Not sharing: The coming shortage of equity investors

THE world has accumulated too much debt. Issuing more equity would reduce risk, particularly in the banking sector, and create the seed capital for new industries to emerge. But global investors may be losing their appetite for shares. That is the conclusion of a new report* by the McKinsey Global Institute, which argues that by 2020 a $12.3 trillion gap will have emerged between the amount of equity that needs to be supplied and the likely level of demand.

The problem is that investors in the developed world are shifting from equities into other assets, thanks to demographic changes, regulatory pressures and the disappointing returns suffered over the past ten years. Pension funds are maturing, with more of their members in retirement and fewer in work, so bonds are a more appropriate investment than equities. Insurance companies have shed equities in the face of regulations such as the European Union’s Solvency II regime; they could sell as much as $150 billion of shares over the next five years.

Meanwhile, the financial assets of developing-world investors are growing fast, but such investors tend to have a very small exposure to stockmarkets. Indians have only 8% of their wealth in equities. As they get richer, investors in the developing world will diversify their portfolios. But McKinsey estimates they would have to raise their equity allocations to the 42% owned by American households to close the gap completely.

Developing-world investors have understandable reasons for caution. Companies in emerging markets are often not as transparent as those in the developed world, nor do they have a record of treating minority shareholders well. Institutional investors—mutual funds, insurance companies, pension schemes—are not as well established in developing countries as they are in Europe and America.

Despite the subdued level of demand, companies will still need to issue equity, either to strengthen their balance sheets or to support their expansion. The banks will need to raise equity to meet the Basel rules. Meanwhile, the faster growth rate of developing countries means that more companies are likely to float on their domestic markets; more than half of all new issues in 2010, by volume and by value, were in emerging markets. Indeed, McKinsey reckons the net excess of supply over demand for equities in emerging markets will be some $7 trillion.

Now, of course, this gap is entirely notional. The actual level of equity supply and demand will exactly balance out. But if desired supply exceeds desired demand one of two things can happen. Share prices will fall, so that expected returns rise and investors become willing to buy shares again. This might happen if dividend yields on shares exceed government-bond yields for an extended period, as was the case in the first half of the 20th century.

It is also possible that governments can encourage greater demand for equities. In the developing world, that would require better protection for the small investor. In the developed world, tax-code reform is the big issue. Corporate interest payments are tax-deductible in most countries while dividends are not. But that would be a difficult reform to pull off. Given the state of public finances, governments are unlikely to be handing out new tax breaks. And removing the tax-deductibility of interest, even if it was accompanied by a lowering of the overall corporate-tax rate, would endanger the health of highly indebted companies.

The alternative possibility is that firms will eschew issuing equity and raise capital in the form of debt instead. There may well be an appetite for such paper, since government bond yields are so low (at least, in the likes of America, Britain and Germany) that investors will be attracted to the higher income offered by corporate bonds. But the risks ought to be obvious after the past few years. A highly geared economy is likely to suffer from bigger booms and bigger busts.

Equity is a very useful form of long-term capital for the corporate sector, and also offers a way for private investors to participate in the long-term growth of the economy. But in Europe and America, companies have been retiring equities through share buy-backs, while the volume of initial public offerings has dropped considerably from the peak years of 2000 and 2007. If the developed world is to recover its mojo, equity issuance has to come back into fashion.

Source: http://www.economist.com/node/21541424?fsrc=rss

Advertising: Four more years

“MAURICE is immortal,” says the chief executive of a French multinational. When told of his friend’s comment, Maurice Lévy, boss of Publicis, one of the world’s biggest advertising firms, is visibly flattered. But he demurs. “When you think you are immortal, you will make the biggest errors of your life,” he says. “I know that if I fail to find the right successor, my entire career will be a failure.”

Mr Lévy’s longevity at the top is unusual in a business known for short attention spans. But Publicis is unusual, too. Since the Paris-based firm was founded by Marcel Bleustein-Blanchet in 1926, it has had only two bosses: the founder and Mr Lévy, who took over in 1987. Mr Lévy, who turns 70 in February, had planned to retire at the end of this year, but the board recently raised the age limit for its members to 75. On November 29th Publicis said that all of them had been reappointed for four years.

