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Eurozone ministers in last-ditch talks on bank union

Ministers in ‘now or never’ attempt to agree proposals to insure depositors’ funds across the bloc

EUROPEAN finance ministers are to hold last-ditch talks over a banking union as they seek to revive a stalled integration plan that would tightly bind the economies of countries across the eurozone.

Ministers will today discuss proposals for a scheme to insure depositors’ funds across the bloc at a meeting convened by Paschal Donohoe, the Eurogroup president.

Mr Donohoe, the Irish finance minister, has said that the European Union may never secure a deal if it cannot reach an agreement in the latest round of talks.

A banking union would effectively allow customers in one EU country to use a lender based in another for their main account with no disruption.

It would take control of banking policy away from individual nations and put it in the hands of Brussels, a long-held aspiration of the bloc’s elite.

However, critics fear the plans are fraught with risk if anything goes wrong and would put depositors’ money across the whole eurozone at risk from a downturn in one country.

Efforts to finalise the banking union could be hampered by long-standing disagreements between members of the bloc.

The German government has been reluctant to sign up to an arrangement that could leave its taxpayers exposed to weaknesses in the Italian financial system. Italian banks have strengthened their balance sheets since the eurozone crisis through mergers and capital raisings, but regulators are still concerned about some lenders.

Dutch bank ABN Amro said last year that the Italian banking sector remained “the key risk for all European banks”.

The Italian banking system must also deal with the fallout from the Ukraine invasion. Unicredit has said it could

‘Those who are the most solvent, who have strongest national arrangements are going to be on the hook’

take a €7.4bn (£6.2bn) hit if it has to totally write off its Russian business.

One banking source said: “Ultimately, the German government has to decide if it’s going to accept a risk that they didn’t have before because of the details of the union.

“Those who are the most solvent, those who have the strongest national arrangements are going to be on the hook.”

In an interview last month, Mr Donohoe told Financial News: “If we can’t gain agreement on this plan now, it is not obvious to me when else we might be able to gain it in the near future.”

Unicredit’s chief executive Andrea Orcel recently lobbied for a banking union in an opinion piece for German financial newspaper Handelsblatt.

Mr Orcel said the war in Ukraine demonstrated the need for the “free movement of capital in the eurozone”.

He said: “We have seen Germany, a country heavily dependent on imports of Russian gas, make historic shifts in foreign and defence policy to respond to the crisis.

“The strength of a united Europe and countries like Germany putting European values ahead of individual interests, has been, if it is possible for there to be one, a positive consequence.”

European nations have been trying to set up a banking union since the eurozone debt crisis. European banks are now regulated centrally by the European Central Bank, but major elements of the union such as a deposit insurance scheme have not been implemented.

A source said: “There are cynics who would say that the EU doesn’t like to waste a good crisis and that all of this was about using the eurozone crisis as yet another justification for increasing centralisation of power.

“But of course the official position is that this is about strengthening the eurozone economy.”

 

Shale Giants Dump Oil Hedges as Losses Spiral Toward $42 Billion

(Bloomberg) -- U.S. shale giants stung by billions of dollars in hedging losses are spending big bucks to ditch their positions in a risky bet that prices stay high.

Companies including Pioneer Natural Resources Co. and EOG Resources Inc. are poised to post historic profits when they report earnings this week. But those windfall earnings would be even higher if it weren’t for massive accounting losses from hedges that protect against falling prices while limiting upside potential. Producers in the aggregate are looking at about $42 billion in oil and gas hedging losses through 2023, according to BloombergNEF calculations of data from last year.

While such a hit won’t necessarily affect their balance sheets — instead representing money left on the table — the sheer scale of the miss has companies spending hundreds of millions of dollars to exit their positions. Hess Corp. in March paid $325 million to exit some of its hedges – more than twice what it cost to enter the contracts six months earlier. Pioneer, which reported $2 billion in hedging losses in 2021, spent $328 million to drop its hedges. And EOG, with $2.8 billion in hedging losses in the first-quarter alone, has paid $85 million.

