Headline in the FT “Spain to force banks to set aside €30bn.” This is a bad joke. One which ordinary Spanish people are going to pay for in blood.
First, €30bn is a joke because it is not enough and the Spanish central bank and the government know it.
Second, 30bn of what? The Spanish banks don’t have 30bn of anything worth setting aside.
According to a Bank of Spain presentation quoted in an article by Bloomberg, the bad debt provisions of Spanish banks so far
would cover losses of between 53 percent and 80 percent on loans for land, housing under construction and finished developments.
The additional €30B announced today
would increase coverage to 56 percent of such loans,..
Market commentary by Peter Tchir of TF Advisors.
Greece is going to leave the Euro. That is now pretty much everyone’s expectation. I continue to believe that although they are highly likely to leave, it isn’t for a few more months, and that there will be some real effort from the Troika, led by the ECB to resolve this situation. This isn’t about helping Greece. This is about saving what is left of Europe. What does a new currency really do for Greece? It sounds exciting and the conventional wisdom is that it lets them inflate their way out of their problem. I think all it will do is inflate them into a “Mad Max” world. How is Greece going to be able to afford gas and food if they revert to the Drachma on short notice? Greece doesn’t export enough to get a huge immediate benefit. Yes, it will be cheaper to produce in Greece, but very little is set up to take advantage of that right now.
But it is the ECB and the rest of Europe that need to worry. Greece needs further debt cuts even more than it needs a new currency. Not only would the ECB’s and IMF’s existing holdings be converted to the new currency, Greece may decide to default outright. The ECB and IMF are both staring at massive losses. If Greece goes to the Drachma and doesn’t change the debt to Drachma, then they will have killed themselves. That just isn’t possible. So switching to drachma, and then possibly even defaulting is what is necessary. How will the ECB and IMF deal with it? The ECB might have to make a capital call. That would send tremors through the system. The IMF will deal with it, but expect talk about countries pulling out of the firewall. There is talk about having the EFSF make the ECB whole. That’s not even taking money from one pocket and shifting it to another, it’s the same damn pocket. The market will not like that.
Guest post by Azizonomics.
In the wake of J.P. Morgan’s epic speculatory fail a whole lot of commentators are talking about regulation. And yes — this was speculation — if Dimon gets to call these activities “hedging portfolio risk“, then I have the right to go to Vegas, play the Martingale roulette system, and happily call it “hedging portfolio risk” too, because hey — the Martingale system always wins in theory.
The Volcker rule, part of the Dodd-Frank financial reform law, was inspired by former Federal Reserve Chairman Paul Volcker. It’s supposed to stop federally insured banks from making speculative bets for their own profit — leaving taxpayers to bail them out when things go wrong.
As we have said, banks have both explicit and implicit federal guarantees, so the market doesn’t impose the same discipline on them as, say, hedge funds. For this reason, the Volcker rule should be as airtight as possible.
Proponents of regulation point to the period of relative financial stability between the enactment of Glass-Steagall and its repeal. But let’s not confuse Glass-Steagall with what’s on the table today. It’s a totally different ball game.
Understanding the Spanish economy is a skill. Understanding the Spanish society adds a dimension to it. Edward Hughes, understands both. Must read for those interested in the Spanish situation.
“Every leg of the eurozone crisis has been marked by denial of the full scale of the problems. Whether Spain’s authorities have been deceitful or wilfully blind makes little difference at this point. The banks will need more capital; the government will need external help, with all the market uncertainty and strings attached that this implies. And the pain in Spain will only get worse”.
The top Line, Financial Times
According to reports now widely circulating the Spanish press (in Spanish only), the EU is pushing Spain hard to accept EU aid on completion of an independent external evaluation of the problems in the banking sector that is to be conduced by Blackrock Solutions and Oliver Wyman. The evaluation has been imposed on Spain by both the ECB and the EU Commission following doubts about just how faithfully the numbers published by the central bank do reflect the likely losses to be sustained by the Spanish banking system. Following this weeks revelations about the extent of potential losses in Bankia (product of the fusion of a number of savings banks, and one of the country’s largest financial institutions by assets) it is not hard to understand why.