The board wants him to stay, says Mr Lévy, because the economic crisis could last, so they want a safe pair of hands at the top. He sees lots of uncertainty next year, though he does not think that companies will cut back advertising spending as sharply as they did after the collapse of Lehman Brothers in 2008. Their response to the dire state of the economy will vary from one industry and country to the next. In Europe, not surprisingly, the outlook is bleaker the farther south you go.

Yet the forecast for global ad spending in the next few years released on December 5th by ZenithOptimedia, an agency owned by Publicis, is fairly rosy. It says spending will rise by 4.7% in 2012 to $486 billion, having gone up by 3.5% this year. A good chunk of next year’s increase is due to events that come around every four years: a presidential election in America, the summer Olympics and the European football championship. The forecast for the next two years, though, is even better: 5.2% growth in 2013 and 5.8% in 2014 (see chart.

The internet and emerging economies are the two fastest-growing areas in the ad world. Mr Lévy is betting big on both. Five years ago he bought Digitas, an internet-ad agency, for $1.3 billion. Some thought that pricey. Undeterred, Mr Lévy bought Razorfish, an American digital agency, for $530m in 2009, and Rosetta, another, for $575m in May this year. Today internet advertising accounts for more than 30% of the revenue of Publicis, against around 20% for WPP, its British rival.

In China, by far the biggest advertising market among emerging economies, Publicis is pushing hard, taking over local agencies. Mr Lévy admits that WPP entered sooner and is bigger. (WPP’s approach in emerging economies is different too, with more weight on public relations and market research.) Success in China may determine who takes over from Mr Lévy. The company has put Jean-Yves Naouri, the chief operating officer, in charge there. Insiders say that if Mr Naouri doubles the size of Publicis in China, as planned, from €200m ($265m) in 2010 to €400m by 2012, he will make it to the top.

Whoever succeeds Mr Lévy will have big shoes to fill. Mr Lévy transformed Publicis from a French also-ran at the end of the 1990s into the world’s number three, behind WPP and Omnicom, an American firm. He did this through the conquest of other agencies on a Napoleonic scale—most notably the takeover of Britain’s Saatchi & Saatchi and America’s Bcom3, which came with a coveted collection of clients. “They bought quality companies for a full price,” says Christophe Cherblanc, a media analyst at Société Générale, a French bank.

Mr Lévy is not planning another transformative takeover in the near future. Publicis is regularly rumoured to be sniffing around Interpublic, a big American ad firm, Aegis, a British group, and even Ipsos, a French market researcher. But that would mean taking on more debt, and Mr Lévy says that this is not a good time to borrow money. And he will not want to hand over a highly indebted company to his successor—whenever that happens.

Source: http://www.economist.com/node/21541412

Năm 2012, các quỹ ngoại có khả năng thoái vốn khoảng 25.000 tỷ đồng

Một số quỹ đã bắt đầu bán ra danh mục từ đầu năm nay. Ba tuần tại Mỹ, TGĐ một CTCK cho biết ông không nhận được một sự hứa hẹn nào đầu tư vào Việt Nam năm tới.

“Nợ xấu trên tổng dư nợ của ngân hàng đã tăng từ 2,5% cuối năm 2010 lên 3,5% vào tháng 9-2011. Nợ xấu sẽ tiếp tục tăng và sẽ đạt đỉnh vào giữa năm 2012. Chúng tôi kỳ vọng nợ xấu không làm tan vỡ hệ thống ngân hàng, mà ngược lại sẽ giúp đẩy nhanh quá trình củng cố và cải cách các tổ chức tín dụng. Kỳ vọng này dựa trên cơ sở phần lớn nợ của ngân hàng Việt Nam đều có tài sản thế chấp và tài sản ngầm tương đương hơn 70% GDP” - đó là một trong những nhận định của Dragon Capital trong bản tin Vietnam October Update dành cho nhà đầu tư nước ngoài.

