13/12/2016 World Business Report


13/12/2016

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Now for the latest financial news, with Sally Bundock

:00:00.:00:00.

Banking on a bailout, Italy's banking crisis comes

:00:00.:00:17.

We talk you through what is at stake.

:00:18.:00:23.

Singapore's giant state investment fund fights allegations

:00:24.:00:26.

it is fanning the flames of the Indonesian haze.

:00:27.:00:37.

Welcome to World Business Report, I'm Sally Bundock.

:00:38.:00:39.

In a minute, we will find out how Google has struck a deal with Cuba

:00:40.:00:44.

It is a crucial week for Italian banks, and investors

:00:45.:00:54.

UniCredit, Italy's largest, is due to announce a new business

:00:55.:00:59.

plan today, which will be key to its survival.

:01:00.:01:01.

Meanwhile, shareholders of Banca Popolare di Vicenza meet

:01:02.:01:03.

today to decide whether they will sue the bank's former managers

:01:04.:01:07.

for damages, after it needed an emergency bailout in May

:01:08.:01:09.

following a failed market floatation.

:01:10.:01:10.

But top of the list of worries is the world's oldest bank,

:01:11.:01:14.

and Italy's third biggest, Banca Monte dei Paschi di Siena.

:01:15.:01:16.

The European Central Bank believes it is the most vulnerable.

:01:17.:01:26.

This is mainly because it is burdened with toxic debt,

:01:27.:01:29.

in other words, loans that are unlikely to ever

:01:30.:01:31.

That is a problem that extends to the Italian banking system

:01:32.:01:39.

So these lenders are trying to get rid of those loans by selling them

:01:40.:01:45.

to investors who specialise in toxic debt.

:01:46.:01:47.

Some, including Monte dei Paschi, are also trying to raise new capital

:01:48.:01:50.

to strengthen its books, so that the bank can better cope

:01:51.:01:53.

Associate professor of finance at Henley Business School.

:01:54.:02:03.

Good to see you again. Good morning. So this has been kind of hanging

:02:04.:02:12.

over us now for a few weeks, but those who are in the know would say

:02:13.:02:16.

for many, many months. Talk us through what they may be doing in

:02:17.:02:20.

terms of bailing out his big banks. I'm not even sure if we need to talk

:02:21.:02:25.

about these big banks, it might just be one or two. So essentially you

:02:26.:02:30.

have a situation where there is different levels of systemic risk at

:02:31.:02:35.

stake, for instance, UniCredit is a globally, systemically important

:02:36.:02:39.

rank, and UniCredit being in trouble could have contagion effects on

:02:40.:02:44.

other banks in Europe, for instance. Banca Monte dei Paschi di Siena is

:02:45.:02:47.

probably systemically important within an Italian context, on its

:02:48.:02:51.

own problems come from not handling its risk very well. So Monte dei

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Paschi probably didn't manage its risk too well, being the world's

:02:59.:03:04.

oldest bank doesn't mean having the best databases, and being kind of a

:03:05.:03:09.

modern financial tuition for the 21st century -- financial

:03:10.:03:12.

institution. So we have different situations, one is UniCredit and its

:03:13.:03:15.

systemically important addition for Europe, the other is the world's

:03:16.:03:21.

oldest bank, having taken out way too many bad loans. And we have to

:03:22.:03:25.

put this in the context of the politics in Italy, haven't we?

:03:26.:03:33.

Because of course Renzi has gone, a new prime minister is about to be

:03:34.:03:37.

put in position, and it is a very tricky time for these banks hanging

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in the balance, because it is very politically difficult to sort them

:03:41.:03:44.

out. Yes, I think we have to certainly put this in perspective of

:03:45.:03:48.

politics in Italy and in Europe, because there is a thing in interest

:03:49.:03:51.

for other European politicians to avoid extremist tendencies in Italy

:03:52.:03:55.

as we have seen them elsewhere in the world in 2016 and so in many

:03:56.:03:59.

ways I think there is a political imperative at the moment to

:04:00.:04:03.

basically ensure the survival of the banks, and ensure that there is no

:04:04.:04:06.

fallout on normal citizens and on Europe generally speaking. That is

:04:07.:04:11.

certainly true in Italy's government party, and it is likely to support

:04:12.:04:16.

and underwrite banks if needed. It is important to understand that

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Monte dei Paschi is about 25 times smaller than UniCredit, so although

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it is one of the top five institutions, it is significantly

:04:26.:04:30.

smaller than the largest in -- institution. And in terms of the

:04:31.:04:36.

bailout itself, they have talked about 5 billion euros worth of money

:04:37.:04:41.

coming in. It is unclear where it is coming from. There is talk about the

:04:42.:04:44.

cutup investment fund helping, and various others. Are we any clear on

:04:45.:04:49.

how they are going to support these banks -- Qatar investment fund.

:04:50.:04:54.

First of all, 5 billion in terms of the bailout is huge, when you

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compare the Monte dei Paschi one, which was in the hundreds of

:05:00.:05:03.

millions. So there is a hope they can get one or two billion from

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equity, and there is a suggestion that Qatar might back up to 1

:05:09.:05:11.

billion euros if the previous steps are taken in a good manner. The

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understanding is then if the government would simply back the

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remainder and I would probably on this moment, given the political

:05:20.:05:22.

situation, think that the government is going to back the remainder

:05:23.:05:26.

regardless of how well the previous steps are taken care of. We have to

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watch this space, clearly. Thank you for coming in and giving us a sense

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of what is happening and we will update you through the day. Any news

:05:35.:05:36.

on those banks' financial health. Cuba's state-run telecommunications

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company has signed an agreement with the internet provider

:05:40.:05:41.

