13.36 BREAKING NEWS...
The president of Catalan has said his region needs help from theSpanish government. It is running out of debt and financing options.
Artur Mas: "We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills."
http://www.zerohedge.com/news/bankia-bailout-costs-grow-exponentially-stealth-bank-run-taking-place-and-what-happens-ronaldo
As Bankia Bailout Costs Grow Exponentially, Is A Stealth Bank Run Taking Place... And What Happens To Ronaldo?
Note the following sequence of events, bolded numbers, and dates:
- Bank Of Spain Formally Nationalizes Bankia, Says Insolvent Bank Is "Solvent", Adds There Is No Cause For Concern, Zero Hedge, May 9
- Spain is taking over Bankia by converting its 4.5 billion euros of preferred shares in the group’s parent company into ordinary shares,BusinessWeek, May 21
- Spain said on Wednesday its rescue of problem lender Bankia would cost at least 9 billion euros ($11 billion), as the government tries to clean up a banking system that threatens to drag the country deeper into the euro zone crisis, Reuters, May 23
- Bankia SA will have to ask the Spanish government for more than 15 billion euros as part of its effort to restore its financial health, state-owned news agency EFE reported Thursday, citing financial sources, Dow Jones, May 24
Hopefully we aren't the only ones to notice how the bailout cost has oddly doubled almost on a daily basis.Which is to be expected: After all, recall that The Bankia group, was formed in late 2010 following a merger of seven insolvent savings banks led by Caja Madrid, which has the most exposure to Spanish real estate among the nation’s banks. The pro forma company then, under the guise of newfound solvency, turned to the stock market to raise capital after parking its worst real estate assets in the parent company. This worked for just over a year. Then Bankia itself blew up.Essentially, Spain tried to do what the US did - consolidate a bunch of insolvent companies with some deposits, into a larger one - a desperate attempt to create a TBTF - diluting the bad assets among the constituent subsidiaries.
The problem, however, is that the impaired liabilities continued growing as the Spanish housing sector has not stopped deteriorating and in fact has become increasingly more distressed. At the same time, occasional deposit runs have exhausted the liability side of the bank, causing company cash to fly out of the door, and subsequently impairing equity forcing the sovereign to pump ever more money into this lost cause.
This, to anyone who has even rudimentary understanding of finance, is a Vicious Cash Outflow Cycle 101, where capital outflows beget more capital outflows, unless a credible backstop steps in and restores confidence. Otherwise bank runs not only accelerate but they spread to all even solvent entities.
Sadly, what the Spanish government and the Bank of Spain have demonstrated, is that despite all the rhetoric, capital flight has not only stopped, it is accelerating.Yes: the bank run is on, and is getting worse, despite what the press may be promising. Proof - just look at the bullets above. It is a virtual certainty that in the next few days we will see total Bankia "bailout costs" rise more and more, until the truth becomes self-evident to even the most financially unsophisticated soon to be ex-depositor. Sadly, we are also fairly confident this is not limited to Bankia as more of the harebrained Cajas consolidation schemes from 2010 blow up one by one.
Yet we don't want to leave off on a pessimistic note. Instead, we go back to our post from July 28, in which we reported on something rather amusing. To wit:
We were pretty much speechless when we read this - it sure puts guarantees by Noyer, Trichet and all the other bureaumonkeys that the ECB does not accept just any collateral in perspective. FromPresseurop.eu: "The most expensive footballer in history may now be used to guarantee the solvency of a Spanish bank. “Ronaldo in the bailout fund,” headlines Süddeutsche Zeitung. The daily reports that theBankia group of savings banks, which financed Real Madrid’s acquisition of the Portuguese player, is now seeking to borrow funds from the European Central Bank. In response to the ECB’s demand for guarantees, Bankia are putting up… Ronaldo and the Brazilian Kaka, who also plays for the Madrid football club. In 2009, Real borrowed 76.5 million euros to pay transfer fees of 100 millions euros to Manchester United, and 60 million to Milan AC."
“Could we see a situation in which the ECB seizes one of the players?“ wonders the Munich daily. “In theory, it is possible. Bankia would first have to become insolvent. Thereafter, Real would have to default on its loans, which are secured by advertising and television revenues. It goes without saying that Real Madrid is in debt to the tune of several million euros. However, in Spain football clubs have a history of obtaining publicly funded bailouts — just like the country’s banks.”
