29/05/2012

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:00:13. > :00:17.from BBC World News. Now for the latest financial news with Sally.

:00:17. > :00:22.Hello and a worm welcome, you are with World Business Report. Here

:00:22. > :00:26.are the headlines. The pressure intensifies on Spain as the

:00:26. > :00:31.interest on its debts go up and up. Prime Minister Mariano Rajoy admits

:00:31. > :00:38.the state is struggling to borrow. Back us or we face collapse. That

:00:38. > :00:44.is the warning from Thomas Cook management as it seeks shareholder

:00:44. > :00:49.approval for its latest asset sale. And in Singapore, the Japanese

:00:49. > :00:58.general start trading on June 1 in a move to promote trade between

:00:58. > :01:03.Asia's two biggest economies. Good to have you with us. Well,

:01:03. > :01:07.despite attempts by its government to reassure parents that it's banks

:01:07. > :01:14.do not need bailing out, Spain is plunging deeper into crisis. On

:01:14. > :01:19.Monday borrowing costs hit danger levels with ten-year Spanish bond

:01:19. > :01:25.yields climbing to 6.47%. Spain's main stock market dropped to its

:01:25. > :01:31.lowest level in nine years and Bankia's shares plunged 13% after

:01:31. > :01:36.the bank asked the government for a 19 billion Euros bailout. Investors

:01:36. > :01:41.are growing increasingly concerned Spain could be forced to seek an

:01:41. > :01:44.international bailout. I am joined by a senior foreign exchange

:01:44. > :01:51.strategist. Thanks Jane for coming in. A very hectic day for Spain

:01:51. > :01:54.yesterday and the markets in general. Just explain how this bank,

:01:54. > :01:59.Bankia is being bailed out because Mariano Rajoy was at pains to say

:01:59. > :02:03.it would not add to spannic debt levels. What they may do is

:02:03. > :02:05.something similar to what happened in Ireland in that the government

:02:05. > :02:09.is trues a promissory note. The important thing about the note is

:02:09. > :02:14.it can be deposited at the European Central Bank and used at collateral.

:02:14. > :02:19.So that then the bank can then drew funds from the European Central

:02:19. > :02:23.Bank. This is one way they may get around doing it, but it doesn't

:02:23. > :02:27.avoid the bigger question - that this is only one bank with a very

:02:27. > :02:33.bad symptom but within a very larger crisis and other ban bes may

:02:33. > :02:37.need more fun. So the bailout money or the toxic

:02:37. > :02:40.debt doesn't go on the Spanish books? Not yet. It is a

:02:40. > :02:43.postponement. Eventually the note will be due and it will have to be

:02:43. > :02:46.paid and I think they are hoping that in the interim conditions will

:02:46. > :02:51.improve. Actually, certainly in the next two years, conditions could

:02:51. > :02:56.get an awful lot worse for the Spanish banks. What if they need

:02:56. > :03:03.assistance because many are arguing that that is a possible?, I think

:03:03. > :03:06.it is. If you look at Spain you have recession conditions and non-

:03:06. > :03:09.performing loans which are going to increase. The reason being is that

:03:09. > :03:12.property prices in Spain have already dropped 25% from its peak

:03:12. > :03:16.and with a recession there is no signed of that ending yet. So the

:03:16. > :03:19.whole environment for non- performing loans seems to be

:03:19. > :03:23.getting worse. There is a lot of speculation out there that over the

:03:23. > :03:28.next two years Spanish banks could in total need an awful lot more

:03:28. > :03:34.money for recapitalisation purposes. So what can we see happening in the

:03:34. > :03:37.next few weeks? We have the Greek election on 17 June. Between now

:03:37. > :03:41.and then how critical will things become because every day the

:03:41. > :03:47.interest on Spanish debt is climb. If you look at the spread between

:03:47. > :03:53.the interest on Germany debt and Spanish debt yes, sir it was at

:03:54. > :03:57.Euro era record liveles. That gives you a sense how far aapart they are

:03:57. > :04:01.coming? One thing Spain did do was issue a lot of it earlier in the

:04:01. > :04:06.year at cheaper levels. That has bought it some time but towards the

:04:06. > :04:10.end of the year things could be getting more pressures. We do think

:04:10. > :04:15.as the time drags on it will become increasingly more likely that the

:04:15. > :04:17.Spanish Prime Minister will have to admit he does need support.

:04:17. > :04:25.International bailout? Quite possibly. What we would like to do.

