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Belgian report
by Euro Reporter
2014-05-20 11:31:01
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Belgium’s KBC scraps ‘risk-free’ practice on sovereign bonds

Belgium’s biggest bank has ended its practice of ascribing no risk to government bond holdings in a move that some analysts say could foreshadow similar changes elsewhere in the euro area. KBC Group, the country’s largest bank by market value, said last week it was now assigning risk-weights to its portfolio of sovereign bonds, leading to a €4.4bn increase in its risk-weighted assets. The lender said it was making the adjustment following a request by the Belgian central bank. The European Central Bank will take over supervision of major euro area lenders later this year, and its chief banking regulator, Danièle Nouy, has in the past signalled scepticism about the practice of zero risk-weighting sovereign portfolios for capital purposes. In an interview with the Financial Times this year she said that one of the big lessons of the crisis was that there was “absolutely no risk-free asset”. She added: “Sovereigns are not risk-free assets. That has been demonstrated, so now we have to react.”

Ms Nouy added, however, that change should not happen in the midst of a crisis. “We believe this represents the beginning of a trend across Europe,” said Daniel Davies, an analyst at Exane BNP Paribas, in a note. “The European ‘loophole’ allowing zero risk-weighting of government bonds is on its way out.” KBC said its Hungarian sovereign bond holdings were the biggest factor in the increase in its risk-weighted assets. Western regulators are particularly anxious to make sure banks hold adequate capital against eastern European exposures – with Hungary a source of concern following large losses in recent years. Banks in the EU have been encouraged to pile into government debt in part because of rules giving them scope to apply zero risk-weights, heightening the systemic risks if the country gets into serious budgetary trouble.

Thomas Huertas, a partner at EY, the accountancy firm, said: “An end to zero risk-weighting of sovereign debt is to be welcomed, especially if the rating also applies to the bank’s home country. Indeed, such risk rating will be one of the litmus tests of banking union. One of the motives for banking union was the desire to end the so-called doom loop between banks and their sovereigns.” Among the banks that would be most affected by a broader euro area move on sovereign debt risk-weighting are Banco Popular Espano of Spain, Italy’s Banca Monte dei Paschi di Siena and Intesa Sanpaolo, according to Exane’s calculations. Its figures suggest an EU-wide move would deliver an average 0.15 per cent reduction to common equity tier one capital ratios across 28 banks – with periphery banks most affected. Giles Williams, a partner at KPMG, said: “A change in the risk weighting on sovereigns is a significant event and highlights the more consistent approach to asset values generally we are seeing.” He added that recent increases in bank capital across Europe meant that any policy shift on risk weighting of sovereigns could be absorbed as part of “business as usual”.


Belgium, Spain, France field most senior MEPs in EU vote

Is the European Parliament an important institution to which political heavyweights should be sent? Or is it a place for potential talent to learn the metier, away from their member state's capital? Opinions on the matter differ greatly among 11 EU member states, according to two researchers from Leiden University in the Netherlands. This month they published a preliminary report on their findings.  The researchers looked at the resumes of 318 candidates for the next European Parliament. Political parties in Belgium, Spain and France have put more experienced politicians on the ballot, while MEP candidates from the Czech Republic, Denmark and the Netherlands are the least experienced. Each MEP candidate was awarded points for political experience and how recent that experience was.

If someone had been government leader or head of state just before being a candidate for the European Parliament, he or she received 700 points. Someone who had that position more than two years ago received 500 points and if it was more than eight years ago, 200 points. Current membership of a national or federal parliament got 190 points, while 110 were given if more than two years had passed. Current European Commissioners received 300 points, current MEPs 100 points. The two MEP candidates with the highest score (1,170) were both Belgians: former Belgian prime minister Guy Verhofstadt (Alde) and former minister in several cabinets Steven Vanackere (EPP). The average points of all 11 member states under research was 234.

