IMF Estimated Larger Bank Asset Sales, BAE, EADS Terminate Merger Talks

Arthi Gupta
10 Oct, 2012
New York City

The European indexes edged lower on the escalating fiscal worries in the region. Italy raised

[R]5:30 PM Frankfurt – The European indexes edged lower on the escalating fiscal worries in the region. Italy raised €11 billion in bond auction today at higher yield. BAE Systems and EADS decided to terminate merger talks. PPR planned to spin off Fnac.[/R]

European indexes edged lower after the International Monetary Fund said in its latest assessment that risks to global financial stability have increased and revised higher the amount of assets banks may have to sell to complete the deleveraging process.

The latest report says that mounting pressure on banks in Europe could result in asset shrinkage by as much as $2.8 trillion to $4.5 trillion through the end of 2013, with the largest burden of credit supply contraction falling on the euro area periphery.

Banks are struggling on multiple fronts from a decline in deposit base, weakening earnings, asset impairment and higher capital requirements.

Spanish Prime Minister Mariano Rajoy is scheduled to meet French President Francois Hollande today.

German Chancellor Angela Merkel met Greek Prime Minister Antonis Samaras yesterday in Athens and as labor union rioted on the streets. Chancellor Merkel urged Greece to stay in the currency union and implement the austerity measures demanded by the troika.

The Italian government announced tax cuts for people earning up to €15,000 a year to 22% from 23% and for income earners between €15,000 and €28,000 would be lowered to 26%.

In Paris trading, the CAC-40 Index declined 8.06 or 0.2% to 3,373.23 and in Frankfurt the DAX Index edged lower 22.44 or 0.3% to 7,212.05.

The yields on Spain’s benchmark 10-year fell five basis points to 5.78%. Italian 10-year yields fell three basis points to 5.08%.

Italian Bond Auction

The Italian Treasury sold €3 billion of 91-day bills and €8 billion 364-day bills to raise €11 billion at higher borrowing costs.

The average yield on 3-month bill rose to 0.765% from 0.7% at the prior auction in September. The bid-to-cover ratio rose to 2.79, compared to 2.25 in the previous auction.

The Treasury also sold 12-month bills at an average yield of 1.941% compared to the 1.692% yield on September 12. The bid-to-cover ratio for 12-month bills rose to 1.77 from 1.65.

Separately, Germany raised €1.17 billion from 2023 inflation-linked bond at an average yield at -0.38%.

BAE, EADS Terminate Merger Talks

BAE Systems plc and EADS decided to terminate their merger discussions. The two companies were able to hammer out commercial agreement but failed to overcome political ownership obstacles.

The companies said discussions with the relevant governments had not reached a point where both companies could fully disclose the benefits and detailed business case for this merger.

PPR to Spin Off Fnac

PPR SA board members unanimously approved the demerger and flotation of Fnac, a retailer in entertainment and home electronics products, through the distribution of Fnac shares to the shareholders of PPR.

The transaction is expected to be completed in 2013.