:04:25. > :04:31.What he is in support of is using the bailout fund to directly put

:04:31. > :04:35.money into Spanish banks are or banks in general. Now that the

:04:35. > :04:39.different to where the money must be given to the government, but if

:04:39. > :04:41.it was given to the bank it would avoid it being put on the

:04:41. > :04:44.government's debt. Thank you very much for. That Jane will be back to

:04:45. > :04:48.talk through the papers later. We will discuss it further then. The

:04:48. > :04:51.holiday company Thomas Cook is facing a make or break meeting with

:04:51. > :04:54.shareholders later. The tour operator which appointed a new

:04:54. > :04:57.chief exec thetive on Thursday wants to sell and lease back part

:04:57. > :05:01.of its fleet of planes and sell some of its Spanish hotels. The

:05:01. > :05:05.company has warned that if it fails to get backing for the deal it

:05:05. > :05:08.could collapse. Thomas Cook came close to shutting

:05:08. > :05:14.up shop earlier this year as the weight of its debts became almost

:05:14. > :05:17.too much to bear. But after securing a $2.2 billion loan

:05:18. > :05:21.package from its lender, the firm says it is able to carry on for at

:05:21. > :05:25.least the next three years while it raises funds and revitalised its

:05:25. > :05:29.business. It has been a difficult time for Thomas Cook. Consumer

:05:29. > :05:33.spending is down and the holiday market has been hurt by tougher

:05:33. > :05:37.competition. The company has now agreed to sell-off its Indian

:05:37. > :05:42.business as part of its restructuring and to help boost

:05:42. > :05:48.cashflow and reduce its debt levels. Later in the week, the group will

:05:48. > :05:51.public its interim results, but is also revealed losses of $411

:05:51. > :05:54.million for the winter period, after a particularly poor

:05:55. > :06:00.performance in ference and north America. Thomas Cook has lost its

:06:00. > :06:04.way. It is as simple as that. It did what many, many big companies

:06:04. > :06:08.do when they lose their sense of direction and it has expanded in to

:06:08. > :06:13.all kinds of parts of the world and all kinds of different businesses

:06:13. > :06:16.which it really has no business being in. It should concentrate on

:06:16. > :06:24.delivering great vacations at good prices with a brand that people

:06:24. > :06:27.trust. The refinancing, the company's third within a year, will

:06:27. > :06:31.give them more breathing space. The company has also been trying to

:06:31. > :06:34.reduce capacity before the summer season, which is expected to be

:06:34. > :06:44.difficult as more people leave booking their annual break until

:06:44. > :06:48.the last minute. The future of BBP's Russian joint venture is

:06:48. > :06:57.looking more and more uncertain after the resignation of the chief

:06:57. > :07:01.executive. TNK-B spfplt a joint venture between BP and a group of

:07:01. > :07:04.Russian billionaires. The news marks a further deterioration in

:07:04. > :07:09.the relationship between the two parties last year. BP had to

:07:09. > :07:15.abandon plans to form another joint venture with rival Russian oil firm

:07:15. > :07:20.and that was after AAR launched a legal challenge. Tom explains why

:07:20. > :07:25.there is so much animosity between the two sides.

:07:25. > :07:32.The Russians at the outset, they didn't like the fact that BP tended

:07:32. > :07:37.to see TNKBP as a subsidiary of BP. The Russians felt that was a

:07:37. > :07:42.cologneist attitude. Around about 2008 the Russians flexed her

:07:42. > :07:46.muscles and took greater control. Behind that there is also another

:07:46. > :07:50.issue and that is the Russian parts who are involved in this, the four

:07:50. > :07:56.billionaires, they would like an end game where by they can take

:07:56. > :08:00.their money off the table. The moment that is not possible. T NKBP

:08:00. > :08:07.is not a listed entity but there is no other facility for them to do

:08:07. > :08:12.that. China will allow direct trading of

:08:12. > :08:16.the yawn and the Yen next month. Nice to see you Rico. Fill us in on

:08:16. > :08:21.what is going on. Sally. This is indeed a milestone between China

:08:21. > :08:27.and Japan and this means that the two countries will directly trade

:08:27. > :08:32.their currencies with no US dollars involves in the transaction.

:08:32. > :08:36.China's Central Bank said that the foreign exchange trade system would

:08:36. > :08:40.launch in June in Tokyo and Shanghai. According to some

:08:40. > :08:46.analysts basically breaking down this whole nichety, they say this

:08:46. > :08:50.is part of China's biggest strategy to reduce its bepen dense on the US

:08:50. > :09:00.dollar and the Yen was chosen because of the large amount of

:09:00. > :09:01.

:09:01. > :09:04.trade between the two sides. China which some times have a tense

:09:04. > :09:13.relationship with Japan is their biggest trader and the mainland

:09:13. > :09:17.bank said that the moft would help to help facilitate bilateral trade

:09:17. > :09:20.and investment.. It will reduce transaction costs and lower risks

:09:20. > :09:24.involved in settlements at financial institutions and they

:09:25. > :09:28.also said that it will also improve the convenience of both country's