KeNo's Housing and Economic Portal: Wednesday June 22 Housing and Economic stories

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Danish bank raises spectre of senior haircuts - (www.ft.com) A small Danish bank is generating a large amount of interest among investors. Amagerbanken announced on Sunday that it would transfer assets to Denmark’s Finansiel Stabilitet, the state-owned company charged with winding down the country’s insolvent banks, after failing to meet solvency requirements. Finansiel Stabilitet was created in October 2008 as part of a wide-ranging bank rescue package and has already taken over a number of bankrupt Danish financials. The failure of Amagerbanken is being watched closely: it may become a rare instance of depositors and investors in a bank’s senior debt experiencing losses. Amagerbanken will be the first Danish bank to be bailed out after the expiration of Denmark’s government guarantee on unlimited bank deposits and unsecured senior debt. That could leave Amagerbanken bondholders and depositors exposed to losses, an event that has been infrequent during the financial crisis. Denmark started the guarantee scheme, which covered deposits and the claims of unsecured creditors in about 133 banks, as part of an effort to soothe a nervous funding market. The guarantee expired about four months ago. At the time, Denmark’s economy minister said the country’s banks had enjoyed plenty of opportunity to snap up liquidity. However, some analysts reported deposit outflows and a run-off in senior bank debt at Amagerbanken after the programme’s expiry.

Greece warns dissenters against rejecting austerity - (www.reuters.com) The Greek government warned dissenters in the ruling party on Wednesday against rejecting an austerity plan agreed under a new international bailout deal, after data showed the depth of the nation's economic crisis. Prime Minister George Papandreou met senior members of his socialist party to try to stem an outbreak of unrest over the social cost of the bailout before it turns into a full-scale parliamentary rebellion. Tens of thousands of Greeks are protesting regularly against waves of austerity demanded by the European Union and IMF, as well as against corruption and state mismanagement. Workers at state firms earmarked for privatisation have called a strike for Thursday. But Papandreou told his PASOK party's political council that the extra austerity included in a new 2011-2015 fiscal plan, which will be submitted to parliament this month, is necessary to stem the crisis. "The time has come to move with greater boldness ... always in a democratic way but with determination and unity in the great changes the country needs," he said. "This means that we must proceed responsibly in finishing and passing the medium-term plan."

Germany Seeks Extending Greek Maturities - (www.bloomberg.com) German Finance Minister Wolfgang Schaeuble said bondholders must contribute a “substantial” share of a second aid package for Greece, proposing a swap that credit-rating companies may term a default. Schaeuble told European Central Bank President Jean-Claude Trichetand fellow euro finance ministers in a June 6 letter that maturities on Greek bonds should be extended seven years to give the debt-wracked nation time to overhaul its economy. Any agreement on aid at a ministers’ meeting on June 20 “has to include a clear mandate -- given to Greece possibly together with the IMF -- to initiate the process of involving holders of Greek bonds,” Schaeuble wrote in the letter. The German position clashes with the stance of European Commission officials and the ECB, which oppose anything beyond a voluntary rollover of debt as they struggle to avert the euro area’s first sovereign default. A swap offering investors terms that are “worse” than those of existing securities would constitute a coercive or distressed exchange, and be considered a default, Fitch Ratings said this week.

It’s Bubble Time as Asia Braces for Fed’s QE3: William Pesek - (www.bloomberg.com) Pretend you’re Darmin Nasution, Indonesia’s central bank governor, and inflation is running at about 6 percent. Do you raise interest ratesor cut them? This isn’t a trick question, but one facing Asia’s monetary authorities as they brace for a possible third round of U.S. quantitative easing, an effort by the central bank to get more money into the economy. No matter what Federal Reserve officials say, waning U.S. growth has many here convinced that QE3 is on the way. Asian currencies are rising in anticipation. Here’s where things get tricky for Nasution and his peers. Normally, they would raise borrowing costs to cool prices and contain asset bubbles. Yet that may only attract more hot money as investors rush to higher returns. Lowering rates might ease the speculative capital flows but also fan inflation. These times are anything but normal as the Fed, Bank of Japan andEuropean Central Bank have rates at or near all-time lows. Asia is on the front line of the struggle with cheap money and unprecedented liquidity.

Merkel Called to Explain Greek Aid as ECB Clash Looms - (www.bloomberg.com) Less than 24 hours after Angela Merkel was urged by President Barack Obama to take the lead in managing Europe’s debt crisis, the German chancellor faces members of her own coalition who say she’s done enough. Merkel and Finance Minister Wolfgang Schaeuble briefed lawmakers in Berlin today on a second bailout for Greece, outlining a stance at odds with central bankers, French allies and German voters. That’s a circle not easily squared, said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. By calling for bondholders to contribute a “substantial” share of the rescue, Schaeuble is “openly clashing” with European Central Bank President Jean-Claude Trichet, Rieger said. “Either Schaeuble softens his calls or the ECB makes further concessions,” he said. “One will have to give in.” Merkel again faces a balancing act over the debt crisis that has returned to Greece more than a year after it received a 110 billion-euro ($161 billion) bailout. Besides ECB calls, Merkel must take into account voter anger over the aid and opposition from her coalition partner even as investors and fellow leaders urge Germany to step up its response.