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Exclusive: Russia expects to recover far less from ‘bad bank’ assets – sources

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MOSCOW (Reuters) – Russia will dramatically cut its estimate of the sum it expects to recover from a “bad bank” set up after the collapse of three major lenders, according to three sources familiar with new calculations being prepared for the central bank.

A view shows a Russian one rouble coin in this picture illustration taken October 26, 2018. REUTERS/Maxim Shemetov

The central bank has spent over $40 billion bailing out Otkritie, B&N and Promsvyazbank since 2017. It had hoped to recover between 40 and 60 percent of the value of their 2 trillion rubles ($30.45 billion) assets that were transferred to Trust Bank, the bad bank, in the rescue deal.

But the central bank now expects to receive only 20 percent of the value, according to the calculations being put together by the managers of Trust Bank, the sources said. The estimate is being downgraded because the assets were overpriced in the initial calculations, they said.

The central bank is Trust Bank’s main shareholder. It hopes to recover the money through asset sales and loan repayments.

A Trust Bank spokeswoman told Reuters that the recovery rate was still being discussed. The central bank did not reply to a request for comment. It is not clear when the revision will be announced by the central bank.

“The real recovery rate will hardly exceed 20 percent. It will likely be lower,” said one of the sources, who is familiar with the central bank’s new calculations. “These assets were initially overpriced.”

A second source said he expected the recovery rate to be between 10 and 20 percent.

Central bank officials have already said publicly it was aware that most assets, which include real estate and agricultural loans, were overvalued when they were transferred to Trust Bank.

But a downward revision to the estimate could erode public trust in the central bank. It could also point to more weakness in the banking sector, suffering from the fallout of Western sanctions over Moscow’s annexation of Crimea from Ukraine in 2014 and the sharp fall in oil prices.

As part of the rescue of Russia’s three largest private lenders, the central bank split the assets into “good” and “bad”.

Most of the troubled assets from the three banks were transferred last year to Trust Bank, which was formerly part of the Otkritie banking group.

B&N and Otkritie’s healthy assets were merged and became FC Otkritie, which the central bank plans to sell in the next two to three years. Promsvyazbank kept its good assets and was repurposed as a bank for the defense sector.

Russian Direct Investment Fund, the country’s sovereign wealth fund, became a minority shareholder in the “bad bank,” with the goal of preparing its assets for sale.

The central bank had been aware of the assets’ overpricing when they were added to Trust Bank’s balance sheet, deputy governor Vasily Pozdyshev said.

“When these assets were added to the balance sheet, we immediately said that many of them had been overpriced by three or four times,” Interfax news agency quoted him as saying in December.

“We nonetheless added them to the balance sheet because it’s better to have assets, even overpriced, than not accepting anything on the balance.”

($1 = 65.6900 rubles)

Additional reporting by Christian Lowe; Writing by Gabrielle Tétrault-Farber; Editing by Katya Golubkova and Anna Willard

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S&P 500 posts highest close since November 8 on trade optimism

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NEW YORK (Reuters) – The S&P 500 posted its highest closing level since Nov. 8 on Friday as investors clung to signs of progress in the ongoing trade talks between the United States and China.

Investors assessed a slew of headlines on the talks, with top trade negotiators from the two countries meeting to wrap up a week of discussions on some of the thorniest issues in their trade war.

If the two sides fail to reach a deal by midnight on March 1, then their seven-month trade war could escalate.

“People are expecting some sort of positive news on trade and tariffs with China fairly soon,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“But we won’t know until the end of next week,” he said, and, “there has been a lack of specifics.”

Optimism on the trade front and dovish signals from the U.S. Federal Reserve have driven the recent gains and left indexes well above their lows of December, when the market swooned on fears of an economic slowdown. The S&P 500 is now up about 19 percent since its late-December low.

The S&P 500 technology index was up 1.3 percent, leading gains among the 11 major S&P sectors, while the trade-exposed industrials index climbed 0.6 percent.

The Dow Jones Industrial Average rose 181.18 points, or 0.7 percent, to 26,031.81, the S&P 500 gained 17.79 points, or 0.64 percent, to 2,792.67 and the Nasdaq Composite added 67.84 points, or 0.91 percent, to 7,527.55.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., February 22, 2019. REUTERS/Brendan McDermid

All three indexes registered gains for the week, with both the Dow and Nasdaq posting a ninth week of increases.

