http://www.zerohedge.com/news/2013-03-26/cypriot-youth-rise-pictures-they-just-got-rid-all-our-dreams
Submitted by Tyler Durden on 03/26/2013 14:52 -0400
http://globaleconomicanalysis.blogspot.com/2013/03/eu-pushes-universal-bail-in-regulations.html
Such regulation is a step in the right direction actually. There should be no deposit guarantees at all, no bondholder guarantees, and people should have to pay attention to where they put their money.
For a detailed explanation, please see Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?
Here are the key ideas from the article
Five Key Points
That said, note how bondholders and the ECB have been protected so far.
Bondholders did not suffer losses on Irish bonds, and the ECB did not even take a hit on its Greek bonds. Cyprus bondholders were not protected, primarily because the big European banks were not involved so they had nothing to lose.
Run on Banks Coming Up?
Looking ahead, the implication is that no one should place more than €100,000 in any bank. So no one will, especially in questionable Southern European banks. Instead, expect capital flight to presumed "too big to fail" Northern European banks, and also expect people to park more money directly at the ECB, where it will be safe.
Might such legislation then, spur a run on banks? Seems that way to me. My advice for European depositors is simple "Please don't wait until 2015 to find out."
Mike "Mish" Shedlock
Submitted by Tyler Durden on 03/26/2013 13:53 -0400
http://www.cyprus-mail.com/cyprus/capital-controls-being-readied-avert-bank-run/20130327
and......
http://www.zerohedge.com/news/2013-03-26/cyprus-template-or-not-template-wall-street-question
Submitted by Tyler Durden on 03/26/2013 07:49 -0400
The key point is the "men in black" will be in Spain trying to figure out what happened to €41 billion in ESM tranches that Spain received to recapitalize its banks. They also want to understand why SAREB cannot sell its properties.
The answer to the latter question is easy enough to figure out. Banks valued the assets too high, there is no market for them, and writeoffs will be even bigger than previously estimated.
In short, SAREB will need still more money. The "men in black" will not be pleased.
Mike "Mish" Shedlock
Spain depositors are on notice......
http://www.zerohedge.com/news/2013-03-26/overnight-market-its-all-cypriot-me
Submitted by Tyler Durden on 03/26/2013 06:58 -0400
Anyone really believe a word from Sarris's mouth at this point.....
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_26/03/2013_489881
Cypriot Youth Rise Up In Pictures: "They Just Got Rid Of All Our Dreams"
There is a reason we think of youth unemployment as the 'scariest' thing in Europe as we have discussed here and here. After a few months of relative calm, it appears the youth are once again finding their hopes dashed and are protesting. As Reuters reports, thousands of students and bank workers protested in the Cypriot capital Nicosia today. "They've just gotten rid of all our dreams, everything we've worked for, everything we've achieved up until now, what our parents have achieved," is how one young protester exclaimed his feelings, as a bank worker added, "we are scared." It appears President Anastasiades comment that, "the agreement we reached is difficult but, under the circumstances, the best that we could achieve," is not reassuring an increasingly volatile people.
http://globaleconomicanalysis.blogspot.com/2013/03/eu-pushes-universal-bail-in-regulations.html
Tuesday, March 26, 2013 12:01 PM
EU Pushes Bail-In Regulations on All Deposits Above €100,000; Run on Banks Coming Up?
Cyprus was such a "success", EU to push for losses on big savers at failed banks.
The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.Step in Right Direction
Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, said on Monday that in future, the currency bloc should first ask banks to recapitalize themselves, then look to shareholders and bondholders and then "if necessary" to uninsured deposit holders.
Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.
"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.
"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.
The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.
Hokmark urged savers to check their banks' health before taking the risk of depositing money.
"If you put your money in Royal Bank of Scotland ... or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.
Such regulation is a step in the right direction actually. There should be no deposit guarantees at all, no bondholder guarantees, and people should have to pay attention to where they put their money.
For a detailed explanation, please see Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?
