http://www.zerohedge.com/news/delays-begin-italy-pushes-back-balanced-budget-target-one-year
Submitted by Tyler Durden on 04/17/2012 12:54 -0400
http://www.zerohedge.com/news/bank-spain-releases-details-additional-capital-needs-spanish-banks
Submitted by Tyler Durden on 04/17/2012 15:05 -0400
and....
http://www.zerohedge.com/news/ltrover
Submitted by Tyler Durden on 04/17/2012 14:02 -0400
The Delays Begin: Italy Pushes Back Balanced Budget Target By One Year
As reported last week, and as shown brilliantly by Artemis Capital, the end of every reliquification phase by the Fed, such as the imminent end of Operation Twist with nothing firmly set to replace it, is always accompanied by a surge in vol, which in turn leads to market days like the past week, when market summaries are simple: either it is all Risk On, or Risk Off. Expect many more of these until Twist finally ends in just over two months at which point much more liquidity will be needed to achieve the same "flow" results. It just so happens that today is a risk On day, driven by previously noted "catalyst." Yet what is great about such days is that they allow all the bad news to be packed into a tidy little package and disseminated without anyone noticing, or pretending to notice. Such as the just announced headline fromReuters, which on any other day would have crippled the mood, that "Italy will delay by a year its current plan to balance its budget in 2013, according to a draft forecasting document to be approved by the cabinet on Wednesday." And while we have seen this over and over in the past 2 years, first with Greece, then with all the other PIIGS, it merely exposes the fact that exuberant optimism never pans out in a world in which the real average debt/GDP is what Reinhart and Rogoff would simply call "unsustainable." And while this news will matter once Germany realizes that its precious fiscal pact is already been soundly rejected, first by Spain and now Italy, for now it is but a footnote in the otherwise lacking newsflow: after all Spain managed to issue €2 billion in Bills, which contrary to yesterday, provides that all is again well in Europe. Until Thursday at least when Spain has to issue 10 year bonds, which just happen to mature outside of the LTRO. The narrative then may be somewhat different.
From Reuters:
and.....The draft Economic and Financial document, obtained by Reuters, raises the budget deficit forecasts for 2012-2014 and slashes this year's economic growth outlook.
The 2012 deficit target is increased marginally to 1.7 percent of gross domestic product from 1.6 percent, while the 2013 goal is raised to 0.5 percent from 0.1 percent.
The substantially balanced budget (a 0.1 percent deficit) is now targeted in 2014.
The economy is now forecast to contract by 1.2 percent this year, according to the document, compared with a 0.4 percent decline in GDP projected by Mario Monti's government in December.The draft DEF forecasts that the public debt will rise this year to 123.4 percent of GDP from 120.1 percent in 2011, and fall in 2013 to 121.6 percent.To summarize the hockey stick in all its glory: 2012 GDP growth cut by 0.8% in 2012, but offset by even more growth in 2013. When incidentally, total debt to GDP is now expected to grow from 120.1% to 121.6%. How this happens? Don't ask us - one needs a Harvard Econ Ph.D. to reach such improbable conclusions.As for Italy, here is an artist's rendeing of all current and future projections:
http://www.zerohedge.com/news/bank-spain-releases-details-additional-capital-needs-spanish-banks
Bank Of Spain Releases Details Of Additional Capital Needs For Spanish Banks
First we got Italy telling the world quietly it would not meet its deficit target for 2013, and will in fact experience debt/GDP growth in all outer years, and now we get the Bank of Spain, also taking advantage of today's market rally to dump its own set of bad news, namely that Spanish banks will need to provision another €29.1 billion, and will have higher core capital requirements of €15.6 billion (this is fresh capital). 90 banks have already complied with the capital plan, 45 have yet to find the needed cash. Putting this into perspective, the amount already written-down is €9.2 billion. So, just a little more. And this assumes there are no capital shortfalls associated with any impairment from the YPF -> Repsol follow through, which as Zero Hedge already showed, would leave various Spanish banks exposed. In other news, there is one more hour of trading: we suggest every insolvent entity in the world to quickly take advantage of the interim euphoria, as tomorrow may not be so lucky. Of course, in the worst case, Japan will just bail everybody out.