The moves could pay off big. For Pioneer, dropping the hedges could generate more than $1 billion of additional revenue this year, according to energy researcher Enverus. But it’s also risky. If oil prices fall and producers aren't hedged, they could be left with losses in the billions — and those won't be just on paper. That kind of blowback would likely unravel all the hard work companies have put into earning back investor trust over the last couple of years. And it could bring another rollback to oil production at a time when global markets are incredibly tight. 

“My main concern about unwinding hedges is that you had unrealized losses on hedges as prices go higher,” said Matt Marshall, director of market analytics at Aegis Hedging, which advises companies on their hedging strategies. “If you take off those hedges and make them realized losses and then prices come down, then you lose twice.”

Pioneer, which reports first-quarter results Wednesday, declined to comment. EOG, reporting Thursday, didn’t respond to a request for comment. 

Producers can lose money on hedges in a couple of ways. Companies using so-called collars to insure against a downturn will buy put options that allow them to sell their oil at a predetermined price. But to fund those puts, they simultaneously sell bullish call options that pay a premium while capping their exposure to higher prices. Those hedging with swaps can incur losses when prices rise above the fixed levels at which they are sold.

Such strategies paid off during the pandemic-driven crash of 2020, but turned painful as recovering economies and Russia’s war in Ukraine lifted energy prices to historic highs. Some producers have capped upside prices at $30 below where oil is currently trading. Laredo Petroleum Inc. — which capped upside at an average of  about $69 for 2022 — had about 73% of its crude output for this year covered by hedges, according to a March investor presentation. Losses, meanwhile, topped $400 million by the end of 2021, according to data from BNEF. 

Others like SM Energy Co. and Whiting Petroleum Corp had racked up losses of more than $500 million from their hedging. And though producers are increasingly moving away from the contracts, half of U.S. shale oil production remains hedged, according to Enverus. Laredo, SM Energy and Whiting didn’t immediately respond to requests for comment.

Unwinding the hedges comes at a price, too. For Diamondback, its hedging losses and the $135 million it paid to exit the positions prompted Citi to cut its first-quarter cash flow per share estimate for the company to $7.61 from $8.54, and lower its 2022 CFPS estimate to $31.98 from $32.61.  Diamondback didn’t return a request for comment.  

Another risk: barrels for delivery in later months are currently trading lower than front-month oil futures, limiting the upside potential for unhedged producers while leaving them open to a future price crash. And though U.S benchmark futures skyrocketed to an eight-year high in March, prices have since dropped as much 27%, whipsawed by war, a pandemic and other, quainter disruptions during one of the most volatile quarters in history. 

Still, for much of the industry, the gamble appears to be worth it, with most companies boasting stronger balance sheets that can weather downturns. And some explorers, including Hess, have retained downside protections even as they spend millions to remove prices caps, a move CEO John Hess has said would allow the company to benefit from rising oil prices while guarding against a severe price plunge.

“These large companies, their balance sheets are so much cleaner and their risk appetite is higher,” Enverus analyst Andy McConn said. “They’ve recognized the demand from investors for exposure to the near-term prices. And so all those things considered, they’re saying, it’s worth our interest to just get rid of hedges.” 

 

Microsoft Faces Dutch Fines in Bankruptcy of Russia-Linked Bank

(Bloomberg) -- A Dutch court ruled that Microsoft Corp. must allow bankruptcy trustees appointed to the Russia-linked Amsterdam Trade Bank to access to its data or face fines.

The technology giant risks daily fines of 10 million euros ($10.5 million), with a maximum penalty of 100 million euros, if it doesn’t comply with the ruling, court-appointed trustee Job van Hooff said by phone late Tuesday. ATB, a lender linked to Russia’s Alfa Group, was declared bankrupt last month in the Netherlands after U.S. and U.K. sanctions paralyzed its payment systems. 

“We don’t have access to email boxes because they have been shut down” by Microsoft, van Hooff said. “They contain important information for us trustees to be able to conduct the investigation into the causes of the bankruptcy,” he said. “There are also all kinds of documents, excel files, internal committee reports, minutes from management board meetings that were also to a large part stored in Microsoft’s environment.” 

The trustees and Microsoft are currently discussing the issue, said van Hooff. “We’re evaluating potential solutions that would enable us to comply with both the court’s decision and sanctions imposed by the U.S., EU, and U.K.,” said Sarah O’Hare O’Neal, associate general counsel of global trade at Microsoft by email.