This is beyond even The Onion's (and even Zero Hedge's) level of sarcasm.There is nothing that can be added to this insanity. Furthermore, the fact that the "collateral" most likely has a virulent case of Paris Hiltonitis which will infect all the other worthless collateral, likely leading to the latest and greatest reality TV show, only adds to the complete farce that the global ponzi scheme has now become.
So... Is it time for Bankia to claim its "collateral" (even if as we morbidly predicted, and were right again, it infected all of Bankia's other collateral with "Hiltonitis")? Or has Cristiano Ronaldo also been rehypothecated on several other occasions, and not a single bank has any idea who has actual claim to the "Ronaldo" title?
http://www.reuters.com/article/2012/05/23/us-spain-regions-idUSBRE84M1AU20120523
(Reuters) - Top Spanish officials are at odds over how to help the country's highly indebted regions refinance 36 billion euros of debt this year, government sources told Reuters on Wednesday.
The figure, revealed in the budget plans from 17 autonomous communities, compares with previous public data of around 8 billion euros of bonds maturing in 2012.
The difference is due to bilateral loans from Spanish banks to the regions worth 28 billion euros that were not made public previously. It could unnerve further investors concerned by the capacity of Spain to curb its public finances and reform its banking sector.
Spain's weak banks and overspending regions are at the heart of the euro zone debt crisis. There are fears that expensive bail-outs of ailing lenders, like fourth largest lender Bankia, could force the country to seek international aid.
Many of the autonomous regions are virtually blocked from financing themselves on public debt markets due to the high rates they would have to pay. Some have seen the credit rating on their debt cut to junk status.
Spain's government last week admitted its 2011 public deficit was higher than it had previously reported after three regions adjusted accounts.
The government sources said the central administration now aimed to put forward a new mechanism to back regions' debt as soon as early June.
But, the sources said, Economy Minister Luis de Guindos and Treasury Minister Cristobal Montoro disagreed on the final form the new instrument should take.
De Guindos favors a centralized mechanism which would control and issue debt for the regions. Montoro would rather see a less intrusive instrument which would fall under the umbrella of his ministry, possibly based on credit lines from the central government to regions which meet their deficit targets.
"Montoro is the one who has to deal with the regions and make sure that they meet their deficit targets. You can't tell them on one side that they have to be austere and on the other side give them unlimited liquidity," one of the sources said.
CATALONIA AND VALENCIA
After weeks of negotiations, Montoro last Thursday gave his blessing to spending cuts plans presented by all 17 regions except for the small northwestern one of Asturias, which will have to present a new budget within 15 days.
The regions account for around 50 percent of the country's overall public spending and are responsible for their healthcare and education budgets, where cuts are likely to fall.
The central government has authorized them a deficit of 15 billion euros this year, bringing their funding needs to 50 billion euros overall.
Their commitment to savings costs this year will be key to helping the country try to meet an ambitious target of slashing the public deficit to 5.3 percent of gross domestic product this year from 8.9 percent in 2011.
The situation is however especially difficult in Spain's two most indebted regions, Catalonia and Valencia, which account for about 60 percent of all regional debt maturing this year, the data released by the regions show.
Both autonomous communities needed to refinance more than 10 billion euros this quarter and more than 8 billion euros in the second half of the year.
Earlier this month, Valencia had to pay a very high price of 7 percent to refinance 500 million euros of debt with a six-month maturity, fuelling concerns internationally about the sustainability of the country's finances.
The risk premium investors demand to hold Spanish over German debt remained steady at around 484 basis points on Wednesday after reaching last week record highs at over 500 basis points.
and back to the bank problems....
http://globaleconomicanalysis.blogspot.com/2012/05/spain-plans-to-merge-all-nationalized.html
Thursday, May 24, 2012 2:21 PM
Spain Plans to Merge All Nationalized Banks Into Gigantic Bad Bank; Merging Small Cesspools Creates Bigger, Deeper, Smellier Cesspools
After repeated denials of the creation of a combined "bad bank", Spain's economy minister Luis de Guindos is discussing creation a public body merging all the smaller bad banks into one gigantic bad bank, equivalent to 20% of the entire Spanish banking sector.
Courtesy of Google Translate from Libre Mercado, please consider large public bank under state control.
Courtesy of Google Translate from Libre Mercado, please consider large public bank under state control.
