ANTIQUES SHOPS

-- Following Colombia-incorporated holding company GRUPO SURA's acquisition of ING Group's Latin American pension, insurance, and investment funds operations, the company's capitalization plan has resulted in a rapid debt reduction.

-- We are affirming our 'BBB-' ratings on GRUPO SURA and removed them from CreditWatch with negative implications.

-- The stable outlook reflects our expectation that GRUPO SURA will successfully complete its capitalization plan during 2012 and consolidate the operations of recently acquired assets to accelerate the dividend growth.

Rating Action

On June 12, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-' long-term corporate credit rating on Grupo de Inversiones Suramericana S.A. (GRUPO SURA). At the same time, we affirmed the 'BBB-' rating on GRUPO SURA's $300 million senior unsecured notes due 2021. We removed the ratings from CreditWatch with negative implications, where we had placed them on July 27, 2011. The outlook is stable.

Rationale

The ratings on GRUPO SURA reflect its satisfactory business risk profile, intermediate financial risk profile, and adequate liquidity.

Our assessment of GRUPO SURA's business risk profile as satisfactory reflects the company's adequate portfolio risk that is supported by the quality of its investments, consisting of publicly-listed companies in Colombia that maintain a leading position in industries with positive growth prospects. Also, our assessment incorporates the proven track record of GRUPO SURA's management for maintaining a substantial ownership stake and controlling votes throughout its investment portfolio, which provides a high degree of stability and predictability to the company's dividend stream. These factors are partially offset by the company's relatively weak portfolio diversity given the concentration on financial institutions, Grupo Bancolombia and Sura Asset Management. We also believe that GRUPO SURA's portfolio liquidity is relatively weak, as the company's ownership structure throughout its investment portfolio limits the potential for large divestments.

Our assessment of GRUPO SURA's financial risk profile as intermediate incorporates the company's capitalization plan that has supported its liquidity and has resulted in a rapid debt reduction, through which we expect that the company's total gross debt to approach $500 million by year end. In addition, our assessment incorporates our expectations that GRUPO SURA will be able to post net debt to operating cash flow (dividends received less operating costs before capital expenditures and financing activities) and a total cover ratio (measured as the ratio of dividends received to administrative expenses, interest, and dividends paid) below 3.0x and at about 1.7x by the end of 2013, respectively. In addition, based on the market capitalization of the publicly-listed subsidiaries and the book value for the unlisted companies, GRUPO SURA's loan-to-value ratio would remain around 10% over the next couple of years.

In December 2011, the company completed the acquisition of ING Group's Latin American pension, insurance, and investment funds operations and renamed them Sura Asset Management. In our view, this acquisition will not only support GRUPO SURA's top-line growth, which has averaged 11.4% during the past five years, but will strengthen the company's investment portfolio through the diversification of the dividend stream and larger presence in Latin America. On a pro forma basis for 2012, we expect that revenue growth will be approximately 50%, with dividends of more than $260 million. Also, we do not anticipate significant changes in GRUPO SURA's investment portfolio composition for the remainder of the year, given the company's strategy to consolidate Sura Asset Management's operations and decrease its debt. However, based on its plans to increase its market presence in Latin America, we do expect GRUPO SURA to continue exploring investment opportunities, particularly in the financial services sector. We expect GRUPO SURA to maintain its net debt to operating cash flow and total cover ratio below 3.0x and at around 1.7x, respectively.

GRUPO SURA is a publicly-traded holding company incorporated in Colombia. Through its investment portfolio, GRUPO SURA is involved in several sectors, including financial services, processed food, cement, and energy, with a leading market positions in the country. Also, some of these sectors have an international presence.

Liquidity

Based on its likely sources and uses of cash during the next 12-18 months, our performance expectations, and the company's capitalization plan, GRUPO SURA has an "adequate" liquidity profile. Relevant factors in our assessment of its liquidity profile include the following:

-- We expect its sources of liquidity during the next 12-18 months to exceed uses by at least 1.2x;

-- We expect net sources to be positive, even if dividends are 15% lower than our expectations during the next 12 months; and

-- Our view that the company maintains a sound relationship with domestic and international banks, and has a track record of accessing the local and international capital markets.

As of March 31, 2012, GRUPO SURA's liquidity sources include a combined cash and cash equivalents position of approximately $23 million and capital contributions for approximately $350 million from Bancolombia and the International Finance Corporation in Sura Asset Management. Under our base-case scenario, we also estimate that for the next 12 months GRUPO SURA will receive a dividend stream in excess of $260 million. These cash sources compare favorably with the company's cash uses for the next 12 months, including administrative and interest expenses for about $45 million and $50 million, respectively, as well as debt maturities for around $450 million, mainly comprised of bank loans. Currently, GRUPO SURA is undergoing an important capitalization plan that will continue to support the company's liquidity. In particular, the company recently announced the sale of the 5% stake in Sura Asset Management, which will represent $177.9 million in additional capital.

