Saturday, June 9, 2012

Spain bank bailout update Economy Minister Luis de Guindos will hold a press conference at 6:30 pm UK time ( or around 1:30 EST ) , subject is explaining actions on the recapitalization of the Spanish banking system - prior items / news of interest is - note the IMF report set for release on Monday has been released Friday night and has been made available this morning , just in time for the conference call ! As per the report , the sum needed to tidy up Spain's banks is 40 billion euros. This estimate falls short of the 100 billion euros estimated by Fitch or the 350 billion euros projected by JP Morgan , so we may see another kick the can on the cheap attempt for Spain. As time is running short and with Cyprus also signalling they will seek a bank bailout , the pressure is being placed from the EU / CB / IMF even the US for Spain to seek their bailout in the coming week - before the Greece elections.

http://www.aljazeera.com/video/europe/2012/06/201269172627668300.html

*   *   *


Wolfgang Schaeuble, the German finance minister, said: "I welcome, like other Eurogroup colleagues, the Spanish government's determination to recapitalise [the banks] via the European rescue funds EFSF or ESM with corresponding conditions."

And Finland's public broadcaster YLE reported Finance Minister Jutta Urpilainen saying Finland would demand collateral from Spain if the country received aid through temporary rescue mechanism EFSF.


and...

http://www.zerohedge.com/news/spain-greece-after-all-here-are-main-outstanding-items


Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2012 14:52 -0400




After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger. So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.

1. Where will the money come from?
De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by German, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.
Which brings us to a bigger question: now that Spain is officially to be bailed out, what happens next. And by that we mean of course the big one: Italy. Recall that as we posted in Brussels... We Have A Problem, once the contagion spreads again to Italy, and that country also needs a bailout, it is game over.



In other words, it is very likely that the funding for the Spanish bailout will have yet to be procured. Who will provide cash which is virtually certain to disappear forever in the Spanish real-estate market mismarking vortex?

2. Where will the money go?

According to the de Guindos press conference, the bailout cash will go to the FROB, or the Fund for Orderly Bank Restructuring: as the name implies a sinking fund to fund insolvent banks. This is merely a liquidity vehicle to net out evaporating capital due to realistic marks of assets, or ongoing deposit flight. However, a far bigger concern is how will the FROB be treated from a sovereign debt perspective?
As was noted previously, the bailout will come in the form of a loan, which while at better terms than market, will still result in a material increase in Spanish debt/GDP. In other words, while the bailout itself may have been without sovereign conditions, it will still impair the country in the eyes of sovereign creditors.
Recall the official breakdown of the complete Spanish debt, presented here courtesy of Mark Grant 2 months ago:
The Data
Spain’s GDP                                                $1.295 trillion

SPAIN’S NATIONAL DEBT

Admitted Sovereign Debt                                 $732 billion
Admitted Regional Debt                                   $183 billion
Admitted Bank Guaranteed Debt                     $103 billion
Admitted Other Sovereign Gtd. Debt               $ 72 billion
Total National Debt                                         $1.090 trillion
SPAIN’S EUROPEAN DEBT
Spain’s Liabilities at the ECB                           $332 billion
Spain’s Cost for the EU budget                       $ 20 billion
Spain’s Liabilities for the Stabilization Funds   $125 billion
Spain’s Liabilities for the Macro Fin. Ass. Fund $ 99 billion
Spain’s Guarantee of the EIB debt                  $ 67 billion
Spain’s Total European Debt                           $643 billion
Now we have another €100 billion or so in admitted sovereign debt to add to the top of the list. In other words, total Spanish debt will likely increase by up to 17% from $732 billion to $857, adding the $125 billion FROB loan.

