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Austrians rue starting fashion for Swiss franc mortgages

February 01, 2015 - reuters.com

* Swiss franc surge swells mortgage debt in euro * Repayment vehicles often lack returns to repay loans * Nearly a fifth of loans to households in foreign currency By Michael Shields and Angelika Gruber VIENNA, Feb 1 (Reuters) - The surging Swiss franc has dealt a double blow to homeowners in Austria, home of the trend for borrowing in the Swiss currency that has devastated mortgage holders across eastern Europe. In the early 1990s, people living in the west of the country who crossed into Switzerland to work were lured by the ultra low interest rates offered in the safe-haven currency. The idea then spread, crossing a fundamental red line that was barely perceptible at the time: the new borrowers were not earning Swiss francs but euros. Foreign-currency loans now account for nearly a fifth of household debt in Austria, even though regulators effectively banned them in 2008 for fear of a looming crisis. Around 150,000 families still owe around 29 billion euros of Swiss franc debt, with 4 percent of loans due within a year. ID:nF9N0TV00K Banks' loan books could take a hit if defaults rise. Austrians are relatively wealthy and have benefited from rises in property prices, but poorly performing insurance policies sold alongside many mortgages present an added twist. From loans to Austrians, it was a short step for Austrian banks to start selling Swiss franc-denominated mortgages through the large networks they set up in Poland, Hungary and Romania after communism fell in 1989. Ratings agency Fitch said four big banks - Erste ERST.VI , Raiffeisen Bank International (RBI) RBIV.VI , Bank Austria CRDI.MI and Volksbanken OTVVp.VI - held 30 billion euros of Swiss franc loans on their books in central and eastern Europe. Back home, it was not relative inexperience of the financial services industry but proximity to it that caused the biggest trouble; mortgages were often linked to investment schemes designed to repay the loans at maturity. "You often had a wealth adviser in your circle of acquaintances or family, and then you fell into their hands," said Peter Kolba of consumer advocate agency VKI. These fee-hungry consultants often advised people to borrow twice as much as they actually needed to buy a home, and to invest the rest to finance the loan repayment. One woman facing a 50,000 euro loss on her loan package, 20,000 of it since the Swiss central bank suddenly abandoned its cap on the franc on Jan. 15, said it was easy to be taken in. "It looks so great when the financial advisers show you how much cheaper it is," she said, asking not to be named. "I wasn't aware (of the risk), but admit to a certain amount of naiveté." Accompanying investment schemes were supposed to easily pay off the interest-only mortgage at maturity but were unrealistic, Kolba said. "It would add up only if a market - counter to all expectations - only went up. The model was driven by the provisions paid for the products that were being sold," he said, noting brokers could make 10,000 euros in fees from the package of mortgage and investment funds sold to one client. Banks have consistently offered to help customers switch out of Swiss franc loans into less-risky euro mortgages. But many clients failed to follow through in hope they could erase initial currency losses, only to get nailed again in January. The rating agencies say the big local component of Austrian banks' loan portfolios means the risks to them are low, citing rising property prices and relatively wealthy clients. "With two-thirds of Swiss franc mortgages held domestically, we expect asset quality deterioration to be moderate, despite the significant exposure," Fitch said. In December, however, the Austrian central bank called the high share of foreign-currency loans "a major risk factor with respect to the financial position of Austrian households". UNDER WATER Erste and Bank Austria say they won't take big hits from the franc's rise. RBI has no Swiss franc retail loans in Austria and has played down the impact in eastern Europe. ID:nV9N0P501E The Association of Volksbanks says its share of foreign-currency loans is the Austrian sector's lowest. ID:nL6N0UU4MY The typical floating-rate FX loan was worth 100,000 euros and ran from 15 to 25 years. Customers usually pay only monthly interest, with the full amount of capital due at maturity. Christian Prantner, an expert on the mortgages at Austria's Chamber of Labour, spoke of one colleague who in 2005 took out a 20-year Swiss franc mortgage for 145,000 euros. She also bought a life insurance policy linked to two investment funds that was supposed to pay off the mortgage when it came due in 2025. After paying in 70,000 worth of premiums, her account is worth only 50,000 after markets tanked in the financial crisis. "She is half way through and has 10 years to go. The fund-linked insurance policy will never cover even the original loan amount, let alone what you get by converting the currency at a rate of 1.01" francs per euro, he said. Nearly three quarters of foreign-currency mortgages due at maturity are backed by such repayment vehicles. Only a fifth get both interest and principal paid in regular monthly instalments. One bright note is that residential property prices increased by 45 percent from early 2007 to mid-2014, or by 24 percent adjusted for inflation, central bank data show. That is good for borrowers and banks, Prantner said. "But it can also mean customers who stick with the loan and wait until the end can have a giant gap of 30,000, 40,000, 50,000 (euros), that they then may have to sell the house" to pay the mortgage. The latest blow is for investors who took out "stop-loss" orders to convert Swiss francs to euros should the 1.20 peg fail, Kolba said. This backfired when the franc rose so much so fast that banks could close out positions only much lower. The woman with the franc loan said her bank executed her stop-loss order only when the euro and franc were at 1:1, not the level just under 1.20 she wanted. "That was a shock," she said, adding she had hired a lawyer to review her options. Kolba said the best bet for many borrowers would be using a new consumer arbitration process financed by the government to reach a compromise with their lender. (Editing by Philippa Fletcher) ((Michael.Shields@thomsonreuters.com; +43 1 531 12 258; Reuters Messaging: michael.shields.thomsonreuters.com@reuters.net)) Keywords: SWISS SNB/AUSTRIA

