation’s debt. That plan includes up to 35 billion euros ($49 billion) in high-quality collateral for the investors.
Hard Restructuring

One option being considered involves a swap with no collateral of any kind in a so-called hard restructuring, people familiar with the matter said on Oct. 21. Other plans involve an exchange with a 50 percent reduction in net present value, or upfront bond exchanges into either European Financial Stability Facility bonds or new 30-year Greek government debt, the people said. Upfront exchanges could involve a 50 percent discount off face value.

To help European lenders shoulder sovereign losses, banks may be required to raise about 100 billion euros in capital by mid-2012, according to two people briefed on the matter. The European Banking Authority tested lenders to see how much money they’ll need after writing down bonds from countries such as Greece and marking up stronger debt including that of Germany, they said.

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Investors cautious as euro debt summit nears

Uncertainty about just how close European Union leaders will come to solving the euro zone debt crisis kept many markets trading in a tight range on Tuesday.

World stocks, including European shares, were slightly higher and the euro was flat. Both, however, remained close to recent highs.

EU leaders are to meet on Wednesday with tentative plans in place for Greece's debt to be reduced, European banks to be recapitalised and the euro zone's EFSF rescue fund to be increased to provide partial insurance for sovereign bonds.

But the agreements and how far they go remain under discussion, causing some nerves on financial markets.
Adding to the uncertainty, German lawmakers secured a full parliamentary vote on any euro zone crisis measures negotiated, a move that risks delaying Europe's response to its two-year debt problems.

"Whilst official comments have stated that "good progress" is being made, behind the scenes things look a little shakier," Capital Spreads dealer Jonathan Sudaria said.

Investors are also becoming concerned about the impact of the crisis on overall European growth, although news that German consumer morale unexpectedly rose going into November will have provided some succour.

MSCI's all-country world stock index was up 0.1 percent, close to highs last seen at the beginning of September. Hopes for a euro zone settlement have boosted stocks in recent weeks.

The pan-European FTSEurofirst 300 was up about the same. Strong corporate results from the likes of oil and gas firm BG Group and Deutsche Bank , which both beat forecasts, helped underpin the market, after its recent two-day rally.

Earlier, Japan's Nikkei closed down 0.9 percent as the domestic corporate earnings season began.

EURO SLIPS

The euro was flat on the day but still held near a six-week high against the dollar hit on Monday, supported by market expectations for European leaders to come up with an agreement.

The yen also hovered just shy of a record high against the dollar, leaving investors nervous about possible intervention by the Japanese authorities to stem the currency's rise.

The euro was at $1.3930.

"It will be difficult for the euro to break above $1.40 ahead of the meeting. People are happy to sit on their positions awaiting any outcome," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"The indications are that there is a will to solve the problem, which is maybe not a huge leap but it's a step ahead not backwards."

German Bund futures ticked lower.

Traders and strategists said they expected the bond market to remain volatile going into Wednesday's summit, with thin volumes adding to the potential for sharp market moves.

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Sterling hovers near 6-week high, BoE testimony due

Sterling hovered near six-week highs versus the dollar on Tuesday, matching the euro ahead of a key EU summit, but vulnerable as Bank of England Monetary Policy Committee members prepare to testify on the resumption of quantitative easing.

Sterling rose to its highest since early September on Monday as markets anticipated a positive outcome from Wednesday's EU summit at which euro zone leaders are expected to detail plans to leverage the region's bailout fund and recapitalise the banking system in response to its deepening debt crisis.

"No one wants big positions on ahead of the EU summit so volumes are fairly light in sterling right now," said Chris Walker, currency strategist at UBS.

"It will be driven by swings in risk appetite in the short term but structurally I think levels above $1.6000 are an opportunity to sell," he said, adding that a disappointing outcome to the summit would hit the euro and sterling hard.

Sterling was close to flat for the day at $1.5978 against the dollar after rising to $1.6008 on Monday.