3. What happens to Spanish sovereign debt?

Perhaps the most important thing to note in the above analysis is that the FROB loan is effectively a priming DIP: think Troika loans to Greece, Ireland and Portugal.
In other words, Spanish bondholders just got their first taste of subordination!
Basically, first thing Monday the trade off will be: does the temporary improvement in bank solvency offset the fact that bonds just got primed, hinting at a future that in the case of Greece has resulted in the old Greek bonds trading an equivalent price of sub 10 cents on the dollar.
How long until Spanish bondholders get the hell out of Dodge, knowing quite well that the same fate as in Greece is coming to Spain?
Our advice for those who need to have exposure, as we wrote 5 months ago: sell local-law, covenant-lite Spanish bonds, and buy their UK-law, covenant-protected cousins.

Then sit back and watch the spread explode.


4. Precedent
Naturally with Spain now officially biting the bullet, the only question remaining is:when is Italy going to drop next.
And ironically, what just happened, is that the Eurozone, with the tacit agreement of Germany, essentially gave insolvent banks a green light to short themselves into a full bailout.
How long until Italian banks get the hint, and proceed to short each other, or themselves, either with shares of stock or , better yet, through CDS which unlike in the sovereign case, can be held without an offsetting cash basis position. In other words: is it time for the Italian bank suicide trade?
Because only when they are on the verge of nationalization, will Italian banks be rescued. And remember: he who defects (or in this case drops the fastest), first, reaps the biggest benefits of the resultant action.

We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free.

Finally, there is the question of how today's action will impact the Greek elections. As noted earlier today, today's precedent will likely serve as a huge boost to the popularity of Syriza. Oh yes, the Greek elections next Sunday. Remember those, and the whole Grexit thing?

5. Market reaction
The long-term reaction is obvious: this latest confirmation that Europe is a sinking ship has been predicted by many for years. As such, that European risk markets will continue sinking, and capital flows continue rushing to Germany, is a given. In the short run, however, courtesy of a new all time record high number of EUR shorts (at a record -214,418 net non-commercial contracts as of this past week) it is likely we may see an aggressive short covering squeeze.


This will send all risk higher as well. Of course, the rally is to be faded aggressively as soon as the weak-hand shorts are capitulate and cover.
* * *
Finally, for those wondering if today's action will halt the catalyst for the entire move, namely the furious bank run that Spain has been experiencing in the past month, we don't know. It likely all depends on how many Spiderman towels are in circulation and held in inventory by Spain's insolvent banks.


and...


http://globaleconomicanalysis.blogspot.com/2012/06/bailout-lite-theres-really-no-such.html


Saturday, June 09, 2012 12:22 PM


Bailout Lite? There's Really No Such Thing; €30 Billion Needed? It's Now €100 Billion; Contagion of Economic Idiocy


A few days ago Spain was purportedly going to need another €30 billion to €70 billion to recapitalize Spanish banks. I suggested the amount would be at least triple that and it did not take long to do so.

Yahoo! Finance reports Spanish bailout could reach 100 billion euros 
 A bailout for Spain's teetering banks, once requested by Madrid, could amount to as much as 100 billion euros, two senior EU sources told Reuters on Saturday.

Spain has not yet made a formal request for European aid but it could come during a conference call of euro zone finance ministers, the sources, who were both on an earlier call to discuss the technicalities of a rescue, said.

"A decision on Spain will only be taken ... by the ministers (in a second call). Madrid has not officially asked for help yet," one of the officials said. "The statement will mention 100 billion euros as an upper limit."
€100 Billion Upper Limit? Until When?

When I said triple the reported amount, I meant triple the upper end of the reported amount. Bear in mind I am just guessing. However, history shows that I am more likely to be on the low end than the high end.

As with Greece, every economic number from Spain is revised to the downside, month in and month out.

For now, the EU economic wizards will likely concoct a number just under that alleged "upper limit". My best guess is €90 billion. Then within six months, possibly as soon as the money is handed over, more problems will surface, more meetings will take place, and still more money will be stolen from Spanish taxpayers and handed over to the banks and bondholders.

Bailout Lite? 

There is no such thing as a "bailout lite". Sure, they can ease conditions on Spain, but what kind of message does that send Greece with elections coming up on June 17.

Moreover, the odds the Spanish economy starts recovering later this year as forecast are virtually zero percent. Then what? Then Spain will need another "bailout lite" and still more extensions.