Dragon Capital đã không thể ngờ rằng ngay sau bản tin tháng 10-2011, từ đầu tháng 11 thị trường bất động sản bắt đầu “rùng mình” với hàng loạt dự án căn hộ, biệt thự giảm giá mạnh trong một nỗ lực tìm đầu ra nhằm thu hồi vốn trả nợ ngân hàng của các chủ dự án đầu tư.

Ngay lập tức, giá cổ phiếu bất động sản niêm yết lao dốc không phanh. Các cổ phiếu chiếm tỷ trọng lớn trong danh mục đầu tư của Vietnam Property Fund; Vietnam Enterprise Investments Limited (Veil); Vietnam Growth Fund do Dragon Capital quản lý như HAG, SJS, SCR, BCI, DIG… bị bán tháo.

Sau bất động sản, đến lượt cổ phiếu ngân hàng. Bất chấp hiệu quả kinh doanh và sự tăng trưởng lợi nhuận tương đối tốt so với năm ngoái, cổ phiếu STG, VCB, STB luôn đối mặt với nguồn cung bán ra mạnh nhiều phiên. Nhà đầu tư nước ngoài, đặc biệt các quỹ ETFs, là người bán ròng bền bỉ, nhẫn nại hai loại cổ phiếu nói trên.

Vì sao họ bán?

Những năm trước, có nhiều thời điểm nhà đầu tư nước ngoài cũng bán ròng cổ phiếu, nhưng khi đó có thể nhận ra chiến lược “bán rẻ để mua lại rẻ hơn”. Vì vậy, khi thị trường phục hồi, lực cầu của khối ngoại đã tạo điều kiện cho VN-Index có những bước nhảy về phía 600 điểm.

Nay thì không, họ bán và bán luôn, hầu như không có dấu hiệu nào chứng tỏ họ sẽ trở lại. Trong các báo cáo dành cho nhà đầu tư ở bên ngoài Việt Nam, một số tổ chức tài chính nhận định chứng khoán Việt Nam chưa đến đáy.

Hai điểm nhấn được họ liệt kê để chứng tỏ đáy chưa thể gần là sự ổn định của giá trị đồng nội tệ sẽ còn chịu nhiều thử thách và lạm phát trong năm tới chưa thể rơi về mức một con số.

Bên cạnh đó, phần lớn các quỹ ngoại đang chịu sức ép đóng quỹ vào năm sau. Có rất ít khả năng các nhà đầu tư gia hạn cho các quỹ hoạt động. Thống kê chưa đầy đủ chỉ ra số tiền mà các quỹ ngoại phải thoái vốn năm 2012 lên tới 25.000 tỉ đồng. Đây là dựa vào giá trị tài sản ròng NAV mà các quỹ đang nắm giữ, chứ không dựa trên số vốn đầu tư ban đầu. Phần lớn các quỹ đều giải ngân vào hai năm 2006-2007.

So với mặt bằng giá cổ phiếu hiện tại, NAV của họ chỉ còn bằng một nửa, thậm chí một phần ba giá trị đầu tư ban đầu. Chẳng hạn một trong những quỹ lớn hiện nay là DWS Vietnam Fund có NAV 198 triệu đô la Mỹ vào ngày 30-11-2011 so với vốn đầu tư ban đầu 500 triệu đô la Mỹ cách đây năm năm (nguồn: Edmond de Rothschils Securities Limited).

Để có thể thoái hết số vốn trên, cần có sự chuẩn bị. Một số quỹ đã bắt đầu bán ra danh mục từ đầu năm nay. Trong 12 tháng qua, VN-Index giảm 18,6% - mức giảm không lớn nhờ sự neo giá hoặc tăng giá của những cổ phiếu có vốn hóa lớn như MSN, BVH, VIC, VPL, nhưng nhiều cổ phiếu blue-chips đã mất giá 50-70%. Hnx cùng thời gian giảm 44,2%.

Điều đáng nói là thanh khoản cả hai sàn chỉ còn bằng một phần tư so với cùng kỳ năm ngoái. Có ngày giá trị khớp lệnh của sàn TPHCM chừng 10-15 triệu đô la Mỹ. Thanh khoản như thế sẽ khiến quá trình thoái vốn của khối ngoại kéo dài lê thê và mệt mỏi.