The Government is considering the possibility of creating a public bank that brings together institutions nationalized by the state, which include BFA-Bankia, Caixa Catalunya and Novacaixagalicia, Europa Press reported financial sources.
The Ministry of Economy examines delaying the auction and Caixa Catalunya Novacaixagalicia, waiting to know the binding offers to be submitted to the process of awarding the Catalan and that, if adopted, will be very tight.
The department headed by Luis de Guindos is aware that the latest sanitation requirements established by the Government through new provisions on healthy property portfolio have cooled the already low interest of potential buyers.Merging Small Cesspools Creates Bigger, Deeper, Smellier Cesspool
The economy minister said on Wednesday in the House of Representatives that after the nationalization of Bankia has opened a new stage in the Spanish financial sector, and that the Government weigh all alternatives before the next auction.
Bear in mind that Bankia, one of the banks in this cesspool merger was formed on December 3, 2010 as a result of the union of seven failed Spanish financial institutions.
In 2012, Bankia was the third largest lender in Spain and the largest holder of real estate assets at 38 billion euros. Bankia is once again in trouble, along with Caixa Catalunya and Novacaixagalicia.
Allegedly the merger of three cesspools into a bigger, deeper cesspool will make the water drinkable. I have news for Luis de Guindos: It won't.
and......
http://www.acting-man.com/?p=17067
Euro Group: Going Nowhere Fast
Yesterday we opined on the euro-group summit as follows:
Prediction: absolutely nothing of substance will emerge from the summit, as always.
OK, we admit that as predictions go, that one was really easy. It was not necessary to gaze into a crystal ball, throw bones or study the innards of dead animals to make it.
First off, the 'euro bonds' idea. We noted yesterday that this wasn't going to happen, which incidentally is a good thing. As it turns out, it isn't going to happen. The WSJ reports:
„A drum beat of recent calls for some form of euro-zone debt issuance ran into a phalanx of opposition at a European Union summit Wednesday, with a number of leaders saying the idea was premature or counterproductive.The election of French President Francois Hollande has shifted the debate within Europe to what measures can be taken to boost growth. Hollande pledged to raise the idea of euro-zone bonds–common securities issued by a group of euro-area countries–at Wednesday's summit.The European Commission and the European Parliament have also said now is the time for a road map for advancing with the proposal, while the likes of Belgium, Italy and Greece have continued to speak in favor.The recent momentum behind the initiative had led to speculation that Germany could emerge isolated from Wednesday's summit, standing in the way of radical ideas to exit the crisis.That would have been all the more galling on a day when Germany issued around EUR5 billion of debt at close to zero interest rates while other euro-zone governments face borrowing costs north of 6%.On her way into the meeting, German Chancellor Angela Merkel stood firm in her opposition to the idea. She said the EU's founding treaties "forbid" the "taking on of joint liability" of debt "and according to our opinion that also includes euro bonds.""In addition, I believe that they do not contribute to growth in the euro zone, because the very similar interest rates that we had for many years led to very grave misguided developments," she told reporters.Yet Merkel didn't stand alone. Caretaker Dutch Prime Minister Mark Rutte also slammed the talk of euro-zone bonds. Such securities "do not lead to growth, they lead to our [interest] rates rising. It's not the solution to our problems."
French President Francois Hollande was "free" to raise the issue, he said, but growth would only flow from fiscal discipline and economic reforms.Finnish Prime Minister Jyrki Katainen said euro-zone bonds wouldn't have helped the region cope with the crisis. Instead, he said, they could institutionalize excessive borrowing."Countries must be responsible for their own debt," he said. Were the idea ever to find support, it would take "a long, long time to launch" them.“
The short version again: it's not going to happen, because it is not legally possible (of course that pesky little detail hasn't kept the eurocrats from doing certain things before, but we doubt the German government will defy its own supreme court on the issue). It's not even worth discussing at this stage.Greece was also a topic of course and while the consensus is that it won't leave the euro area, preparations are underway for the day it does leave. Otherwise there was a surfeit of empty platitudes of the sort we have come to expect from these summits. Via the AP the following summary was published:Luxembourg Prime Minister and president of the group of finance ministers of the 17 euro countries, Jean-Claude Juncker told reporters at the end of a summit of European leaders in Brussels that the eurozone countries `'have to consider all kinds of events" but insisted that `'the working assumption" was that Greece would remain part of the euro.Juncker's statement was a frank admission that Greece could wind up abandoning the euro as its currency _ a prospect many analysts fear could cause investors to doubt the financial viability of other weak members of the eurozone.However, Juncker insisted early Thursday, at the end of a summit of EU leaders, that he had not asked the euro nations to prepare national contingency plans for a possible chaotic departure of Greece from the currency.Steven Vanackere, Belgian Finance minister added: "To say that we do not prepare eventualities would not be a responsible attitude."I believe many counttries have contingency plans when it comes to things they want to avoid at all cost, like a terror attack. And to say that we have no contingency plans, would be irresponsible."At the end of a summit dinner of the 27 European Union nations, EU President Herman Van Rompuy said that all EU leaders want Greece to remain in the eurozone while respecting its commitments to pay back its debt. Van Rompuy said the EU needed to concentrate more on coordinating its policies to promote economic growth, to step up investments and credit to small and medium-sized businesses, and to focus on job creation.