The rating incorporates our expectations that the company will continue to raise capital during the next six months that could represent close to $150 million in cash, while maintaining a prudent cash management policy.

Outlook

The stable outlook reflects our expectations of a rapid debt reduction and a 55% growth in dividends for 2012 stemming from the consolidation of the recently acquired ING Group's assets, which would return credit measures to levels in line with the current rating. We expect that top-line growth, coupled with an efficient cost control strategy for the next two years will drive GRUPO SURA's net debt to operating cash flow (dividends received less operating costs--before capital expenditures and financing activities) and total cover ratio (measured as dividends received divided by administrative expenses, interest and dividends paid) below 3.0x and at around 1.7x by the of end 2013, respectively.

We could lower the ratings if the company's capitalization plan does not materialize in 2012, and results in weaker-than-expected metrics. In addition, we could lower the rating if GRUPO SURA's receives significantly smaller dividends or if its financial policy becomes more aggressive. A debt-financed growth strategy that results in net debt to operating cash flow of more than 3.0x, a total cover ratio below 1.5x, or a loan-to-value ratio above 15% beyond 2013 could result in a downgrade. We believe that until the company completes its deleveraging plan, a positive rating action is unlikely to occur.

* Fekter says Rome's high borrowing costs may drive it to aid

* Italy's Monti calls comments "totally inappropriate"

* Spanish, Italian bond yields rise, Spain's hits euro high

* EU, ECB press for early euro zone banking union

By Michael Shields and Steve Scherer

VIENNA/ROME June 12 (Reuters) - Raising the stakes in Europe's debt crisis, Austria's finance minister said Italy may need a financial rescue because of its high borrowing costs, drawing a sharp denial on Tuesday from the Italian prime minister.

Maria Fekter's assessment of the euro zone's third largest economy stoked investors' fears that Europe is far from ending 2-1/2 years of turmoil - a feeling reinforced by Dutch Finance Minister Jan Kees de Jager, who said the euro zone was "still far from stable".

A deal by euro zone finance ministers on Saturday to lend Spain up to 100 billion euros ($125 billion) to recapitalise its banks was seen by many in the markets as yet another sticking plaster. Spanish 10-year bond government yields soared to 6.81 percent, their highest level since the euro's launch in 1999.

Euro zone rescue funds, already stretched by supporting Greece, Portugal, Ireland and soon Spain, might be insufficient to cope with Italy as well, Fekter said in a television interview on Monday night.

"Italy has to work its way out of its economic dilemma of very high deficits and debt, but of course it may be that, given the high rates Italy pays to refinance on markets, they too will need support," Fekter said.

She sought to soften her remarks on Tuesday, saying she had no indication Italy planned to apply for aid.

Italian Prime Minister Mario Monti, asked by a German television network whether his country would need a bailout, said: "I don't believe so."

Earlier, he called Fekter's comments "completely inappropriate" for an EU finance minister. Euro zone officials said they were deeply unhelpful.

Amid the cacophony, Italian 10-year bond yields also rose further as the aid deal for Spanish banks failed to ease doubts about Madrid's ability to fund itself, fuelling wider contagion fears.

The market reaction suggests that ministers have failed to break the so-called doom loop between rising government debt, economic recession and teetering banks that previously drove Greece, Ireland and Portugal into EU/IMF bailouts.

Analysts cited uncertainty about the mechanics of the Spanish rescue and fears that private bondholders could be pushed down the repayment chain below official lenders, risking losses in any debt write-down, as they suffered in Greece.

"If you're a bondholder and they just push you down the line, why would you invest in Spanish government bonds?" said Gary Jenkins, director of Swordfish Research Ltd. "What they should be doing is trying to encourage people to invest in Spain, not discourage them."

Investors are also worried about the outcome of a Greek general election next Sunday which may determine whether the country stays in the euro zone.

Credit ratings agency Fitch said the bank rescue may help stabilise Spain's sovereign rating, which it cut last week by three notches to BBB, and the bailout should not have a direct impact on other euro zone countries.

Even though Italy's deficit and unemployment are lower than Spain's and its banks are not exposed to a real estate crisis, doubts about Rome's ability to turn itself around during a deep recession are keeping international investors at bay.

If the economy does not start to grow after a decade of stagnation, Rome will face mounting difficulty in bringing down its debt, now at 120 percent of gross domestic product - second only to Greece's debt mountain in the euro zone.

BANKING UNION

European Commission President Jose Manuel Barroso, European Central Bank policymaker Christian Noyer and French Finance Minister Pierre Moscovici all called on Tuesday for swift moves to create a euro zone banking union.

Barroso told the Financial Times that a cross-border banking supervisor, a deposit guarantee scheme and a bank resolution fund could be put in place in 2013 without changing EU treaties.

EU paymaster Germany has so far rejected a deposit guarantee or a resolution fund, saying they would require treaty change.