Not only has the issue placed in doubt the capacity of the country’s political and financial leaders to handle a crisis of this magnitude, it has once more raised question marks and doubts about the adequacy of data presented in commercial bank annual accounts. What brought matters to ahead was the publication on Friday 4 May of Bankia’s unaudited accounts for 2011 wherein the parent bank BFA still valued Bankia, in its individual accounts, at book value. In fact at the time Bankia was trading at around 0.3 of BV, while listed stakes in companies like Mapfre, NH Hotels, and Indra were by no means fully marked to market. The reason the accounts remained unaudited was that Deloitte, the bank’s auditor during the time of the stock market listing, had refused to sign off on them.
Just as The Trader predicted a few months ago, focus has shifted towards the Spanish problems over the past weeks. With an imploding economy, Spain is the big elephant rocking Europe at the moment. With all the problems mounting, a relevant question is; “Is the Sun setting on Spain as a brand”?. From El Pais.
If you look it up in the archives, the expression marca España, or Spanish brand, appeared in this newspaper for the first time in 1985, in a column written from the United States by writer, journalist and economist Vicente Verdú. In it, he predicted that the country would soon be in vogue. “Spain is an entire world ready to be sold,” he wrote. The Catalans were promoting their cavas abroad, and La Rioja wines and Lladro figurines were establishing a presence in international markets. Nancy Reagan was photographed dancing flamenco on an official visit to Madrid. “Everything counts in defining a brand, but it’s also crucial to break away from the old stereotypes of Easter week and Hemingway to offer something new and surprising,” said Verdú.
This period was followed by the Barcelona Olympic Games, which marked the beginning of the internationalization of larger Spanish companies and a period of economic development that turned Spain into a positive example for countries joining the European Union. Per capita income reached the EU 15 average, the population swelled by six million people, the number of universities skyrocketed and for 14 consecutive years, starting in 1995, the economy grew by an average of 3.5 percent a year. The grand finale was the housing boom, when international experts officially christened Spain’s “economic miracle.”
JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office. The futures of the trading unit – a subset of the CIO that incurred the losses – and people who work there are under question, with departures possible in the next 24 hours, people familiar with the matter said.http://www.ft.com/intl/cms/s/0/adc55f24-9d06-11e1-9327-00144feabdc0.html?ftcamp=published_links%2Frss%2Fhome_uk%2Ffeed%2F%2Fproduct#axzz1uofkmjQk
Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europe’s monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bank’s governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the region’s policymakers. http://www.ft.com/intl/cms/s/0/680d8532-9d11-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority. The vote for the CDU slumped to just 26 per cent, according to the first exit polls, by far its worst result in the state in the post-war period, and a serious setback for the German chancellor. http://www.ft.com/intl/cms/s/0/8edb6b32-9d18-11e1-9327-00144feabdc0.html#axzz1uofkmjQk
All you need to read and some more below.
Guest post by Peter Tchir of TF Market Advisors.
What a week. Just over a week ago we had a disappointing non-farm payroll report (why don’t farmers count?) that sparked a sell-off that accelerated throughout the day as the market got nervous about the elections.
The market was right to be nervous about the elections. The Greek elections resulted in some groups adamantly opposed to the Euro and the existing bailout plan with significant power. That, coupled with a solid victory for Hollande in France gave the markets a real fright that left us staring at some bright red screens on Monday morning.
But in the end, the markets tolerated the results and the ongoing uncertainty about who will govern Greece remarkably well. Spain was truly manic with the Spanish market swinging wildly all weak as fear of bank problems switched to excitement over recapitalization plans back to questions about the future.
I continue to believe that the Axis of Weeble, will do just that for now. They will wobble but not fall down – just yet.
Greece will get some concessions from the Troika. It is in no one’s interest to rush their exist. Depending on how big the concessions are this could buy Greece anywhere from a few months to a year or more of time to make a final decision on the Euro. The concessions can be big if the ECB plays nice with its portfolio of bonds and does something along the lines of what we recommended. I think we will see enough progress in Greece early this week that it will be supportive of the market. I continue to like the post PSI bonds, even though they were down last week, as I don’t think the problem comes to a head just yet, and at 21% of par a lot of bad outcomes are already priced in.
News have been dominated by JPM and some Greek “stuff” over the weekend. Here are some JPM news wort reading with the Sunday wine.