James Woolf of Flow East in Prague has taken issue with the Financial Times’ editorial on Hungary’s treatment of the country’s banking sector. The truth is that Hungary has alienated many of the banks active there with what they claim are heavy-handed measures to compensate consumers who borrowed in Swiss franc to finance their homes. The government claims the banks misled their clients, but in his letter to the editor, Woolf basically says the banks should have known better.
Sir, With reference to “Beware Hungary’s cure for Swiss franc mortgage hangover” (Inside Business, January 29): it is not often that one can find agreement with the policies of Hungary. In the case of a deliberate mismatch of income and liability by allowing foreign currency loans to be (mis)sold by banks, it is clearly not a “tricky problem for regulators and banks”. No sane investor would have unhedged currency exposure of their main asset and income against their main liability. The expectation should be financial ruin. Any bank that promotes such a structure is clearly mis-selling and should expect nothing less than a reset of the exchange rate, fines and criminal liability.
There’s an interesting round-up of Austria’s banking sector a couple days back in the FT, much of it devoted to how it barely survived the losses it ran up in CEE. It sure is tough to keep straight whether central Europe is being propped up by Vienna or the other way around. Consider: Ceska sporitelna had a bad year last year and only made CZK 15bn in profits. But what caught our eye was a different, broader issue. The paper quotes a certain Josef Christl as saying Ukraine’s difficulties called the whole Central European project into doubt…
And even Austrian banks that are not directly involved in Russia and Ukraine are quite likely to be affected by the conflict, says Josef Christl, a consultant and former executive director of the Austrian central bank (OeNB).
“One of the problems with the situation in Ukraine and Russia is that it calls into question the whole central and eastern European story, which is so important for the Austrian financial sector,” he says.
Europe as a whole may be downplaying the potential threat to its fragile recovery posed by the situation, but is it really correct to say CE’s future is in doubt?
So last week, we noted the sudden sale of some land in Prague 3 by Plaza Centers. For everyone who was wondering what the sudden rush was comes the news that S&P has downgraded the company as of today from to ilB from ilBB+. And it turns out it’s all about the speed of sales.
•Since the last rating activity in March 2013, the Company agreed on several
transactions but we estimate that the realization pace is insufficient to catch up with
significant gap between the sources available today for repayment and the expected
repayments in the coming 12 months.
• In our estimate, without a significant acceleration of the realization pace it appears that
the Company will find it difficult to repay its debts already in the coming 12 months.
PC’s got to raise €31m by the end of the year, and €63m by June 2014. S&P isn’t ready to bet the bank any more on that happening. And it suggests you don’t either.
Well now, this is interesting:
“Plaza Centers announces it has successfully completed the sale of 100% of its interest in a vehicle which holds the interest in the Prague 3 project (“Prague 3”), a logistics and commercial center in the third district of Prague. Earlier this year, Plaza completed its successful application to change the zoning use of Prague 3 to a residential scheme. The transaction values the asset at circa €11 million and, as a result, further to related bank financing and other balance sheet adjustments, Plaza has received cash proceeds of net circa €7.5 million.
Ran Shtarkman, President and CEO of Plaza Centers N.V., said:
“Less than two months after our first exit in India, we are pleased to announce the sale of our holding in Prague 3 in the Czech Republic. The sale is in line with our strategy and disposal programme of deleveraging and reallocating realised capital from stabilised completed projects and non-core assets to the core yielding assets across our portfolio.”
They don’t beat around the bush in the U.S. If they want a company, they’re pretty open about it and they let money speak.
Hillsborough County commissioners voted unanimously to award Amazon.com $225,000 in incentives, representing 20 percent of the total potential incentive package for the online retailer if it creates 375 jobs paying more than the state average.
County officials say if the company decides to locate in the south county, it could create 1,000 jobs with 375 of them paying an average of $47,581, the Tampa Tribune said.
On July 18, the commission will consider another break for Amazon, lowering its property taxes to $910,000 for seven years. That is a 50 percent reduction, the Tribune said.
Think they get that kind of reception in this part of the world?
In case you’re wondering what in tarnation is going on in Czech politics and why cops are arresting current politicians, former politicians and the biggest names in lobbying this small nation can produce, here’s a pretty good schematic.
The woman in the center is basically the right-hand of the prime minister, Peter Necas (to her right), whose role in the whole matter (if any) isn’t clear yet. Though it seems impossible that his government will survive. You’ll note that the city of Prague has done its reputation no favors at all in this growing scandal, but this will come as no surprise to Czechs or to long-term veterans of the market.
We’ll wait until things become a bit clearer, as we don’t really have time to follow the blow by blow unraveling of the story (the NYT has a pretty good summary). Suffice it to say that anti-corruption detectives seem to have mapped out how large flows of public money were being siphoned off and divided among Parliamentary deputies, government ministry officials, state-owned companies, city of Prague politicians and lobbyists (i.e. underworld power brokers). It’s nothing short of breathtaking. If there’s an upside to it, it’s that the police are actually free enough to carry out such an investigation in the first place. More cynical commentators (and by that we mean well-informed ones) are saying it simply demonstrates the incompetence of the primary actors, and their inability to control the situation.
Update: Fun “fact” from the country’s least reliable newspaper, Blesk: Police raided 31 homes and recovered CZK 150 million in cashs along with 10 kilograms of gold.
SpiegelOnline asks the big question of the day: Can the World Handle Higher Interest rates? It was always going to happen, of course. Part of the strategy of central bank’s around the world has been to cut interest rates to the bone in an effort to spark growth. It’s debatable what sort of impact this has had, but bond buying programs by the treasuries of the big nations are huge. Spiegel cites the Japanese example, in which 70% of demand for bonds is from the Bank of Japan.
It’s the topic of the moment because the American Federal Reserve has begun to hint that the days of easy money and huge bond buying programs could be numbered. And as you’ll have noticed, when the Fed makes hints, markets go haywire. It’s an interesting read, for starters, but you have to wonder what the long-term impact on real estate financing will be. Especially for existing loans. We’d welcome any thoughts on the issue you might have, anonymously or otherwise.
When the financial crisis escalated in 2008, the Fed, the European Central Bank and other central banks began their cash therapy. Almost in lockstep, they reduced prime rates to close to zero and began buying up bonds on a large scale. To this day, the leading central banks have inflated their balance sheets with such practices to $10 trillion (€7.5 trillion).
But now something is changing. “For the first time, it looks as though one country, namely the United States, is leaving the crisis behind,” says Ulrich Kater, chief economist at DekaBank. “And, also for the first time, a central bank, the Fed, is showing that it is thinking about normalization.” …