French President Francois Hollande said EU funds could be dispersed quickly on projects that could help create jobs.
OK, apart from 'dispersing EU funds quickly' (isn't that what always happens to EU funds anyway?), how exactly is economic growth to be promoted, how are investments and credit to small businesses to be stepped up, and what kind of 'focus' will lead to job creation?Rompuy merely recited a wish list, as though politicians and bureaucrats were actually the driving force that 'promotes economic growth' and 'creates jobs'. As to Hollande, it is no use wishing for something that is happening anyway. Nothing on this planet is 'dispersed' faster than the loot they take in from the tax cows.We have all heard Rompuy's wish list before – a thousand times in fact. Now, should someone from the eurocracy stumble over this blog, here are a few tips:Politicians and bureaucrats create neither economic growth nor jobs. The only positive thing they can do, apart from resigning on the spot, consists of getting out of the way. Chuck the myriad regulations that are stifling the entrepreneurial spirit in Europe; cut fiscal spending so that the State shrinks back to a far smaller percentage of economic activity than it represents today; cut taxes. Cut down on your own numbers, generously.While you're at it, think over the current monetary system and its countless flaws. It would be best to throw it out of the window and start from scratch, with a free banking system based on sound money and the strict enforcement of property rights (no more money from thin air, so that two or more different people no longer end up having claims on the same original deposit; this has been regarded as a fraudulent practice in Europe since antiquity, and although it has been legalized, it still is a fraudulent practice).It is really simple. One needs neither euro-bonds for this, nor 'tax harmonization' or any of the other gimmicks the centralizers and socialist super-state builders dream about, nor should it matter whether everybody uses the same medium of exchange or not. Of course the gravy train in Brussels and bureaucratic centers elsewhere would end up considerably diminished.This last sentence is why none of the above is likely to happen anytime soon. Still, we should probably be glad if nothing actually comes out of the summit. One must always fear the worst when they actually do make decisions on something. As the title of this article suggests, the main reason to travel to these summits is probably the undoubtedly high quality of the catering.* * *
As the US trading session went on, some strange things started happening. With gold closing in on a retest of its recent lows, gold stocks suddenly started to rally, like a scene from night of the living dead. Aren't they supposed to only go down? Apparently not. Then gold followed them higher and retraced a good portion of the earlier selling.
Finally, the stock market recovered its entire loss and actually ended slightly in positive territory when the closing bell rang. Regarding the 'reasons' given for this, we want to quote the financial press:
“U.S. stocks erased losses amid optimism European leaders will do more to halt contagion from the region's debt crisis.”
Say what? Did everybody eat their stupid pills in the morning? They can't be serious, can they? In the course of the day there were various rumors making the rounds, ranging from fantasies about euro bonds to an alleged 'verbal agreement' by Mrs. Merkel to institute a supra-national pan-European deposit guarantee scheme in order to stem the various actual and potential bank runs.
As we noted to a friend, there are only two possibilities here: either the market was oversold enough that it would have used any rumor or news item as an 'excuse' to rally (this we deemed more likely), or the people doing the buying were complete morons because they actually thought these rumors and 'hopes' were a good reason to buy stocks. In the latter case, we expressed the conviction that they would soon be weeded out.