Here are the key ideas from the article
Five Key Points
- In a Fractional Reserve Lending scheme, the notion there are meaningful reserves is ridiculous
- Far more money has been lent out than really exists (the rest is a fictional accounting entry)
- Fractional reserve lending constitutes fraud (just as lending something you do not own is fraud)
- There is no way for all this money to be paid back (so it won't be)
- Of all the central banks, the Reserve Bank of New Zealand has the most sensible policy for the most sensible reasons of all the central banks.
That said, note how bondholders and the ECB have been protected so far.
Bondholders did not suffer losses on Irish bonds, and the ECB did not even take a hit on its Greek bonds. Cyprus bondholders were not protected, primarily because the big European banks were not involved so they had nothing to lose.
Run on Banks Coming Up?
Looking ahead, the implication is that no one should place more than €100,000 in any bank. So no one will, especially in questionable Southern European banks. Instead, expect capital flight to presumed "too big to fail" Northern European banks, and also expect people to park more money directly at the ECB, where it will be safe.
Might such legislation then, spur a run on banks? Seems that way to me. My advice for European depositors is simple "Please don't wait until 2015 to find out."
Mike "Mish" Shedlock
And watch the slow motion bank run - UK savers will take cover after Cyprus debacle....
http://www.zerohedge.com/news/2013-03-26/great-british-cash-euxodus-begins
The Great British Cash EUxodus Begins
UK's deVere advisory group reports, "more and more expats in Spain, Italy, Portugal and Greece are now not unreasonably worried for their deposits in these countries," and are seeing a "surge" in the number of British expats seeking advice about moving funds out of eurozone's most troubled economies. As EUBusiness reports, "Whether the institutions like it and accept it or not, there is a real risk of a major deposit flightfrom these countries as people feel their accounts could be plundered next." It is hardly surprising obviously (as we noted earlier the bid in German bunds) but we fear this escalation in cash exodus from the periphery will increase the need for a broader EU capital control scheme sooner rather than later.
Via EUBusiness,
Independent financial advisory company deVere Group on Tuesday reported a "surge" in the number of British expats seeking advice about moving funds out of some of the eurozone's most troubled economies following the Cyprus bailout deal.According to deVere Group chief executive Nigel Green, "more and more expats in Spain, Italy, Portugal and Greece are now not unreasonably worried for their deposits in these countries."He added: "Over the last week, since the messy deal to bailout Cypriot banks began, ourfinancial advisers in these areas have reported a significant surge in enquiries from expats who are looking to safeguard their funds in other jurisdictions which are perceived to be safer."Whether the institutions like it and accept it or not, there is a real risk of a major deposit flight from these countries as people feel their accounts could be plundered next."...Jeroen Dijsselbloem, who heads the Eurogroup of finance ministers, said the costs of bank recapitalisations should not fall on tax payers, but on bondholders, shareholders and, if necessary, uninsured deposit holders....
http://www.cyprus-mail.com/cyprus/capital-controls-being-readied-avert-bank-run/20130327
Capital controls being readied to avert bank run
and......
http://www.zerohedge.com/news/2013-03-26/cyprus-template-or-not-template-wall-street-question
Cyprus - To Template, Or Not To Template: That Is The Wall Street Question
- Barclays
- Citigroup
- Creditors
- Deutsche Bank
- Eurozone
- Fail
- Gross Domestic Product
- Ireland
- Jim Reid
- Morgan Stanley
- Nationalization
- SocGen
- Sovereigns
After one of the most fabulous verbal faux pas in recent history was committed yesterday, in which the truth briefly escaped the lips of the new Eurogroup head who still has to learn from his masterful "when it becomes serious you have to lie" predecessor and ever since both he and all of uber-incompetent Europe have been desperate to put the genie back into the bottle to no avail, everyone has been caught in a great debate:to template, or not to template? Below is a summary of Wall Street's thinking on this key for so many European (and soon global) depositors.
