Spain looks safer than Italy as borrowing costs fall

A fan waves a Spain flag

Spain saw solid demand for its bonds on Thursday, paying more than 2 percentage points less to borrow over 5-years than Italy a day earlier as budget cuts helped ease concerns it could be among the next to fall in the euro zone's debt crisis.

But while the Treasury also paid much less to sell two 10-year bonds than a similar issue just a month ago, yields were still near euro-era highs amid doubts over leaders' ability to find a lasting solution to the bloc's debt crisis.

"A good auction ... they managed to sell quite a chunk. It won't help to calm these fears everyone in the market is having about funding in 2012, but Spain is considered a far more attractive credit than Italy," strategist at West LB, Michael Leister said.

Spain has been in the line of fire in the euro crisis since Greece was bailed out more than a year ago. But measures which have almost halved the budget deficit along with a massive banking restructuring program have taken some of the heat off.

Attention has turned instead to the euro zone's third largest economy, Italy, which has seen refinancing costs soar to unsustainable levels and its Prime Minister Silvio Berlusconi replaced by technocrat caretaker Mario Monti.

"The contrast with Italy is striking. Spain, despite its severe economic problems, is judged to be a safer credit," said Nicholas Spiro, economist at Spiro Sovereign Strategy.

"Italy is walking on very thin ice at the moment given the scale of its funding needs next year. Spain is better placed on this front and has more policy-making credibility in the eyes of investors."

The premium investors demand to hold Italian over Spanish debt rose to a new record of around 162 basis points on Thursday while Spain's spreads against German debt dropped more than 24 basis points following the auction.

SOCIALISTS TROUNCED

The centre-right People's Party (PP) trounced the Socialists in November 20 election as voters punished Prime Minister Jose Luis Rodriguez Zapatero for his handling of the economic crisis though his measures have kept Spain needing a Greek-style bailout.

Incoming Prime Minister Mariano Rajoy has said he will continue with the previous government's austerity measures and cut the budget shortfall from an expected 6.5 percent of GDP this year to 4.4 percent of GDP next year.

Pollsters say Spaniards are largely resigned to the idea of more cuts, but that sentiment could fade within a year if the economy does not bounce back from a prolonged slump.

Spain's economy stagnated in the third quarter and is widely expected to sink into its second recession in three years at the start of 2012 as domestic demand shows no sign of returning and exports are hit by the global slowdown.

Meanwhile, the burst property bubble has left the country's banks sitting on 176 billion euros ($227.94 billion) of potentially troubled real estate assets at end-June and struggling to raise capital to shore up balance sheets in a paralyzed market.

Rajoy has said his priorities when he takes office next week are to balance the public accounts, reform the labor market -- Spanish unemployment is more than double the European Union average -- and intensify bank restructuring efforts.

RISING COSTS

As market nerves rise over the future of the euro zone, Spain's government has found it increasingly expensive to issue bonds but with a debt-to-GDP ratio of around 68 percent, around 20 percentage points below the euro zone average, it has some margin.

Spain also faces a less pressing redemption calendar than Italy, with medium and long-term debt redemptions of nearly 50 billion euros in 2012 with none due until April.

Rome meanwhile faces redemption and coupon payments of around 100 billion euros between January and April, Reuters data shows.

The Spanish Treasury raised 6 billion euros from the auction on Thursday of three bonds in the primary market, far surpassing a target of 3.5 billion euros and meaning the Treasury has completed its end-of-year bond issuance goal.

The auction came as markets braced for a possible ratings downgrade after a disappointing summit of European Union leaders on Friday.

Spain sold 2.5 billion euros of a bond maturing January 31, 2016 at a yield of 4.023 percent, compared to 5.276 percent when it was last auctioned December 1. The bond was 2 times subscribed after 2.8 two weeks ago.

The bond maturing April 30, 2020, sold 2.2 billion euros at an average yield of 5.201 percent while a bond maturing April 30, 2021 sold 1.4 billion euros for 5.545 percent.

The last time Spain ran a primary auction a 10-year bill November 17, it paid an average yield of 6.975 percent, considered by most economists as unsustainable over the long term.

