Monthly Archives: June 2010

Norway Takes Over Presidency Of Baltic Council

On July 1th 2010, Norway will take over the presidency over the Council of Baltic Sea States from Lithuania, according to representatives of the Lithuanian Ministry of Foreign Affairs.

The Lithuania-Nordic-Cross-Border Banking Flag

The Lithuania-Nordic-Cross-Border Banking Flag

The most important event during the period of Lithuanian chairmanship over the CBSS, was the meeting of the heads of the Council of Baltic Sea States that was held on June 1-2 in Vilnius and was one of the largest international events in Lithuania recently, The Baltic Course writes.

During the meeting, the Vilnius Declaration Baltic Sea Region Vision 2020″ was adopted that defines ecological, economic and social aspects of development in the region, and establishes political commitment to turn this vision into a reality, informed BC Lithuanian Foreign Ministry, The Baltic Course writes.

The Baltic Development Forum that took place simultaneously with the meeting of the heads of the Council of Baltic Sea States attracted the region’s business elite to Lithuania. At the forum, Lithuanian experience in overcoming the consequences of economic downturn and steps in addressing the current economic problems and using the experience of other countries were presented and discussed.

According to the representatives of the Ministry of Foreign Affairs, during the year of its presidency Lithuania mainly focused on promoting innovations, strengthening cooperation across borders, fostering a clean environment and ensuring of safe living conditions in the region. A number of events dedicated to these topics were held in Lithuania and abroad.

Credit Still Contracting

However, Lithuania’s recession is still ongoing, with domestic credit still contracting.

Domestic credit volume contracted by 244.8 million litas in Lithuania in May 2010: credit to general government diminished by 99.8 million litas, while credit to other residents went down by 145 million litas, of which lending to non-financial corporations and households went down respectively by 375.5 million litas and 95.2 million litas, while loans to financial intermediaries increased by 292.1 million litas, the Bank of Lithuania reports.

A year-on-year decrease in other monetary financial institutions’ (MFIs’) lending to non-financial corporations and households made up 9.8% and 4.8%, respectively.

Lending by other MFI’s to households shrank in May as follows: consumer loans went down by 47.4 million litas, lending for house purchase declined by 15.0 million litas, and other loans fell by 32.8 million litas. For the subsequent sixth month the annual growth rate of lending for house purchase was negative, making up –1.1% at the end of May.

Lending in euros prevailed in the lending structure of other MFIs by currency: by the end of May euro loans made up 69.5%, while litas loans made up 27.3%.

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Internal Wrangles Could Leave EU Without 2011 Budget

It’s the EU in a nutshell;  internal disagreements could leave the bloc without a formal budget next year, as newly empowered MEPs seek to use their ability to sanction the annual budget in order to extract their more longer-term wishes from member states.

“There is a real possibility of not agreeing a 2011 budget.”

Belgian EU official


This concern was expressed by a senior Belgian official at an off-the-record briefing on Monday, as the outgoing government prepares to take over the EU’s rotating presidency this week at an interesting juncture regarding future EU funding, the EUobserver reports.

“There is a real possibility of not agreeing a 2011 budget,” said the official, who has conducted extensive behind-the-scenes talks with members of the EU legislature, according to the EUobserver.

“As the first budget to be agreed under the Lisbon Treaty, it would not set a good precedent.”

The new EU rulebook, which came into force last December, hands MEPs a greater say over how the bloc spends its money.

The Belgian official said he feared euro deputies would use the 2011 budget discussions to show that parliament meant business ahead of the fast-approaching debate on the EU’s next long-term spending programme (2014-2020).

“The 2011 debate is a strategic debate,” the official said. “I hear MEPs want to have a greater say over the longer-term issues of the EU’s 2020 growth strategy and the matter of budgetary ‘own resources’.”

But there is also room for a potential argument due to shorter-term fiscal constraints.

Fiscal Constraints

Under the standard institutional game played out between EU institutions, the commission proposes a draft annual budget in the spring, which member states then generally seek to reduce and parliament usually tries to increase.

In April the commission proposed a €130 billion recession-busting budget for 2011, measured in forecast expenditure, an increase of 5.9 percent on this year’s budget.

While MEPs are likely to back the increase due to the heavier workload under the Lisbon Treaty, member states are slashing their domestic spending plans, giving in to pressure from financial markets by imposing swingeing austerity measures.

Should the parliament and member states fail to reach an agreement by the end of this year, the EU’s 2010 budget will simply be rolled out again as negotiations continue, but “cohesion payments and the European External Action Service could be affected,” said the Belgian source.

Own Resources

In September, the European Commission will come forward with an initial paper on the next multi-annual financial perspectives, plunging the Belgians into the heart of a wider debate, which will ultimately dictate much of the EU’s future actions.

