GUIDE
http://www.nakedcapitalism.com/2013/03/will-slovenia-be-the-next-victim-of-german-politics.html
FRIDAY, MARCH 29, 2013
Will Slovenia Be the Next Victim of German Politics?
The IMF says that Slovenia will need to issue €3 billion in bonds this year. Since yields have short up from 4.5% to to as high as 6.4% as a result of the Cyprus rescue, that could be a costly order. And notice that these are dollar bond yields; the country is taking currency risk to get these funding rates. The country may be forced to seek painful assistance from the Troika.
Slovenia is commonly depicted as a potential victim of the botched Cyprus bailout, but if it is treated harshly, it will really be a victim of the hardening of attitudes in the northern nations. Austerity continues to drive periphery country economies into depressions, worsening their debt to GDP ratios, one of the key metrics the Eurocrats watch. But the surplus nations refuse to admit that their policies have failed, since they are trapped in a morality tale that depicts the debtor nations as profligates who must be punished. Never mentioned is the fact that debt levels in all advanced economies rose as e result of the global financial crisis, brought to you by American, British, French and German banks.
Like Cyprus, Slovenia’s problem is its banking sector. But it’s a tame 200% of GDP, while most measures put Cyprus’ banks at 800% to 900% of GDP. One of Slovenia’s biggest banks was one of only four in Europe to fail the stress tests (two were the banks in Cyprus now inflicting haircuts on big depositors). Non-performing loans at the three biggest banks, according to the IMF, rose from just under 16% in 2011 to over 20% last year. That means they are insolvent. The debt is mainly corporate debt, the result of lax lending by state owned banks to cronies. Slovenians commenting on a Washington Post article on the possible bailout focused on the corruption. Some examples (each paragraph is a different author):
One of the major problems here in Slovenia is that “everyone knows everyone”. This way the local wannabe managers (financial thiefs) in tie with scumbag politicians (big banks are in majority owned by the state) made some “friendly loans” that were unsecured. Those loans were then used to buy out the stock of the companies by the people managing them (manager buyouts). Yes it stinks to the high heavens. The companies later either dropped in value or went bankrupt..no way to repay a loan.. The biggest bank NLB is their milking cow…it gets recapitalized over and over by the people so the scum can take advantage of it and funnel the money they make out of the country in places like…Cyprus…The crisis in Slovenia is result of ill conceived privatization policy of state enterprises initiated by incompetent right wing government of 2004-8 that resulted in a series of huge leveraged manager’s buyouts financed by banks: with the start of financial crisis in 2008 these manager’s buyouts went bust and banks were left with bad loans. True, in last few years a lot of corruption and white collar crimes were uncovered on all levels of society.Corruption is finally getting some attention (it brought down Janša’s government and the mayor of Maribor, Slovenia’s second largest city) and has been in the spotlight the last few days as the new Minister of Infrastructure and Space (think zoning and land use) and the brother of the ex-president of Slovenia have both been caught building illegal buildings without permits on land restricted to agriculture. The minister had to step down, the shortest term, 4 days, for any minister in the short history of the country (a bit over 20 years old).
1/3 of the rescue funds would go to shoring up the sick banks. Slovenia hopes to avoid that by having the banks earn their way out of their hole. Reuters described the approach:
One of the key tweaks now under consideration, according to RBS, is the creation of internal bad banks within each of the country’s largest financial lenders, postponing any transfer of toxic assets to an external bank asset management company to a later date.“Initially, bad assets would be transferred to the internal bad banks and backed simply by government guarantees,” said Abbas Ameli-Renani, an emerging market strategist at RBS.Under the original proposal, assets would have been transferred immediately to the BAMC in exchange for newly-issued government bonds.While there will be a simultaneous recapitalisation of banks under both arrangements, the new version would not result in an immediate spike in the government’s debt level, because the authorities would initially provide banks with guarantees rather than newly issued securities.One of the downsides, however, is that the plan will keep bad assets on banks’ balance sheets and under the same management.
Richard Field adds:
Keeping the bad assets on banks’ balance sheets is not a ‘bug’, but a feature. By making the banks absorb the losses on all the excess debt in the financial system, the government is establishing how much in the way of future earnings must be retained to recapitalize the banks.Going forward, the banks will retain 100% of pre-banker bonus earnings until they have rebuilt their book capital levels.
While it is conceivable this approach could work, I would not give it high odds. The last time I can recall it succeeding (as opposed for serving as official cover for zombification) was in the US in the aftermath of the S&L crisis. Many of the surviving banks had dangerously low capital levels. Many banking experts at the time were deeply worried about more failures and whether the banks were too weak to do enough lending to support growth. Greenspan engineered an unprecedentedly steep yield curve to help banks rebuild their balance sheets and their recovery was faster than the pundits expected.
The reason I doubt this approach can restore the banks to health (although it can reduce the size of the funding needs) is that first, they are deeply insolvent. Second, they don’t have the tail wind of easy and unusually rich “borrow short-lend long” profits. Third, the economy in the Eurozone is deteriorating, and a small open economy like Slovenia is certain to share in the pain. Fourth, housing is overvalued, and a fall in that market could leave the banks with more losses.