Trong khi đó dòng vốn gián tiếp nước ngoài chảy vào chứng khoán Việt Nam gần như dừng hẳn. Không kể lượng vốn đầu tư có chủ định lâu dài vào một số trường hợp đặc biệt như mua cổ phần của Masan Comsumer, Vinamilk (khi 3% room nước ngoài còn lại được lấp đầy), hay các đợt phát hành trái phiếu quốc tế của HAG, các quỹ không huy động thêm được đồng vốn nào trong hai năm qua.

Mới đây VinaCapital hoặc Dragon Capital công bố khả năng có thể gọi thêm khoảng 100-150 triệu đô la Mỹ cho quỹ tư nhân (private equity), nhưng có hai điểm cần chú ý. Thứ nhất, đó mới chỉ là khả năng giả định. Từ nay đến khi các quỹ có tiền trong tay là khoảng thời gian 6-12 tháng.

Thứ hai các quỹ này nhiều khả năng giải ngân vào thị trường cận biên đang lên là Lào, Campuchia, nơi sàn chứng khoán vừa mở hoặc sắp mở với những quy định rất thông thoáng cho giới đầu tư ngoại.

Tái cơ cấu và dấu hỏi thời gian

Trong ba tuần ở Mỹ, tiếp xúc với hàng loạt quỹ đầu tư tại đây, tổng giám đốc một công ty chứng khoán cho biết ông không nhận được một sự hứa hẹn nào đầu tư vào Việt Nam năm tới. Ông buồn rầu nói: “Có quỹ họ nói thẳng có thể câu chuyện tăng trưởng của Việt Nam đang kết thúc nếu cách điều hành nền kinh tế chậm thay đổi”.

Thực ra giới đầu tư ngoại hiểu rất rõ xu hướng tái cơ cấu nền kinh tế Việt Nam và họ cũng biết rằng tái cơ cấu mới chỉ bắt đầu, còn con đường dài phía trước phải đi. Lạm phát rồi sẽ giảm (về một con số), tiền tệ sẽ được nới lỏng, tỷ giá sẽ ổn định, song câu hỏi là bao giờ? Hai, ba năm nữa hay lâu hơn? Trong thời gian chờ đợi, chứng khoán hẳn không có cơ hội để đi lên ngay lập tức. Vậy thì có nên rót vốn vào VN-Index bây giờ hay chờ đến khi chứng khoán phục hồi?

Rất có thể chờ đợi là lựa chọn khả thi thời điểm này!

Thay bằng giải ngân, tiền ngoại đang được rút ra khỏi chứng khoán niêm yết. Nhưng tiền ngoại cũng tỏ ra khôn khéo khi chọn đường chảy vào những doanh nghiệp ăn nên làm ra, có nền tảng quản trị lành mạnh.

Tập đoàn Masan vẫn có thể phát hành thêm 100-200 triệu đô la Mỹ cổ phiếu cho nước ngoài (và chuẩn bị phát hành vào đầu năm 2012). Tập đoàn tài chính số một Nhật Bản Mizohu đổ 500 triệu đô la Mỹ mua cổ phần Vietcombank. Một tập đoàn nổi tiếng của Pháp vừa đặt vấn đề mua cổ phần của Công ty Vàng bạc Đá quý Phú Nhuận PNJ, nhưng Chủ tịch Hội đồng quản trị Cao Thị Ngọc Dung cho biết PNJ không thiếu vốn và không muốn “đốt cháy” giai đoạn, phát triển quá nhanh. Khả năng vẫn bỏ ngỏ cho đến khi PNJ đưa nhà máy mới đầu tư vào hoạt động.

Hoàng Anh Gia Lai đang tính đến khả năng phát hành cổ phiếu công ty cao su (công ty con của HAG) cho nước ngoài. HAG, theo lời Tổng giám đốc Đoàn Nguyên Đức, sẽ rút khỏi lĩnh vực bất động sản sau ba năm nữa.