In the meantime, the odds France and Italy hit there budget deficit targets are also close to zero. Contagion of Economic Idiocy 

Combine the above ideas with the worst economic plan in history to combat high unemployment (please see Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It") and an economic disaster awaits the eurozone.

My conclusion is that Europe is about to suffer from contagion of the worst kind: contagion of economic idiocy on bailouts, on employment, and nannycrat nonsense.

The humorous quote of the day comes from "FamilyMan" who offers these thoughts on France's proposals to stem unemployment:
 As a US citizen, I applaud the French strategy. Since we can't fix America, we need other countries to be even more insane than we are! Can we get France to implement a $500 euro an hour minimum wage to "wipe out poverty"?
and.......



http://www.zerohedge.com/news/eurogroup-statement-spanish-bank-bailout

( ESM does not exist as it is still not ratified , EFSF is a guarantee based scheme - so obviously the EFSF is now weakened as Spain's guarantees can't be called to bail out their own banks. As far as conditionality , that still applies - conditionality will be centered on the financial sector , which will have economic consequences despite what Spain's Economy Minister tries to spin off. Expect Cyprus to pitch in their bailout bid next and then the focus will fall on Italy . who bails them out ? )


Eurogroup Statement On Spanish Bank Bailout

Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2012 14:12 -0400




From the Consilium:
Eurogroup statement on Spain
The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.
The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request.

The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The  Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.


The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.




http://www.zerohedge.com/news/spain-agrees-unconditonal-bank-bailout

( So , Spain has agreed to accept a bank bailout as long as its unconditional - without agreement on the sum , how can the other parties to this sign off ? Does this sound like a real good deal to Germany if the amount is 150 billion euros ? And since the independent audits aren't due until June 21 and 29 respectively , how can any binding agreement really be reached as the sum at issue is subject to change ? And how long before Greece , Portugal and Ireland go bat shitte crazy about the double standard for Spain , especially Ireland which had to take a very punitive bailout WITH conditions due to banks imploding the sovereign ? )


Spain Agrees To "Unconditional" Bank Bailout

Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2012 13:19 -0400




Just out from Bloomberg:
  • SPAIN AGREES TO SEEK BANK BAILOUT, EL PAIS REPORTS
  • IMF WILL SUPERVISE SPAIN BANK RESCUE PLAN, EL PAIS SAYS
And the funniest:
  • SPAIN RESCUE DOESN'T CARRY ECONOMIC POLICY CONDITIONS: MUNDO
So Spain has shockingly agreed to a bank bailout without conditions. Has Germany? The chips will commence falling, where they may, shortly. In the meantime, we are days from finding out just what Germany thinks when it has to ratify (that's right, the ESM has still not been ratified by the one country which will fund the Spanish bailout) a Spanish bank bailout. Without conditions.

From El Pais:

All ready to rescue the fourth largest economy in the eurozone. Ministers of Economy and Finance of the euro area have concluded a few minutes of the meeting by teleconference 19.00 convened to decide on the future of Spain and, according to AFP, it was agreed that the Government seek the rescue, which will be IMF involvement. The agenda of the meeting, as previously reported in European officials left no doubt: "The approval of a statement that highlights Spain's intention to seek help and support of the Euro". In fact, according to these same community sources during the meeting that has lasted nearly three hours, and figures have been considered a rescue that could reach 100,000 million euros, an amount which is well above what had speculated. However, the stakes ensure that clean once and for all Spanish banks, first, to restore confidence in Spain after and bring stability to the entire euro area, immersed in its worst crisis since the launch the euro.

Spanish Economy Minister Luis de Guindos, has called on the media in the Ministry of Economy at 19.30, which indicates that it has come to some agreement. The purpose of it, detailing the department, is to explain "the results of the Eurogroup meeting" and "actions on the recapitalization of the Spanish financial system."



