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WEDNESDAY TICKER: JULY 23RD 2014 - According to a local press reports, the Mobileye initial public offering on Wall Street will be valued at approximately $3.8bn. The original prospectus was for a valuation between $3.5-5bn, making the actual valuation at the lower end of estimates. The Israeli company will offer 8.325m shares at a price of $17-19 per share. The offering will most likely take place in two weeks, when the stock will be traded under the ticker MBLY on the New York Stock Exchange. Mobileye was founded in 1999 and has developed a camera-based system to mount on vehicles in order to aid in collision prevention - Rubicon Minerals Corporation has closed its previously announced bought deal financing of 7,060,000 flow-through common shares of the Company at a price of C$1.70 per Flow-Through Share for aggregate gross proceeds to the Company of C$12m. The Offering was conducted by a syndicate of underwriters co-led by TD Securities Inc. and BMO Capital Markets, and included National Bank Financial Inc. and Canaccord Genuity Corp. The gross proceeds from the offering will be used to incur eligible Canadian Exploration Expenses - BNP Paribas 2nd Quarter 2014 Results will be available on Thursday 31 July 2014 from 6.00 am (London time). A live webcast in English with synchronised slides of the analysts conference call hosted by Lars Machenil, chief financial officer, will be available on the bank’s website starting at 1.00 pm (London time) - After six years of severe recession that led to a cumulative loss of 1.1m jobs, the Greek labour market has started to show signs of recovery says National Bank of Greece. More than two thirds of employment losses in the private sector (730,000 jobs) are due to the closure of about 220,000 micro and small firms (30% of the existing micro and small enterprise population) together with layoffs in this segment. NBG Research’s composite indicator of employment trends, that combines information from forward-looking and coincident indicators, points to an employment growth of +0.6% y-o-y in Q3:2014 (or +20,000 jobs) and +0.9% y-o-y (or +32,000 jobs) in Q4:2014 compared to the same period of 2013 - Trading Technologies International, Inc. (TT), a provider of high-performance professional trading software, says Robbie McDonnell has been transferred to EVP Global Sales from VP/Managing Director of Asia/Pacific. McDonnell will relocate from Sydney to TT’s headquarters in Chicago, where he will report directly to CEO Rick Lane and be responsible for leading TT’s worldwide sales operation - Eze Software Group, a provider of global investment technology, has expanded its Regulatory Filings Manager service to support Alternative Investment Fund Managers Directive (AIFMD) Annex IV filings. Clients can now leverage the robust functionality of this enterprise reporting solution to generate necessary reports in accordance with the compliance deadlines of AIFMD. Proposed by European Securities and Markets Authority (ESMA) last year, AIFMD requires that alternative investment funds meet specific risk management standards for better monitoring, measuring, and reporting. Funds need to provide supervisory authorities with detailed investment data on a quarterly or bi-annual basis for increased transparency into funds’ activity. “Our AIFMD solution is a natural extension of all that we have learned in helping our clients file Form PF and CPO-PQR,” explains Michael Hutner, senior managing director and co-head of global sales for Eze Software Group - Cordea Savills, the international property investment management company, has purchased three canal side office buildings in Camden, North London for a total of £14.07m on behalf a corporate pension fund client. The complex is on the former site of the Camden Brewery and comprises three buildings. Elephant House and The Cooper’s Building are Grade II-listed and let to Viacom for over 8 years. The Lock Building is let to a Charity, which offers the potential for redevelopment in the short term as there are mutual break options in 2015. Cordea Savills’ were represented by Fineman Ross and CBRE acted for the vendor, Derwent London -

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The European Review

By Patrick Artus, chief economist at Natixis

The Calculation for Spain

Tuesday, 31 July 2012 Written by 
The Calculation for Spain To alleviate its debt and escape its state of crisis, we think Spain has two strategies to choose from. The first one, already in place since 2009, involves a reduction in the fiscal and external deficits while accepting aid from other eurozone countries. If Spain were to continue with this strategy, it would need to incorporate regular debt purchases by the ECB and possibly the ESM, and provide assistance to recapitalise its banks. The second strategy would be to leave the euro, which would mean a default on its gross external debt and a sharp devaluation of its currency. Both of these strategies contain negatives that need to be considered: the question is, which one would be the least detrimental to the country’s economic future? http://www.ftseglobalmarkets.com/

To alleviate its debt and escape its state of crisis, we think Spain has two strategies to choose from. The first one, already in place since 2009, involves a reduction in the fiscal and external deficits while accepting aid from other eurozone countries. If Spain were to continue with this strategy, it would need to incorporate regular debt purchases by the ECB and possibly the ESM, and provide assistance to recapitalise its banks.