Traders reported offers at $1.6020 with resistance highlighted at $1.6043, the 100-day moving average.
On the downside traders reported bids in the $1.5900 region, placed ahead of support at $1.5887, the 50-day moving average.

The euro was close to flat for the day against sterling at 87.00 pence , confined within its recent range.

Traders highlighted offers at 87.30/50 and into this month's highs around 88.00, with downside stops reported in the 86.60 area.

The Treasury Select Committee will discuss the Bank of England's decision to undertake more quantitative easing with Governor Mervyn King and Deputy Governor Charles Bean from 0845 GMT.

Among the issues to be discussed are the effectiveness of QE, the case for using the same tool a second time, and the respective roles of the Treasury and the Bank in implementing measures to stimulate the economy.

"We will likely see some dovish comments from the MPC members and could see some downward pressure on GBP early this morning," said Lloyds analysts in a note.

UK current account data for the second quarter is scheduled for release at 0830 GMT, with economists in a Reuters poll forecasting a reduction in the deficit to 7.3 billion pounds from the previous 9.4 billion.

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Netflix warns of more cancellations, shares drop

Netflix Inc lost more customers than it anticipated in the third quarter and warned of still more defections to come, pushing its shares down 27 percent as the one-time Wall Street star grapples with the fallout from a price increase and other unpopular moves.

The top video rental company reported a better-than-expected 49 percent surge in third-quarter revenue to $822 million, surpassing Wall Street's target of about $812 million. It also beat expectations on earnings per share.

But investors -- mindful of how the company led by CEO Reed Hastings had driven away customers in recent months and damaged its credibility with a price rise and other high-profile stumbles -- focused on the fourth-quarter warning.

Netflix shares plummeted 27 percent to $86.70 in after-hours trading, about 70 percent below the high of just under $300 per share in July.

"The reason the stock is getting crushed is the trends just continue to deteriorate," Janney Montgomery Scott analyst Tony Wible said.

Netflix said it had lost more than 800,000 U.S. subscribers in the third quarter, more than the about 600,000 it had forecast in September. Total U.S. subscribers stood at 23.8 million.

Looking forward, the company said DVD subscriptions will "decline sharply this quarter" but total U.S. subscribers, which includes customers who pay for its online streaming service, will be "slightly up."

Netflix has been writing big checks to expand its streaming content so it can attract new subscribers and return to the red-hot growth it was once famous for. In 2012, content spending will "nearly double" from this year, the company said.

Netflix also forecast a loss for the first quarter of 2012 as it expands into Europe.

"We expect the costs of our entry into the UK and Ireland will push us to be unprofitable on a global basis; that is, domestic profits will not be large enough to both cover international investments and pay for global G&A and technology and development," Hastings said in a letter to shareholders accompanying its quarterly report.

Hastings added that subscriber defections because of the price-rise should slow in coming quarters "as the price effect washes through." The company said it would return to profitability by increasing its global streaming subscriber base faster than costs rise. It also plans to raise its streaming margin by 1 percent every quarter.

The company reported earnings per share of $1.16 on net income of $62 million. Analysts had expected earnings per share of 94 cents, according to Thomson Reuters I/B/E/S.

Still, those assurances failed to satisfy investors the company was getting back on track.

"The subscriber numbers were disappointing. It looks like they see very weak subscriber numbers in the fourth quarter," said Lazard Capital Markets analyst Barton Crockett.

For the fourth quarter, Netflix forecast earnings per share of between 36 cents and 70 cents and revenue of $841 million to $875 million.

"The guidance is well below what people were expecting. I think they are hitting the reset button here ... to set a bar for themselves going forward that they can achieve," Piper Jaffray analyst Michael Olson said.

The company that shook up Hollywood with its DVD-by-mail service is trying to recover from the roughest patch in its nearly 15-year history as it moves to emphasize online streaming of television and movies.

The shares have plummeted since July, when Hastings announced a price rise for subscribers who wanted both DVDs and streaming. A wave of cancellations hit the company that had been famous for red-hot growth and loyal customers.

