Spain Pain continues as Moody’s Downgrades Spanish Banks
Cheaper Properties coming up….
Moody’s has placed on review for possible downgrade the ratings of eight Spanish banks and two holding companies — Banco Cooperativo, Banco Sabadell; Bankia and its holding company, Banco Financiero y de Ahorro (BFA); Bankinter, CaixaBank and its holding company, La Caixa; Confederacion Espanola de Cajas de Ahorro (CECA); Caja Rural de Granada; Ibercaja Banco; and Lico Leasing. This follows the rating agency’s reassessment of the financial strength of all Spanish banks reflecting increased loss expectations with respect to their commercial real estate exposure and an anticipation of reduced earnings generation capacity available to strengthen provisions or capital in light of the weakened growth outlook for the Spanish economy.
In addition, Moody’s announced it was expanding its ongoing reviews of seven banks involved in mergers to incorporate these considerations, specifically, the ratings of Unicaja, Caja Vital, Banco Popular and NCG Banco remain under review for downgrade and the ratings of Bilbao Bizkaia Kutxa, Banco CEISS and Banco Pastor remain under review for upgrade.
Prime brokers and the Future
What are the trends in prime brokerage. What do clients focus, demand and expect? The business of prime brokerage is changing fast, and many will be wiped out. By James Williams, Hedgeweek;
For the prime brokers on whom hedge fund managers rely so much on, there’s not been a huge amount to shout about in 2011. Trading volumes are down and leverage is stuck at modest levels of 2.1x to 2.4x (compared to 4x leverage prior to 2008), despite record-low financing costs. It’s fair to say that 2011 hasn’t exactly been a halcyon year for prime brokers.
“Less leverage means lower balances, which drive prime brokerage revenues,” says Glen Dailey, Managing Director and Head of Prime Brokerage at Jefferies.
This is a business where margin levels are tested at the best of times, let alone those when political inertia in the eurozone conspires to push fund managers to the sidelines. “None of the managers that we speak to have been asked by their brokers to reduce risk,” explains Patric de Gentile-Williams (pictured), COO of FRM Capital Advisors.
Sovereign debt problems, and a ban on financial stock short selling by the likes of France and Italy in August led managers to begin shifting assets to other regions. Within this bearish climate, however, securities lending levels have increased. Two big trends have emerged this year. One has been the shorting of European government bonds and corporate bonds, the other has been a marked increase in shorting China stocks listed in Hong Kong.
Mr President-what’s going on?
In case you missed the 60 minutes interview with Obama. Some important questions were asked during the course of the interview. What about the fact that nobody still has been held accountable for any of the wrongdoings in the Financial “self regulated” Industry and the crisis we are still struggling with? From CBS:
Steve Kroft: One of the things that surprised me the most about this poll is that when asked who your policies favor the most, 42 percent said Wall Street. Only 35 percent said average Americans. My suspicion is, some of that may have to do with the fact that there’s not been any prosecutions, criminal prosecutions, of people on Wall Street. And that the civil charges that have been brought have often resulted in what many people think have been a slap on the wrist, fines. Are you disappointed by that?
President Barack Obama: You know, I can’t, as President of the United States, comment on the decisions about particular prosecutions. That’s the job of the Justice Department. And we keep those things separate, so that there’s no political influence on decisions made by professional prosecutors. I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn’t illegal. That’s exactly why we had to change the laws. And that’s why we put in place the toughest financial reform package since F.D.R. and the Great Depression.
International banking and financial market developments-BIS
From the latest BIS report; News on the euro area sovereign debt crisis drove most developments in global financial markets between early September and the beginning of December. Amid ratings downgrades and political uncertainty, market participants demanded higher yields on Italian and Spanish government debt. Meanwhile, difficulties in meeting fiscal targets in a recessionary environment weighed on prices of Greek and Portuguese sovereign bonds.
Conditions stabilised somewhat in October on growing optimism that the end-month EU summit would propose comprehensive measures to tackle the crisis. But by November, investors were growing sceptical about the adequacy of some of these measures. Sovereign bond yields then rose across the euro area, including for higher-rated issuers.
Essential Chart Update
Base Case Updated. Charts below;
Biggs Bullish again
Perfectly inversely correlated to the Market. Biggs is bullish, again…Bloomberg video below.
Gold and Silver Charts Update
So the risk off trade continues today. Worth noting is that during the past weeks gold is losing the midas touch. The fact majority of people are bullish on gold (and silver) prices, will pressure the metals short term. The positive long term trend is still intact though. When it comes to gold the trend still feels healthy, while the silver trend is showing signs of fatigue. Long term charts follow;
Chart Update
Markets are trading down today, after we once again reached the resistance levels on Friday.
The news flashes out of Europe are getting increasingly pathetic. The single most “disturbing” factor to the bear case is the fact everybody is getting very bearish and calling the collapse before Christmas, while all loaded up on gold….
Below 30 day charts worth reviewing.
Understanding today’s credit event
Guest Post by Macro Story.
“Those that fail to learn from history, are doomed to repeat it.” – Winston S Churchill
Hard to believe that the following post can be written just three years after the 2008 financial collapse. What is even harder to believe is how the majority either fail to or simply refuse to acknowledge the events unfolding and the comparisons to that historic moment in the global economy.
In 2008 we were forced to learn about various financial terms like subprime MBS, CDS and capital calls . Today we have commingling, sovereign debt yields and my favorite rehypothecation. So what does it all mean?
Think of the global economy as the construction of a house. On the surface is a beautiful home adorned with towering windows, magnificent roof lines and vibrant lighting. Hidden beneath the surface is the foundation working diligently to maintain the structure.
Builders go through painstaking efforts to maintain the integrity of the foundation. Assuring there are no air pockets or voids in the concrete that will crumble with time. The foundation is the basis in which a home is built and is analogous to the formation of credit in which an economy is built. Credit formation is truly the structure that supports the global economy.
The system is on the edge of collapse
The great EU summit deal, the markets cheered on Friday, seems more or less gone. We have traded right up to resistance levels, and could get a small pull back, but we don’t expect any real action until next year. “They” simply won’t let the markets collapse during the last week’s trading. Let’s see if “they” can save banks from collapsing during the holiday season…From the Telegraph;
Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region’s struggling banks, however City figures said a “collateral crunch” was looming.
“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.
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