"The figure we are discussing now would be up to 100 000 million, but not yet closed "and is a cap, have stated the sources consulted by AFP. Reuters also agrees with these figures, more than double that manages the IMF, estimated at 40,000 million injection needed for Spanish banks . The managing director of this institution, France Christine Lagarde, is also participating in the teleconference.


The final amount, however, probably will not be known today and will be implemented once they know the results of two independent audits commissioned by the Spanish government. Thus, the figure will be decided "according to the results of needs analysis" of Spanish banks. In this respect, the Euro is expected to meet again in the near future to confirm the figure, while EU sources indicate that although the request for assistance is made this weekend, which is as safe, they add, the Government can wait a few days to provide a specific figure. At the end of the process, will the ECB and the European Commission have to quantify the aid will reach the Spanish banks.








http://www.telegraph.co.uk/finance/financialcrisis/9321157/Debt-crisis-Spain-on-verge-of-100bn-bailout-as-euro-finance-ministers-hold-emergency-talks.html


Bruno Waterfield
By , in Brussels, and Telegraph staff
5:00PM BST 09 Jun 2012
Comments410 Comments
Economy Minister Luis de Guindos will hold a news conference at 6.30pm UK time to explain “actions on the recapitalisation of the Spanish banking system,” the ministry said in a statement.
He will speak after ministers from across the shared currency nations on Saturday afternoon embarked on a conference call to outline a rescue deal, as a formal request by the eurozone's fourth biggest economy appeared imminent.
Fellow euro nations are expected to demand that Spain carries out reforms in its financial sector in exchange for coming to the aid of its stricken lenders.
"The amount on the table at the moment is as much as up to €100bn but this hasn't been decided yet," a senior EU official told AFP during the call. The money will come with conditions attached entailing a "clean-up of the financial sector", the source said.
The Swedish prime minister signalled the package would be in that region. "There was a question of more than €80bn," Fredrik Reinfeldt said in a radio interview. "It is in fact a question of one of the biggest financial rescues in recent history."






http://www.zerohedge.com/news/spanish-cross-forbearance

( Executive Summary of Mark's piece  - -  The real number, if you look at the Regional debt, the needed aid for the banks, the contagion at the already infected two major banks is somewhere around $400 billion which is not present in the EFSF; there is not enough “promises to pay” left in this fund....With the addition of new debt, the decline in GDP and the factual counting of liabilities the actual debt to GDP ratio for Spain is somewhat north of 180% which Spain will decry as a false proclamation but which counts the Spanish sovereign debt, the Regional Government guarantees, the bank guarantees, the Spanish obligations at the EU and the ECB and is nothing more than simple addition divided by the official Gross Domestic Product. )



The Spanish Cross Of Forbearance

Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2012 11:30 -0400




From Mark Grant, author of Out of the Box
The Cross Of Forbearance
“Destiny guides our fortunes more favorably than we could have expected. Look there, Sancho Panza, my friend, and see those thirty or so wild giants, with whom I intend to do battle and kill each and all of them, so with their stolen booty we can begin to enrich ourselves. This is noble, righteous warfare, for it is wonderfully useful to God to have such an evil race wiped from the face of the earth."

"What giants?" asked Sancho Panza.

"The ones you can see over there," answered his master, "with the huge arms, some of which are very nearly two leagues long."

"Now look, your grace," said Sancho, "what you see over there aren't giants, but windmills, and what seems to be arms are just their sails, that go around in the wind and turn the millstone."

"Obviously," replied Don Quixote, "you don't know much about adventures.”

                                    -Miguel Cervantes

The wind picked up across the plains, the windmill began to turn and “The Ingenious Gentleman Don Quixote of La Mancha” rode out once more to do battle. The ever faithful Sancho Panza, not wishing to be left behind, was in attendance and the windmills were now the banks and the regional debt of the country.