The second strategy would be to leave the euro, which would mean a default on its gross external debt and a sharp devaluation of its currency.

Both of these strategies contain negatives that need to be considered: the question is, which one would be the least detrimental to the country’s economic future?

Strategy One: Spain's present strategy of adjustment...A Catch-22 situation?

Spain’s high levels of external debt mean it cannot increase its external borrowing (except for emergency borrowing from the EU or the ECB). Therefore, it must balance its current account.

Its present strategy of adjustment is clear: a restrictive fiscal policy; an improvement in cost-competitiveness to rebalance foreign trade; and the acceptance of European aid to recapitalise banks in distress. The last action hinges on purchases of government bonds to push down long-term interest rates. However, this strategy is risky.

A scenario may help us better understand this strategy: a fall in real wages due to price-stickiness discourages household demand, which has a knock-on effect to make business investment decline. Hence, there is a major decline in domestic demand and activity, making it very difficult to reduce fiscal deficit. In early 2012 we saw this in action when Spain’s fiscal deficit widened considerably, due both to tax revenue short-falls and higher-than-expected government spending. A continuation of this strategy therefore may lead to a further increase in unemployment and a decline in activity.

There could also be a reduction in the external deficit due to the decline in purchasing power. That said, imports would have to be reduced by a further 20% for Spain's current account deficit to disappear, which would mean a decline of at least 12% in domestic demand and real income.

The only hope for this strategy is that improvements in cost-competitiveness could increase Spain's exports and market share, and improved profits could eventually increase business investment.

Strategy Two: Exit from the euro, default and devaluation...A possible solution or suicide?

The other strategy would be for Spain to leave the euro, sharply devalue its currency, and inevitably default on its gross external public and private debt. This would obviously be a big problem for Spanish multinational companies, given the size of debt and the impossibility of servicing it following devaluation.

But what would the likely consequences of this strategy be?

For a start, it requires an immediate rebalancing of foreign trade. The country could no longer borrow, which would result in a much weaker economic situation in the short term.

Our econometric estimate shows elasticity to the real exchange rate of 0.73 for Spain's exports and 0 for imports, in volume terms. If we assume 30% devaluation, the foreign trade gain in volume terms would be 7.7 percentage points of GDP, which is very substantial.

Devaluation would increase the price of imports and therefore reduce real income by about 5.9 percentage points, which would leave a net gain of approximately 2 percentage points of GDP.

When the Spanish peseta was devalued in the early 1990s (twice in 1992, once in 1993), the current account deficit disappeared in 18 months, exports accelerated strongly, while domestic inflation reacted only slightly to the rise in import prices. The decline in GDP only lasted one year, and from that point growth was strong because of falling interest rates.

In today’s instance, devaluation would also increase the competitiveness of tourism and increase the surplus for these services in local currency, though perhaps not in foreign currencies such as the euro.

As financing becomes completely domestic, it is not impossible that there could be a reduction in the sovereign risk premium.

Devaluation could subsequently attract direct investment by businesses. With 30% devaluation, for example, labour costs in Spain would fall to EUR 14 per hour, 60% less than in Germany. However, since the size of Spanish industry is relatively small, new activities need to be considered for it to generate a large surplus.

Conclusion: What strategy to choose for Spain?

If the improvement in Spain's cost-competitiveness and profitability does not produce quick results, the present strategy will fail: wages would have to be reduced on a greater scale to eliminate the external deficit, and the fiscal deficit would remain very high.

The other strategy (leaving the euro, devaluation and default) could be successful if the devaluation attracted new activities, but it involves a lot of uncertainties – such as the impacts on Spanish multinationals, interest rates and foreign trade.

As stated earlier, both strategies are rather bleak, but positive aspects are still evident. Considering all of the factors, we believe that the strategy of devaluation and default could be the most efficient, particularly due to the high price elasticity of exports and the fact that Spain's entire current account deficit is accounted for by the interest on its external debt. As in 1992, it could also be effective due to the domestic financing of fiscal deficits, which will prevent a rise in interest rates.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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