Right-wing firebrand shakes up cosy Swiss politics

February 01, 2015 - reuters.com

* Blocher behind referendums on immigration * Critics call SVP man a populist and threat to stability * He says his moves secure Swiss independence By Caroline Copley and Katharina Bart MAENNEDORF, Switzerland, Feb 1 (Reuters) - As a child growing up near the Swiss border with Germany in the early 1940s, Christoph Blocher remembers soldiers camping out in his family's garden, ready to defend the neutral nation against a surprise attack from the Nazis. The godfather of the right-wing Swiss People's Party (SVP), which has unnerved investors with plans to cut immigration and demote international law, says the experience instilled a fierce desire to shield Switzerland from external influences. "That sort of experience makes quite an impression on a four or five-year-old boy, and it paints a distinct picture of Switzerland's strengths," Blocher told Reuters in his modest office building overlooking a train station in Maennedorf, a lakeside village outside Zurich. Under the direction of the 74-year-old billionaire, who speaks in a local dialect he calls "farmer German", the SVP has shaken up the cosy, consensual system which has governed the Alpine nation since the end of the second World War. To his fans, Blocher is a heroic defender of traditional Swiss values who has grown a niche party of farmers and small businessmen into Switzerland's most popular political party. To his critics he is a divisive populist, who has brought instability to a once safe haven for companies and investors. Yet the party won more than 26 percent of the vote in the last election, in 2011, and, according to polling firm Vimentis, is set to win more than 32 percent in the next one, in October. In May, Blocher resigned from the parliament in Berne so he could spend more time furthering his policies through popular initiatives or referendums, a particular feature of Swiss politics. Stopping "mass immigration" and what he sees as Switzlerand's drift towards the European Union are at the top of his priority list. "If you're marginalised in Berne, then you have to work with popular initiatives," he said. The SVP was the driving force behind a referendum last year which has forced the government to introduce new limits on immigration, threatening its ties to the European Union. In a "Save our Swiss gold" referendum in November, the SVP tried and failed to force the Swiss National Bank (SNB) to buy vast quantities of the precious metal, despite warnings from the central bank that it would cripple its monetary policy. Such polarising moves have made it hard for the SVP to forge alliances in Berne, even though it is the largest party. If it wins more than a third of the vote in the election, blocking Blocher will become harder, as it will strengthen the SVP claim to a second seat in the seven-seat ruling council. CONTROVERSY The son of a pastor, Blocher was born in 1940 in a village on the Rhine river, the seventh of eleven children. He studied agriculture, and later law, later buying EMS Chemie EMSN.S , a maker of adhesives and coatings for the engineering and automotive industries. The company exports 90 percent of its products and nearly a third of its employees are non-Swiss. Blocher says he fell into politics by chance following a local zoning dispute. He has courted controversy ever since, clashing with the polite, grey traditions of Swiss politics. In 1999, he was sanctioned for insulting remarks about Jewish organizations in connection with restitution claims for Nazi-seized assets in Swiss banks. On Friday, Swiss media said two high-ranking SVP officials face racial discrimination charges for a poster used in the anti-immigration campaign claiming "Kosovars slash open Swiss!". Blocher denies being a racist. He also says he does not wish to align with anti-immigrant, eurosceptic politicians like Nigel Farage in Britain or Marine Le Pen in France. His top priority, he said, was to keep Switzerland, which lies in the middle of Europe but outside the European Union, independent and in control of its own fate. MODERN DAY WILLIAM TELL Supporters of Blocher have likened him to Swiss folk hero William Tell, who bucked a powerful foreign overlord. He says the greatest threat to independence now comes from within, accusing lawmakers in Berne of secretly plotting to move Switzerland closer to the EU. "The Swiss people don't want to relinquish their independence but the politicians still want to surrender it, they're just not saying it so openly," he said. With immigration at around 80,000 per year and the net figure double that in neighbouring Germany, the party strikes a chord with Swiss who feel their identity is under threat, rattling the political elite. Annemarie Huber-Hotz, a former government chancellor, wants to ban Swiss parties from launching popular initiatives. A parliamentary committee has proposed ways to raise the bar for referendums, including easier ways to kill them in parliament. This has incensed Blocher, who says the SVP has only sought popular votes when lobbying efforts in parliament foundered. Meanwhile, he has looked for other ways to spread his influence. In December, outraged journalists at the Neue Zuercher Zeitung, Switzerland's oldest newspaper, threatened to walk out when it emerged that management was considering appointing a new editor with ties to Blocher. ID:nL6N0TZ417 Despite previous denials, it was revealed in 2011 that he had a stake in another newspaper, the BaslerZeitung, through his daughter Rahel. The left-leaning TagesAnzeiger newspaper responded by accusing him of having an "oligarch family: complete with castles, companies, factories and newspapers." Blocher shakes off the attacks. He says he will stay active in politics for as long as he feels up to it. Planned initiatives include limiting asylum seekers and ensuring Swiss law takes precedence over international or European law, which would, for example, block the appeals process by immigrants to Switzerland by overruling European courts. "If papers and media could kill, I'd have been dead long time ago," he said. (Editing by Noah Barkin and Philippa Fletcher) ((noah.barkin@thomsonreuters.com; +49)(0)(30 2888 5091; Reuters Messaging: noah.barkin.reuters.com@reuters.net)) Keywords: SWISS POLITICS/BLOCHER

