Europe’s Biggest Under-Achieving Clubs Featuring AC Milan, Dinamo Kyiv, Schalke
By contrast, German, French and Italian lenders have been slower to shrink assets. While selling loan portfolios is one way to meet global Basel III capital standards that go into full effect in 2019, many European lenders have sought to avoid realizing losses on investments. The European Central Bank s policy of flooding the banking system with cash also has eased pressure to sell at depressed prices. Waiting Game Its a game of waiting while the banks are able to provision more and more each quarter, each year so they can sell loans at discounted levels, said Alexandra Jung, a partner and co-head of European investments at Oak Hill Advisors LP, a New York-based debt investor with more than $20 billion under management. The scale of the market is there, and weve seen banks beginning to sell. Political pressure is another obstacle. Investors scouting for bargains in France or Germany have found it easier to buy debt from banks based in other countries. After a binge of cross-border lending in the years before the crisis, European banks are now pressed by local authorities to dump foreign loans in favor of domestic borrowers, said Nicolas Veron, an economist at Bruegel, a Brussels-based research group. French banks are not big sellers of French assets, said Avenue Capital s Furst. In France, Italy, Greece, Ireland and the U.K., the last loans that banks will typically sell are domestic loans. American DNA The buyers are predominantly from the U.S. Thats a reflection of a long history of distressed-deals in the U.S., as well as the novelty in Europe of banks forced to sell bad loans. None of the significant players is local, said Victor Khosla, founder and chief investment officer of Strategic Value Partners LLC, a $3.4 billion Greenwich, Connecticut-based hedge-fund and private-equity firm that has made distressed investment in Europe since the crisis began. Its the American firms that have the culture and the DNA to do this. The distressed-asset sales are part of a larger effort by European banks to slim down. RBS, based in Edinburgh, said last week that a group headed by private-equity firms Corsair Capital LLC and Centerbridge Partners LP is the preferred investor ahead of a planned initial public offering of its 314 branches. RBS has to sell the branches by 2014 to comply with EU rules after receiving a 45.5 billion-pound bailout in 2008 and 2009. Blackstone Binge Alberto Gallo , an analyst at RBS, estimates that banks in the euro area need to chop 2.8 trillion euros of assets.
Letta’s political victory does nor mean his government will be effective in fighting economic troubles. Eurozone PMI rises in September Markit’s euro area Purchasing Managers’ Index rose to 52.2 percent in September, from 50.7 percent in August, thanks to faster growth in the service industry, offsetting a slight slowdown in manufacturing growth. At the same time, the PMI’s employment index rose from 48.4 to 49.7: The euro area’s private sector is still shedding jobs, but the cuts have slowed to a trickle and the index seems set to move into growth territory. Markit indices show that Europe’s tentative economic recovery continued in the third quarter, Germany still leading the way. The pickup in the service sector is especially encouraging, because it means domestic demand is inching up, giving a more solid base to the renewed growth. EU to end ban on high heeled hairdressers European Commission President Jose Manuel Barroso announced a plan, called Refit, to review current and proposed EU legislation and strike unnecessary regulations off the books. The commission, for example, wants to withdraw a proposal to ban hairdressers from wearing high heels. “I strongly believe the EU should not meddle in everything that happens in Europe, Barroso said. Brussels clearly feels the need to respond to the rise of euroscepticism in Germany, Austria, the U.K. and elsewhere. The response, however, appears to be little more than an image facelift: Barroso does not want the EU to hand back any powers to its member states. “I don’t believe it will work,” he said.
Typically, stock market rallies start with investors snapping up the most stable, “quality” companies, before moving into stocks with the best earnings growth prospects. When that trade becomes crowded, they pour into whatever is still cheap, before ceasing to buy altogether. That final phase has now started: for the past three months, value funds invested in Europe’s cheapest large caps have attracted more money than those buying firms for their growth potential, according to Morningstar. After lagging for four of the past five years, value stocks – now touted by JPMorgan, Societe Generale, Nomura and Natixis, among others – have a lot of catching up to do. On a stock price to earnings basis, the gap between value stocks and growth shares is among the widest seen in the past decade, according to Thomson Reuters Datastream. “Finally, you have some areas of the market that are becoming investable again – banks, peripherals. They have massively underperformed for three or four years because of economic activity in Europe, political uncertainty, etc. The catch-up could take a few years,” said Emmanuel Cau, equity strategist at JPMorgan. Top weights in the MSCI Europe Value Index include bank HSBC , and energy giants BP, Royal Dutch Shell and Total. While the STOXX Europe 600 trades at 12.6 times next year’s expected earnings, according to StarMine, HSBC trades at 10.4 times, BP at 7.7 times, with Shell and Total both at 8.2 times. The amount of money invested in European large-cap value equities was 24 billion euros ($32.49 billion) by the end of August, half as much as five years ago, Morningstar data shows. “The common theme is catch-up by lagging assets. That’s a late-cycle theme,” said Christopher Potts, head of economics and strategy at Cheuvreux. “We’re not going to do it in six months. If you’re talking about the recovery of value in Europe, it’s a five-year idea.
Bershidsky on Europe: Farewell to Berlusconi?
When you play for Dynamo Kyiv in the Ukraine Premier League, though, you might as well talk in the same tones as if you were in the relegation spots. Dynamo Kyiv havenever finished a season outside the top three, aside from last year, since the reformation of the Ukraine top flight in the early 1990s. Prior to that, it was a case of winning the league or finishing second. Usually, aclose second. Right now though, Dynamo are struggling to even remotely keep pace with the likes of Metalist Kharkiv and Dnipro Dnipropetrovsk at the top of the table, and they are currently 11 points off the top after 11 games. Their latest result, a 2-2 draw against VorsklaPoltava, was nearly a defeat, but thanks to a 90th-minute Lukman Haruna goal, Dynamo pulled off the equaliser. Kyiv have won one from their last four, and they are under pressure to quickly improve. 7. AC Milan Dean Mouhtaropoulos/Getty Images It really could have been worse for AC Milan, but they rose two places in our standings this week after taking four points from two games. A 3-1 defeat last Wednesday night was somehow turned around to a 3-3 draw in the final stages of the game against Bologna, with Robinho and Ignazio Abate both scoring in the 90th minute to salvage a point. At the weekend, a narrow 1-0 win over bottom-three side Sampdoria was Milan’s first win in four, and it lifted them into the top half of the table.