http://www.zerohedge.com/news/ecb-calls-spains-bluff-or-does-it-and-did-europe-just-check-fed
Submitted by Tyler Durden on 05/29/2012 17:01 -0400
http://www.zerohedge.com/news/prematurely-evacuating-tispanic
Submitted by Tyler Durden on 05/29/2012 12:40 -0400
and Egan - Jones embarrasses Fitch , Moody's and S&P once again by doing its job as a credit rater......
http://www.zerohedge.com/news/egan-jones-cuts-spain-again-bb-b-outlook-negative
Submitted by Tyler Durden on 05/29/2012 11:27 -0400
http://www.telegraph.co.uk/finance/debt-crisis-live/9296529/Debt-crisis-live.html
Italian debt auctions are becoming more challenging with each passing week. While demand from domestic institutions is still there, particularly for shorter-term paper, the concessions are heftier. As recently as March, when the LTRO-led rally had yet to run its course, Italy was selling six-month paper at a yield of 1.1pc. Now it's paying 2.1pc.
We are focused on the cash to have a balanced cash flow in all the countries of the region. We are very keen, mainly in Spain, to be paid. It’s a daily fight, a monthly fight. We are in line with last year, but things must be reworked every day.
How long can Mariano Rajoy keep this up? You know, the old matador routine. Swooshing his cape and declaring: “There will be no rescue of the Spanish banks.”
So where will [Rajoy] find the money to finance his €23.5bn bail-out of Bankia, a bank deemed healthy just weeks ago? The Fund for Orderly Bank Restructuring (FROB) has €5.3bn, and other banks to worry about. It would be ruinous to tap the bond markets. Spanish 10-year yields are already at danger levels of 6.4pc. The spread over German Bunds has reached a post-EMU high of 514 basis points.
ECB Calls Spain's Bluff... Or Does It? And Did Europe Just Check To The Fed?
- Ben Bernanke
- Ben Bernanke
- Bond
- Borrowing Costs
- Central Banks
- European Central Bank
- Nationalization
- None
While most of the early action today was driven by a baseless rumor that the ECB would announce some magical recapitalization plan that would put everything back into its normal (by this we mean somehow sustainable) place, the alleged time when Draghi would make such an announcement came and went... and nothing. Instead, the ECB, using theFT as its mouthpiece, came out late in the day, however not with news that Europhiles wanted to hear. As a reminder, as part of the proposed Bankia nationalization scheme, Spain would inject Spanish debt into the insolvent entity, thereby allowing it to pledge the debt for ECB repo cash. Or so the thinking went. This was, in effect, Spain's bluff. The ECB has just called it.
A Spanish plan to recapitalise Bankia, the troubled lender, by indirectly tapping the European Central Bank for cash, was bluntly rejected as unacceptable by the ECB, European officials said.News of the rejection came as Spain faces elevated borrowing costs in the bond markets, tries to persuade investors it can contain problems in a banking sector weighed down by €180bn of bad property loans and, on Tuesday, saw its central bank governor stand down early.
Instead, it seems that the ECB is a fan of the old fashioned type of capital raise: one involving equity, and cash, and none of this newfangled repo monetary ponziness. Of course, the only bank that did try a capital raise by way of a rights offering in 2012 was Italian UniCreditwhich plunged by nearly half in the days following the announcement as a market test would clearly indicate it was woefully undercapitalized and its equity may well be worthless. This, however, does not seem to bother the ECB:
The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments, according to two European officials
ECB's calling of the Spanish bluff also explains the earlier news of Ordonez' premature evacuation from the Bank of Spain, which we noted:
News of the ECB’s hardline response emerged as the Bank of Spain announced that Miguel Angel Fernández Ordóñez, its governor, would step down at the end of next week, a month earlier than planned. Mr Fernández Ordóñez – known by his initials Mafo, who was appointed by Spain’s previous socialist government – has been subject to increasing attacks from politicians over his failure to prevent the country’s banking crisis.
