Bershidsky on Europe: Renzi Shakes Up State Companies
Here's today's look at some of the top stories on markets and politics in Europe.
Renzi shakes up management of state companies.
In Italy, a prime minister's handling of the powerful state companies - utility Enel and oil and gas giant ENI, each one-third owned by the government, the national post office, and defense industry group Finmeccanica - is a strong indication of his appetite for change. Matteo Renzi is determined to prove the seriousness of his reformist intentions: while he reappointed the chairman of Finmeccanica, he also replaced the chief executives of all four companies.The government moved to appoint three women to the chairmanships of state companies: Emma Marcegaglia at ENI, Luisa Todini at Poste Italiane, and Patrizia Grieco at Enel. That is in itself revolutionary: There have never been so many women at the top of Italy's government sector. Renzi, however, did not stop there: He capped top executives' salaries at $329,000. Renzi's appointments, unlike many other prime ministers', are not meant to reward loyal allies: all the important appointees have impeccable business credentials. So far, the young prime minister has consistently proven pessimists wrong, but his moves have been, of necessity, declarative: he's only been in power for two months. Renzi still needs to prove his stamina to convince Italians that change is real.
Ukraine hikes rates to protect its currency.
Ukraine's currency, the hryvnia, has lost a third of its value since protesters toppled President Viktor Yanukovych in late February. Since Ukraine depends on imports for most non-food consumer goods, the national currency's freefall is hurting ordinary people, so the central bank acted. It raised its discount rate to 9.5 percent from 6.5 percent and its overnight rate to 14.5 percent from 7.5 percent. At the same time, it cut its actual refinancing rate: Instead of charging banks three times the discount rate, it will now charge double, or 19 percent, down from 19.5 percent previously. This will, in fact, undermine the hryvnia even further: As soon as they are refinanced, banks rush to the foreign exchange market to buy dollars. The central bank's slyness will help oligarch-owned banks to maintain that practice when Western aid arrives. In Ukraine, the more things change, the more they remain the same.
Telefonica seeks to appease antitrust authorities.
Spain's Telefonica offered to help set up a competitor in Germany to secure regulatory approval for its acquisition of E-Plus, which reduced the number of mobile operators on the German market and alarmed the European Commission. The offer, however, will hardly please Europe's antitrust authorities. If a new mobile operator is set up in Germany, Telefonica is willing to lease it about one-seventh of the spectrum it holds in combination with E-Plus, but it's only high-frequency spectrum, which is more expensive to develop because it requires more masts. The offer covers about 50 percent of the population of urban areas. For the rest of the country, Telefonica offers a commercial roaming arrangement. A fourth national operator working on these terms will hardly be competitive. Telefonica needs to work harder to get its deal approved. The EC would be sending the wrong signal if it assented to the acquisition on these terms. European telecom consolidation does not need to reduce the number of competitors, as recent deals involving cable and mobile operators have proved.
European junk bond issues peak.
Junk-rated companies have raised $23.5 billion from euro-denominated bond issues since January. Now, Numericable, the French cable company that is acquiring the mobile operator SFR from Vivendi, is planning to raise $8.33 billion in the biggest European junk issue ever. While the bank loan market is still tight in Europe, the bond path is wide open even to companies without much of a credit history. The average yield for junk offerings is just 4 percent, and the environment is extremely favorable for new bond issues. Compared to the ultra-low rates on government debt, even 4 percent is a high yield. It does, however, redefine "junk," creating the danger of a backlash if a couple of this year's issuers default.
Bonus cap may hurt French banks.
Top French bankers fear they will start losing team members because of the EU-wide bonus cap that came into effect from this year. Banks now canot pay bonuses of more than twice the fixed salary, and that only with shareholders' consent. Fixed salaries, however, are lower in France than than in the U.K.: In 2012, the average investment banker in Paris made $360,000 a year not counting the bonus, compared with $553,000 in London. Banks are hesitant to raise fixed salaries in France because of the rigidity of labor laws. That means talented financiers will, in effect, have to accept a pay cut to remain in Paris. Many will therefore prefer to be hired from London, increasing competition for jobs there and shrinking the talent pool for French-based operations. Since the benefits of the bonus cap are at best nebulous and the problems it causes are already obvious, Europe would do best to reconsider it before the market has to deal with its effects.
Leonid Bershidsky writes on Russia, Europe and technology for Bloomberg View. Follow him on Twitter at @Bershidsky.
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