Hastings apologized for not explaining his decision well and admitted to "arrogance," but instead of soothing concerns he set off a new wave of complaints with a plan to put the DVD service on a separate website called Qwikster. He quickly dropped the widely panned idea.

As Netflix stumbles, rivals such as Dish Network Corp's Blockbuster, Amazon.com Inc and Wal-Mart Stores Inc's Vudu are ramping up their online entertainment offerings to better compete with Netflix.

In the letter to shareholders, Netflix said it was "moving forward as quickly as we can to repair our reputation and return to growth."

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UBS warns of tough times as Q3 profit surprises

Swiss bank UBS AG posted a better-than-expected third-quarter net profit Tuesday, with its core wealth management business performing well despite last month's trading scandal, although it warned of tough times ahead.

Managing money for wealthy clients held up well, with strong inflows to the bank's Americas unit, despite the rogue trades which came to light in mid-September and lost it 1.8 billion Swiss francs ($2 billion), UBS said.
Although net profit for the period fell 39 percent to 1.018 billion francs, it beat average analyst forecasts for 276 million, as big one-off gains UBS had flagged earlier this month offset the trading loss.

"The figures are better than expected, even though they massaged them somewhat. But the result is still good. Wealth management is going very well and I think that will be the direction they want to push the bank in," said one trader.

UBS shares were up 2 percent at 11.36 francs at 0847 GMT, compared with a flat European banking index.
Interim Chief Executive Sergio Ermotti, appointed after Oswald Gruebel quit over the trading loss, described the quarter as "very challenging for both the industry and the bank" and said the fourth quarter had started with "increased evidence of strain to the financial system."

In the absence of a resolution of the euro zone debt crisis and an improved U.S. economic outlook, "current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money," the bank said.

INVESTMENT BANK RESTRUCTURING

Ermotti said he was finalising plans to restructure the troubled UBS investment bank ahead of an investor day on November 17, but the broad strategy was already clear.

"Our goal is to continue to be the preeminent wealth management franchise in the world together with a very strong presence in Switzerland," he told a call for analysts.

"We want to have a strong, profitable, focused investment bank and asset management businesses to support this strategy."

Chief Financial Officer Tom Naratil said the bank would only give details next month of any possible new job cuts from the restructuring as well as details on when it plans to resume paying a dividend and how it will build its capital.

Naratil said an internal investigation into the trading scandal showed its controls had not been effective with shortcomings related to trading counterparties. He said the bank would take further disciplinary action if necessary.

Earlier this month, the bank accepted the resignation of the two co-head of global equities, Francois Gouws and Yassine Bouhara, over the unauthorised trades.

Kweku Adoboli, who is accused of running up the trades, made no application for bail last week and will appear for a plea and case management hearing next month.

The bank, which already said the scandal had not resulted in many clients withdrawing their money in the quarter, reported wealth management net inflows of 7.8 billion francs, down from 8.2 billion in the previous three months.

That included a better-than-expected 4 billion francs of net inflows in its Americas wealth management business, while the European offshore business reported net outflows due to pressure on Switzerland's tax haven status.

Naratil declined to comment on client trends in the current quarter after the trading loss.

"Wealth management has not blown out the light this quarter," said Kepler analyst Dirk Becker. "We will see how the trading incident might have further affected the group's reputation only in the coming quarters."

ACCOUNTING GAIN

Rival Deutsche Bank also reported forecast-beating third-quarter profits Tuesday, as retail banking and asset management offset a slump in investment banking, but similarly warned that the near term outlook was highly dependent on the resolution of the euro zone debt crisis.

UBS said a 1.765 billion franc gain on the value of its own debt and 722 million from the sale of treasury-related investments helped make up for the trading loss and 387 million francs of restructuring costs it booked in the quarter.

This accounting gain -- which occurs because the bank could profit from buying back its own bonds at lower levels -- also gave a big boost this quarter to profits at most U.S. banks.

However, UBS results also mirrored their U.S. peers in showing declining bond and stock revenues as sovereign debt worries spiraled in the three months to September.