By contrast, Slovenia’s debt to GDP ratio is a modest 54%, which would seem to give it a fair bit of borrowing headroom. But skittish markets aren’t discriminating. If its interest rates remain high or rise, Slovenia may turn to the Troika of help. And that is where things could get ugly.
Some believe the dictatorial posture that the EU and IMF, particularly the EU, took with Cyprus was the result of the rise of an anti-Euro party in Germany. Its position is that continuing to provide support to periphery countries is bad for them and Germany. Merkel needs to play tough through the elections regardless; the anti-Euro party appears to be shifting the benchmarks for what “tough” means.
One open question is what stance the new center left government will take in any negotiations. The president, Alenka Bratušek, has made clear that she wants to give priority to growth, not debt reduction. But that does not square with Germany’s position. Slovenia and Germany could get into a row over the reforms required of Slovenia in return for assistance. If Slovenia attempts to push back against the Troika, it’s certain to get a forceful rejection just as Cyprus did. And another display of brute force is unlikely to go unnoticed by Italy and Spain.
and.....
http://gqjftw.blogspot.de/2013/03/lucke-claiming-greek-bankruptcy-might.html
THURSDAY, MARCH 28, 2013
Lucke Claiming Greek Bankruptcy Might be Only Weeks Away
The head of the German euro-sceptic party AfD Prof. Lucke, said in an interview with the FAZ that he thinks, Greek "bankruptcy is perhaps only a matter of weeks" away. Of course he might hope that this is the case, but it seems utterly unlikely, since the Cyprus disaster should have woken everybody in charge up to the fact that even the smallest member states are important, when it comes to the often mentioned "confidence".
More important than what he said, was the tone of the interview in my opinion. A few weeks ago the party was portrayed as right wing travesty. I wrote (see first link):
This new interview, in a major German newspaper, shows a significant shift in reporting, as it can be described as extremely soft on Lucke. He said that "the austerity measures are not being implemented sufficiently." Showing in my opinion a failure to understand even the basic principle that contractionary policy is, well contracionary. He was not asked to clarify that statement but instead went on to, in my opinion, shift the blame entirely to the crisis countries by claiming that blackmailing to achieve less austerity "is the way the game is played." This might also be due to the AfD growing at a very fast rate. The homepage is online for 18 days now, and the party today claimed 5,000 new members in that time. Many of those will have joined because of the Cyprus crisis. So the plan of Chancellor Merkel to be uncompromising might have backfired not only everywhere else in Europe but also in German domestic politics.
The newest representative poll by Forsa asking if Germans think that their money is safe in bank deposits had 54 % of participants answer NEIN. Which is still a significant increase from the older polls (a week earlier!). This is in my opinion very irrational. At the moment there is no reason to believe that in Germany. The more important question is: will the citizens act? Will they start to get their money out of the Euro area? I hope not and I don't see a reason why they should. The German banking system is very diverse, with only one bank too big to fail and many trustee savings banks that have a state independent guarantee for deposits in place.
So, the new party might just become a threat in the sense, that Merkel will take a harder stance in case another bailout will be necessary before the elections in September. The significant growth of the AfD and the different approach of the media, might just get the party into the Bundestag then. It will not be part of a government coalition, and it primarily decreases the chances of the smallest Merkel partner FDP to be in the next Bundestag, since a lot of former members have switched to the AfD
More important than what he said, was the tone of the interview in my opinion. A few weeks ago the party was portrayed as right wing travesty. I wrote (see first link):
This one bulletin point party is and will be irrelevant. But it got the media in Germany all dizzy, because some right wingers also want the Deutsche Mark back and therefore AfD is Hitler or something. Also it is dangerous, naive and have I mentioned Hitler?
This new interview, in a major German newspaper, shows a significant shift in reporting, as it can be described as extremely soft on Lucke. He said that "the austerity measures are not being implemented sufficiently." Showing in my opinion a failure to understand even the basic principle that contractionary policy is, well contracionary. He was not asked to clarify that statement but instead went on to, in my opinion, shift the blame entirely to the crisis countries by claiming that blackmailing to achieve less austerity "is the way the game is played." This might also be due to the AfD growing at a very fast rate. The homepage is online for 18 days now, and the party today claimed 5,000 new members in that time. Many of those will have joined because of the Cyprus crisis. So the plan of Chancellor Merkel to be uncompromising might have backfired not only everywhere else in Europe but also in German domestic politics.
The newest representative poll by Forsa asking if Germans think that their money is safe in bank deposits had 54 % of participants answer NEIN. Which is still a significant increase from the older polls (a week earlier!). This is in my opinion very irrational. At the moment there is no reason to believe that in Germany. The more important question is: will the citizens act? Will they start to get their money out of the Euro area? I hope not and I don't see a reason why they should. The German banking system is very diverse, with only one bank too big to fail and many trustee savings banks that have a state independent guarantee for deposits in place.
