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Money markets signs of euro zone bank fears quietly mount

´╗┐* Tentative signs of bank worries grow* Spain the main concern* Thoughts of further ECB action prematureBy Kirsten DonovanLONDON, April 20 As the effects of the European Central Bank's huge three-year liquidity injection wear off and the euro zone debt crisis escalates, funding pressure on banks is intensifying again, although the excess cash should curtail sharp market moves. Spain has taken centre stage in the region's long-running crisis on concerns over its ability to meet fiscal targets. The health of its banks, which are now stuffed with Spanish government bonds bought with the ECB cash, are also a worry as yields on those bonds have begun to rise, with 10-years testing the 6 percent level."Yields have moved against them and we believe that Spanish banks are already losing money rather than getting the positive benefits from the carry trade they hoped for," said RBS rate strategist Simon Peck."Though this might not be an immediate concern in terms of 2012 bank bond redemptions, which are likely to be covered by the holding of cash balances with the ECB, we expect markets to focus more on this in the next few weeks."

Data earlier this week showed Spain's banks are also carrying their biggest burden of bad loans since 1994, adding to doubts about whether ailing lenders can survive without outside help. BNP Paribas rate strategist Patrick Jacq said that was one factor fuelling renewed concerns about European banks."Despite the short-term liquidity bonanza, pressure on bank funding returned recently. After easing for a long period, stress on liquidity is rebounding slightly."Moody's threat of a mass downgrade of European financial institutions is also doing little to help sentiment .

One measure of stress, the iTraxx index of credit default swap prices on bank's senior debt has risen around 75 basis points over the last month to hit its highest levels since mid-January. And measures of counterparty risk in the interbank market are showing signs of strain with the spread between three-month Euribor rates and overnight indexed swap rates rising to around 40 basis points earlier this week."The abundant short-term liquidity cannot prevent spreads from rising at the moment," Jacq said."(They) are currently driven by the near-term credit assessment on banks, (which) will remain the driver of OIS/BOR moves over the coming days and weeks."

There are signs that a minority may be beginning to anticipate further action from the ECB, either in terms of liquidity provision or an easing of policy rates, something analysts, however, think unlikely. The forward Eonia overnight rate based on ECB policy meeting dates in six-months time has fallen to around 32 basis points from 36 basis points at the end of March, according to Commerzbank."There is some small speculation the ECB will do something more," said the bank's strategist Benjamin Schroeder."It hasn't run very far but even this tentative speculation is quite far-fetched at the moment. I don't think the ECB will change its stance very quickly."Not only has the ECB proven reluctant to be the euro zone's lender of last resort, the impact of its liquidity operations has been diminishing with short-dated peripheral yields beginning their march higher just a couple of days after the second three-year financing operation (LTRO). The pace of the decline in interbank lending rates has also slowed."In many respects the LTRO's have been a confidence exercise, reducing tail risks for the banking system," said RBS' Peck."We've seen the decreased marginal impact of the second operation versus the first... What you'd need to see now for things to improve again would be an indefinite commitment to longer-term liquidity provision, which looks very unlikely".

Press digest sunday british business jun 8

´╗┐LONDON, June 8 British newspapers and media reported the following business stories on Sunday. Reuters has not independently verified these media reports and does not vouch for their accuracy. Sky NewsSHELL KICKS OFF HUNT FOR NEW CHAIR Royal Dutch Shell has kicked off the hunt for a new chairman. The oil giant has asked Egon Zehnder International, the executive search firm, to identify a successor to Jorma Ollila, who is expected to step down next year. Sunday TimesBRITAIN'S 70 BLN STG BETTER OFF Britain's economy is up to 70 billion pounds ($118 billion) bigger than previously thought, according to revised official estimates to be published this week. BANKS TOLD TO BRACE FOR HOUSING MELTDOWN Britain's banks could be forced to raise more capital to guard against a potential blow-up in the housing market and the threat of households with too much debt being caught by rising interest rates. Senior bankers believe the FPC may avoid tackling the housing market directly and push instead for a broader increase in capital levels to increase the safety buffer in the financial system. BARCLAYS FACES 300 MLN STG CLAIM OVER QATAR FEES

Barclays is to be hit with a 300 million pound High Court lawsuit from Amanda Staveley, the dealmaker who helped the bank secure a financial lifeline from a consortium of Middle Eastern investors six years ago. The claim is expected to be filed by the end of the month. WILLIAM HILL LINES UP INSIDER TO REPLACE TOPPING Britain's biggest bookmaker William Hill is set to promote operations director, James Henderson, to succeed Ralph Topping as chief executive. Sunday TelegraphCITY MUST CLEAN UP GOVERNANCE CLUTTER, WARNS STANDARD LIFE

Britain's biggest companies and their shareholders face pressure to reform "cluttered" corporate governance from one of the City's largest blue-chip investors. Guy Jubb, global head of governance and stewardship at Standard Life Investments, has argued there is a need to prune the governance codes which exist to ensure that companies are more effectively monitored. EE TO END LINKS WITH CARPHONE EE is poised to pull out of its relationship with Carphone Warehouse in a move that threatens the retailer's 3.6 billion pound merger with Dixons. Britain's largest mobile operator will conclude a review of its consumer retail strategy within weeks, sources say, with a complete withdrawal from Carphone Warehouse the potential result.

BT MAKES MOVE INTO FILMS BT is in talks to expand its investment in exclusive content for its television service beyond sport for the first time by backing a 30 million pound independent film fund. The telecoms giant is in discussions with the Curzon World independent film group to buy into the new funds, according to its chief executive Philip Knatchbull. BARCLAYCARD LAUNCHES CONTACTLESS WRISTBAND Barclays is joining the rush to develop wearable technology by launching a wristband its customers can use for contactless payments. CENTRICA HOLDS OFF BETTING ON FRACKING Centrica has said it is unlikely to bid for more UK fracking rights when they are offered in coming weeks, underlining the uncertainty over whether shale gas extraction will prove to be viable. Mail on SundayCRACKDOWN AS 30-YEAR MORTGAGES FUEL BUBBLE Banks are bracing themselves for a crackdown on long-term mortgages as regulators prepare to cool dangerous hotspots in the housing market.