The Bundesbank weighed in, saying a European banking union could bring advantages only if properly anchored in a fiscal union with powers to stop countries breaking budgetary rules.

Fekter's typically outspoken comments came after Italy's industry minister dismissed the idea that Rome may need external help, saying reforms adopted by his government so far had put the Italian economy on a sound footing.

Her concerns are shared by one of the German government's council of economic advisers, Lars Feld, who told Reuters that Italy could be next in line.

"Overcoming the troubles in Spain will bring calm to the markets for a while, but the chances are not so small that Italy may also come under fire, in particular as the promised labour market reform has turned out to be less ambitious," Feld said.

OUTSPOKEN

The Austrian minister has a record of speaking out of turn. She angered EU paymaster Germany last month by suggesting Greece might be forced out of the European Union over its economic problems.

She infuriated Eurogroup chairman Jean-Claude Juncker in March by rushing out to brief the media on a deal to increase the euro zone's financial firewall before he could make the official announcement. She later apologised.

And when U.S. Treasury Secretary Timothy Geithner was invited to a euro zone finance ministers' meeting in Poland last year to plead for a more robust rescue fund, Fekter said bluntly that Washington should look after its own worse fiscal mess first.

In Brussels, EU officials voiced exasperation at her latest comments on Italy.

"The problem is that this is market sensitive," said a euro zone official, whose position does not authorise him to speak on the record. "It's one thing if journalists write this but quite another if a euro zone minister says it. Verbal discipline is very important but she doesn't seem to get that."

Italy's leading economic newspaper, Il Sole 24 Ore, appealed to Germany to save the single currency before it is too late.

"Schnell Frau Merkel! (Hurry Up Mrs Merkel!)," the usually sober business daily said in a banner headline in German.

An editorial urged Chancellor Angela Merkel to back joint guarantees for European bank deposits, allow direct access for banks to euro zone rescue funds and accept a mutualisation of European public debt, with each country paying a different interest rates.

Merkel has opposed issuing joint euro zone bonds and says member states must agree to transfer more budget sovereignty to European institutions, including the EU's Court of Justice, as part of a political union before she would consider such idea. (Additional reporting by John O'Donnell in Brussels, Philip Pullella in Rome, Emilie Sithole-Matarise, John Stonestreet and Swaha Pattanaik in London, Steven Scherer in Rome; Writing by Paul Taylor; Editing by Janet McBride/Mike Peacock)

Sanders released information provided by the Government Accountability Office showing representatives of 18 banks that got emergency Fed funds during the 2007-2009 financial crisis while their top executives served on the boards of regional Fed banks.

"This report reveals the inherent conflicts of interest at the Fed," Sanders said in a statement.

Dimon, a member of the board of the New York Federal Reserve Bank, had taken on a leading role as spokesman for the banking industry's objections to financial reforms aimed at preventing a repeat of the 2007-2009 crisis. He is due to testify before Congress on Wednesday about embarrassing trading losses at his firm that have raised questions about oversight.

Sanders has proposed legislation barring bankers from having a role on the board of the 12 regional Fed banks, saying it is wrong for executives to govern an institution that regulates their firms.

The Federal Reserve - the U.S. central bank and lender of last resort - is composed of a seven-member board of directors in Washington and 12 regional Fed banks around the country, each of which has its own board of directors.

The president appoints the members of the Fed board, subject to Senate confirmation, and each board member votes at monetary policy meetings.

The regional Fed bank presidents, who have rotating rights to vote at policy gatherings, are selected by their own boards of directors. The boards are composed of bankers, business people, and community representatives selected by regional banks and by the Fed board.

Members of regional Fed bank boards are prohibited by Fed policy from involvement in regulatory actions, and are limited to providing information about the evolution of the regional economy.

Defenders of the existing system say regional directors have no influence over supervision and play an important role in interpreting economic trends that helps in policymaking.

However, critics charge that because the board members help select the regional institution's president, there is in fact a conflict.

A GAO report on possible conflicts of interest in the Fed governance system concluded that there were none, but there was the risk of an appearance of conflict.

The report said that while directors of regional banks were consulted during the creation of emergency programs, only those firms that satisfied eligibility requirements were allowed to use them. GAO said directors were not involved in making decisions about approving or setting terms for any loans.

The Fed board and regional Fed banks declined to comment on Wednesday.

While the names of institutions receiving emergency Fed loans during the crisis is public, the GAO identified the bankers who were serving on regional Fed boards, and how much their firms received, a Sanders spokesman said.

GAO named bankers and business people with possible conflicts sitting on the board of nine of the regional Feds, Sanders said. Besides Dimon, the GAO identified former New York Fed board members Jeffrey Immelt, chief executive of General Electric, and Sanford Weill, former chief executive of Citigroup. (Reporting By Mark Felsenthal; Editing by Leslie Adler)