You see, the Troubadour, Mariano Rajoy, does not wish the country to take any responsibility. It is to be the banks, not to injure the pride of the nation, that are the culprits and the banks, run by the empanada consortium, who are to be blamed. The IMF has released a statement claiming the banks need about $46bn which is the typical posture of the IMF these days; underestimating liabilities and then finding that more money is needed later; which they already knew of course. “Under estimate the liabilities and over estimate the assets” is the mantra sung at the IMF these days at the morning prayers as their credibility is as certain as the stature of the giants fought by Don Quixote.

The extra money, suggested in the IMF report to ring wall the banks, is another gust of wind as it is directed to the regional debts of course which no one wants to mention as the faceless Men in Black ride into Madrid to claim their latest victim. The beating of chests can be heard in Andalusia as there is no ESM; it does not yet exist regardless of the panderings of the savants that ride the airwaves. Germany has not even voted on it yet so that that ballyhoo that the ESM is the “Saving Grace” is the stuff and fluff from which nonsense is composed. There is the EFSF but it is no authority to issue money directly to the Spanish banks or any other banks for that matter. The ECB could issue directly to the Spanish banks but the screams would be loud in Belgium, France and Ireland as none of their banks were similarly helped so this path is effectively closed. No, it will be the EFSF lending money directly to Spain who will then re-deploy to its banks, and discreetly its regions, as the Cross of Forbearance is removed from the Cathedral in Madrid and replaced with a photo of Judas Iscariot who failed his Sovereign in the end.


The real number, if you look at the Regional debt, the needed aid for the banks, the contagion at the already infected two major banks is somewhere around $400 billion which is not present in the EFSF; there is not enough “promises to pay” left in this fund. Ring walls, contingent liabilities which are not counted in Europe is about to have to be funded and the thought of coming up with that amount of real cash will not be one of the pleasanter discussions when all of the European Finance Ministers converse by telephone later today. As these people do not have painful conversations without request it is reasonable to assume that Spain has already shouted “Uncle” which is why the meeting has been called. There has been no official admission of this of course because Spain knows that once the official announcement has been made that there is no way back as the hordes ride in once again and as the trumpets of the Goths echo one more time on the fortress walls of Barcelona and Valencia. With the addition of new debt, the decline in GDP and the factual counting of liabilities the actual debt to GDP ratio for Spain is somewhat north of 180% which Spain will decry as a false proclamation but which counts the Spanish sovereign debt, the Regional Government guarantees, the bank guarantees, the Spanish obligations at the EU and the ECB and is nothing more than simple addition divided by the official Gross Domestic Product.


The problems continue to multiply as Moody's threatens a Spanish sovereign downgrade and as the margin demands at the clearing houses will certainly be raised again soon. A Spanish bailout will also remove Spain’s ability to support other troubled periphery countries so that their 12% of any guarantees will have to be shifted to the other funding nations so that the dominos on the Continent keep falling one-by-one with the fallen tiles heading directly towards Rome. The tragedy so long feared is about to be the tragedy that has arrived and the dreams of a Euro glittering in the afternoon sun is about to be a very dark nightmare which no longer vanishes in the first moments of being roused and awake.

“Truly I was born to be an example of misfortune, and a target at which the arrows of adversary are aimed.”

                                 -Don Quixote






http://www.zerohedge.com/news/european-finmins-discuss-giving-spain-%E2%82%AC100-billion-spain-has-yet-request-bailout


As European FinMins Discuss Giving Spain €100 Billion, Spain Has Yet To Request A Bailout

Tyler Durden's picture
Submitted by Tyler Durden on 06/09/2012 10:20 -0400




The European financial ministers' meeting started at 4:00 pm CET. What are they discussing? According to the WSJ, nothing short of "a commitment to provide as much as €100 billion ($125 billion) in support for Spain's ailing banking sector." At least we now know that that Spanish bank trot so widely avoided by the mainstream media was just a little more kinetically-charged than previously expected, because for Spain to actually demand the money, even if implicitly, it means it has a capital shortfall, which can only arise from an outflow of liquidity, as mere real estate impairments do not have any impact on liquidity. So far so good. There is only one problem: Spain has yet to formally request the money! According to newspaper ABC, "Spain wants to convince European partners that IMF shouldn’t participate in aid for country’s banks because of potential stigma. Aim of talks taking place today is to agree legal framework and conditions for a potential rescue, newspaper says." Potential rescue you see: not an actual one. Just because, as we explained patiently to the 5 year old algos out there, Spain will have none of this "conditionality" that would be imposed on it by Germany, and the IMF, should it actually be formally a bail out target. Which of course would also have the unpleasant side effect of pushing its spreads tighter for a few hours, then blowing them out parabolically once carbon-based investors out there realize what has just happened. As for the ultimate question: just where will €1 of money come from in this broke continent, let alone €100 billion... why, better not to bother with details.

