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ESM, Europe's future financial firewall now
January 29, 2012--The European Stability Mechanism (ESM), due for adoption at Monday's EU summit, is to be the bloc's permanent safety net as of July -- its financial "firewall."
A key barrier in the European Union's defences against any repeat of the sovereign debt crisis, there are still issues that need to be resolved -- not least how big it needs to be.
Its mission
The ESM will eventually take over from the prototype European Financial Stability Facility (EFSF), the vehicle for eurozone funding of bailouts for Ireland and Portugal. The idea is basically the same: using a mix of stakeholder governments' capital and guarantees, these funds borrow on money markets then lend to stressed eurozone governments. They do this at a profit, but not one considered prohibitive for under-pressure administrations. By undercutting, they theoretically moderate commercial lending rates.
The ESM is a more sophisticated version. Unlike the EFSF, over and above buying sovereign bonds in sell-on markets, it will be used to finance aid programmes for countries before they enter dire straits -- the idea being that earlier intervention to normalise a state's risk premium costs less.
Fitch takes rating actions on 6 euro zone sovereigns
January 28, 2012--(The following statement was released by the rating agency)
Fitch Ratings has today concluded its review of the six eurozone sovereigns it placed on Rating Watch Negative (RWN) on 16 December 2011.
The rating actions on the long-term (LT) and short-term (ST) Issuer Default Ratings (IDRs) are as follows:
Belgium LT IDR downgraded to 'AA' from 'AA+'; Negative Outlook; ST IDR affirmed at 'F1+' -Cyprus LT IDR downgraded to 'BBB-' from 'BBB'; Negative Outlook; ST IDR affirmed at 'F3' -Ireland LT IDR affirmed at 'BBB+'; Negative Outlook; ST IDR affirmed at 'F2' -Italy LT IDR downgraded to 'A-' from 'A+'; Negative Outlook; ST IDR downgraded to 'F2' from 'F1' -Slovenia LT IDR downgraded to 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+' - Spain LT IDR downgraded 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
Vanguard overcomes delays to launch first ETPs in Europe
January 27, 2012--Vanguard is set to list its first exchange-traded products in Europe following delays with regulators and concerns about market conditions for launch, Portfolio Adviser understands.
Aimed for March, the first European-listed ETPs will offer one product designed around the gilt market, one based on the equity all world index, an S&P 500 ETF and an emerging markets equity product.
Vanguard, which has over 60 ETPs listed in the US market, and is ranked third in terms of ETP AUM – behind only iShares and State Street Global Advisers (SSGA) – increased its market share by 1.2% in the year to December 2011. This compared to a drop in iShares' market share by 1% and a 0.9% increase in market share by SSGA.
Government publishes Financial Services Bill
January 27, 2012--The Government has today published legislation which will fundamentally transform and strengthen financial regulation in the United Kingdom, Financial Secretary to the Treasury, Mark Hoban, has announced. The new regime sets out a clear, coherent and comprehensive regulatory framework, replacing the uncertainty and inadequacy of the previous structure, and helping to mitigate against future risks to stability.
The Bill:
Gives the Bank of England responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation;
Abolishes the Financial Services Authority (FSA) and creates a strengthened regulatory architecture consisting of the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority, also providing them each with clarity of responsibility and the necessary powers to ensure the stability of the financial sector and the protection of consumers; and
Empowers authorities to look beyond ‘tick-box’ compliance and fosters a regulatory culture of judgment, expertise and proactive supervision.
Today’s Bill has been shaped by extensive consultation with both stakeholders and Parliament and, while the fundamental elements of the new framework are in line with the model put forward by the Chancellor in 2010, contains a number of refined policy proposals, including measures to:
Legislate for a new crisis management regime, providing greater clarity and accountability to protect the taxpayer during times of crisis by providing the Chancellor with new powers over the Bank of England where public money is at risk; and
Enables the transfer of responsibility for regulating consumer credit to the Financial Conduct Authority to better protect consumers.
<view the Financial Services Bill 2010-11
How Much Did Investors Take Out of Europe Last Year?
January 27, 2012--European investors fled a range of long-term investment funds in December 2011, capping a bad year for the fund management industry as a whole, research published on Thursday revealed.
Investment researchers Morningstar said long-term European investment funds lost 23 billion euros ($30.3 billion) in December alone and 119 billion euros during the year as investors became spooked by the euro zone debt crisis.
Unlike in 2008, investors didn’t simply shift assets from the stock and bond markets into currencies but instead exited the markets altogether.
ECB Monetary developments in the euro area
January 27, 2012--The annual growth rate of the broad monetary aggregate M3 decreased to 1.6% in December 2011, from
2.0% in November 2011.1 The three-month average of the annual growth rates of M3in the period from October 2011 to December 2011 decreased to 2.1%, from 2.5% in the period from September 2011 to November 2011.
M3 components
Regarding the main components of M3, the annual growth rate of M1 decreased to 1.6% in December
2011, from 2.1% in November. The annual growth rate of short-term deposits other than overnight
deposits (M2-M1) stood at 2.1% in December, unchanged from the previous month.
.Barclays Capital Expands Fiscal Strength Weighted Index Family into Covered Bonds
January 27, 2012-Barclays Capital, publisher of leading broad market bond benchmarks, today announced the launch of a new family of Fiscal Strength Weighted Covered Bond Indices. This new suite of benchmark indices uses fundamental measures of fiscal sustainability to adjust country weights within existing Covered Bond benchmarks, thereby offering an alternative for investors beyond the existing flagship market value weighted indices.
“The global covered bond market is a growing segment of the fixed income market and an increasing part of the investment choice set for securitized, rates, and credit investors,” said Fritz Engelhard, Head of Covered Bond Strategy at Barclays Capital. “In the covered bond space, market value weighted indices tend to be rather strongly exposed to Spain and France due to the high historical covered bond issuance activity out of these countries. Performance swings in these covered bond markets, given the sovereign crisis, exceeded the risk appetite of typical covered bond investors, and the new Fiscal Strength Weighted alternative achieves a reduction in index weights of the two countries.”
Germany Poised to Woo U.K. With Transaction Tax Alternative
January 26, 2012--Germany is preparing plans for a form of European stamp duty on shares linked to tougher trading rules as an alternative to a financial-transaction tax, as it seeks to win U.K. support for a European Union-wide levy.
Chancellor Angela Merkel’s Christian Democrats and their Free Democratic Party allies are coalescing around an FDP proposal for a Europe-wide tax along the lines of the U.K.’s levy on shares. Such a solution is a “good option” if accompanied by rules that limit “abusive excesses” in automated trading, the Free Democrats said in a paper drafted by former Economy Minister Rainer Bruederle.
Industry looks on the bright side of Esma clampdown
January 26, 2012-- Providers of exchange traded funds are hopeful that a heightened focus on products from Europe’s regulators will help, not hinder, their usage.
The industry is currently waiting for the European Securities and Markets Authority to publish new guidelines for the ETF industry later this month, which the supervisory body says are necessary to help retail investors better understand the products.
China bailing out EU pure 'media fluff'
January 26, 2012--Talk that debt-ridden Europe is counting on China to come to its rescue is just "media fluff," members of the political and business elite said Thursday at the Davos forum.
"In my own view... this is media fluff fluff," World Trade Organization chief Pascal Lamy told the World Economic Forum meeting at the Swiss ski village.
"I don't believe one second that there would be negotiations between the Chinese government and the Europeans saying 'we will buy your debt if you do this or if you do that'.
"They don't even do that with the US, they buy US debt without condition. So I don't believe that," added the WTO director-general, referring to Beijing's massive investment in US Treasury bills.
