Woolf on Hungary’s banks

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.

Is the Ukraine mess CE’s problem?

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…

Really?

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?

 

Plaza Centers: Take II

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.

Plaza Centers sells “Prague 3”

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.”

Incentivizing Amazon. American-style

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?

Czech politics upended

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.

The cheap money era ending?

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.” …

 

Crestyl’s DOCK survives flood

The recent flooding in Prague was big on drama, but surprisingly light on damage. People in this part of the world seem to be allergic to admitting that the state has gotten something right, but to a large degree, the flood control measures implemented and built after the horrendous 2002 deluge seem to have done the trick.

That being said, the post-event analysis  will no doubt turn out lots of problems and shortcomings. One of the issues will be that new flood barriers definitely did the business as far as fighting a 2002-style event, but it turns out that each flood is different (shocking, isn’t it?). This time, with the rain advancing quickly from the north, the local creeks accounted for much of the local flood damage that occurred.

By now, most people will have seen the rather depressing aerial pictures of Crestyl’s DOCK project, a view that made things at the ongoing project look grim indeed. These fears seem to have been overblown. Crestyl’s director Omar Koleilat is quite relaxed about sending pictures from the site, and is even inviting us for a visit. Which we’ll of course take him up on. He explains that while there was obviously water in the underground portions of the scheme, the rest of the damage was thankfully quite minimal. We’ll go see for ourselves and report back. For now, you can check out the pictures.

These two shots are from last week, the day after the flood.

 

 

 

 

 

 

 

 

 

 

And these shots are from yesterday:

Landing Amazon

Does anybody really know where Amazon is going? The Czech industrial sector hasn’t been getting much sleep lately, what with  everyone’s falling over themselves to woo the world’s largest on-line retailer. The site will have to be ready to go almost immediately, and with 30 ha rumored to be needed, there can’t be that much choice.

You’d think that choice would be made simpler depending on exactly which market is supposed to be served by the huge shed (rumored at 100,000 sqm). Will it service CEE and Austria? Then Brno would make sense (and might explain some recruitment sounding letters going out to students there). Will it serve Germany? Then surely, it will have to be placed west of Prague. But it will need quite a lot of people as well, so it’s unlikely to be a remote site.

If you have a hint, or a clue, drop us a line. Anonymous tips are always welcome in the tip box.

NYTimes realizes the Czech never bounced

The New York Times has picked up on a story that’s been doing the rounds in Prague for some time now: the Czech banks are doing just fine. As in, they’re profitable – earning dividends for their western owners – and their level of non-performing loans has dropped from 6.4% to less than 6%. It attributes their stability to their having stuck to the rather more boringly traditional activities of banks, like lending money to people and companies, rather than seeking super-profits in the sexier areas of investment banking.

“The industry is in good shape; the sector is stable and has not needed any assistance in the recent crisis,” said Jiri Busek, an analyst with the Czech Banking Association. “It’s quite a unique position in Europe, and we are grateful for it. We are stable, healthy and profitable.”

Now, anyone who knows anything about the way things went down here knows that Czech banks have their share of issues in the property sector. Nobody came out of the boom smelling like roses. The Czech economy is currently in its longest recession and isn’t exactly galloping back to growth.

Does the name Ambrose Evans-Pritchard ring any bells? He’s the (self-acclaimed) prophet at the Daily Telegraph who back in 2009 tried to wreck all faith in this region’s banking sector by warning that western banks had billions of euro of exposure in the sewer of CEE. “Failure to save East Europe will lead to worldwide meltdown” (that’s the actual headline) made for thrilling, shiver-inspiring reading at the time. Reading the it today makes clear the dangers of quoting adrenalin-induced predictions of economists and doomsday headlines. Remember, this is 2009:

“A failure rate of 10pc would lead to the collapse of the Austrian financial sector,” reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a “monetary Stalingrad” in the East.
The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU “union bonds” should the debt markets take fright at the rocketing trajectory of Italy’s public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.
So we watch and wait as the lethal brush fires move closer.
If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

Why Warsaw wins

It’s become pretty commonplace to say that Warsaw’s office market is in trouble, that the pipeline is just too big and that the country’s economic boom was all just an offshoot of a binge of EU-funded road-building. The truth will turn out to be far more subtle and complex.

As we’ve been told ad naseum, Poland is long in smart, ambitious young people with highly marketable skills in finance, technology and languages, it’s also just plain big. European-big. And this is part of the reason the Warsaw Stock Exchange has quietly become one of the more attractive markets in Europe. Immofinanz didn’t just double-list there for marketing purposes, after all. It wants Polish pension fund money.

Anyway, the next time someone tells you Warsaw’s office market is past its peak, send them to links like this article.

Record stock sales and a growing economy are helping Poland solidify its position as central Europe’s busiest financial center, even as euro-area neighbors struggle to shake the sovereign-debt crisis. UniCredit SpA (UCG), JPMorgan Chase & Co. (JPM) and Societe Generale SA (GLE) are establishing investment-banking hubs in Warsaw, where equity sales of 15 billion zloty ($4.6 billion) this year exceed the $490 million in the rest of central Europe.

Get it? If that doesn’t make the doomsayers think twice, give them the link to this article: SocGen’s Russian Unit Said to Cut Hundreds of Jobs in Moscow.

FT: Spain jobless to pass 30%

At what point does Europe (meaning Angela M) decide that massive unemployment in Spain is more of a threat to the European project than a bit of stimulus? Can anyone actually imagine things not blowing up on the Iberian peninsula by 2015, when Societe Generale figures that about one in three adults will be out of a job? There’s conservative economic theory, and then there’s real life and things like common sense. Enough is sometimes enough.