In summary:“This is like a game of poker now,” one government adviser said, “and I don’t think Spain is bluffing”.Well, it is. Because its cards, as explained yesterday, are all merely collateral backed by zombie banks which carry their "assets" at idiotic valuations.So yes - in the great game of monetary poker, the ECB just called Spain's bluff. Or maybe not. Because paradoxically this may all be simply a means to crash the market, as we have been cautioning since last week, when Citi, correctly, said that Crossover would cross over (pun intended) 1000 bps, before the central banks would get involved.In other words: yes, it is a game of cards,but one which may well have Spain and the ECB on the same side of the table, and now both have checked to Ben Bernanke, who has 3 weeks to decide if the cost of bailing out Europe, and thus US banks, is worth the printing of another $1 trillion.
We can't wait to find out.
and like the Director of Bankia earlier today , it would appear Bank of Spain Governor is leaving post haste. ..... What could go wrong......
Prematurely Evacuating The Tispanic?
First it was the CEO of Bankia whose departure via Golden parachute seems incredible in its absolute lack of shame; and now, as Bloomberg reports, Miguel "Mafo" Ordonez - the Governor of the Bank Of Spain - has resigned - with 2 weeks notice.
- BANK OF SPAIN GOVERNOR TO LEAVE ROLE ONE MONTH EARLY
- ORDONEZ TO LEAVE ON JUNE 10
Did he maybe find some unmissable Costa Del Sol real estate opportunities forcing him to get out of dodge just that much earlier? If so, could he maybe spread the love and give everyone else the hot tip (aside from Spanish taxpayers of course)?
http://www.zerohedge.com/news/egan-jones-cuts-spain-again-bb-b-outlook-negative
Egan Jones Cuts Spain Again: From BB- To B, Outlook Negative
The little rating agency (or is that former, now that it is public knowledge that Egan-Jones missed a comma in their NRSRO application?) that just refuses to go away, has done it again, and downgraded Spain from BB- to B (negative outlook of course), and on the edge of the dreaded triple hooks, mere days after it cut it from BB+ to BB-.
Spain contnues to be weakened by the government deficit of 9.6% (based on the first quarter results), an estimated decline in GDP of 1.7% (per the Economy Ministry), the 24.4% unemployment, the IIF's recent estimate of additional bank loan losses up to EUR260B, and possible depositor withdrawals. (Over the past three fiscal years, that is from 2008 to 2010, Spain's GDP declined from EUR1.09 trillion to EUR1.07 trillion.) Meanwhile, its debt mushroomed from EUR381B to EUR563B. The recently-reported quarters are of little comfort since the debt has risen to EUR 641B while GDP has been more or less flat resulting in a 67% debt to GDP as of 2010 (near 88% currently) and are rising. Social benefits are a major problem; while payments to the govt have been more or less flat over the past four years (up EUR 8 billion), payments from the government have been up EUR 44B). As a result, Spain is short about EUR50B per year for social payments, EUR20B per year for interest, and an additional EUR 30B for asset growth; hence the EUR100B per annum increase in debt.Spain will inevitably be faced with payments to support a portion its banking sector and for its weaker provinces. Assets of Spain's largest two banks exceed its GDP. We are slipping our rating to "B"; watch for more requests for support from the banks and money creation.As explained repeatedly before, once the other rating agencies follow suit, two of which still have it at A, Spanish repo requirements at the ECB crank up by another 5%.
http://www.telegraph.co.uk/finance/debt-crisis-live/9296529/Debt-crisis-live.html
Spain to approve joint regional bonds on Friday, says economy ministry.
Under the plan, regions will reportedly set aside tax revenue in a deposit account to guarantee that holders of the bonds issued for regions get paid first.
12.10 Andrew Bosomworth, a managing director at Pimco - the world's largest bond trader - says Greece could leave the euro within two months. He also sees the beginning of a bubble in the Bund market.
Bosomworth adds that it is looking more likely Spain will need a bailout, country facing a credibility question. ECB buying would only help Spain"for so long".
Investors worried over eurozone, and Chinese reports that the Eastern country's government won't start long-term stimulus plan.
11.47 Spanish budget balance in April revealed as -€25.5bn year-on-year, from previous figure of -€19.7bn - government says gave support to regions of €8.3bn. VAT fell 8.2pc in first four months of 2012.
11.39 EU: definitely no Troika mission before new Greek governmentcomes in.
Greece is holding elections on June 17.
11.30 The risk premium that Spain must pay to borrow compared with benchmark German borrowing rates has hit a record 515.6 basis points on tension over Spanish banks.