Deutsche Bank:
- Damage from Dijsselbloem’s earlier message was done even as he tried later to clarify his Cyprus template remark, Jim Reid, head of fundamental strategy at Deutsche Bank, writes in note
- Cat increasingly let out of bag in past week on different ways to resolve future banking and sovereign crises; comments yday add to risk nothing is off the table when it comes to future issues
- Investors and creditors may also take the view that there’s increasing inconsistency about future rescues
Barclays:
- Dijsselbloem’s comments reflect clear misalignment in views among Europe’s leaders on structure and timing of banking resolution, Fabrice Montagne, economist at Barclays, writes in note
- Expect policymakers to clarify ESM role at upcoming EU summit in June; no clarity at the moment on whether ESM will take full responsibility for bank recapitalization for weak banks once the single supervisory mechanism is in place
Morgan Stanley:
- Cyprus bailout shows increasingly apparent change in EU approach to place burden on investors and depositors rather than tax payers, Hans Redeker, strategist at Morgan Stanley, writes in note
- Dijsselbloem’s comments of Cyprus template is consistent with with the change in approach to bailouts even after he back-pedaled; comments consistent with those of Merkel and recent bank nationalization in Holland
- Investors who recently returned to peripheral mkts may be deterred by perceived change, increasing EUR’s downside risk
Rabobank:
- Dijsselbloem’s comments, together with the ditched plans to take on small deposit holders, show genuine change in approach to solve banking sector problems
- In future, tax payers may not be the only source to absorb banking sector losses; re-fragmentation in
Eurozone could be a consequence of Cyprus deal - Negative for Ireland if Dijsselbloem’s comments do point at a change in stance; inability to resort to ESM to take over recapitalization of Irish banks may complicate exit from bailout
BNP:
- Although Dijsselbloem’s comments were partly retracted, mkts have interpreted it as indication that private sector bail-ins will need to play a larger role in any future bailouts, Steven Saywell, strategist at BNP writes in note
Citigroup:
- Investors bought peripheral bank shares and corporate bonds in the belief Europe is heading towards a banking union with single supervision and an ESM-backed bank resolution mechanism, Valentin Marinov, strategist at Citigroup, writes in note
- That belief is badly shaken; euro-denominated assets are vulnerable, adding to more EUR downside risk
SocGen:
- Europe is establishing the principle that sovereigns will not bear the whole burden of bank bailouts, but sovereign failure is even less acceptable than before, Kit Juckes, strategist at SocGen, writes in note
- Dijsselbloem’s timing was awful but there’s no point saying banks must not be too big too fail, and then bailing out all bondholders and depositors when they do fail
- Bank regulators will be more conservative, savers more nervous and monetary transmission mechanism more broken
ING:
- Eurozone bank stocks were hit hard yday on comments Cyprus is the new benchmark for bailouts; international investors will be monitoring deposit flows and Luxembourg and Malta, given that bank asset to GDP is now a popular metric, Chris Turner, strategist at ING, writes in note
Source: Bloomberg
http://globaleconomicanalysis.blogspot.com/2013/03/men-in-black-seek-answers-troika-to.html
Tuesday, March 26, 2013 1:08 AM
Men in Black Seek Answers; Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?"
SAREB, Spain's bad bank, has received assets (primarily bad loans) from Bankia, NCG Banco, Catalunya, Caixam, Banco de Valencia and others.
Bankia, a component of Spain's nationalized bank system has been one disaster after another. Guru's Blog reports that has you invested €37,500 in the IPO of Bankia at €3.75 per share, it would be worth 70€ today, a loss of 99.81%. Had you waited to buy at the bargain basement price of €0.26, your investment would be worth €1,009, a loss of 97.3%.
That's quite the loss. Bankia shareholders have been wiped out. Recovery is impossible.
Men in Black Seek Answers
The question at hand now is "What Happened to the €41 billion Spain received in two tranches of ESM money for bank recapitalization?"
That's a good question and one the "men in black" want to know as well.
El Confidencial reports Troika Will Return to Spain in May to Investigate Bankia
Bankia, a component of Spain's nationalized bank system has been one disaster after another. Guru's Blog reports that has you invested €37,500 in the IPO of Bankia at €3.75 per share, it would be worth 70€ today, a loss of 99.81%. Had you waited to buy at the bargain basement price of €0.26, your investment would be worth €1,009, a loss of 97.3%.
