DealBookToday's Top Headlines on July 7, 2016: Italy's Plan for Banks Is Dividing Europe | More British Property Funds Halt Withdrawals | Wall Street Scion Pleads Guilty to Charges in $40 Million Fraud
THURSDAY, JULY 7, 2016
TODAY'S TOP HEADLINES
BY AMIE TSANG
ITALY'S PLAN FOR BANKS IS DIVIDING EUROPEThe Italian government needs to spend an estimated $45 billion to shore up its banks, which are burdened with bad loans. But fears that European authorities will bar the government from providing this support is adding to turbulence in the aftermath of Britain's vote to leave the European Union, Peter Eavis reports in DealBook. And the situation could keep investors on edge through the summer.
Italian bank shares have dropped steeply - an indication of a storm ahead. The stock price of Banca Monte dei Paschi di Siena, one of Italy's most troubled lenders, is down 80 percent in the last 12 months. Its shares trade at under 10 percent of its book value - a sign that investors really think that the bank needs new capital, although when bank stocks sink that much, they find it almost impossible to raise new capital on the markets.
Italian banks don't appear to need an overwhelmingly large sum to return them to a firmer footing. The problem is their 200 billion euros, or about $222 billion, of bad loans. The banks have already set aside significant reserves to absorb losses in these loans, effectively valuing them at 40 percent of their original value, according to some analyses.
But investors appear to think that the loans are worth less than that, and the theory is that banks would have to value the loans at an even lower level. Banking experts say that €40 billion of support is needed to help the banks take those losses.
The Italian government could mimic the United States government's TARP spending in 2008 and plow that money into the banks, but a bailout of that sort may be illegal under relatively new European rules that aim to protect taxpayers.
The rules aim to force investors in the banks to provide support in times of trouble by buying their debt securities. Under anti-bailout rules, these securities would be forcibly turned from debt into new equity, which could absorb any new losses taken on the bad loans. Under such a so-called bail-in, the equity would in theory be worth less than the debt securities, leading to losses for investors who held the debt.
In Italy, however, retail investors hold many of these debt securities - families own about a third of them, according to the research organization Bruegel. A bail-in would focus the pain on Italian households, and the fear of losses might also prompt investors to stop lending to banks and lead depositors to withdraw their money.
A compromise with Europe's leaders does not look impossible, although there is considerable tension over the question.
The rules provide ways to give Italy a pass, but Cassa Depositi e Prestiti, a large investment entity controlled by the Italian government, could also provide bailout funds. Either way, analysts agree that the government would have to overhaul the industry.
MORE BRITISH PROPERTY FUNDS HALT WITHDRAWALSThree more asset managers suspended redemptions from their British property funds as concerns mounted about the potential impact of Britain's decision to leave the European Union on the real estate market, Chad Bray reports in DealBook.Columbia Threadneedle Investments, Henderson Global Investors and Canada Life temporarily suspended trading in their British property funds. There are now six fund managers that have put a hold on customer exits since Monday.
Columbia Threadneedle said its portfolio managers maintained a cash balance in its Threadneedle UK Property Authorised Investment Fund to satisfy redemptions because of the time it takes to sell property. It said that"the temporary suspension of dealings allows sufficient time for the orderly sale of assets and protects the interests of all investors."
Henderson said it was suspending redemptions in its UK Property Authorised Investment Fund and its feeder fund because of "exceptional liquidity pressure."
Canada Life, which deferred client redemptions in four funds, said, "Deferring requests to withdraw allows us to protect the interests of all investors in the property fund, including those who plan to remain invested for the medium to long term."
Aberdeen Asset Management tried a slightly different approach by saying on Wednesday that it would cut the value of its British property fund by 17 percent for withdrawal requests that had been made earlier in the day. "This action has been taken due to rapidly changing commercial property market conditions and to continue to provide liquidity in the fund at a price reflecting those conditions," it said in a statement. It said it would suspend trading until noonon Thursday to allow investors to cancel withdrawal requests.
ON THE AGENDAThe latest ADP National Employment Reportwill be published at 8:15 a.m. The European Central Bank will publish its account of the governing council's June meeting at 8:30 a.m.