Cổ phiếu ở Việt Nam đang rất rẻ so với chính bản thân nó cách đây 4-5 năm và so với giá trị những doanh nghiệp kinh doanh có lãi. Tuy nhiên giá không phải là tất cả. Quan trọng là đồng tiền đầu tư phải mang lại lợi nhuận, mà thị trường chứng khoán lúc này giống như “cái thùng không đáy”, giá vẫn đang rớt. Vốn gián tiếp nước ngoài, do đó, khó mà neo đậu.

Source: http://cafef.vn/2011120910245297CA31/nam-2012-cac-quy-ngoai-co-kha-nang-thoai-von-khoang-25000-ty-dong.chn

Thomson Reuters: Screen test

IN SEVEN years as head of Reuters, Tom Glocer brought the British-based news agency from the verge of bankruptcy to a state of rude health. But he has done less well as chief executive of Thomson Reuters, the company created when Thomson, a Canadian purveyor of professional information for lawyers, accountants and others, bought Reuters in 2008. Bloomberg, the firm’s American rival, has almost wiped out its once-clear lead (see chart). On December 1st Mr Glocer said he would step down at the end of the year. His replacement, James Smith, the chief operating officer, is a former Thomson man.

The revenues of the professional division of Thomson Reuters grew by 10% in the year to the third quarter, but those of the markets division—which provides financial data and services, and accounts for more than half of total sales—managed only 1%. Last year that division launched a new information platform, Eikon, to compete with the terminals offered by Bloomberg, but just 8,000 customers have taken it up. The company has 400,000 financial-data subscribers in all.

Thomson Reuters and Bloomberg are the big fish in the professional-publishing pond, at least eight times larger than their nearest competitor. Bloomberg, besides expanding its terminals business, which has over 300,000 customers (at about $20,000 a pop), is pushing into government-related news and data. In 2010 it launched Bloomberg Government, which competes with Congressional Quarterly, a sister company of The Economist. In September it made its biggest purchase ever, spending $990m on BNA, a legal- and tax-information firm.

So what happened to Mr Glocer’s winning streak? His allies say his departure was always just a matter of time: once a firm buys another, it completes the takeover by putting its own people in charge. The Thomson family still owns 55% of the company, and some think the generous price Mr Glocer secured from Thomson for Reuters made him all the more vulnerable.

But he might have stayed longer were it not for a mix of bad luck and overconfidence. Eikon, intended to replace Reuters’ grab bag of services with a single offering, was designed to be more user-friendly than Bloomberg’s devices, but it was launched hastily and with flaws. With hindsight, a more gradual upgrade might have been more prudent. This summer, under pressure from the Thomson family, Mr Glocer fired Devin Wenig, a close ally he had put in charge of creating Eikon, and took it over himself—tying his prospects even more closely to Eikon’s.

Perhaps Mr Smith can do better. He will almost certainly have a freer hand, and some upgrades to Eikon are planned for next year. But these are still stormy seas. According to Claudio Aspesi, an analyst at Sanford C. Bernstein, an investment bank, it took most professional-publishing firms three to four years to recover from the 2001 recession. This time, Bernstein predicts, revenue growth at Thomson Reuters will not reach pre-crash levels until at least 2015.

One area of potential growth, though, is trading services. Changes in financial regulation in America and Europe will force a lot of trading in derivatives from the murky world of private “over-the-counter” deals onto exchanges, where contracts will be standardised and prices quoted. This presents both Thomson Reuters and Bloomberg with an opportunity to gather and sell data on these markets and perhaps to capture a share of the trade by linking banks and their clients through their own electronic trading platforms. The market for these derivatives is gigantic. A competitive edge there could make a big difference to both companies’ fortunes.

Source: http://www.economist.com/node/21541413?fsrc=rss%7Cbus

Mexico’s plunging peso: iArriba, arriba!

DOLLARS and pesos cross the border between America and Mexico in greater numbers than ever. The $400 billion-worth of trade in 2010 made Mexico America’s biggest trading partner after China and Canada. Greenbacks are so common south of the frontier that in some neighbourhoods peso coins are known as cuoras, a mispronunciation of “quarters”.

