Earn Weidmann-Bundesbank profit will be crimped by reserves

Earn Weidmann-Bundesbank profit will be crimped by reserves BERLIN (Reuters) - The Bundesbank profit turned over to the federal government will be considerably smaller this year than in 2011 due to the risk provisions linked to the euro zone crisis, central bank president Jens Weidmann was quoted telling Der Spiegel. Weidmann said the German central bank had to raise its reserves due to the greater risks and had consulted with its accountants. In 2012 the Bundesbank had a 2.2 billion euro profit and set aside 1.6 billion for risks. 'The distributed profit will be considerably less than last year,' Weidmann said, without providing any specific numbers. Weidmann also said that he had doubts whether European central banks will be able to make a profit on Greek sovereign bonds that euro zone countries are eager to use as part of the latest Greek bailout. 'It's assumed that the central banks will earn a profit from purchasing the bonds. But that is not certain at all. On the contrary, the balance sheet risks have increased. And that affects not only the Greek bonds but also all the extraordinary monetary measures related to the crisis.' (Reporting By Erik Kirschbaum; Editing by Elaine Hardcastle)

Signals Europe hit by downgrade speculation

Signals ROME (AP) -- Europe's ability to fight off its debt crisis was again thrown into doubt Friday when the euro hit its lowest level in over a year and borrowing costs rose on expectations that the debt of several countries would be downgraded by rating agency Standard & Poor's. Stock markets in Europe and the U.S. plunged late Friday when reports of an imminent downgrade first appeared and the euro fell to a 17-month low. The fears of a downgrade brought a sour end to a mildly encouraging week for Europe's heavily indebted nations and were a stark reminder that the 17-country eurozone's debt crisis is far from over. Earlier Friday, Italy had capped a strong week for government debt auctions, seeing its borrowing costs drop for a second day in a row as it successfully raised as much as €4.75 billion ($6.05 billion). Spain and Italy completed successful bond auctions on Thursday, and European Central Bank president Mario Draghi noted 'tentative signs of stabilization' in the region's economy. A credit downgrade would escalate the threats to Europe's fragile financial system, as the costs at which the affected countries — some of which are already struggling with heavy debt loads and low growth — could borrow money would be driven even higher. The downgrade could drive up the cost of European government debt as investors demand more compensation for holding bonds deemed to be riskier than they had been. Higher borrowing costs would put more financial pressure on countries already contending with heavy debt burdens. In Greece, negotiations Friday to get investors to take a voluntary cut on their Greek bond holdings appeared close to collapse, raising the specter of a potentially disastrous default by the country that kicked off Europe's financial troubles more than two years ago. The deal, known as the Private Sector Involvement, aims to reduce Greece's debt by €100 billion ($127.8 billion) by swapping private creditors' bonds with new ones with a lower value, and is a key part of a €130 billion ($166 billion) international bailout. Without it, the country could suffer a catastrophic bankruptcy that would send shock waves through the global economy. Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos met on Thursday and Friday with representatives of the Institute of International Finance, a global body representing the private bondholders. Finance ministry officials from the eurozone also met in Brussels Thursday night. 'Unfortunately, despite the efforts of Greece's leadership, the proposal put forward ... which involves an unprecedented 50 percent nominal reduction of Greece's sovereign bonds in private investors' hands and up to €100 billion of debt forgiveness — has not produced a constructive consolidated response by all parties, consistent with a voluntary exchange of Greek sovereign debt,' the IIF said in a statement. 'Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,' it said. Friday's Italian auction saw investors demanding an interest rate of 4.83 percent to lend Italy three-year money, down from an average rate of 5.62 percent in the previous auction and far lower than the 7.89 percent in November, when the country's financial crisis was most acute. While Italy paid a slightly higher rate for bonds maturing in 2018, which were also sold in Friday's auction, demand was between 1.2 percent and 2.2 percent higher than what was on offer. The results were not as strong as those of bond auctions the previous day, when Italy raised €12 billion ($15 billion) and Spain saw huge demand for its own debt sale. 'Overall, it underscores that while all the auctions in the eurozone have been battle victories, the war is a long way from being resolved (either way),' said Marc Ostwald, strategist at Monument Securities. 'These euro area auctions will continue to present themselves as market risk events for a very protracted period.' Italy's €1.9 trillion ($2.42 trillion) in government debt and heavy borrowing needs this year have made it a focal point of the European debt crisis. Italy has passed austerity measures and is on a structural reform course that Premier Mario Monti claims should bring down Italy's high bond yields, which he says are no longer warranted. Analysts have said the successful recent bond auctions were at least in part the work of the ECB, which has inundated banks with cheap loans, giving them ready cash that at least some appear to be using to buy higher-yielding short-term government bonds. Some 523 banks took €489 billion in credit for up to three years at a current interest cost of 1 percent.

Signals Greece sets March 8 deadline for investors in bond swap

Signals Greece sets March 8 deadline for investors in bond swap The Parthenon on the Athens Acropolis is seen behind a Greek and an EU flag atop the Greek ministry of finance February 8, 2012. REUTERS/Yannis BehrakisEnlarge Photo The Parthenon on the Athens Acropolis is seen behind a Greek and an EU flag atop the Greek ministry of finance February 8, 2012. REUTERS/Yannis Behrakis ATHENS (Reuters) - Greece has set a March 8 deadline for investors to participate in its unprecedented bond swap aimed at sharply reducing its debt burden, according to a document outlining the offer. Greece formally launched the bond swap offer to private holders of its bonds on Friday, setting in motion the largest-ever sovereign debt restructuring in the hope of getting its finances back on track. In the document, Greece said the March 8 deadline could be extended if needed. Athens in the past has said it wants to conclude the transaction by March 12. The swap is part of a second, 130 billion euro ($175.02 billion) rescue package to claw Greece back from the brink of a default that had threatened to send shockwaves through the financial system and punish other weak euro zone members. ($1 = 0.7428 euros) (Reporting by George Georgiopoulos, Writing by Deepa Babington; Editing by Elaine Hardcastle)