The researchers also looked at 565 people who were members of the European Parliament in the periods 2004-2009 and 2009-2014.  The results for Belgium have been consistently high: an average of 300 points or higher in all three periods. When defining a political heavyweight of 400 points or higher, 23.7 percent of the researched Belgian candidates are heavyweights. Spain and France are also well-represented. At the bottom of the ranking is the Netherlands, with an average this year of 112. There are no Dutch candidates with a score higher than 400 – nor were there any in 2004 and 2009. Denmark (average score of 161), Czech Republic (180) and the United Kingdom (193) have also put relative political rookies on the ballots.  According to the lead researchers, Wim Voermans and Jerfi Uzman, the scores indicate how important the European Parliament is in the eyes of national political parties. They plan to widen their research with data from other member states. The 11 states included in the study were: Austria, Belgium, Czech Republic, Denmark, France, Germany, Luxembourg, Netherlands, Portugal, Spain and the UK.


House Hunting in ... Antwerp, Belgium

In the Flemish village of Bazel, nine miles southwest of the center of Antwerp and 150 yards from the moated Wissekerke Castle, a brick chapel built by local nobility in the second half of the 19th century was used to teach the bible to the children of the village. Almost in ruins when it was bought in 2003, the chapel was restored and converted two years later into one large and one smaller loft-style home, said Antoon Van Coillie, who owns the larger home with his wife, Natasha Coolsaet, the architect. From the pointed arch of the entry door of the larger residence, to its four huge Gothic windows on the main level, its ecclesiastical roots are distinctive. The entry hall, which has the chapel’s original flagstone floor, includes a cloak room and a powder room. A staircase to one side leads to the main floor, where a doorway was built around a set of tall wooden doors salvaged from a demolished church. The 49-by-33-foot main open room has parquet floors with radiant heat and is illuminated by the Gothic windows with a living area near the fireplace and a dining space. A music area is defined by a narrower pointed arch window.

An L-shaped wall with built-in cabinetry and an oven and microwave partitions the kitchen, which has a large marble-topped center island housing a cooktop, a two-basin sink, a dishwasher and multiple drawers. To one end of the living room, three sets of new French doors lead to a wood-plank terrace, from which Bazel’s medieval church is visible. Two steps down at the far side of the terrace, a more secluded and sunny deck overlooks a small parklike backyard. On the top floor, two children’s bedrooms with floor-to-ceiling windows share a tiled hall bath with two vanities, a shower and a separate toilet. The laundry room is nearby. At the end of the hall, the master suite has a walk-in closet and an en-suite bath with large beige ceramic tiles, twin vanities, a shower and separate tub. Ceilings in the bedrooms are sloped, with a 19th-century wood beam from the original roof structure visible in the master suite. Under the sloped eaves, framed by wood beams and illuminated by venting Velux skylights, is a roof loft used as a fourth bedroom/den. A staircase from the living room leads to a lower level, which was created during the renovation by lifting the original floor to the level of the Gothic window sills. The lower level includes an office and television room, a library with a fireplace and four storage rooms. A one-car garage is accessible under a brick archway to the left side of the chapel house.

Bazel, which has about 15,000 residents, is a popular weekend destination for Antwerp residents. It has a one-star Michelin restaurant, Hofke van Bazel, several other brasseries and restaurants, and an extensive park linked to the castle. Extensive flat farmland and towpaths along the Scheldt River in Flanders draw walkers and cyclists. The castle now houses an art academy and can be rented for weddings. The Belgian real estate market is “quite slow for the moment,” said Frederic Van Blerk, a managing director of Engels & Voelker Antwerp, the listing broker, partly in anticipation of elections on May 25. “For the last year we have a standstill in everything from a $100,000 apartment to a $5 million house.” Prices on half-million-dollar-plus homes in Antwerp are down about 20 percent over the last three years. “A castle that cost 10 million euros five years ago, you can have for half the price,” he said. “It is a very difficult market.” Hilde Couturier, the managing director of Metropolitan Real Estate in Antwerp, said the inventory of homes for sale and rent is high. Banks require 30 percent down to get a mortgage. As a result “right now it takes one year or more until something is sold,” versus two to three months in better times, Ms. Couturier said.

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