Lately the relationship between the currencies has been rocky. Between July and November the peso fell by 19% against the dollar, hitting its lowest level since the 2009 financial crisis. It has since bobbed back a little as prospects across the border have improved a tad. Nonetheless, its performance so far in the second half of this year has been the weakest of any Latin American currency.

Mexico is not the only emerging market with wobbly money. Nervousness about the global economy, thanks to the euro zone’s debt crisis, has sent investors running from exotic currencies into safe, familiar ones. Big manufacturing countries everywhere, from South Korea to Poland, have suffered from worries about the impact of another recession on manufacturing, says Jose Wynne of Barclays Capital.

Three more forces have pulled the peso down. Mexico has stronger ties to America than any other big Latin American country: nearly 80% of its exports go there. (Brazil, by contrast, sends less than half its exports to rich countries.) Bad news from America hits the peso hard. Second, traders use the peso as a proxy hedge for the region, as it is the only Latin American currency to be traded around the clock. Some of the peso’s biggest dips have happened overnight, during trading in Europe and Asia, notes Sergio Martin, chief economist at HSBC in Mexico.

Finally, Mexico’s central bank is less willing than others to intervene. Whereas Brazil, Colombia and Peru have all sold dollars to support their currencies, the Banco de México has left the peso to the markets, even buying dollars now and then to build up its foreign reserves. That is changing: on November 29th Mexico’s currency commission (made up of central bankers and finance-ministry officials) announced that the dollar-buying would end, and that up to $400m would be sold on days when the peso dipped by over 2%. The mechanism, last used in 2009, will temper volatility rather than defend the peso’s value, the bank says. The peso rallied a little after the announcement.

The cheap peso has helped Mexican exporters through a time of weak demand in their main market and rising competition in Asia. Mr Martin calculates that the real depreciation of the peso since the 2008 crisis is about 13%. “We are probably very close now to the Chinese unit labour cost,” he says. Nissan and Honda are among the carmakers persuaded to build new plants in Mexico. The country’s share of America’s imports last year was 12%, the highest ever. Partly for this reason, Mexico’s economy has held up better than its currency (see chart). This year it will grow faster than Brazil, which this week reported flat GDP in the latest quarter.

But growth could eventually be threatened by the country’s weak currency. It has meant pricier imports, which have put pressure on inflation, currently only 3.4% but creeping up. The sickly state of the American economy means that Mexico’s central bank is hoping to cut interest rates to keep growth on track. But as long as inflation remains a risk, that decision will be postponed. Most analysts forecast that the peso will appreciate next year. Frustratingly for Mexico, that hinges more on events in Europe and America than what happens at home.

Source: http://www.economist.com/node/21541426

Loan Market Isn't on Borrowed Time

Remember the halcyon days of June 2007? Stocks were soaring and the phrase "Greek ruins" inspired travel plans rather than bank runs. It was also the month that Canadian telecom giant BCE accepted an offer for what would have been the world's largest leveraged buyout, and the trailing default rate on leveraged loans fell to an all-time low of 0.15%.



A year later, stocks were past their peak and Greece was heading for disaster. Meanwhile, the BCE deal was dead and that default rate was on its way back up toward the 10.8% peak it hit in November 2009.

Today, the default rate is within a whisker of its all-time low, hitting 0.17% in November, according to the LCD team at Standard & Poor's Capital IQ. But the market clearly isn't buying it: Leveraged loans' average spread above Libor is 6.3%, implying a default rate running at 6.6%, according to LCD's Steve Miller.

The nexus of fear is in Europe—still long on speeches but short on definitive solutions to the euro zone's crisis. A banking panic there, freezing credit, would slam leveraged loans and other risky assets. Such fear is undoubtedly holding back buyout activity in Europe, down about 19% annualized according to Dealogic. Even if clobbered stock-market valuations are tempting, only the bravest private-equity firm would jump in today.

Yet investors with faith in Europe's ability to heal itself— such as those currently pushing down Italian bond yields—can also point to underlying strengths in the leveraged loan market. U.S. corporate profits have been growing strongly, bolstering balance sheets. The ratio of liquid financial assets to total liabilities for non-banks is now at its highest level since the mid-1970s, according to Citigroup.