MIDEAST STOCKS - Factors to watch - Feb 1

February 01, 2015 - reuters.com

DUBAI, Feb 1 (Reuters) - Here are some factors that may affect Middle East stock markets on Sunday. Reuters has not verified the press reports and does not vouch of their accuracy. INTERNATIONAL/REGIONAL * GLOBAL MARKETS-Oil rallies on US rig count drop; dollar up 7th month MKTS/GLOB * Oil surges 8 pct as U.S. rig count plunges, shorts scramble O/R * OPEC oil output rises in January as key members stand firm -survey ID:nL6N0V91VV * PRECIOUS-Gold rallies to best month in 3 years ID:nL6N0V94PG * U.S. reports 27 more strikes against Islamic State ID:nL1N0VA0BS * U.S. ground troops could be needed in Iraq -defense secretary ID:nL1N0V92W3 * Kurds retake oil facility in north Iraq, 15 workers still missing ID:nL6N0VA05Q * Kurdish PM says US-led coalition against Islamic State faces long war ID:nL6N0V91P9 * Islamic State says it has beheaded second Japanese hostage Goto ID:nL9N0T403E * Syria battle between al Qaeda and Western-backed group spreads ID:nL6N0V92H1 * Rouhani accuses Iranian hardliners of "cheering on" other side in atom talks ID:nL6N0VA0G3 * Hezbollah: we don't want war with Israel but do not fear it ID:nL6N0V93TU * Israel, Hezbollah signal their flare-up is over ID:nL6N0V83NN EGYPT * Egypt's Sisi cuts short Ethiopia visit after 32 killed in Sinai ID:nL6N0V9164 * Sisi says Egypt faces long, tough battle against militants ID:nL6N0VA0HD * Egyptian court bans Hamas' armed wing, lists as terrorist organisation ID:nL6N0VA09Q * Egypt widens dollar trading band, targeting black market ID:nL6N0V83KE * Egyptian prosperity, not protests, could define Sisi rule ID:nL6N0V63O0 * Egypt considers cutting fuel subsidies by 20 bln pounds next year-minister ID:nL6N0V846X SAUDI ARABIA * Lavish freebies from Saudi king to buoy economy, markets ID:nL6N0VA04X * Saudi king orders payout to state employees, reshuffles cabinet ID:nL6N0V86VG * Crisis veteran Naimi stays to hold line on Saudi oil policy ID:nL6N0V917J * U.S. man shot and wounded in eastern Saudi Arabia - state media ID:nL6N0V93D9 UNITED ARAB EMIRATES * Travelex and UAE Exchange to merge and list in Abu Dhabi - chairman ID:nL6N0V855R * Total awarded stake in new Abu Dhabi oil concession, steps up pressure on peers ID:nL6N0V81VG QATAR * Qatar Airways takes $1.7 bln stake in British Airways-owner ID:nL6N0V90QY BAHRAIN * Bahrain revokes nationality of 72 on security grounds ID:nL6N0VA0D9 (Compiled by Dubai newsroom) ((dubai.newsroom@reuters.com)) Keywords: MIDEAST FACTORS/

JPMorgan to pay $99.5 mln to resolve currency rigging lawsuit

January 31, 2015 - reuters.com

