It is hard to imagine how the situation in Greece could worsen. G7 financial ministers met by phone yesterday to encourage leaders in the region to build a support system for weak countries. Nothing appears to have come of it. In the meantime, the New York Times ran a piece that says that poor tax revenue levels in Greece may take the nation under financially, even if it meets its austerity target. And political leaders in Spain said that the nation has lost its ability to borrow. The capital markets have rejected its paper as too risky. Without saying so directly, Spain has surrendered in its attempts to solve its financial problems without help from its neighbors and the International Monetary Fund.
German Bank Downgrades
Germany is assumed to be the home market of some of Europe’s most stable banks because of the relative stability of its economy. Moody’s has undermined that view as it cut ratings of seven banks there, including Commerzbank, the second largest firm in the country. The move was the result of worry over exposure to debt issued by some nations in the region that are now in financial trouble. And the banks Moody’s singled out have less than adequate balance sheet to handle a major shock to the region’s credit system. Moody’s wrote:
Today’s rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis, in combination with the banks’ limited loss-absorption capacity. The key drivers of today’s rating actions on German banks are:
- Increased risks to asset quality for the banks affected by today’s actions due to their exposures to asset classes prone to further deterioration if downside risks from the euro area debt crisis and the weakened global economic outlook materialise.
- Limited loss-absorption capacity, given the comparatively small equity cushions relative to total assets (not risk-weighted) and low pre-provision earnings. As a result, many German banks have limited capacity to absorb losses out of earnings, raising the potential that capital could diminish in a stress scenario.
Nokia Cheap Phones
Nokia (NYSE: NOK) has launched a line of inexpensive touchscreen phones, perhaps to offset its failure in the high end of the smartphone market. Tens of millions of people around the world still do not have the incomes to buy handsets that cost in the hundreds of dollars. The line, which was first introduced in 2011, is called Asha Touch and includes three new products — the Nokia Asha 305, Nokia Asha 306 and Nokia Asha 311. “By introducing the Asha Touch phones to the market, we’re accelerating our commitment to connect the next billion consumers,” said Mary T. McDowell, Nokia’s executive vice president for Mobile Phones. “These phones deliver on what young, urban people value most — a great-looking device; and an intuitive and affordable experience for connecting to the internet, to their friends, and to a world of entertainment, web apps and content.” Many of those billions are not the people who buy Apple (NASDAQ: AAPL) iPhones and Samsung Galaxy S III models.
Douglas A. McIntyre