That's quite the loss. Bankia shareholders have been wiped out. Recovery is impossible.
Men in Black Seek Answers
The question at hand now is "What Happened to the €41 billion Spain received in two tranches of ESM money for bank recapitalization?"
That's a good question and one the "men in black" want to know as well.
El Confidencial reports Troika Will Return to Spain in May to Investigate Bankia
The troika, made up of the European Commission, the ECB and the IMF threaten an upcoming visit to Spain, during the last week of the month of May. The 'men in black' come this time seeking to clear up some of the derivatives in the famous bank bailout.This was an exceptionally difficult piece to translate. I believe I have the gist correct but if you read Spanish you may wish to refer to the original El Economista Article.
Specifically, the Troika will put a magnifying glass on Spain to check in detail the fate of the more than 41 billion euros delivered to the Government of Mariano Rajoy. The effective distribution of the two tranches of the ESM bailout is troubling supervisors. They also do not understand the development of other obligations as set out in a memorandum of understanding (MoU) signed last July.
One of the aspects of most concern in community media is the convoluted relationships between entities that have received public aid and the bad bank (SAREB) reluctantly created by the Spanish Government.
The 'men in black' do not understand why the SAREB has called for a draconian discount on the transfer of the assets of the bubble, then claim an extra 25% margin on retail prices. The spread in absolute terms is about €13 billion over the €51 billion in assets acquired by the bad Bank. It's an amount equivalent to 30% of the resources used in the capitalization of problem institutions.
International supervisors also question with some suspicion the mode and manner by which the banks have not been able to find market for their properties.
Finance minister Luis de Guindos said on Friday the solution will be to force all banks to loosen their pockets and spend another €2 billion, an extraordinary spill. The troika believes that this formula is not the most equitable since precisely the entities that have been nationalized will need new cash contributions.
The key point is the "men in black" will be in Spain trying to figure out what happened to €41 billion in ESM tranches that Spain received to recapitalize its banks. They also want to understand why SAREB cannot sell its properties.
The answer to the latter question is easy enough to figure out. Banks valued the assets too high, there is no market for them, and writeoffs will be even bigger than previously estimated.
In short, SAREB will need still more money. The "men in black" will not be pleased.
Mike "Mish" Shedlock
Spain depositors are on notice......
http://www.zerohedge.com/news/2013-03-26/overnight-market-its-all-cypriot-me
Overnight Market: "It's All Cypriot To Me"
- 200 DMA
- Across the Curve
- Bank Index
- Ben Bernanke
- Bill Dudley
- Case-Shiller
- China
- Consumer Confidence
- Creditors
- default
- Displaced Moving Average
- European Central Bank
- Eurozone
- Italy
- Japan
- Jim Reid
- LTRO
- Michigan
- Monetary Policy
- New Home Sales
- Nikkei
- Price Action
- recovery
- Reuters
- SocGen
- Sovereigns
- Testimony
- Yen
Another session in which the market continues to be "cautiously optimistic" about Europe, but is confused about Cyprus which keeps sending the wrong signals: in the aftermath of the Diesel-Boom fiasco, the announcement that the preciously announced reopening of banks was also subsequently "retracted" and pushed back to at least Thursday, did little to soothe fears that anyone in Europe has any idea what they are doing. Additional confusion comes from the fact that the Chairman of the Bank of Cyprus moments ago submitted his resignation: recall that this is the bank that is supposed to survive, unlike its unluckier Laiki competitor which was made into a sacrificial lamb. This confusion has so far prevented the arrival of the traditional post-Europe open ramp, as the EURUSD is locked in a range below its 200 DMA and it is unclear what if anything can push it higher, despite the Yen increasingly becoming the funding currency of choice.
