What's Important in the Financial World (6/26/2012)

Spain’s borrowing costs continued to be unsustainable a day after Moody’s downgraded 28 banks based there. The yield on three-month paper was 2.362%. It was 3.23% for six-month bonds. The rates were the result of Spain raising 3.08 billion euros today. Although Spain will get a bailout for its banks that may have a price tag as high as 100 billion euros, a rescue of the country itself is now all but assured. Spain’s deficit targets are unlikely to be met as a recession there deepens and there is no sign that unemployment will fall from 25%. The real estate market, at the core of bank write-offs, continues to collapse. The interest Spain pays will continue to rise until a bailout is firmly in place.

News Corporation May Split

News Corp. (NASDAQ: NWSA), controlled by Rupert Murdoch, may be close to dividing itself into two parts. One would hold relatively slow-growing newspaper assets. Many of the properties in this group currently lose money. The Wall Street Journal, owned by News Corp., reports that the other operation that could be spun out would house the entertainment and cable news businesses — dominated by the 20th Century Fox studio and Fox television properties and networks. This second set of properties have relatively fast growth rates and high margins. The question will be why shareholders would want to keep stock in the newspaper holding company, unless its share price is very low and it has small multiple of profits. That would put it in a class with McClatchy (NYSE: MNI), New York Times (NYSE: NYT) and Gannett (NYSE: GCI), which have struggled to maintain their investor bases due to the market’s concern about the future of the industry.

Angela Merkel Defiant

Angela Merkel continues to be on a collision course with most other leaders of EU nations. She made it clear in a speech ahead of an area summit that Germany has no intention of allowing the issuance of bonds that would share the debt of all European nations. In a speech run on CNBC.com, Merkel said:

It’s not a bold prediction to say that in Brussels most eyes — all eyes — will be on Germany yet again. I say quite openly: when I think of the summit on Thursday I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures.

If the final result of the EU summit comes down to Merkel blocking all attempts to hold deficit rules for the region’s nations in place and under the eye of stronger nations, particularly Germany, expect the markets to react badly.

Douglas A. McIntyre