Here is Peter Tchir's somewhat bemused take on this news:
This is additional? New and more than they thought before? So Spain will give banks money, Spain will borrow from IMF, and Spain will become one of Greece, Portugal or Ireland?
Spain needs to cut its debt, not add it, or transfer it from one holder to another.
Here is a simple idea. Make all coupons 1.25% retroactively. LTRO borrowers are still getting positive carry, outright holders get income, and with retroactive changes elsewhere, this seems as reasonable as anything.
Double the maturity of all bonds maturity in 2 years or more. Again, protects the banks that bought front end stuff. Any bank that holds longer dated bonds, has them in an accrual book, so what do they care - no mark to market effect. Insurance companies will be hurt, but they use some average long term return anyways, so no real impact. Maybe not a great idea, but maybe better than taking on more and more debt without materially changing anything?
* * * * *The mindset must become that bank equity holders and bank sub debt holders can be wiped out. Equity and sub debt should be used to save the country. The country can save depositors and maybe senior unsecured bondholders.
Let someone create a new bank. I have half joked about "Bank of Pete" but there has to be huge pockets of money that would love to start a fresh bank in this environment - ECB support on the borrowing side, and limited competition on the lending side.
I'm afraid the "train has left the station" and Spain is devoted to a course of action that has had limited success in Ireland and been a failure in Portugal and Greece. It isn't too late. Hire a restructuring expert - Evercore? Get someone to figure out what the best possible outcome for the Spanish people is, and go with it.
and....
http://www.zerohedge.com/news/ltrover
LTROver
It will come as no surprise that the Spanish 'experiment' with the euro is not going well. Spain now relies more heavily on the ECB than at any time and today's bill auction sums up all that is wrong about our financial markets when an event that absolutely should be expected to be a non-event (a sovereign nation selling a small amount of short-dated debt) becomes a catalyst for algorithmic excess. In perhaps the greatest analogy for today's auction, Micheal Cembalest pronounces "throughout my career, central banks having to buy or finance sovereign debt to avoid a debt crisis was like going to the prom with your sister: there’s something very unnerving about it, even though it looks normal from a distance." It did not take long for the honeymoon following LTRO2 to end and despite today's exuberance, Italian and Spanish equity markets (as well as financial credits) have collapsedas Spain's sovereign risk has skyrocketed. While Spanish bank holdings of Spanish govvies, ECB lending to Spanish banks, and Spanish credit risk are surging so is one other much more worrisome fundamental trend - that of corporate non-performing loans. Dismissing the dichotomous relationship between consumer and residential delinquency calmness relative to unemployment's explosion (much as the market has in its pricing of bank stocks), the JPM CIO remains underweight Europe arguing that while contrarian calls are often the most profitable, this time being underweight European equities is the gift that keeps on giving.
The 'explosive' moves in Spanish risk and reliance on the central bank...
And the relative collapse in Spanish and Italian equity markets post-LTRO...
But, just as we have the BS BLS and the Census Bureau to deliver non-sensical data to confound the logic of what is going on in markets, the residential and consumer loan delinquency data in Spain seems questionable at best while corporate loans are tracking unemployment in their surge higher...
The other thing that’s rocketing higher in Spain: non-performing corporate loans (see chart). Interestingly, as my friends at Hamiltonian pointed out to me recently,consumer and residential delinquencies are flat, despite a surge in unemployment. I recommend taking this data with a giant grain of salt, given what one would normally expect. Markets are doing exactly that, which is why Spanish banks trade at less than tangible book value; a bit less than 1.0x for BBVA and Santander, around 0.5x for the domestically-focused Cajas. Note: Caixabank recently purchased Civica at around 0.35 times book value.
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