To summarize: Europe is desperate to force Spain to accept a bail out, which the US will pay for.

And so look forward to headlines in 3-4 hours which promise much, but say nothing. Something along the lines of: "European FinMins are committed to providing Spain with financial assistance should it request it."

In other words nothing new.

More from the WSJ:

Spain, which is reeling from a real-estate meltdown, has not requested aid for its financial companies yet, the official said, adding that no disbursements are likely to come before the end of the month, when two independent consulting firms have finished their assessment of the country's banking sector.

However, the euro zone agrees that "quick and radical action" targeted at Spain's banking sector is necessary, the official said.

He said the draft statement mentions €100 billion as the "top figure" of support that Spain could get, but that the exact size, form and time frame of a bailout for the banks wasn't yet decided.

"That figure is mostly for the markets and doesn't mean that the actual disbursements have to be that much," he said.

The draft statement focuses on conditions linked to Spain's banking sector, but also requires Spain to resolve macroeconomic imbalances that the European Union has previously revealed, the official said.

Finally, as we showed yesterday, all the newsflow can be ignored courtesy of one simple inforgraphic: one which shows precisely what the final outcome in Spain will be:



One word: exponential.

and.....

http://www.telegraph.co.uk/finance/financialcrisis/9321157/Debt-crisis-Eurozone-finance-ministers-to-discuss-Spain-request-for-bank-bailout.html


Bruno Waterfield
By , in Brussels
8:23AM BST 09 Jun 2012
Comments189 Comments
Spain has come under pressure from the European Central Bank, Germany and Netherlands to move before Greek elections on 17 June, amid fears that political chaos in Greece and the weakness of Spanish banks could threaten the euro's financial stability.
"There is a need to ensure that the euro-area is properly ringfenced and protected from possible Greek fallout and that means strengthening Spain's banks," said an official.
Pressure for eurozone action to stem the escalating crisis was increased by a warning from Moody's overnight that Spain's need for help to refinance its banks and an exit from the euro by Greece could lead to additional credit rating downgrades for the region.
"We are expecting a significant development involving Spain this weekend," said an official. "It's about how rather than if."
When the Spanish request comes, the euro working group, placed on stand by over the weekend, will then hold a telephone conference call on how the bailout to Spain's banks will be structured.
After talks between the euro working group officials at director of Treasury level, the eurogroup of the single currency's 17 finance ministers will hold another conference call before making a statement.
According to reports, the finance ministers will meet around lunchtime today.
The amount will not be discussed, said EU sources who indicated that the final deal is unlikely to be agreed until the June 21 meeting of eurogroup of finance ministers in Luxembourg. Negotiations will focus on the terms and conditions of the aid from the European Financial Stability Facility (EFSF) as Spain resists a full scale EU-IMF bailout programme such as those in Portugal, Ireland or Greece.
However, they will be guided by an International Monetary Fund report published late on Friday saying while Spain's largest banks had enough capital to withstand further deterioration, several banks would need to increase capital buffers by at least €40bn, adding it could be more with restructuring costs and reclassification of loans. The report had been expected on Monday.
Ceyla Pazarbasioglu, Deputy Director of the IMF’s Monetary and Capital Markets Department, said: “Going forward, it will be critical to communicate clearly the strategy for providing a credible backstop for capital shortfalls — a backstop that experience shows it is better to overestimate than underestimate."
Fitch, which cut Spain’s credit rating by three notches on Thursday, estimates the country's banks will need up to €100bn, while JP Morgan said the full requirement could be as much as €350bn.
Vitor Constancio, vice president of the ECB, said: “It is expected that Spain will make a request for assistance, exclusively for bank recapitalisation ... Spanish banks have recapitalisation needs, therefore a solution must be found quickly to calm the markets.”
The euro's existing EFSF bailout fund allows bailouts to be used for banks without a full austerity programme administered by the EU-IMF's troika, dubbed the "men in black" by Spanish ministers.
While Spain, which is regarded by the EU as on track with its economic policies, will escape an unpopular and intrusive troika programme it will not escape having the EU aid added to its national balance sheet, compounding its fiscal problems.
Yesterday, US President Barack Obama demanded European leaders act “right now” in an impatient and forceful message. He said there was “a path out of the crisis” if only leaders would take the “decisive actions” needed.
While official in Madrid, Berlin and Brussels officials played down talk of a rescue plan for Spanish banks this weekend, Mr Obama added credence to the reports.
“The focus must be on strengthening the banks, like we did in 2008,” he said. “EU leaders are in discussions about that and they are going in the right direction.”