By Jonathan Stempel NEW YORK, Jan 31 (Reuters) - JPMorgan Chase & Co JPM.N , the largest U.S. bank, agreed to pay $99.5 million to settle its portion of an antitrust lawsuit in which investors accuse 12 major banks of rigging prices in the $5.3 trillion-a-day foreign exchange market. Made public on Friday night, the settlement is the first in the nationwide litigation and resolved claims over JPMorgan's role in alleged collusion among banks since January 2003 to manipulate the WM/Reuters Closing Spot Rates, known as the Fix. It followed the New York-based bank's agreements last November to pay roughly $1 billion in civil penalties to resolve related claims by U.S. and European regulators. Investors including hedge funds, pension funds and the city of Philadelphia accused the 12 banks, which controlled 84 percent of the global currency trading market, of having impeded competition by conspiring to manipulate the Fix in chat rooms, instant messages and emails. The JPMorgan settlement could form a basis for other settlements. It followed mediation with Kenneth Feinberg, a lawyer who also oversees General Motors Co's GM.N program to compensate drivers over faulty vehicle ignition switches. In an affidavit, Feinberg called the JPMorgan settlement fair, reasonable and adequate. "Although such analysis is preliminary, it does appear to be consistent with Class Lead Counsel's evaluation of JPMorgan's role in the FX market and JPMorgan's market share over the class period (6%)," he said. JPMorgan did not admit wrongdoing, and the settlement requires court approval. The bank did not immediately respond on Saturday to a request for comment. The other bank defendants include Bank of America Corp BAC.N , Barclays Plc BARC.L , BNP Paribas SA BNPP.PA , Citigroup Inc C.N , Credit Suisse Group AG CSGN.VX , Deutsche Bank AG DBKGn.DE , Goldman Sachs Group Inc GS.N , HSBC Holdings Plc HSBA.L , Morgan Stanley MS.N , Royal Bank of Scotland Group Plc RBS.L and UBS AG UBSN.S . On Wednesday, U.S. District Judge Lorna Schofield in Manhattan refused to dismiss currency-rigging claims against them. Five of those banks have also settled with regulators. The $99.5 million payment includes $500,000 for notices and administration. Lawyers for the plaintiffs, led by Hausfeld LLP and Scott & Scott, plan to seek legal fees of up to 30 percent of the settlement funds, court papers show. The case is In re: Foreign Exchange Benchmark Rates Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-07789. (Reporting by Jonathan Stempel in New York; Editing by Kevin Drawbaugh and Stephen Powell) ((jon.stempel@thomsonreuters.com;)(646)(223-6317; Reuters Messaging: jon.stempel.thomsonreuters.com@reuters.net)) Keywords: FOREX MANIPULATION/JPMORGAN SETTLEMENT