Judging from a few more quotes from the press report linked above we're no longer so sure what is really more likely (just kidding: the market doesn't need a 'reason' to move up or down; anyone basing his trading decisions on news headlines is beyond help). Still, consider the following:
“Huge turnaround," said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. "There's speculation that European leaders will take action to stabilize the situation with Greece. In addition, there's a lot of cash on the sidelines looking to get into the equity market. Certainly the decline we've had recently might provide an opportunity."
OK, maybe there really is an opportunity to buy overpriced stocks here in the hope of unloading them later at a higher price on a bunch of greater fools. In fact, in the short term the market did strike us as somewhat oversold as we recently mentioned. Where does this strident belief in the 'money on the sidelines' myth come from though?
To make sure everyone's on the same page with us here we will repeat how this works: money never flows 'out of' or 'into' stocks. Stocks are not vessels alternately filled with dough or air. If someone who holds money buys stocks, then he ends up holding stocks while the seller of the stocks ends up holding his money. The amount of 'money on the sidelines' – ta-da!!! – remains exactly the same as before.
What constantly changes are merely the prices at which assets are exchanged. The general desire to hold money/cash balances as opposed to investment assets such as stocks will often change, and that will be reflected in prices. It is moreover true that the amount of 'money on the sidelines' constantly increases as long as the Fed continues to inflate the money supply. The speed at which it accomplishes this feat often influences the desire to hold certain assets instead of cash balances. However, upon thinking this through properly, one will realize that the amount of 'money on the sidelines' was at a record high both prior to every rally and prior to every crash we have experienced over the past few decades. The fact of constant money supply growth is therefore not per se a good argument for higher stock prices in the near to medium term (whereas it cannot be denied that there is a 'long term upward skew' to nominal prices because of it).
We're actually not quite sure what is worse: believing the money on the sidelines myth, or the idea that a euro-group summit will end up 'stabilizing' anything, let alone Greece! If we had conducted this interview, it would probably have been rather difficult to keep a straight face.
* * *
Unlikely Allies of Germany
Finally, the German daily 'Die Welt' had a few interesting remarks on how Portugal and Ireland are viewing the evolving situation in Greece. They are not amused and are staunchly opposed to easing the terms of the bailout program for Greece. If Alexis Tsipras were to succeed in blackmailing the EU to give in, then all the hard work and belt tightening accomplished in Ireland and Portugal to date would suddenly look quite foolish.
An excerpt:
“Irlands Finanzminister Michael Noonan und sein portugiesischer Kollege Vítor Gaspar zwangen den griechischen Kollegen in den Schwitzkasten: "Ihr verderbt die Sache für uns alle", ließen sie ihn beim jüngsten Finanzministertreffen wissen. "Wir tun alles, um die Programme umzusetzen. Tut ihr das nicht, müssen wir dafür zahlen", redeten sie auf EU-Botschafter Theodoros Sotiropoulos ein, wie portugiesische Medien berichteten.Die Angst ist riesig, dass die Griechen die ebenfalls unter Troika-Aufsicht stehenden Portugiesen und Iren mit sich reißen. Beim Sondergipfel der Staats- und Regierungschefs am Mittwochabend in Brüssel konnte Bundeskanzlerin Angela Merkel daher auf zwei Verbündete zählen, die von Athen verlangen, Wort zu halten: auf Enda Kenny, den irischen Regierungschef, und den portugiesischen Premierminister Pedro Passos Coelho.Translation:Ireland's finance minister Micheal Noonan and his Portuguese colleague Vitor Gaspar grabbed their colleague from Greece in a headlock: “You're ruining the whole thing for all of us”, they let him know at the latest meeting of finance ministers. “We do everything to implement the programs: If you don't, all of us will pay for it”, they told EU ambassador Theodoros Sotiropoulos as Portuguese media reported.The fear is great that the Greeks will take the Portuguese and Irish that are also under the supervision of the 'troika' with them. At the special summit of the heads of state and governments on Wednesday evening in Brussels, chancellor Angela Merkel was therefore able to count on two allies who demand that Athens keep its word: Enda Kenny the Taoiseach of Ireland and the Portuguese prime minister Passos Coelho.”
It is noteworthy in this context that Spain's prime minister Mariano Rajoy, after speaking with French president Hollande, emerged with exactly the same message: things are tough for the Greeks, but there is no alternative (with the unspoken qualification: 'if they want to remain in the euro area').
Juncker, Noonan and Gaspar. Noonan looks like he is about to kill someone.
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