29/05/2012 World Business Report

from BBC World News. Now for the latest financial news with Sally.

Hello and a worm welcome, you are with World Business Report. Here

are the headlines. The pressure intensifies on Spain as the

interest on its debts go up and up. Prime Minister Mariano Rajoy admits

the state is struggling to borrow. Back us or we face collapse. That

is the warning from Thomas Cook management as it seeks shareholder

approval for its latest asset sale. And in Singapore, the Japanese

general start trading on June 1 in a move to promote trade between

Asia's two biggest economies. Good to have you with us. Well,

despite attempts by its government to reassure parents that it's banks

do not need bailing out, Spain is plunging deeper into crisis. On

Monday borrowing costs hit danger levels with ten-year Spanish bond

yields climbing to 6.47%. Spain's main stock market dropped to its

lowest level in nine years and Bankia's shares plunged 13% after

the bank asked the government for a 19 billion Euros bailout. Investors

are growing increasingly concerned Spain could be forced to seek an

international bailout. I am joined by a senior foreign exchange

strategist. Thanks Jane for coming in. A very hectic day for Spain

yesterday and the markets in general. Just explain how this bank,

Bankia is being bailed out because Mariano Rajoy was at pains to say

it would not add to spannic debt levels. What they may do is

something similar to what happened in Ireland in that the government

is trues a promissory note. The important thing about the note is

it can be deposited at the European Central Bank and used at collateral.

So that then the bank can then drew funds from the European Central

Bank. This is one way they may get around doing it, but it doesn't

avoid the bigger question - that this is only one bank with a very

bad symptom but within a very larger crisis and other ban bes may

need more fun. So the bailout money or the toxic

debt doesn't go on the Spanish books? Not yet. It is a

postponement. Eventually the note will be due and it will have to be

paid and I think they are hoping that in the interim conditions will

improve. Actually, certainly in the next two years, conditions could

get an awful lot worse for the Spanish banks. What if they need

assistance because many are arguing that that is a possible?, I think

it is. If you look at Spain you have recession conditions and non-

performing loans which are going to increase. The reason being is that

property prices in Spain have already dropped 25% from its peak

and with a recession there is no signed of that ending yet. So the

whole environment for non- performing loans seems to be

getting worse. There is a lot of speculation out there that over the

next two years Spanish banks could in total need an awful lot more

money for recapitalisation purposes. So what can we see happening in the

next few weeks? We have the Greek election on 17 June. Between now

and then how critical will things become because every day the

interest on Spanish debt is climb. If you look at the spread between

the interest on Germany debt and Spanish debt yes, sir it was at

Euro era record liveles. That gives you a sense how far aapart they are

coming? One thing Spain did do was issue a lot of it earlier in the

year at cheaper levels. That has bought it some time but towards the

end of the year things could be getting more pressures. We do think

as the time drags on it will become increasingly more likely that the

Spanish Prime Minister will have to admit he does need support.

International bailout? Quite possibly. What we would like to do.

What he is in support of is using the bailout fund to directly put

money into Spanish banks are or banks in general. Now that the

different to where the money must be given to the government, but if

it was given to the bank it would avoid it being put on the

government's debt. Thank you very much for. That Jane will be back to

talk through the papers later. We will discuss it further then. The

holiday company Thomas Cook is facing a make or break meeting with

shareholders later. The tour operator which appointed a new

chief exec thetive on Thursday wants to sell and lease back part

of its fleet of planes and sell some of its Spanish hotels. The

company has warned that if it fails to get backing for the deal it

could collapse. Thomas Cook came close to shutting

up shop earlier this year as the weight of its debts became almost

too much to bear. But after securing a $2.2 billion loan

package from its lender, the firm says it is able to carry on for at

least the next three years while it raises funds and revitalised its

business. It has been a difficult time for Thomas Cook. Consumer

spending is down and the holiday market has been hurt by tougher

competition. The company has now agreed to sell-off its Indian

business as part of its restructuring and to help boost

cashflow and reduce its debt levels. Later in the week, the group will

public its interim results, but is also revealed losses of $411

million for the winter period, after a particularly poor

performance in ference and north America. Thomas Cook has lost its

way. It is as simple as that. It did what many, many big companies

do when they lose their sense of direction and it has expanded in to

all kinds of parts of the world and all kinds of different businesses

which it really has no business being in. It should concentrate on

delivering great vacations at good prices with a brand that people

trust. The refinancing, the company's third within a year, will

give them more breathing space. The company has also been trying to

reduce capacity before the summer season, which is expected to be

difficult as more people leave booking their annual break until

the last minute. The future of BBP's Russian joint venture is

looking more and more uncertain after the resignation of the chief

executive. TNK-B spfplt a joint venture between BP and a group of

Russian billionaires. The news marks a further deterioration in

the relationship between the two parties last year. BP had to

abandon plans to form another joint venture with rival Russian oil firm

and that was after AAR launched a legal challenge. Tom explains why

there is so much animosity between the two sides.

The Russians at the outset, they didn't like the fact that BP tended

to see TNKBP as a subsidiary of BP. The Russians felt that was a

cologneist attitude. Around about 2008 the Russians flexed her

muscles and took greater control. Behind that there is also another

issue and that is the Russian parts who are involved in this, the four

billionaires, they would like an end game where by they can take

their money off the table. The moment that is not possible. T NKBP

is not a listed entity but there is no other facility for them to do

that. China will allow direct trading of

the yawn and the Yen next month. Nice to see you Rico. Fill us in on

what is going on. Sally. This is indeed a milestone between China

and Japan and this means that the two countries will directly trade

their currencies with no US dollars involves in the transaction.

China's Central Bank said that the foreign exchange trade system would

launch in June in Tokyo and Shanghai. According to some

analysts basically breaking down this whole nichety, they say this

is part of China's biggest strategy to reduce its bepen dense on the US

dollar and the Yen was chosen because of the large amount of

trade between the two sides. China which some times have a tense

relationship with Japan is their biggest trader and the mainland

bank said that the moft would help to help facilitate bilateral trade

and investment.. It will reduce transaction costs and lower risks

involved in settlements at financial institutions and they

also said that it will also improve the convenience of both country's