http://www.zerohedge.com/news/egan-jones-triple-hooks-italy-downgrades-boot-b-ccc-watch-negative
Submitted by Tyler Durden on 07/25/2012 13:52 -0400
http://www.testosteronepit.com/home/2012/7/24/the-extortion-racket-shifts-to-spain.html
http://www.telegraph.co.uk/finance/financialcrisis/9427721/Euro-exit-beats-begging-bowl-says-Spanish-elder-statesman.html
The hard reality is that law passed by the German Bundestag stipulates that Spain’s €100bn bank rescue is a loan to the Spanish government , whatever the EU summit document says. That is what markets care about.
and.......
http://www.zerohedge.com/news/spains-second-largest-company-telefonica-cancels-dividend-and-share-buyback
Submitted by Tyler Durden on 07/25/2012 12:34 -0400
and........
http://www.zerohedge.com/news/rbs-says-expect-spanish-sovereign-bailout-request-within-days
Submitted by Tyler Durden on 07/25/2012 10:56 -0400
and.....
http://www.zerohedge.com/news/drachmatization-within-1-year-more-likely-not
Submitted by Tyler Durden on 07/25/2012 09:36 -0400
Egan Jones Triple Hooks Italy: Boots The Boot To CCC+ From B+, Watch Negative
And another country falls to the Egan Who juggernaut.
and......Synopsis: Italy and its regional governments need to rollover approximately EUR183B in 2012 and EUR214B next year and is likely to experience increasing yields and restricted access without external intervention. Yields on the 10 year bonds are near 6.5%; rates have been rising despite prior ECB purchases. Future intervention by the ECB and IMF will provide some liquidity but might subordinate existing creditors. Italy cannot support all of its debt if the EU economy falters. Debt/GDP will continue to rise and the country will remain pressed. We are downgrading from " B+ " to " CCC+ " , with a neg. watch
Look for the "reputable" raters such to follow suit in downgrading Italy in 2-3 months.
http://www.testosteronepit.com/home/2012/7/24/the-extortion-racket-shifts-to-spain.html
The Extortion Racket Shifts To Spain
TUESDAY, JULY 24, 2012 AT 7:33PM
After 21 summits to save the euro, followed by dog-and-pony shows to calm the markets, followed by confidence-inspiring pronouncements about insurmountable firewalls and pandemic structural reforms, the euro is in greater danger than ever before. Spanish Prime Minister Mariano Rajoy walked away from the last summit at the end of June with a victory smile, and Italian Prime Minister Mario Monti was so triumphant that it aggravated other heads of state. Now, Spain is on the brink. Its collapse would be so spectacular that people have stopped watching Italy for now.
Despite repeated assurances that Spain would not need a bailout, though it already accepted €100 billion to bail out its banks, rumors floated to the surface Monday that it would seek a bailout. The price: €300 billion. This would be the topic in Berlin on Tuesday where Spanish Economic Minister Luis de Guindos would meet German Finance Minister Wolfgang Schäuble, the lynchpin in any of this. True to bailout form, de Guindos denied the rumors and emphasized again that Spain would not need a bailout.
Spain is desperate. Yields on 10-year bonds hit 7.5%, approaching the point where the high cost of borrowing would lock Spain out of the credit markets. But in October, €28 billion in government debt will come due. Hence de Guindos’ mission in Berlin.
But Tuesday morning, new rumors seeped out: de Guindos would push and shove Schäuble to allow the European Central Bank to buy Spanish debt in the secondary markets; it would force down yields and preserve Spain’s access to the markets. The government, with support from its triumvirate partners France and Italy, has been castigating the ECB that it wasn’t doing its job, which was to print money and buy sovereign bonds, something it had done before, but had inexplicably stopped in mid-March, and it fingered the behind-the-scenes culprit: Germany.
If de Guindos couldn’t persuade Schäuble to give in, “sources” of el Economista said, he would seek a temporary line of credit, not a bailout, to deal with Spain’s “temporary problems,” namely its maturing debt, funding its deficit, and bailing out its regions—Valencia, Murcia, and Catalonia already asked the central government for help. The line of credit would buy time—the mantra in all Eurozone bailouts. And if he couldn’t hoodwink Schäuble into agreeing to a line of credit, “sources” suggested that more “forceful measures” must be studied....
Default. Because Spain has no money to meet its upcoming obligations in October. Then there would be haircuts, the “sources” said. Dreadful words. It worked for Greece; it’s going to work for Spain. Given the amount of Spanish debt and related derivatives decomposing in closets of German banks, those words were a loaded gun to Schäuble’s head.
The extortion racket, perfected by successive Greek governments, has switched to Spain. But this alternative is so extreme, the sources said (thus putting the gun back into the holster for now), that it isn’t the most likely option. Nevertheless, Spanish Credit Default Swaps jumped 31 basis points to a record of 636.