 

Russian gas deliveries via Ukraine hit 5-month high

May 2 (Reuters) - Daily nominations, or requests, for Russian gas deliveries through Ukraine into Europe via the Slovakian border point of Velke Kapusany rose to their highest since the end of November on Monday, data from Slovakian operator TSO Eustream showed.

Nominations via Velke Kapusany were at around 993,407 megawatt hours (MWh) per day on Monday, the highest since Nov. 30, the data showed.

Flows of Russian gas to Germany through the Nord Stream 1 pipeline across the Baltic Sea were at 73,778,201 kilowatt hours per hour (kWh/h) by 0600 GMT, up from 72,286,105 kWh/h seen on Friday morning.

Eastbound flows into Poland at the Mallnow metering point on the German border stood at 13,202,832 kWh/h, little changed from levels seen late last week, data from operator Gascade showed.

Russia stopped gas supplies to Poland and Bulgaria last week for their refusal to pay in roubles, although Poland is still getting Russian gas via reverse flows from Germany along the Yamal-Europe pipeline.

 

NEW YORK, May 2 (Reuters) - A top U.S. oil and natural gas trade group has come out against the passage of a bill that would open the OPEC oil production group and countries working with it to lawsuits for collusion on boosting petroleum prices.

The legislation could create unintended negative consequences for the U.S. oil and natural gas industry, while likely having limited impact on the market concerns that drive the bill, the American Petroleum Institute (API) said in a letter seen by Reuters on Monday and addressed to the chair and ranking member of the Senate Judiciary Committee.

The letter comes as the committee is expected to consider the bill as soon as this week. read more

Since Russia's invasion of Ukraine on Feb. 24 the Biden administration has struggled to contain a volatile energy market that has seen oil prices temporarily reach a 14-year high. U.S. gasoline prices at the pump are at over $4 per gallon ahead of November's mid-term elections.

In its letter, API said that the U.S. oil industry, which has more than doubled U.S. crude output in the last decade, has mitigated the influence of the Organization of the Petroleum Exporting Countries (OPEC) on the oil market.

"Legislative efforts that strengthen American energy production would be the best approach to ensure market stability and protect America's energy security," API said in the letter, dated Friday.

The NOPEC bill gives the U.S. Attorney General the option to sue oil-producing countries, such as those in OPEC, under anti-trust laws. A similar version passed the U.S. House Judiciary Committee last year.

 

U.S. Senate panel expected to vote on bill allowing lawsuits against OPEC

​WASHINGTON, April 28 (Reuters) - A U.S. Senate panel will consider as soon as next week a bill to open the OPEC oil production group and countries working with it to lawsuits for collusion on boosting petroleum prices, Senator Chuck Grassley's office said on Thursday.

The bill, sponsored by Grassley, a Republican, Senator Amy Klobuchar, a Democrat, and others, will be considered as the Biden administration struggles to control oil and gasoline prices that have surged on uncertainty about global crude supplies after Russia's invasion of Ukraine.

The NOPEC bill gives the option to the U.S. Attorney General to sue oil-producing countries, such as those in the Organization of the Petroleum Exporting Countries, under anti-trust laws. A similar version passed the U.S. House Judiciary Committee last year. read more

While NOPEC legislation has failed in the U.S. Congress for almost 22 years, backers said this could be the year it passes because of the actions by Russia, which has recently been producing about 10% of the world's oil.

"Now, given the soaring energy prices and the administration's engagements with foreign oil producers, ensuring fair pricing and production practices has never been more important," said Taylor Foy, a spokesperson for Grassley.

The Senate Judiciary Committee canceled a meeting on Thursday in which it was set to consider the measure. The committee will likely consider it next Thursday.

Oil prices surged to their highest levels since 2008 earlier this year following Russia's invasion of Ukraine and remain at more than $100 a barrel on fears the conflict will keep supplies tight in an already stressed global crude market. .

Saudi Arabia, the top producer in OPEC, has rebuffed calls by Washington to boost oil output by more than the gradual increases it has agreed to as a member of the OPEC+ group which includes Russia.