Metro CEO says rouble impact may be 200 mln euros -WirtschaftsWoche

January 31, 2015 - reuters.com

FRANKFURT, Jan 31 (Reuters) - Rouble weakness could cost Metro AG MEOG.DE about 200 million euros ($230 million) in operating profit if the Russian currency keeps trading at about 80 per euro, Chief Executive Olaf Koch told WirtschaftsWoche in an interview to be published on Monday. Metro is the fourth-biggest retailer in Russia behind X5 PJPq.L , Magnit MGNTq.L and French chain Auchan. Its Russian unit made a quarter of Metro's group operating profit in 2013 with sales of about $5 billion, some 9 percent of Metro's total. Metro was forced last year to halt a planned stock market listing of a stake in its Russian cash-and-carry operation due to market turmoil over the fighting in eastern Ukraine against Russian-backed separatists and consequent Western sanctions. The rouble has fallen by nearly 70 percent against the euro over the past six months, also hit by plunging oil prices. (Reporting by Harro ten Wolde; Editing by Kay Johnson) ((harro.tenwolde@thomsonreuters.com; +49 69 7565 1271; Reuters Messaging: harro.tenwolde.thomsonreuters.com@reuters.net)) Keywords: METRO RUSSIA/

UPDATE 2-U.S. must target currency manipulation in trade deals -senator

January 31, 2015 - reuters.com

(Adds comment from Obama at retreat, background) WASHINGTON, Jan 30 (Reuters) - The Obama administration must insist that U.S. trading partners pledge not to manipulate currencies when negotiating trade deals, the Senate Committee on Finance chairman said on Friday. In a speech laying out his conditions for supporting trade deals, Republican Orrin Hatch said addressing currency concerns was key to winning lawmakers' support for a bill to fast-track trade agreements through Congress, and deals such as the Trans-Pacific Partnership. "Pretending these concerns don't exist will not suffice," he told the American Enterprise Institute. "The administration must engage much more effectively with Congress on this issue if they want to receive strong support for TPA (trade promotion authority) and any subsequent trade agreements." Lawmakers from both parties are pushing the U.S. administration to take a stronger stand against trading partners which seek to gain an edge with a weaker currency, which makes their exports cheaper. But President Barack Obama told House Democrats on Thursday that including provisions against currency manipulation in deals currently under negotiation was unworkable, one member of Congress who was in the room said. The administration is close to sealing a trade pact with 11 Asia-Pacific trading partners, the Trans-Pacific Partnership (TPP), and is also negotiating a deal with the European Union. U.S. Trade Representative Michael Froman said on Tuesday Treasury had the lead on currency issues. Hatch said he expected that the fundamentals of a TPA bill to be introduced soon would be "substantially the same" as legislation drafted last year, which never progressed to a vote. The bill allows lawmakers to set negotiating objectives for trade deals in exchange for a yes-or-no vote on the final deal, without amendments. Hatch said he would not support any trade deals which did not include strong intellectual property protections. Other conditions included investor-state dispute settlement provisions; no barriers to digital trade, and the elimination of tariffs on U.S. exports of goods, services and agricultural products. Japan and Canada, partners in the TPP talks, had to accept more U.S. farm exports, he said. "Let me be clear: If Japan, Canada and our other TPP partners are not willing to open their markets to our exports, the final agreement will never receive support in Congress," Hatch said. (Reporting by Krista Hughes; Additional reporting by Jeff Mason; Editing by Susan Heavey, Bernadette Baum and Richard Chang) ((washington.newsroom@thomsonreuters.com; 202-898-8300)) Keywords: USA TRADE/CURRENCY

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