Fitch Raises Greece to B-, Out of Default Territory

Greece is no longer in default but the slow pace of reforms, political uncertainty and recession could push it back towards bankruptcy, Fitch Ratings said on Tuesday after Athens completed the largest debt restructuring in history.

Fitch upgrades Greece to a speculative B- rating, but warns that political uncertainty could push it back to bankruptcy.

Fitch assigned Greece a speculative B- rating, becoming the first major rating agency to lift the country out of default territory after the debt swap cut Athens' debt mountain by about 100 billion euros, or close to a third.

It was the first time Greece's rating had been upgraded since the debt crisis erupted at the end of 2009 and the first Fitch upgrade since 2003, but the B- rating still places Greek government bonds firmly in "junk" territory.

Following the debt swap deal and a new EU/IMF rescue plan, Greece's debt is expected to fall to below 120 percent of GDP in 2020 from 160 percent now. That is still much higher than is generally regarded as sustainable.

"The agency considers that significant and material default risk remains in light of the still very high level of indebtedness post-PSI and the profound economic challenges faced by Greece," Fitch said in a statement, referring to the debt swap deal.

Greece has a poor track-record in implementing reforms under a first European Union/International Monetary Fund bailout agreed in 2010 — failing to meet targets in areas ranging from privatizations to cutting its deficit and reducing red tape — and Fitch warned that implementing reforms under a new 130-billion-euro rescue plan would be "very challenging."

"Moreover, in the near term, the prospect of a general election and uncertainty over the composition and commitment of a new government to the EU/IMF program also poses a significant risk," Fitch said.

Greece is scheduled to hold general elections at the end of April or early May. Opinion polls indicate no party will get an outright majority and many voters are tempted by anti-bailout parties. The conservatives, who are in a coalition government with the socialists and are ahead in the polls, back the bailout but may seek to renegotiate some of it.

The three major rating firms have repeatedly slashed Greece's rating throughout the debt crisis, cutting it to default over the debt deal in which private bondholders lost most of their investments in Greek government bonds.

Fitch's new B- rating has a stable outlook, indicating the agency is not planning to change the rating again soon.

Standard & Poor's said last month it was likely to raise Greece's rating to the "CCC" category after the debt swap was completed. Moody's said it would revisit Greece's rating "in due course."

Greek debt could fall to 116.5 percent of GDP in 2020 and 88 percent in 2030, according to a confidential EU/IMF report obtained by Reuters on Tuesday. However, the lenders warned that Greece is "accident prone" and debt could still total more than 145 percent of GDP by 2020 if Athens further delays reforms and privatization plans or if the recession is worse than expected.

Under the combined weight of austerity and delays in reforms needed to cut red tape and shrink the state, recession has been consistently worse than forecast by the EU and IMF since the first bailout was agreed in 2010.

In turn, Athens, now in its fifth consecutive year of recession, has repeatedly missed its fiscal targets.

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Uptick in Business Spending Raises US Bank Hopes

Two-and-a-half years after the official end of the recession, businesses are starting to invest cash again, prompting bankers to hope they might start borrowing, too.

Consider Jim Burg. It has been a year since steelmakers started having trouble finding trucks to haul loads for the reviving auto industry. So Burg, whose company is based in Warren, Michigan, is finally about to borrow money from a bank to build his fleet of flatbed rigs to 85 from 70.

But Burg is taking the step carefully. He accumulated far more cash reserves than he has ever had in his previous 28 years in business. He also lined up bank credit lines in excess of what he needs to operate.

"We put in a very conservative business plan," said Burg. "Look what happened in the second quarter of last year when the tsunami hit Japan. That affected us directly."

Burg's story is a common one that bankers say gives them at least a little hope. They expect investments like those Burg is making will drive the economic recovery and bring additional borrowing and interest income —even as they recognize that in this day and age, businesses are mostly averse to debt.

"Companies are going to continue to increase productivity and generate cash," which they can use to build inventory, said Laura Whitley, commercial banking head at Bank of America Corp. [BAC  Loading...      ()   ] "I do not necessarily see them borrowing."