11.26 Three Spanish savings banks - Ibercaja, Liberbank and Caja3 - are studying a possible merger.
In separate statements, the three banks said their boards would meet later on Tuesday to vote on the merger, which would come as thegovernment is forcing lenders to increase the amount of money they must have to cover bad loans.
Prime Minister Mariano Rajoy's conservative government this month instructed Spain's banks to set aside an extra €30bn in 2012 in case property-related loans go bad, on top of €53.8bn required under reforms enacted in February.
11.24 EU: tackling tax fraud a vital part of second Greece programme.
EU echoing IMF chief Christine Lagarde at the weekend, who incidentally doesn't pay income tax due to her diplomatic status.
11.11 Reuters has cited an unnamed EU Commission offical as saying that Spain has not official notified the EC about Bankia recapitalisation.EC in contact with Spanish government over lender's rescue.
11.05 UK May CBI retail sales expectations index at 21 versus -6 in April - highest since April 2011.
11.03 European Central Bank Governing Council member Ewald Nowotny says the prime objective is to keep Greece within the euro, but that depends on the Greek people and their government. He dismisses talk of ECB restarting bond purchases or long-term loans.
Adds that rescuing banks is responsibility of national governments - this seems to end Spanish PM's hopes of the EU bailout fund directly helping the region's banks.
10.45 Spain says injecting debt into Bankia is a "marginal" option. Prefers to tap markets for financing.
10.34 China has no plans to introduce large-scale stimulus, Xinhua news agency reports.
10.32 European Commission President José Manuel Barroso is "reasonably confident" about Europe. Says it is in Greece's best interest to stay in the EU.
10.28 Switzerland sells CHF688.8m of 91-day bills at a negative yield of -0.62.
10.13 The parent company of Bankia, the lender at the centre of Spain's financial worries, has restated its 2011 results to reflect a €3.3bn loss as opposed to a €41m profit.
BFA said in a statement that about half of this revised amount stemmed from losses at Bankia, which has been nationalized and will receive €19bn in a government bailout.
BFA said another €1.6bn in losses came from an adjustment of expected tax deductions, which the company had tabulated as assets.
Bankia's exposure to toxic real estate assets is now calculated at about €40bn, as opposed to the most recent total of €32bn. Bankia shares down 11.7pc.
10.09 Italy sells €8.5bn of six-month bills at 2.104pc versus 1.77pc at end of April.
Nicholas Spiro at Spiro Soveriegn Strategy:
Italian debt auctions are becoming more challenging with each passing week. While demand from domestic institutions is still there, particularly for shorter-term paper, the concessions are heftier. As recently as March, when the LTRO-led rally had yet to run its course, Italy was selling six-month paper at a yield of 1.1pc. Now it's paying 2.1pc.
The bleak economic news out of Italy is of particular concern considering the austerity programme has yet to fully bite. On the domestic front, the big questions in Italy are: can the economy endure more austerity and what lies in store for Mr Monti?
10.06 Spain reportedly considering backing regions' bonds with tax revenues.
In the bond markets, Spanish 10-year yield at 6.4pc. Italy's at 5.7pxc.UK's at 1.7pc
09.56 Cigolo, a trader:
09.35 Getting paid in Spain is a daily struggle, according to Michel Favre, electrical equipment distrubutor Rexel's chief financial officer. Bloomberg reported him as saying:
We are focused on the cash to have a balanced cash flow in all the countries of the region. We are very keen, mainly in Spain, to be paid. It’s a daily fight, a monthly fight. We are in line with last year, but things must be reworked every day.
"Available indicators for the second quarter are still scarce but they do anticipate that activity will continue contracting in this period," the Bank of Spain said.
08.52 Spanish Secretary of State for Trade, Jaime García-Legaz, says EU help for his country's banks "isn't on the table".
07.36 Bloomberg has reported that Spanish banks are masking their full exposure to soured property loans while they continue to prop up insolvent “zombie” developers, leading to credit-rating downgrades and plummeting share prices.
Spain is trying to clean up its banks, requiring lenders to set aside more for possible losses on loans deemed performing to developers like Metrovacesa SA, which hasn’t completed a project in more than a year and has none under way. While that represents about €30bn of increased provisions, it’s not enough because many of the loans said to be performing aren’t, said Mikel Echavarren, chairman of Irea, a Madrid-based finance company specializing in real estate.