The number of New York Stock Exchange and Nasdaq stocks hitting 52-week highs hit 367, the most since mid-September and outnumbered those hitting year lows by the widest margin in six months.

Stocks briefly pared gains after U.S. officials briefed on the negotiations said more time is likely needed in the talks given China’s resistance this week to American demands for specific steps by Beijing to end forced transfers of U.S. technology and certain other policies.

Afterward, President Donald Trump said there was a very good chance the United States would strike a deal with China to end the trade war, and that he was inclined to extend his March 1 deadline to reach an agreement.

“Right now the downside risk has been not as steep, but there’s always a concern that something happens last-minute,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

“Having a Chinese economy that stabilizes is constructive for global markets,” she said. “That’s what is key in terms of the market looking at the results.”

Kraft Heinz Co tumbled 27.5 percent, and was the biggest drag on the S&P along with a 1.7 percent fall in Class B shares of the company’s controlling stakeholder, Berkshire Hathaway Inc.

The packaged food company posted a quarterly loss, disclosed a Securities and Exchange Commission probe and wrote down the value of its iconic Kraft and Oscar Mayer brands.

Slideshow (2 Images)

Advancing issues outnumbered declining ones on the NYSE by a 2.99-to-1 ratio; on Nasdaq, a 2.45-to-1 ratio favored advancers.

The S&P 500 posted 64 new 52-week highs and three new lows; the Nasdaq Composite recorded 112 new highs and 21 new lows.

About 6.9 billion shares changed hands on U.S. exchanges. That compares with the 7.3 billion-share daily average for the past 20 trading days.

Additional reporting by Shreyashi Sanyal and Sruthi Shankar in Bengaluru; Editing by Chizu Nomiyama and Jonathan Oatis

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FCA sets $14 million annual target compensation for CEO Manley: filing

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FILE PHOTO: Fiat Chrysler Automobiles (FCA) CEO Mike Manley arrives at the memorial service held in honor of former CEO Sergio Marchionne in Turin, Italy, September 14, 2018. REUTERS/Massimo Pinca/File Photo

DETROIT (Reuters) – Fiat Chrysler Automobiles NV (FCA) has set an annual compensation target for Chief Executive Officer Mike Manley consisting of pay, cash and equity bonuses of $14 million, the automaker said in a regulatory filing on Friday.

Manley took over as the head of FCA last July after the abrupt departure of his predecessor Sergio Marchionne. The company paid its new CEO 600,442 euros ($680,240) for 2018 and he will receive a bonus for 2018 of $367,000 to be paid this year.

Manley also was granted FCA 180,364 shares for his work in 2018, which will vest in 2019 if the company meets certain targets. The fair value per share on the date those were granted was $16.61, FCA said.

His target annual compensation consists of a base salary of $1.6 million, and a bonus of $2.4 million and an equity award valued at $10 million, both linked to the company hitting certain performance targets.

Former CEO Marchionne received 6.6 million euros in compensation for 2018, which consisted of nearly 2 million euros in base pay and an annual bonus for 2017 of just over 4.6 million euros.

For the 2014 to 2017 time period, Marchionne also received 2.8 million FCA shares. The fair value per share was $14.84, FCA said.

FCA chairman John Elkann received a base salary of 1.7 million euros and no annual bonus.

Reporting by Nick Carey; Editing by Sonya Hepinstall

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Flattening U.S. yield curve in late 2018 ‘flashing red’ on economy: Fed’s Williams

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President and Chief Executive Officer of the U.S. Federal Reserve Bank of San Francisco, John Williams, addresses a news conference in Zurich, Switzerland September 22, 2017. REUTERS/Arnd Wiegmann/File Photo

NEW YORK (Reuters) – A flattening U.S. yield curve in December, which was close to being inverted, was “flashing red” about a deceleration in U.S. economic growth heading into 2019, despite some solid data at the time, New York Federal Reserve President John Williams said on Friday.

The yield curve flattens as the gap between short and long-dated yields narrow, suggesting investors’ worries about a slowing economy.

The yield curve inverts when shorter-dated yields rise above longer-dated ones. An inverted yield curve has preceded all U.S. recessions in the past 50 years.

Williams was giving closing remarks at a conference about quantitative tools, jointly sponsored by the New York Fed and the Atlanta Federal Reserve.

Reporting by Richard Leong; editing by Diane Craft

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