Firms have also been knocking down the wall of refinancing built during the pre-crisis borrowing binge. At the end of 2009, $404 billion of leveraged loans were set to come due between 2012 and 2014, according to LCD. Now, the burden is under $150 billion as firms have paid off debt and refinanced with bonds.

The bigger issue will be finding buyers for new loans. The financial crisis left lasting scars on credit markets, including the sharp shrinkage of collateralized loan obligations. CLO funds were the go-to buyers of the go-go years. Barclays Capital estimates remaining CLO funds could absorb $60 billion of new loans next year, dwindling to perhaps just $10 billion in 2014. Issuance this year is forecast to be up to $175 billion. Despite the market's underlying strengths, therefore, leveraged loans will have to be priced to tempt non-CLO buyers, such as loan mutual funds.

Although the default rate will surely move higher over time, in the absence of a European meltdown a spike looks unlikely. On that basis, yields look attractive already.

Source: http://online.wsj.com/article/SB10001424052970204083204577082251565060684.html?mod=WSJ_Heard_LEFTTopNews

Banks Prep for Life After Euro

Some central banks in Europe have started weighing contingency plans to prepare for the possibility that countries leave the euro zone or the currency union breaks apart entirely, according to people familiar with the matter.

The first signs are surfacing that central banks are thinking about how to resuscitate currencies based on bank notes that haven't been printed since the first euros went into circulation in January 2002.

At least one—the Central Bank of Ireland—is evaluating whether it needs to secure additional access to printing presses in case it has to churn out new bank notes to support a reborn national currency, according to people familiar with the matter.

Outside the 17-country euro zone, numerous European central banks are eyeing defensive measures to protect against the possible fallout if the euro zone were to unravel, other people said. Several, including Switzerland, are considering possible replacements for the euro as the external reference point, or peg, they use to try to keep their currencies' values stable.

The central banks' planning is preliminary, according to the people familiar with the matter. It doesn't represent an expectation that the euro zone is headed for dissolution.

But the fact central bankers are even studying the possibility, which until this fall was considered unthinkable, underscores how swiftly conditions have deteriorated. Policy makers, central bankers and investors around the world have pinned their hopes on this week's Brussels summit to forge a long-awaited solution to the Continent's two-year financial crisis, which was ignited by doubts over countries' abilities to pay their debts.

The stakes are high. A failure of Europe's leaders to defuse the crisis would fuel already growing doubts about the viability of the euro zone. Many policy makers, bankers and other experts fear the monetary union's unraveling would not only reverse a decade of economic integration but also would trigger financial chaos.

J.P. Morgan Chase & Co. put out a report Wednesday that advised investors and companies to hedge against a collapse of the euro zone—though the bank said the likelihood of that happening was just 20%. It said many corporate clients were buying currency derivatives to place bets against the euro.

Before the formal launch of the euro in January 2002, an army of planners spent years choreographing the logistics of the currency's debut, including the minting of billions of bank notes and coins and the distribution of the new currency to banks and businesses across the Continent. Disassembling the bloc would be messy at best. Among the many challenges, loans and deposits currently denominated in euros would have to be switched to new currencies. And individual countries would need to decide whether to dust off their old currencies and, if so, how to quickly produce large quantities of paper money.

In Montenegro, which used Germany's Deutsche mark as legal tender before it adopted the euro in 2002, central bank officials are weighing their options for life after the euro. The Balkan country would have "a wide range of possibilities, from using another foreign currency to the introduction of a domestic currency," said Nikola Fabris, chief economist at Montenegro's central bank. One problem with the latter option: Montenegro doesn't have the capacity to print its own money, he said.

Most euro-zone central banks maintain at least limited capacities to print bank notes. While the European Central Bank is responsible for determining the euro zone's supply of bank notes, it doesn't actually print them. The ECB outsources the work to central banks of euro-zone countries. Each year, groups of countries are assigned the task of printing millions of bank notes in specific denominations.