“Spain has engaged in a policy of delay and pray,” Echavarren toldBloomberg in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.”
The Economy Ministry says that Spanish banks have €184bn of developers' loans and assets that are “problematic”, while the remaining €123bn are performing. The need for more reserves to cover losses on the loans can’t be ruled out, Nomura International analysts Daragh Quinnand Duncan Farr said in a May 14 report. If Spain took losses on developer loans like Ireland did, Spanish banks would need €8.9bn under the best case to €76.5bn of additional provisions in the worst scenario, Nomura estimates.
07.33 The EU has reportedly said that Spanish banks need €100bn support.
07.31 Spain's credit rating has been cut to A by Japan's R&I (note: not one of the three main agencies).
R&I said Spain faces "much more challenging path" to fiscal soundness, and it may not be able to reduce its fiscal deficit as planned.
07.22 Japan has said it will start direct currency trading with China for the first time, scrapping the dollar as an intermediary unit to boost ties between the two Asian economic giants.
The move, which will boost trade and investment between the traditional rivals, marks the first time Beijing has allowed a major currency other than the greenback to trade directly with the yuan.
07.17 While Alistair Osborne writes that whatever Rajoy says, more Spanish banks will need bailing out:
How long can Mariano Rajoy keep this up? You know, the old matador routine. Swooshing his cape and declaring: “There will be no rescue of the Spanish banks.”
You’d hardly expect Spain’s PM to say anything else. But no-one believes him, judging by yesterday’s trampling in the bond markets. The extra return investors demanded for holding Spanish debt over Germany’s shot up to 5.09pc – a euro-era high.
The reasons? For starters, Madrid’s botched bail-out of Bankia, that paella of seven cajas, or savings banks. In just a fortnight, Bankia has gone from requiring €4.5bn (£3.6bn) of emergency funding to €23.5bn. Go figure, as they say.
Then, there’s all Rajoy’s mixed messages, in one breath ruling out a foreign bail-out for Spain’s banks, the next backing a eurozone rescue fund for lenders that bypasses national governments. “Lots of people are in favour of that, and I certainly am,” was his take on that.
Bankia asked the Spanish government for a further €19bn last week to strengthen its balance sheet. Spanish taxpayers have already given the bank €4.5bn (Photo: Getty Images)
07.07 Ambrose Evans-Pritchard, our international business editor, says the Spanish PM's promises have given a "fateful hostage to fortune":
So where will [Rajoy] find the money to finance his €23.5bn bail-out of Bankia, a bank deemed healthy just weeks ago? The Fund for Orderly Bank Restructuring (FROB) has €5.3bn, and other banks to worry about. It would be ruinous to tap the bond markets. Spanish 10-year yields are already at danger levels of 6.4pc. The spread over German Bunds has reached a post-EMU high of 514 basis points.
Capital flight has cut foreign holdings of Spanish debt from 50pc to 37pc since January. Spain's banks -- including Bankia -- have been propping up the state with €316bn borrowed from the European Central Bank. Now the state is propping up banks. The incestuous nexus is surreal.
David Owen from Jefferies said Spain is near the point of no return. "It is not sustainable. They hope things will calm down after the Greek elections. We think there will have to be external intervention," he said.
07.00 Does Spain need a bail-out, or doesn't it? As far as Spanish PMMariano Rajoy is concerned, the answer is no - even as the country's benchmark index plunged to a nine-year low and borrowing costs rose to 6.5pc. Louise Armitstead reports:
At a press conference designed to reassure markets after the €19bn nationalisation of Bankia, the prime minister admitted that Spain was “finding it very difficult to finance itself”.
But Mr Rajoy blamed the soaring borrowing costs on advancing debt crisis across the eurozone, and tried to dismiss fears that Madrid will be crushed by the debts of its banks.
Shares in Bankia, which were suspended on Friday as the government unveiled its largest ever recapitalisation plan, plunged 27pc before recovering.
The Spanish newspaper, El Mundo fanned the fear by claiming that a further €30bn was required to rescue four other banks, CatalunyaCaixa, Novagalicia, Banco de Valencia.
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