Google in Havana. Under the deal the company can

:05:42.:05:43.

install servers in Cuba, which should significantly

:05:44.:05:46.

improve connectivity speeds Cuba currently has some

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of the lowest online connectivity The agreement reached

:05:48.:05:51.

between the Cuban government and the Internet giant should pave

:05:52.:06:02.

the way towards something many Cubans have wanted for years -

:06:03.:06:05.

faster Internet speeds. By allowing Google to install

:06:06.:06:13.

servers on the Communist-run island, their key content, such as Gmail,

:06:14.:06:16.

Google Drive and YouTube, should be much quicker for users

:06:17.:06:19.

inside Cuba to access. The deal does not, however,

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either expand Cuba's aged and obsolete Internet infrastructure

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nor improve the connectivity rates Most Cubans are still not permitted

:06:26.:06:28.

to have the Internet at home and instead must rely on expensive

:06:29.:06:33.

public-access Wi-Fi points Still, for most Cubans,

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any such step with a major Internet provider, like Google,

:06:37.:06:42.

seems like a step forward. TRANSLATION: I think it is important

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for us Cubans to have more access It is good that Google

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and Cuba made an agreement, it will make it easier for us

:06:50.:06:55.

to have communications. As the deal has been reached

:06:56.:07:12.

in the final weeks of the Obama Administration,

:07:13.:07:17.

officials on both sides seem keen the cement their months

:07:18.:07:19.

of negotiations into hard contracts As a candidate, Mr Trump

:07:20.:07:22.

made arguments both for and against improved

:07:23.:07:25.

ties with Cuba. And there is some uncertainty

:07:26.:07:27.

on the island as to what his The big palm oil company Olam has

:07:28.:07:30.

been accused of using suppliers that may use unsustainable practices

:07:31.:07:37.

in parts of South East Asia and West The claims against the agricultural

:07:38.:07:41.

commodities trader were made in a report by a US-based

:07:42.:07:47.

environmental lobby group called The Singaporean state investment

:07:48.:07:49.

fund Temasek has a majority share in Olam, but insists that it has

:07:50.:07:59.

always been in support of ethical land-clearance practices,

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and Olam itself has vehemently Rico Hizon is in our Asia

:08:03.:08:04.

business hub in Singapore. Nice to see you. This is a

:08:05.:08:13.

complicated story. Talk us through the detail. It is quite complex, but

:08:14.:08:21.

the BBC spoke with the Olam chief executive officer on Monday, and he

:08:22.:08:25.

says that the company is dealing with cleaning up their supply chain,

:08:26.:08:30.

but that it would take some time, maybe about two to three years. Olam

:08:31.:08:38.

at this point is 52% owned by the city-state's sovereign wealth fund,

:08:39.:08:43.

Temasek Holdings, and they have also denied these allegations by the

:08:44.:08:48.

lobby group from Washington called Mighty. Earlier I spoke with Glenn

:08:49.:08:53.

Horowitz, a chief executive of the firm making these allegations, and

:08:54.:08:57.

asked for his reaction to Temasek's statement. That is disappointing to

:08:58.:09:03.

hear, because Temasek represents the Singapore people, and it has been

:09:04.:09:08.

financing Olam, a company that was in keeping up with its competitors.

:09:09.:09:11.

The much every major trader in the palm oil industry, including

:09:12.:09:18.

Singapore -based rivals, have adopted very strong no deforestation

:09:19.:09:24.

policies. Olam was the one trader holding out who still had this lack

:09:25.:09:28.

box approach. They would ride palm oil with no questions asked, without

:09:29.:09:32.

revealing the identity of those suppliers. Singapore and Malaysia

:09:33.:09:40.

regularly suffer from haze caused by slash and burn practices from

:09:41.:09:44.

small-scale farmers and rogue palm oil traders in Indonesia, and

:09:45.:09:48.

Indonesia is often charged with not doing enough to tackle the fire is

:09:49.:09:52.

used to clear vegetation for palm oil and paper plantations, and they

:09:53.:09:56.

are allegedly owned by some Singaporean and Malaysian companies.

:09:57.:10:04.

Let's quickly look at financial markets. Focus is very much now on

:10:05.:10:09.

the Federal Reserve in the United States, which begins its two day

:10:10.:10:12.

meeting to decide on interest rates, and everyone agrees a hike in

:10:13.:10:16.

interest rates is expected. Market is very much focused on that, and

:10:17.:10:20.

some really good news out of China today about retail sales up

:10:21.:10:23.

significantly, and industrial production numbers up in November.

:10:24.:10:28.

Retail sales, let's not forget, really boosted by the Singles Day

:10:29.:10:33.

shopping bonanza in China in November. Looking at the US, a mixed

:10:34.:10:38.

close. That is all from me for now. Will be back in a few minutes to

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look through the papers. I will see you then.

:10:44.:10:52.

The former BBC weather presenter Ian McCaskill,

:10:53.:10:55.

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