There have been no macro economic news out of Europe, with China setting the stage and pushing the Shanghai Composite lower once more (-1.25%) after domestic media reported that Chinese banks will start to exercise greater control on the scale of loans to property developers (China Securities Journal). Further to that, the southern Chinese province of Guangdong announced that it will be the first province to implement cooling measures announced recently by the national government including a 20% capital gains tax and higher downpayments for second home buyers. The multi-billion non-reverse repo (liquidity withdrawing) confirms that inflation pressures in China are as strong as ever, and the ongoing open-ended QEasing by the US and soon Japan, will do nothing to help this, or push Chinese stocks higher.
Durable goods orders will be the main data release today in which a rebound in aircraft orders which declined 45.7% in January should be a catalyst for the headline print, although ex-aircraft and defense there may be some disappointment. Also scheduled today are Case-Shiller home prices, consumer confidence and new home sales.
SocGen on the key catalysts in the past 24 hours:
In the end, it turned out to be a fairly routine market response to the Cyprus rescue programme in a way that has characterised more than one bailout and EU summit in the recent past: knee-jerk relief followed by despair over the clumsy agreement and statement between EU policymakers. It was Eurogroup chair Diijsselbloem's comments on the Cyprus bank bail-in being a template for the broader euro region that sent markets scrambling for safety yesterday, with rumours of an Italy downgrade sending the Eurostoxx bank index down to levels last seen four months ago and on-target key technical level of 105.00. The realisation that deposit holders could be hit in a more generic fashion in the event of further bank trouble is causing fresh investor and popular unrest which could bring further disruption to the economic recovery. This will make the outlook even more unpredictable and as Moody's stated yesterday, Cyprus remains at risk of default and this is credit negative for all euro area sovereigns. The events of the last few days will put scrutiny on the 3y LTRO repayments announced every Friday by the ECB.
If correlations between EUR/G10 and periphery debt had temporarily become irrelevant, they jumped back to meaningful levels. The sharp widening in 2y btp/bund (+7.5bp) and bono/bund (+9bp) spreads finally squeezed EUR/USD below the 200d moving average at 1.2880. Without being technically oversold, momentum could carry the pair down to 1.2680 There is no eurozone data to speak of today - French consumer confidence was reported lower at 84 - so the focus will shift to ECB member Nowotny's speech at 10:00CET, who last week iterated that he saw no near-term rate cut. For the US, a small decline in consumer confidence is expected after a terrible Michigan confidence survey and durable goods orders are forecast to have bounced back from the steep 5.2% fall last month.
The full event roundup is as usual from Deutsche's Jim Reid:
One can’t help wondering whether there was a spike in the sales of top-end super king size mattresses late yesterday afternoon in Europe as Dutch Finance Minister and Eurogroup President Dijsselbloem discussed how the Cyprus model, including allowing larger depositors to take the strain, could become a model for future bank bailouts in Europe. He suggested that in the event of banking stresses, shareholders and bondholders will be asked to contribute and, if necessary, uninsured deposit holders. In his interview with the Financial Times and Reuters, Mr Dijsselbloem said he was effectively “pushing back the risks” that sovereigns or EU authorities would be left to shoulder the burden of bank bailouts. He added that the relative market calm in recent months, coupled with the lack of market panic following the decision to force depositors to pay for the bailout of two large Cypriot banks, allowed the eurozone to go after private money more aggressively when banks failed.
The market reaction prompted a clarification statement later where Dijsselbloem said that Cyprus was a “specific case with exceptional challenges” and that bailout programmes do not have models or templates. However by then the earlier message had done the damage with equities and the Euro falling sharply. Indeed the cat has been increasingly let out of the bag over the last week concerning the potential for different ways of resolving future bank/sovereign crisis and these comments yesterday added to the risk than nothing is going to be off the table when it comes to any future issues for the banking sector.