and......

http://www.businessinsider.com/spains-negotiating-position-five-nos-2012-6

Spain's Negotiating Strategy: No, No, No, No And No


MARK CHANDLER
As recently as May 28, Spanish Prime Minister Rajoy was claiming that "there will be no Spanish bank rescue".  He miscalculated.  He had hoped the ECB would come to his rescue.  Not only has the ECB not resumed its sovereign bond purchases, but it did not even throw it a bone by cutting rates, which surely are justified based on the trajectory of the euro zone economy, where conditions have deteriorated markedly since the end of last year and the last time the ECB rates.  
There are only two issues now.  How much money does Spain need and under what terms?
The IMF's stress test, assuming about a 4% economic contraction, reportedly revealed that Spanish banks would need another 37 bln euros to cope.  However, this does not seem be as much of "worst case" scenario.  It had contract 3.7% in 2009 and although the contraction less than half the pace, it looks as if it will be protracted.  


While it may seem to be in Spain's interest to request the least amount of funds, the risk is that a limited program fails to restore confidence.  Estimates range from 60-80 bln euros at the low end to 100-120 bln euros at the high end.  Yet as we have argued, because real estate and housing prices have not completed the correction from the bubble, the depth of the Spanish banking problems are difficult to measure with any confidence, but estimates of eventual losses run towards 300 bln euros.  

When Fitch cut Spain's ratings by 3 notches a few days ago, it warned Spain was likely to contract this year and next.  Even if Spain gets an extra year to reach the 3% deficit target, it means that additional austerity will be delivered for the next couple of years, which weakens the economic outlook.  Structural funds and infra-structure projects will likely be too small to really dent the austerity on both the federal and regional levels.  

What we have called Spain-lite is an effort to 1) get Spain funds for a bank recapitalization and 2) without the stigma attached to the programs in Greece, Ireland and Portugal.  

It appears Rajoy is now willing to seek official assistance.  His negotiating position can be summarized in five  no's:

  1. No loss of sovereignty
  2. No new fiscal conditions
  3. No new deficit commitment
  4. No additional structural reforms
  5. No IMF

The EFSF/ESM has been authorized to loan to countries for bank recapitalization purposes.  By keeping the IMF out, and bringing the EBA in, Spain hopes that it can avoid the worst of the stigma and keep it to a limited bank recap program.  


There is a conference call among key officials in Europe shortly.  Contrary to speculation, few specifics are likely to emerge, even if there is an agreement in principle.   As Spain edges closer to a formal request, Moody's appears poised to cut is A3 rating for Spain.  

And don't forget the bizarre rules of engagement and the first mover advantage.  If Cyprus formally requests aid before Spain, Madrid will have to participate.  However, if Spain asks for aid before Cyprus, Cyprus will have to participate in Spain's assistance.


and.....


Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)