Suddenly, plot twist. Meeting over, a new rumor bubbled up: the Germans wanted Spain to formally request a ... €300 billion bailout! It might fund Spain for a year and a half or so—to buy time. €100 billion would come from the current bailout fund, the EFSF—which would leave it with only €38 billion, after its commitments to Spain, Greece, Portugal, and Ireland, and possible commitments to Cyprus. €200 billion would come from the permanent but still non-existing bailout fund, the ESM; it’s still awaiting the rubber stamping by the German Constitutional Court. Apparently, de Guindos and Schäuble agreed that both funds could buy Spanish debt. Schäuble, however, didn’t yield on one item, despite the big gun to his head: the ECB would not buy Spanish bonds.
The conditions linked to the bailout package haven’t been determined yet. However “sources“ close to the government believed that no harsh conditions would be imposed, based on the structural reforms announced two weeks ago and those already implemented—measures that caused demonstrations, protests, and some violence across the country.
Given how bailouts have gone so far, the combined €400 billion won’t be enough, and it will probably be clear that it won’t be enough before the ink on the deal is even dry. Just like Greece now needs a third bailout, which it is unlikely to get, Spain’s final bailout costs will be far larger than the €400 billion, and far larger than any of the prior bailouts. And then there’s Italy. Read.... But Who The Heck Is Going To Do All The Bailing Out?
and....
http://www.telegraph.co.uk/finance/financialcrisis/9427721/Euro-exit-beats-begging-bowl-says-Spanish-elder-statesman.html
8:31PM BST 25 Jul 2012
160 Comments
Francisco Alvarez Cascos, the region’s president and former secretary-general of Spain’s ruling party, accused premier Mariano Rajoy of humiliating the nation by touring Europe with a “begging bowl”.
The attack came as Spanish finance minister Luis de Guindos hopped from Berlin to Paris in a desperate attempt to drum up support as yields on Spanish two-year debt surged to a fresh record of 7pc.
Mr de Guindos hopes to recruit enough allies to force a policy change by the European Central Bank and avert a full sovereign rescue. He angrily denied press reports that Madrid has thrown in the towel and negotiated German backing for a €300bn (£235bn) package from Europe’s rescue fund.
Mr Cascos said the government is “utterly incompetent”, but warned that the deeper crisis is a “perverse” monetary system where capital flight from countries in distress is funding creditor states at zero rates. “This can’t go on for long, or we will have to think about leaving the euro before we are thrown out,” he said.
The downward economic slide in Spain is accelerating, with all-conquering Telefonica forced to cancel its dividend and slash board pay by 30pc. In a worrying twist, top companies in Spain and Italy have seen a surge in borrowing costs over the past two days. Yields on five-year Telefonica debt have risen 60 basis points. Telecom Italia has jumped 40 points, while Fiat bonds have crashed over the past two weeks.
Suki Mann from Societe Generale said markets fear that Moody’s may downgrade Spain by two notches, degrading the country’s corporate nexus to junk levels. “Its very bleak out there,” he said.
Bourses rallied after Austria’s central bank governor, Ewald Nowotny, said he was personally open to the idea that the European Stability Mechanism, or bail-out fund, should be given a banking licence, allowing it to borrow from the ECB. This would vastly boost its €500bn firepower.
The MIB index in Milan rose 1.2pc and Madrid’s IBEX rose 0.8pc, but traders urged caution. The bank’s president Mario Draghi said earlier this month that such a scheme would amount to an ECB sovereign rescue by the back door and “destroy its credibility”.
Harvinder Sian from RBS said an ESM bank licence is the only “high-impact turnaround policy left” but warned that Germany will not drop its veto until the euro is on the brink. The Spanish are hoping to prod the eurozone’s Latin bloc to use its majority power on the ECB council more aggressively to force a policy change.
Italian premier Mario Monti has already called on the ECB to cap the bond yields of those states that are sticking to austerity, and French leader Francois Hollande has backed a more activist role, but it is unclear whether either are willing to risk a showdown with Germany.
The ECB’s bond-buying programme is in the “deep freeze” for now, according to one ECB member. The bank is loath to carry out “quasi-fiscal” rescues in breach of its mandate, deeming it the responsibility of EU governments to bail out states. However, the International Monetary Fund has joined the global chorus calling for bond purchases, and Mr Draghi is quietly laying the ground for a shift. There are “no taboos”, he said this week, adding that “the preservation of the euro is part of our mandate”.
Mr de Guindos made no breakthrough on the ECB in Paris, though he did secure a joint statement from his French counterpart Pierre Moscovici calling on all parties to “fully implement” the terms of the EU summit deal in June.
They said that draft proposals for a European banking supervisor must be in place in September, clearing the way for the direct recapitalisation of Spanish banks by the ESM. The aim is to break the self-reinforcing link between crippled lenders and the state.
The hard reality is that law passed by the German Bundestag stipulates that Spain’s €100bn bank rescue is a loan to the Spanish government , whatever the EU summit document says. That is what markets care about.
and.......
http://www.zerohedge.com/news/spains-second-largest-company-telefonica-cancels-dividend-and-share-buyback
Spain's Second Largest Company, Telefonica, Cancels Dividend And Share Buyback
Up until this point, Europe has been transfixed with severing the linkage between the sovereign and the banking system. This has been a particularly big issue in Spain because as is now well known, its banks are insolvent, yet the country is trying to pass off as not needing a bailout. Of course, if RBS is correct, that is all going to change very soon as the entire country demands a formal bailout. Yet link that has been largely ignored is the link between the sovereign, the financial sector and the broad corporate sector. Because if the first two are imploding, it is only a matter of time before the latter is also dragging into the maelstrom. As of minutes ago, this has just happened, following an announcement by Telefonica, Spain'ssecond largest company (and potentially largest depending on what Santander does any given day), that it has cancelled its dividend and share buyback for the entire year.
