Tag: Germany

The German government has asked the European Union for more time to come up with a plan for reclaiming at least EUR572 million in state aid to Deutsche Post AG (G.DPW), the finance ministry said Friday. The government has asked the E.U. Commission, the E.U.’s executive branch, to delay the deadline for the plan until Oct. 1, finance ministry spokesman Thomas Gerhardt said. The Commission set an Aug. 22 deadline for the plan when it ruled in mid-June that the state aid to the partially privatized mail company was illegal. It has yet to respond to the government’s request, Gerhardt said. The finance ministry fully expects the request to be accepted, Gerhardt added, saying it was based simply on understaffing at the ministry during the summer holidays. On June 19, the Commission ordered Deutsche Post to repay EUR572 million to the German government on the grounds the company used profits from a guaranteed monopoly letter business to undercut parcel-sector rivals between 1994 and 1998. In response, Deutsche Post said it would take a EUR850 million one-off provision in its accounts, including accrued interest. The repayment amount will be between EUR572 million and EUR820 million, according to the finance ministry’s Gerhardt. Though it took the one-off provision, Deutsche Post also pledged to appeal against the E.U. ruling at the European Court of Justice in Luxembourg.

Corporate bond prices hit rock bottom at the start of August, and have been rising ever since. Analysts say that spreads on European corporate bonds have tightened by 40 to 50 basis points on average in that period, with telecoms and autos spreads between 100 and 200 basis points tighter, depending on company. Industrial credits have seen more modest tightening, of between 10 and 20 basis points. ‘We have had a very good run over the last two weeks or so, in terms of both equity prices and credit spreads,’ said Giles Hudson on the syndicate at Morgan Stanley. ‘But things are now flattening out a bit.’ While there is theoretically still more potential for credit spread tightening, according to analysts, whether prices will continue to rise or not will depend on a number of factors. These include the amount of new corporate bond supply, the uncertain geopolitical situation regarding US and Iraq, and the health of the US economy.