The countries have different arrangements for printing their shares of the notes. Some, like Greece and Ireland, own their printing presses. Others outsource to private companies.

The assignments vary from year to year. Last year, Ireland printed 127.5 million €10 notes, and nothing else, according to its annual report. This year, it was among 11 countries assigned to print a total of 1.71 billion €5 notes.

In recent weeks, officials at Ireland's central bank have held preliminary discussions about whether they might need to acquire additional printing capacity in case the euro zone ruptures or Ireland exits in order to return to its prior currency, the Irish pound, according to people familiar with the matter. Officials have discussed reactivating old printers or enlisting a private company, the people said. "All kinds of things are being looked at that weren't being looked at two months ago," according to a person at one meeting. A spokeswoman for the Irish Central Bank declined to comment.

In Greece, widely regarded as the country most likely to leave the euro zone because of its fiscal problems, the central bank has a bank-note printing facility called IETA. Built in 1941, the Attica plant today is outfitted with "state-of-the-art machinery," according to the Bank of Greece's website. But IETA's printing in recent years has been limited. It has been one of five or six countries responsible for printing batches of €10 notes, according to the ECB.

Athens has buzzed with rumors over the past year that the Bank of Greece was secretly printing drachmas, Greece's pre-euro currency. Widely circulated joke emails featured drachma bank notes bearing the image of then-Prime Minister George Papandreou. The rumors at times have been blamed for triggering waves of withdrawals from Greek retail banks.

A Bank of Greece spokesman said the bank isn't looking for ways to boost its printing capacity. "There has been no talk regarding this issue," he said.

Some euros are currently produced outside the euro zone. In the northern England city of Gateshead, for example, a De La Rue PLC plant prints bank notes on behalf of several euro-zone countries, according to people familiar with the matter.

The Gateshead facility also serves as a backup plant for the Bank of England, which has a separate contract with De La Rue to print British pounds, according to a Bank of England spokesman.

The situation has worried some Bank of England officials, according to a person familiar with the matter. The concern is that if the euro zone unraveled, the Gateshead facility could be overwhelmed with requests from former euro-zone countries to print their national currencies, the person said.

That has prompted the Bank of England to consider steps to ensure that its ability to print British pounds isn't compromised, the person said.

The Bank of England spokesman said the bank isn't looking to "gain additional access to De La Rue's facility in Gateshead." A De La Rue spokeswoman declined to comment.

While some euro-zone countries have their own printing presses, "there might be other opportunities arising from any possible breakup of the euro as many of the smaller countries don't have state printing works," said Tim Cobbold, De La Rue's chief executive, in a statement. He noted that it usually takes about six months to develop a new currency with the necessary security features.

In Switzerland, which like the U.K. isn't part of the euro zone, the central bank has used the euro as its external reference point in its efforts to keep the Swiss franc's value stable.

Now, officials at the Swiss National Bank are considering what currency or basket of currencies would replace the euro as its reference point for the currency ceiling, according to a person familiar with the situation.

Before the advent of the euro, Germany's mark was Switzerland's main point of reference—including a period in the 1970s when the Swiss National Bank pegged the franc against the mark to rein in a surge in the Swiss currency. Today, as in the 1970s, Germany is Switzerland's largest trading partner, so a new Deutsche mark could in theory substitute for the euro, according to this person, although the bank is considering other scenarios, such as the formation of more than one currency bloc within Europe.

Central bank officials in Bosnia and Herzegovina, whose convertible mark is currently pegged to the euro, could switch to whatever hard currency emerges in the case of a breakup of the euro, a spokeswoman said. Before Bosnian officials fixed the national currency against the euro in 2002, they used the Deutsche mark as the peg.

Latvia's currency, the lat, is also pegged to the euro. The country's central bank doesn't expect the euro's demise but "could be expected" to look for a potential new peg among other European countries with "prudent fiscal policies" and with which Latvia already trades heavily, said a spokesman for Latvijas Banka.

Source: http://online.wsj.com/article/SB10001424052970203413304577084483874422516.html?mod=WSJAsia_hpp_LEFTTopStories