The investment bank posted a pre-tax loss of 650 million francs as it said revenues fell across all business areas due to the difficult market conditions and the strong Swiss franc.

Its foreign exchange business performed well, with revenues more than doubling on volatility and good client flows.

Vontobel analyst Teresa Nielsen said even though investment bank revenues were weak, the cost base was reduced more than expected. "We see the Q3 results as being positive in a difficult quarter," she said.

Ermotti said a program announced in August to cut 3,500 jobs from the bank's some 66,000 staff was on track but said the bank would remain vigilant on costs, echoing similar comments from Deutsche Bank which Tuesday said tough market conditions could lead to more job cuts.

The bank also confirmed the reliability of its financial statements in its 2010 annual report, despite the trading scandal.

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Gaddafi taken deep into desert for secret burial

Two trusted loyalists of Libya's interim government were handed Muammar Gaddafi's body to bury secretly deep in the Sahara desert on Tuesday after a cleric prayed over his decomposing corpse, an official said.

The National Transitional Council (NTC) had disquieted many outsiders by putting the bodies of Gaddafi and his son Mo'tassim on show in a meat locker in the coastal city of Misrata until their decay forced them on Monday to close the doors.

Under pressure from Western allies, the NTC promised on Monday to investigate how Gaddafi and his son were killed -- graphic mobile phone footage shows both alive after their capture. The former Libyan leader was seen being mocked and beaten before he was shot, in what NTC officials say was crossfire.

"The process leading to his burial is taking place now," NTC official Abdel Majid Mlegta told Reuters by telephone from Libya. "Only two trusted people were assigned to this secret mission. These are not guards, but very trusted NTC people."

Final Islamic prayers were said over the two bodies by Gaddafi's personal cleric Khaled Tantoush, who was arrested with him, before they were removed from the Misrata compound where Libyans had filed past their ex-strongman sprawled on a mattress in what became a grim parody of the lying-in-state ceremony.

The last Muslim rites were also attended by two of Gaddafi's cousins, Mansour Dhao Ibrahim, once leader of the feared People's Guard, and Ahmed Ibrahim, who were both captured with Gaddafi after their convoy was attacked in a NATO air strike near Sirte, Gaddafi's home town, just after it had fallen.

"The NTC officials were handed the body after the sheikh completed the early morning ceremony and are taking him somewhere very far away into the desert," Mlegta said, without saying where.

"Trust me, it takes time and the burial will take place far away from the media."

ANONYMOUS GRAVE

The NTC leadership appears to have decided that an anonymous grave would at least ensure the plot did not become a shrine.

The killing of the 69-year-old Gaddafi ended eight months of war, finally ending a nervous two-month hiatus since the NTC's motley forces overran the capital Tripoli.

But it also threatened to lay bare the regional and tribal rivalries that present the NTC with its biggest challenge.

An NTC official had told Reuters several days ago that officials entrusted with the burial would all have to swear on the Koran never to reveal its location.

At times, Gaddafi's body appeared to have become a macabre bargaining chip for Libya's long besieged city of Misrata, whose war leaders want a bigger say in the peace.

NTC officials had spoken of talks with Gaddafi's tribal kinsmen from Sirte and within the interim leadership over where and how to dispose of the body, and on what Misrata leaders in possession of the corpse might get in return for cooperation.

Fears in the NTC that Gaddafi's sons might mount an insurgency have been largely allayed by the death of the two who wielded the most power, military commander Khamis and Mo'tassim.

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Quake Victims Struggle in Aftermath (Video)

The death toll from a powerful earthquake in eastern Turkey rose into the hundreds on Monday, as rescue teams worked a second night to extract survivors, and residents fearful of aftershocks fought for tents to shelter their families.

As of late Monday, 279 people had been confirmed dead and 1,300 injured after nearly a thousand buildings either collapsed or were severely damaged in Sunday's quake, according to Turkey's emergency agency, AFAD. Officials said the number of dead was certain to climb.