However, while the benchmark 10-year yield was down from recent highs during volatile trade, it was still far above prices paid from the average yields seen before June.

"These are still high levels of rates but they are a lot better than Italy's ones," strategist at Monument Securities Marc Ostwald said.

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JPMorgan Chase cleans up checking account fee list

JPMorgan Chase & Co (JPM.N), the biggest U.S. bank, and two large credit unions have taken the lead in cleaning up the banking industry's fee-laden fine print for checking accounts, an advocacy group said on Thursday.

JPMorgan Chase, the Pentagon Federal Credit Union and the North Carolina State Employees' Credit Union have started presenting account fee schedules in simple, boxed tables of three pages or less, according to the Pew Health Group, the health and consumer-product safety arm of the Pew Charitable Trusts.

Fee disclosure documents for large banks typically run 111 pages and hide important fees from customers in technical fine print, according to an April report by Pew's Safe Checking in the Electronic Age Project. Bank fees became a focus of federal lawmakers in the aftermath of the credit crisis.

Many people have been surprised by fees they were charged, Pew researchers found in interviews with consumers. Fee disclosures are too dense for consumers to know better, said Susan Weinstock, director of the Pew project.

"It is basically impossible to comparison shop for a checking account," Weinstock said in an interview. She hopes the new tables will change that.

JPMorgan Chase is posting its first table online on Thursday for its most-used "Total Checking" account. The bank plans to roll out similar presentations for other types of accounts in the new year, Ryan McInerney, CEO of the company's consumer bank, told Reuters.

Another large bank and some regional banks and other credit unions are working to bring out simplified tables of their own soon, Weinstock said . She is calling on the government's new Consumer Financial Protection Bureau to require all banks to do the same.

Banks' fee revenue could come under pressure if it is easier for consumers to compare charges.

As JPMorgan Chase began to boil down the fees into a table, executives decided some were bad for business and had to go. For example, the bank dropped charges of $25 for closing an account within 90 days of opening it and $15 to receive a rush copy of an item.

"We think this will create more loyal customers and grow our business," McInerney said.

McInerney said the moves will pay off with higher revenues over time by winning over more customers.

JPMorgan Chase began work on the new disclosure shortly after Pew released its critical report in April. The bank tested the table with customers in focus groups and interviews, and then refined it , McInerney said.

Long legal disclosures of terms and conditions will continue to exist. For those who want to check the details, McInerney said the bank intends to embed Internet links to the fine print in online copies of its tables.

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Daewoo signs deal to develop Israel's Tamar gas field

Daewoo International

 South Korea's Daewoo Shipbuilding & Marine Engineering Co Ltd said on Tuesday that it has agreed to develop Israel's Tamar natural gas field with Noble Energy Inc, Delek Group Ltd and Isramco Inc, and was eyeing vessel orders for the project.

Under the deal, Daewoo will soon conduct an LNG-FPSO feasibility study, aiming to sign a final agreement by the end of next year, a statement from the shipbuilder said, without specifying the size of its stake in the development deal or the value.

The statement said it aimed to produce liquefied natural gas (LNG) from the field, which has estimated reserves of 240 billion cubic meters of natural gas, from the end of 2016 if all the processes for the final deal remained on track.

The volume was equivalent to five times South Korea's annual consumption, Daewoo added.

"(Daewoo) hopes to win multiple orders for LNG floating production and storage and offloading (FPSO) vessels," the Daewoo statement said, adding that the field's owners were considering gas production in the largest offshore find of 2009 through FPSO vessels, not onshore plants, for geopolitical reasons.

The Tamar field is located in a sea area about 80 kilometres west of the port of Haifa, according to the Daewoo statement.

Isramco said last week that it had made a preliminary deal with Daewoo to build and operate a floating LNG facility for exports to South Korea and elsewhere, adding that the companies would hold talks to secure a contract for 15-20 years at a price likely to be between $7 and $9 per MMBTU.

South Korea, the world's second-largest LNG importer after Japan, imported nearly 30 million tonnes of LNG in the first ten months of this year.

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