WALL STREET SCION PLEADS GUILTY TO CHARGES IN $40 MILLION FRAUDAndrew Caspersen, a former Wall Street executive and scion of a wealthy family, pleaded guilty to federal charges that he defrauded friends, relatives and a hedge fund billionaire's foundation of nearly $40 million, Alexandra Stevenson reports in DealBook. The charges, one of wire fraud and one of security fraud, each carry a maximum penalty of 20 years in prison.
"The people I harmed were people I cared for the most," Mr. Caspersen said, reading from a statement. "I could not be more sorry or ashamed for my crimes."
Mr. Caspersen's lawyer had already said he would not contest the charges, but it is not clear whether Judge Jed S. Rakoff of Federal District Court will view Mr. Caspersen's mental health as a mitigating circumstance when sentencing. Mr. Caspersen's lawyer had argued that his client had a "compulsive gambling addiction and mental illness" that prompted him to mastermind a Ponzi-like scheme.
In a plea agreement, federal prosecutors and Mr. Caspersen agreed on a sentencing of 12 to 16 years in prison, subject to judicial approval. He could also be required to pay a fine of more than $5 million and restitution to victims. In court on Wednesday, Judge Rakoff described the federal sentencing guidelines as "irrational."
Mr. Caspersen had promised investors annual returns of 15 percent through a private equity-style investment vehicle and squandered the money on bad bets in the market. Even when he had enough to pay back what he owed to friends and family, he continued to gamble.
Danone, French Food Company, to Buy WhiteWave to Increase U.S. PortfolioThe agreement values WhiteWave at $12.5 billion and would bolster Danone's offerings of organic products and plant-based alternatives to milk and yogurt.
HNA Extends Gategroup Takeover OfferThe Chinese conglomerate HNA Group extended until July 21 its $1.4 billion offer for Gategroup Holding of Switzerland, the world's second-biggest airline caterer, saying it would scrap a previously set minimum acceptance level.
Détente for Netflix and ComcastThe relationship between the two companies has often been rocky, but nothing brings out the olive branch like a business opportunity, Jennifer Saba writes in Breakingviews.
Former Rabobank Trader to Plead Guilty in U.S. Libor Case Paul Thompson, former head of money market and derivatives trading in Northeast Asia for Rabobank, will plead guilty on Thursday to charges that he conspired in a huge scandal to manipulate Libor, the leading benchmark for pricing financial transactions
S.&P. Sounds Alarm on Hedge Fund ReinsurersOffshore reinsurers affiliated with hedge funds have failed to make a profit from providing reinsurance coverage for more than four years, according to Standard & Poor's, the ratings agency.
Daughter of Founder of Korean Conglomerate Is Arrested Shin Young-ja, the 73-year-old daughter of the founder of the Lotte conglomerate, was arrested on Thursday as prosecutors stepped up an investigation into the country's fifth-largest business group.
P.&G. Said to Be Under Investigation In ItalyProcter & Gamble, the American consumer products company, is under investigation by the Italian authorities over whether it routed revenue through units in Switzerland and other locations to avoid paying taxes in the Italy, Bloomberg reports, citing people familiar with the investigation.
Cambodian Leader's Family Is Profiting From His Position, Report SaysRelatives of the leader, Hun Sen, have acquired shares in companies in nearly every sector of the economy, the human rights group Global Witness says.
A Ukrainian Kleptocrat Wants His Money and U.S. AsylumPavlo Lazarenko, felon and former prime minister of Ukraine, is battling the United States for $250 million held offshore and for political asylum.
U.S. Safety Agency Investigates Another Tesla Crash Involving AutopilotAs safety officials opened an inquiry into a Pennsylvania accident, a witness to a fatal Tesla crash in Florida described a car that did not slow down even after impact.
Fox News Anchor Files Harassment Suit Against Roger AilesThe anchor, Gretchen Carlson, said that after she refused sexual advances by Roger Ailes, the network chief, he curtailed her airtime and later declined to renew her contract. Fox said it is investigating Mr. Ailes, who denied the allegations.