• CAJA RESTRUCTURING PLAN: The FT reports that prime minister Jose Zapatero and opposition leader Mariano Rajoy finally got together and agreed to restructure the regional savings banks whose books are stuffed with non-performing construction loans. The government had instituted a €99 billion orderly bank restructuring fund, or FROB, to finance the restructuring in this sector. The funds must be deployed by June 2010. News Financial Times Victor Mallet May 6, 2010 Spain pushes to restructure savings banks Appears in the Briefing:Sovereign Risk in the Eurozone

Even as the International Monetary Fund and eurozone have virtually finalized an unprecedented three-year financing package of 110 billion euros for Greece, financial markets remain unimpressed. The common currency continued to plunge this week, and long-term government bond yields in Greece and the periphery countries, including Italy, spiked again after a short relief rally before the agreement.  The market's lukewarm reaction to the financing package confirms our view that a traditional financing package (Plan A), extended at unsustainable interest rates, will not allay solvency fears but rather lead to disorder and contagion. We have therefore consistently argued for a preemptive debt restructuring via maturity extension (Plan B) as the preferable solution for Greece. On May 4 Greek authorities confirmed that they contacted the investment bank Lazard for financial advice, but they categorically ruled out debt restructuring as an option under discussion.

If a Martian had descended on earth last week and read the headlines, he would have thought that Latin America is the world's new superpower. Time magazine had just released its ranking of the 100 Most Influential People in the world, with Brazilian President Luiz Inácio Lula da Silva topping the list. President Barack Obama was No. 4. Simultaneously, a story by the EFE news agency quoted Francisco Luzon, a top executive of Spain's giant Santander Bank, as saying that ``Latin America has the best financial system in the world.''  Hours earlier, the spring annual meetings of the World Bank and the International Monetary Fund released projections showing that Latin America's economy will grow by a healthy 4 percent this year, and by another 4 percent in 2011 -- much more than the United States, Europe and Japan.

Jose Sergio Gabrielli, chief executive officer of state-controlled oil producer Petroleo Brasileiro SA, said he expects to tap global demand for a $25 billion share sale and that the offering will be open to new shareholders. Investors are “looking for Petrobras right now,” Gabrielli, 60, said in an April 30 interview in Sao Paulo. The sale will now be “public, it’s going to be open to everybody. We think there is no problem in demand.” Petrobras, based in Rio de Janeiro, is seeking Congress’s approval for a plan to swap new shares for 5 billion barrels of oil reserves at a price determined by the government. Gabrielli said the company will do a traditional stock issue by end-July if Congress fails to approve the plan, testing investor demand for Brazilian share sales after five of seven initial public offerings this year raised less than originally sought. “What you are seeing is Petrobras preparing for any eventuality based on the decisions of Brasilia,” Gianna Bern, who follows the oil industry as president of Brookshire Advisory & Research in Flossmoor, Illinois, said in a May 1 telephone interview. “They’ll see ample demand from global investors.”

Against the backdrop of rising financial turmoil in Europe, the U.S. central bank held benchmark borrowing costs in a zero to 0.25 percent range but said consumer and business spending were picking up steam."Economic activity has continued to strengthen and ... the labor market is beginning to improve," the Fed said in its policy statement, an upgrade from a March description of employment as merely "stabilizing."Still, the Fed flagged a continued reluctance on the part of employers to add new workers. Financial markets were too fixated on the troubles of Greece, Portugal and Spain, which all faced ratings downgrades this week, to pay the Fed's decision much mind. But the central bank's cautious optimism did offer some support to U.S. stocks, which rose modestly in late afternoon, recovering from Tuesday's drop. "As long as inflation remains very low there's little incentive for the Fed to remove stimulus," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington. "Moreover, the worsening of the situation in Europe ... will restrain Fed hawks a bit."