Investors/creditors might also take the view that there seems to be increasing inconsistency about future potential rescues. Is the ESM now redundant? Will policy be made up on the run and maybe modelled on that seen in Cyprus? It’s impossible to know at this stage which isn’t helpful for big depositors or investors in various bank securities. Luckily at the moment markets have been generally calm enough that this doesn’t immediately create problems. However the price action in European banks yesterday demonstrated the fragility that still exists. Banking stocks (-2.1%) were amongst the worst performers on the Stoxx600 (-0.27%) yesterday with Spanish, Italian and French banks bearing the brunt of the selloff. The hardest hit banks included Intesa Sanpaolo (-6.2%), Banco Populare (-5.9%), SocGen (-6.0%), Credit Agricole (-5.8%), Unicredit (-5.8%) and BBVA (-3.6%). It was a similar story in credit markets, with the European senior and subordinated financials indices adding 11bp and 13bp respectively, underperforming other credit indices.
Maybe the lesson from all of this is that if you are fortunate enough to have a fair degree of money you might be better off spending it! Maybe that’s the master plan here? Boosting activity by forcing people to use their money rather than deposit it! Indeed I wonder how long it’ll be before an equity strategist suggests that this is bullish as money might now leave deposit accounts and go into equities!
On a separate but related issue, shares in Spain’s Bankia finished the day down 41% yesterday after details of its recapitalisation plan were released last Friday. To recapitalise Bankia, shares will be written down to a nominal value of EUR0.01, and EUR4.8 billion worth of preferred shares and subordinated debt will be converted into ordinary shares. The Spanish bank recap fund, FROB, will inject EUR10.7 billion in funds.
Spain’s economy minister was keen to point out yesterday that a Cyprus-style bailout could not be extrapolated to any other country (Bloomberg).
Outside of the developments in Europe, Chairman Bernanke spoke at a discussion panel at the London School of Economics yesterday while the NY Fed’s Bill Dudley spoke at the Economic Club of New York. Bernanke commented that the benefits of monetary easing in the advanced economies are not via exchange rates but instead through supporting domestic demand. Bernanke also said he was “skeptical” that interest rate differentials were the “dominant force” behind capital inflows into emerging economies. Dudley’s speech had a relatively dovish tone. His main points were that labor market improvements were slowing; and inflation remained subdued, warranting a continuation of the Fed’s “very accommodative” policy.
Turning briefly to overnight markets, Asian equities are trading with a weaker tone with losses of around half to one percent seen across most markets. The Nikkei is outperforming other regional equities (-0.4%), helped by a 0.2% slide in the yen against USD, after comments from the BoJ governor at the semi-annual parliamentary testimony on monetary policy. Kuroda said that the BoJ could seek to push down yields across the curve by purchasing longer-dated JGBs with maturities of up to 5 years. He also added that next week’s BoJ meeting will debate specific policy steps to achieve inflation targets, making full use of the BoJ’s capabilities. The Shanghai Composite (-1.6%) is again leading losses after domestic media reported that Chinese banks will start to exercise greater control on the scale of loans to property developers (China Securities Journal).Further to that, the southern Chinese province of Guangdong announced that it will be the first province to implement cooling measures announced recently by the national government including a 20% capital gains tax and higher downpayments for second home buyers.
Turning to the day ahead, French consumer confidence is the main data print in Europe. In the US, durable goods orders will be the main data release today with our economists expecting a decent print for February, in part driven by a rebound in aircraft orders which declined 45.7% in January. Also scheduled today are Case-Shiller home prices, consumer confidence and new home sales.
Anyone really believe a word from Sarris's mouth at this point.....
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_26/03/2013_489881
Sarris says Cyprus capital controls probably a 'matter of weeks'
Cypriot Finance Minister Michalis Sarris believes that capital controls will be in place on the island for “several weeks.”
Speaking to BBC Radio 4, Sarris also said that uninsured Cypriot depositors are due to suffer a haircut of about 40 percent.
“It will be around that figure but I don’t want to speculate,” said Sarris.
He added that restrictions on cash withdrawals and transfer of money would not last too long.
“I think we are talking about a matter of weeks,” he said. “That’s my feeling.”
Sarris was speaking as Cypriot MPs were debating asking the country’s central bank to provide details about all transfers of capital from the island in the build-up to the bailout decision.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_26/03/2013_489858
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