If the legislation passes both chambers of Congress, it would need President Joe Biden's signature to become law. The White House did not immediately respond to a request for comment about whether Biden supports the bill.

An analyst group said the legislation could move quickly.

"Lawmakers could simply graft it onto a supplemental funding package to support the Ukrainian response to the Russian invasion," said ClearView Energy Partners, a nonpartisan research group, in a note to clients. "If that were to occur, the bill could become law within a matter of weeks."

 

Putin’s Efforts to Save Ruble Spurs Zimbabwe’s President to Act

(Bloomberg) -- Zimbabwe’s President Emmerson Mnangagwa is trying to emulate Russian President Vladimir Putin in his attempt to revive Africa’s worst performing currency. 

Mnangagwa’s administration may announce plans as early as this week for government departments in Zimbabwe -- under U.S. sanctions for economic mismanagement and human rights violations for the past two decades -- to show “high preference” for the Zimbabwe dollar in the payment of services, according to Persistence Gwanyanya, a Harare-based economist and member of the Reserve Bank of Zimbabwe’s Monetary Policy Committee. 

“We are going to see a significant shift by government toward our own currency,” Gwanyanya said Sunday in an interview by phone. “We are drawing lessons from Russia, one of those is that heavy dependence on U.S. dollars is not good. We want to try and reflect some of these geo-political issues in our local economy.”

Russia’s attempts to bolster the ruble by demanding payment for gas and oil in its own currency along with strict capital controls has sheltered the ruble. Putin resorted to the measure because of heavy sanctions for his war in Ukraine. But Zimbabwe’s attempts to shake off its dependence on the U.S. dollar may be tougher. Greenbacks are used to pay for almost everything from food to fuel, medicines and road tolls. Workers including teachers and bank employees have since the start of this year demanded salaries in U.S. dollars to meet living costs pegged in foreign currency. 

Zimbabwe had a trade deficit of $1.2 billion last year, according to data compiled by Bloomberg. That compares with a $203 billion surplus for Russia in the same period

Even Mnangagwa’s government has previously come under criticism for undermining its own currency in favor of the U.S. dollar, paying its workers their bonuses in foreign currency last year.

Under the new measures, payment using local currency will increase for services including obtaining passports, paying import duties and taxes. Agreement has already been reached with Treasury, Gwanyanya said. The local currency officially trades at 159.34 per U.S. dollar and has lost a third of its value this year. In the parallel market it sells at 400 per U.S. dollar.

“The Western powers have met their match in Putin, who is demanding payment for gas and oil in rubles,” Mnangagwa said last month. “So now, we are saying to our industrialists, all these big companies, any investor that comes in here must buy using the Zimbabwean dollar.”

The U.S. sanctions known as the Zimbabwe Democracy and Economic Recovery Act bars international lenders from providing Zimbabwe with credit lines. Saddled with $13 billion in overseas obligations, Zimbabwe can’t borrow without clearing its arrears first. 

The rules also impose heavy penalties on foreign companies which conduct transactions with Zimbabwean firms under sanctions. Zimbabwe’s central bank estimates that at least 100 correspondent banking relationships were lost by the country due to the impact of restrictions.

The southern African nation has previously tried to bolster its currency after dropping the use of the U.S. dollar in favor of the Zimbabwe dollar in 2019. But the local currency has struggled to find acceptance, weighed by volatility and accelerating inflation.

“What’s different from other announcements in the past is that we had not seen the Executive weighing in,” Gwanyanya said. “We have buy-in from the Executive on all the issues.”

Central bank Governor John Mangudya didn’t answer a call seeking comment on his mobile phone on Sunday.

Mnangagwa in an opinion article published on Sunday in state-media said the looming measures will “increase confidence in the local unit.” 

Other Highlights From the Interview:


  • Rising annual inflation at 96.4% in April is a “temporary shock. We don’t want to keep on hiking the interest rate just yet. Let’s wait and see with the measures when we have put them.”

  • Central bank auction backlog clearance of about a month will be key in also resolving the exchange rate volatility. Management of the auction will send a signal that we are heading in the right direction.

  • The biggest factor in the auction backlog was in the slowdown in the platinum revenue over the 15% beneficiation tax. This has since been resolved. Platinum exports earn the country about $120 million monthly.

 

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