- TELEFONICA SAYS CANCELS DIVIDEND AND SHARE BUYBACK FOR 2012
- TELEFONICA SAYS TO RESUME SHAREHOLDER REMUNERATION IN 2013
- TELEFONICA TO CUT TOP MANAGERS' TOTAL COMPENSATION BY 30%
Why is Telefonica doing this? Simple - to conserve cash ahead of what may be a sovereign default which will have a huge adverse impact on all Spanish corporations. And where the dividend goes, M&A spending, and CapEx are sure to follow. For the self reinforcing toxic feedback loop that follows look nowhere further than Greece and its destroyed economy.
Look for the IBEX to plunge tomorrow evenmore on the news as investors finally grasp what is going on.
and........
http://www.zerohedge.com/news/rbs-says-expect-spanish-sovereign-bailout-request-within-days
RBS Says To Expect A Spanish Sovereign Bailout Request "Within Days"
Probably not the news those who hopped on the Hilsenrath bandwagon of hope, prayer and bullshit were looking for. From Bloomberg:
- Spain likely to lose market access in near term, and will probably ask for precautionary sovereign bailout MOU “within days,” strategist Harvinder Sian writes in client note.
- ECB can act as agent to EFSF and buy Spanish bonds, lowering yields for Spain; BTPs to benefit by “correlation”
- Due to small size, this backstop would have “no credibility”; excluding risk that Moody’s cuts Spain to junk, ultimately SPGBs and BTPs will head to “double-digit” yields
- Giving ESM banking license is only “high-impact turnaround policy left”; however, Germany likely only to drop opposition to move at close to point of failure for EMU
It also means that those who bought non-local law Spanish bonds are about to be cremated as the PSI rears its ugly head once again. Everyone else who listened to us and bought UK, Swiss and Japanese law near-term bonds, should get taken out at par.
and.....
http://www.zerohedge.com/news/drachmatization-within-1-year-more-likely-not
Drachmatization Within 1 Year More Likely Than Not
With GGB prices, down 53% from post-PSI, plunging to all-time lows (offering Greywolf more opportunities to add to its 'no-brainer' trade) it appears Europe's ever-hopeful self-perpetuating banks are turning tail and realizing that the truth will set them free. In a turnabout from a late May note detailing 'why Greece will not leave the Euro', Credit Suisse now expects a return to some form of local currency for Greece within one year (an event they now assign a probability greater than 50%). The reason for their change of view is the slowness of structural reforms/privatizations and the lack of available capital to bail out the increasing number of distressed euro zone countries. It seems almost impossible for Greece to pull itself out of the contractionary hole it's in without additional support that few are politically able or willing to provide. Expecting another round of PSI - extending to ECB losses - and ending the ridiculous state of affairs that exists currently whereby the euro area is providing funding to Greece to enable them to repay the ECB. Ominously, they note, against the backdrop of the situation in Spain, we believe that such a development in Greece will have a highly negative impact on sentiment, further putting into question the sustainability of the euro area as a whole.
Credit Suisse: Greece – the return of the drachma is becoming more likely
The probability that some form of local currency is reintroduced has increased in our view, and is now greater than 50% on a 1-year horizon. This doesn’t necessarily mean Greece imminently needs to leave the EU/euro area – the new currency and the euro could be run in parallel – although that too has become more likely in our view. In short the reason for our change in view is the slowness of structural reforms/privatizations and the lack of available capital to bail out the increasing number of distressed euro zone countries.It seems almost impossible for Greece to pull itself out of the contractionary hole it’s in without additional support that few are politically able or willing to provide.
One near-term solution that strikes us as particularly attractive would be for the ECB to restructure its Greek bond holdings – on a notional flat basis into debt of a similar maturity profile to that issued under PSI for private creditors.The issue of subordination would be immediately reduced, with the ECB viewed to have ultimately had to take similar losses (on a pv basis) as everyone else, and the (crazy) current situation whereby the euro area is providing funding to Greece to repay the ECB would go.
Rather than coming up with an additional €50bn bailout program (which is an estimate of ours should Greece get a two-year extension) the already agreed funding could be used to fund the slippage in the program, supporting Greece directly and giving the country a chance to get back on its feet following the lost months surrounding the debt exchange and dual elections.
While we believe that the reintroduction of a local Greek currency would be done in an orderly manner, against the backdrop of the situation in Spain, we continue to believe that such a development in Greece will have a highly negative impact on sentiment, further putting into question the sustainability of the euro area as a whole. We are of the view that the point can be reached whereby Greece is able to exit the euro area without prompting considerably wider stress, but we are not there yet – the necessary policy infrastructure is not in place, and the situation in the rest of the periphery is too fragile.