While most of the tough negotiations will be carried out next year, Belgian authorities have indicated they will attempt to hold a preliminary meeting between member states, the parliament and commission officials this autumn in a bid to generate a “real discussion” on the subject.

The controversial issue of ‘own resources’ will be on the agenda, under which the EU institutions would have the power to raise their own revenue, reducing their heavy reliance on member-state contributions.

A future EU carbon tax or banking levy are among the possible sources cited so far, but opposition to the idea is fierce in a number of EU states, which have traditionally been more cautious about uploading powers to the EU level.

Their fear is that allowing the institutions to raise their own funding would provide them with an excessive level of independence. But Belgium intends to put forward proposals in the area regardless.

“Without imagination, the new financial perspectives will never be agreed,” said a senior Belgian diplomat this week, recalling the torturous debate that preceded the current budgetary period (2007-2013).

Original post at the EUobserver here.

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Moody's May Be Downgraded by Standard & Poor's

What can I say? The insanity of the crisis have reached another milestone….. This is just in:

“On June 29, 2010, Standard & Poor’s Ratings Services placed its ‘A-1’ short-term rating for Moody’s Corp. on CreditWatch with negative implications.”

Standard & Poor’s

Standard & Poor’s Rating Service have just released the following press release:


Overview

* We believe there may be added risk to U.S.-based credit rating agency Moody’s business profile following recent U.S. legislation that may lower margins and increase litigation related costs for credit rating agencies.

* We are placing our ‘A-1’ short-term rating for Moody’s on CreditWatch with negative implications.

* We expect to resolve the CreditWatch listing in the near term.

Rating Action

On June 29, 2010, Standard & Poor’s Ratings Services placed its ‘A-1’ short-term rating for Moody’s Corp. on CreditWatch with negative implications.

Rationale

The CreditWatch listing reflects our view that an increased level of business risk is likely following the announcement that the Financial Reform Conference Committee has reconciled bills from the U.S. Senate and House, and that the agreed upon legislation could result in a change in the applicable pleading standards for certain litigation brought against rating agencies. According to our ratings criteria, we place ratings on CreditWatch when, in our view, there is a 50% chance or more of a rating change, and CreditWatch reviews can be the result of regulatory changes’ impact on an issuer’s business.

The agreed upon legislation contains a provision whereby investors may be able to sue rating agencies if they can show that the agency knowingly or recklessly failed to conduct a reasonable investigation of the factual elements relied upon by a credit rating agency’s rating methodology, or obtain a reasonable verification of those factual elements from independent third-party sources. While we believe it is likely that the new pleading standard will lead to an increase in litigation-related costs at Moody’s, whether the new pleading standard would potentially increase the likelihood of successful litigation against Moody’s will be determined in the future by the courts. Moody’s management has stated that it plans to adapt its business practices in an effort to partially offset any potential new litigation risks associated with the legislation. Nevertheless, we believe that Moody’s may face higher operating costs, lower margins, and increases in litigation-related event risk, which would likely increase its business risk (see discussion under Litigation in our Encyclopedia of Analytical Adjustments for Corporate Entities–part of our Corporate Ratings Criteria).

In addition, if the final legislation removes many or all references to nationally recognized statistical rating organizations (NRSROs) from federal regulations, it may reduce investor demand for ratings. While we believe the latter change is unlikely to meaningfully impair Moody’s business position over the near term, we plan to consider its long-term impact. As per our criteria, greater business risk and lower profitability would be key factors in a potential downward revision of our evaluation of Moody’s business profile or a potential rating downgrade. In addition, Moody’s business will likely undergo noticeable changes due to new global regulations and the U.S. legislation’s impact on industry risk, which are business risk considerations under our criteria.

While a potential weakening of Moody’s business profile is the driver for our CreditWatch listing, we will also consider the potential longer-term impact on the company’s financial profile (see our business and financial risk profile matrix under the Analytical Methodology section of our Corporate Ratings Criteria). The company currently has a strong financial profile, in our view, as demonstrated by good levels of profitability, a high level of conversion of its EBITDA generation to discretionary cash flow, low leverage, and high cash balances. At March 2010, Moody’s EBITDA margin was 46%, the company’s conversion of EBITDA to discretionary cash flow was 45%, our measure of total lease-adjusted debt to EBITDA was 2.0x, and cash balances were $504 million.

CreditWatch

We anticipate resolving the CreditWatch listing over the near term, following our review of the final legislation and its potential long-term impact on Moody’s business position. In the event of a rating downgrade, we do not anticipate the short-term rating would be lowered to below ‘A-2’. An affirmation of the current ‘A-1’ commercial paper rating would likely involve a conclusion that the final legislation and new global regulations would not increase risk to Moody’s business position.

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