The most-damaged areas were the cities of Van and Ercis and nearby villages in the region near the Iran border. Earthquake teams in Ercis, the worst-hit town, said the effort was one of the most organized responses the country has seen. Turkey declined offers of international help—including from estranged ally Israel—other than from fellow Turkic-speaking Azerbaijan.

Along the main thoroughfare of Ercis, a town of some 80,000 people, every third or fourth apartment building had collapsed into a mass of concrete from the 7.2-magnitude quake, which struck at 1:41 p.m. Sunday.

Opposite each building, scores of relatives waited to see whether rescuers were getting to the apartments of their loved ones.

Red-eyed and dazed, 18-year-old Onur Buyukaslan watched rescuers pick at the rubble of his family's apartment block. His mother, sister and two brothers, ages 2, 11 and 13, were inside when it fell.

"I was outside with my father when the earthquake came. In five seconds it collapsed," he said. He hadn't moved since the night before, he said. He looked confused when asked how long he would stay.

"They've only taken dead people out so far," he said.

Two ruins down, Tevfik Baranes was waiting and hoping for his 35-year-old sister, Nurten. Eight survivors and two dead had been pulled from the rubble of the 24-apartment building so far, he said. Now they were getting to the second floor, where his sister stayed home while the rest of the family went out Sunday, he said. It wasn't clear how he was able to tell where the second floor was.

"They say there are 30 people still inside," Mr. Baranes said. A woman sitting on the wall behind him swooned and fainted. Her mother was in the rubble.

There were happier stories. Rescuers pulled 11 survivors out of buildings in the morning, including one woman shown on TV trapped in a collapsed restaurant. Her fiancé had brought rescuers and began the digging himself after he reached her on her cell phone, according to the report on NTV television.

Most stories ended less well. Rescuers told of how they pulled the body of a woman from under a door, still clutching her 2½-year-old child.

For many residents of this agricultural and mainly Kurdish region, however, concerns were already shifting to how to live as winter approaches. Few were willing to move back inside even sound-looking buildings; aftershocks could still be felt Monday evening, and could continue for days or weeks, according to Turkish officials.

As relief trucks brought tents to Ercis, hundreds of men tried to climb aboard them at the town's entrance to secure shelter. Seit Yunisek, a 42-year-old day laborer, lay on top of one of the large canvas tent bags, clinging on as three burly men tried to pull him off. When they gave up, he dragged his tent across the road, panting from the struggle.

"I have 12 children," he said in explanation. He added that the family's house had collapsed and they needed shelter.

Most buildings in the city center showed cracking, sidewalks were blocked by fallen masonry and, at nightfall, apartment blocks remained dark. Families stayed in tents and huddled around fires.

"On the outside it looks fine, but inside all the interior walls collapsed," said Ertugrul Ozbey, a 33-year-old PVC-window salesman, pointing at his two-story home. It was a common story even from owners in an upscale new development in Van. Mr. Ozbey's family and two others, 18 people together, were sharing a tent outdoors.

Like most people in the area, Mr. Ozbey had no earthquake insurance on his property, in a country that sits atop two major earthquake faults.

He laughed off the idea that he could fix his property so it would be fit to live in again. He expected to live in the tent for at least the next month, "until the government helps us out," he said.

According to AFAD, 7,000 tents and 3,000 rescue personnel had been sent to the area. "We learned a lot from 1999," said Ozgur Monkul, planning officer for Akut, a Turkish non-government rescue organization, referring to an earthquake near Istanbul that left at least 17,000 people dead. He predicted that the rescue operation would be over within two to three days.

Yet the rescuers and medical staff still seemed overwhelmed. The courtyard of Ercis's state hospital was littered with surgical gloves and other medical detritus, after more than 800 people were treated outdoors.Even the banks of waiting-room chairs had been ripped out and brought into the open.

"It was terrible, everyone was panicking," said the hospital's deputy manager, Ibrahim Denizer, who had been on site through the night and was packing the last of equipment to go to the local stadium, where the doctors had set up mobile units in an area safe from aftershocks.

"I don't even know where my kids are," he said.



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