No borrowing surge

While banks large and small are certainly making more business loans, they say most of the money has been borrowed to replace worn-out equipment or to refinance existing debt. Businesses generally have not been borrowing to grow, making people like Burg a notable exception.

Bankers and analysts say they do not see a big surge of additional borrowing in the near term, following the strong growth of the last three months of 2011, when business loans outstanding at U.S. banks increased at an annual rate of 13.1 percent, according to Federal Reserve data.

A portion of that growth came from U.S. banks taking market share from retreating European banks and from the corporate bond markets, not from additional borrowing. Also, some of the surge came from companies hurrying to take advantage of an expiring tax investment incentive, said Christopher Mutascio, a stock analyst at Stifel Nicolaus & Co.

Initial data since December points to slower loan growth, said Mutascio. That would be a disappointment to investors who had recently been bidding up bank stocks in anticipation of another strong step up in business lending, he added.

Meanwhile, companies continue to take in cash profits from their operations that they can invest instead of borrowing. U.S. businesses piled up a record $1.6 trillion in bank deposits and money market funds through the end of September, according to Federal Reserve data. Bankers say companies continue to add to their deposits.

"Corporate America built and continues to hold an extraordinary amount of cash," said Terry Turner, chief executive of Pinnacle Financial Partners Inc, a Nashville, Tennessee-based bank that specializes in commercial and industrial loans. "That serves as a damper on loan demand."

In Huntersville, North Carolina, engineering giant ABB Ltd [ABB  Loading...      ()   ] of Switzerland is using its own cash this year to build a $100 million factory to make cables to transmit high voltage electricity, said Ismo Haka, the company's chief financial officer for North America.

ABB is keen on keeping debt low and cash high.

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Merrill Raises Bid for Rivals' Top Brokers: Sources

Published: Tuesday, 21 Feb 2012 | 8:18 PM ET Bank of America's Merrill Lynch has launched a more aggressive recruiting campaign for top-tier brokers, including a bonus paid for transferring client assets after six months at the firm, two sources familiar with the new plan said Tuesday.

Merrill Lynch [BAC  Loading...      ()   ] last week told managers that it was offering brokers from UBS, Morgan Stanley Smith Barney, Wells Fargo and other firms an upfront cash payment equal to 150 percent of the fees and commissions they generated during the prior 12 months. The offer is limited to advisers whose performance put them in the top 40 percent of their peers, the two sources said. 
Merrill previously offered brokers 140 percent up front, according to one recruiter who was briefed on the changes. The higher offer lets Merrill catch up with bonuses offered at rivals UBS and Morgan Stanley, the recruiter said, in a market environment where it difficult to generate growth organically.  
More significantly, Merrill also will pay an additional 25 percent bonus after six months if brokers transfer 65 percent of the assets they oversaw at their former employer. These brokers also can receive a 50 percent bonus — half cash, half stock — after the first year of the deal if they attract 75 percent of their client assets. 
These payments combined mean some brokers can take home two times their trailing-year revenue in cash after just one year, one of the most aggressive packages offered by Merrill, a veteran recruiter said. 
The offer is part of a nine-year commitment, which lets brokers earn additional "back end" payments based on meeting revenue and asset-growth goals. 
A Bank of America spokeswoman said the company does not comment on its compensation practices, but noted the firm continues to focus on hiring and training. "We have and continue to be a competitive but highly selective recruiter of top industry talent," she said. 
Merrill, the No. 2 U.S. brokerage with about 17,300 financial advisers, has suffered some defections in recent weeks as rivals like UBS increased their up-front bonuses to 180 percent of trailing twelve-month revenue — for those who signed by the end of last year. That was up from about 130 to 140 percent in previous months.     
UBS last month announced it had hired at least 14 veteran Merrill brokers who in total managed more than $2 billion in client assets.  
The competition for the relatively few top advisers, not already tied down by previous recruiting and retention packages, has been heating up in recent months, recruiters said. UBS for example was offering 210 percent deals with an eye toward luring Merrill brokers. 
One recruiter said the new Merrill program, offered even as the bank parent scrambles to slash spending and repair a battered balance sheet, shows the firm is showing renewed signs of confidence.

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