So, the new party might just become a threat in the sense, that Merkel will take a harder stance in case another bailout will be necessary before the elections in September. The significant growth of the AfD and the different approach of the media, might just get the party into the Bundestag then. It will not be part of a government coalition, and it primarily decreases the chances of the smallest Merkel partner FDP to be in the next Bundestag, since a lot of former members have switched to the AfD
Pressures mounting from bad loans - Italy , Spain , Romania in focus .....
http://www.bloomberg.com/news/2013-03-28/monte-paschi-posts-third-straight-quarterly-loss-on-bad-loans.html
Monte Paschi Posts Third Straight Quarterly Loss on Bad Loans
By Sonia Sirletti - Mar 28, 2013 1:04 PM ET
Banca Monte dei Paschi di Siena SpA, Italy’s third biggest bank, reported a third straight quarterly loss, missing analysts estimates, on soaring bad-loan provisions and lower income from lending.
The net loss of 1.59 billion euros ($2 billion) in the fourth quarter compared with a loss of 5 billion euros a year earlier, when the bank wrote down goodwill related to acquisitions, the Siena-based lender said in a statement today. That missed the 686.3 million-euro loss estimated by 11 analysts surveyed by Bloomberg.
Banca Monte dei Paschi di Siena, engulfed by investigations of its former managers, is selling assets, cutting costs and reducing risks to return to profit. Photographer: Alessia Pierdomenico/Bloomberg
Monte Paschi, engulfed by investigations of its former managers, is selling assets, cutting costs and reducing risks to return to profit. Chief Executive Officer Fabrizio Viola and Chairman Alessandro Profumo, appointed last year to turn around the 541-year-old bank, are trying to regain confidence of investors after the lender was forced to seek a second state rescue in four years and to take a 730 million-euro hit linked to derivative contracts.
“The bank will likely need more help going forward, as its bad loans continue to rise, and its operating profits struggle,” said Alberto Gallo, head of European credit research at Royal Bank of Scotland Group Plc. Bad loans as a proportion of total lending may rise 1 percentage point to 2 percentage points a quarter, for “at least” another four quarters, he said.
Loan-loss provisions increased to 1.37 billion euros in the quarter from 464 million euros a year earlier. Revenue declined 37 percent to 778.3 million euros, hurt by a net interest income drop of 52 percent to 434.5 million euros.
The new management said in June it would strengthen finances by selling its leasing and consumer credit units, closing 400 branches and eliminating 4,600 jobs by 2015. The revised plan has to be submitted to the European Banking Authority (BMPS) by June.
Regulators and prosecutors are scrutinizing derivative deals dubbed Alexandria, Santorini and Nota Italia that obscured losses under former management. Bloomberg News first reported on Santorini on Jan. 17.
Prosecutors are also probing former executives for alleged market manipulation, false accounting and obstruction of regulatory activity during the 2007 takeover of Banca Antonveneta SpA, people with knowledge of the matter have said.
Monte Paschi was unchanged at 18.5 cents in Milan trading before earnings were released. Shares almost halved in the last 12 months, giving the bank a market value of 2.16 billion euros.
http://www.bloomberg.com/news/2013-03-28/volksbanken-sees-losses-continue-after-bad-debt-charges-soared.html
Volksbanken Sees Losses on Bad Real Estate Loans, Romania
By Alexander Weber & Boris Groendahl - Mar 28, 2013 9:46 AM ET
Oesterreichische Volksbanken AG (VBPS) said bad debt charges more than tripled last year and will remain on a “very high” level that will cause further losses at the lender partially nationalized by Austria.
Risk provisions soared to 366.9 million euros ($469 million) from 103.6 million euros a year earlier, causing a loss that was offset only by the Austrian state’s bailout measures, the bank said in a statement today. The provisions will be “very high” again this year, mostly in its eastern European real estate and corporate loan books and will lead to another loss, Chief Executive Officer Stephan Koren said.
“Winding down is something you can’t do without costs,” he told journalists in Vienna. “There is no guarantee that we won’t need further aid” from the Austrian government, he said.
Austria has bailed out Volksbanken three times since its decade-long, fivefold balance sheet expansion began unraveling in 2008. The Alpine republic has 300 million euros of non-voting capital left in the bank, as well as a 43 percent equity stake bought for 250 million euros. The country already wrote down 700 million euros of capital injected into the bank.
Volksbanken swung to net income of 312.6 million euros in 2012 compared with a loss of 959.3 million euros a year earlier, it said. The result was inflated as some of the bailout measures were booked as profit under international accounting standards, the Vienna-based bank said. Stripping off those gains, the lender had a pretax loss of about 150 million euros, Koren said.
EU Approval
The lender won European Union approval for the government support in September 2012 by agreeing to sell or wind down more than a third of its assets. It will focus on the support of local cooperative banks, its main shareholders, and get rid of its unprofitable corporate and real estate financing as well as subsidiaries outside of its core business.
Volksbanken shrank its balance sheet to 27.7 billion euros from 41.1 billion euros a year earlier before the EU plan to cut it to 28.5 billion euros, it said. OAO Sberbank (SBER)bought most of its eastern European business in February 2012. The bank also sold its container-leasing unit, stakes in insurance companies as well as most of its credit-default swaps, it said.
The lender has about 2.9 billion euros of non-performing loans, or 12 percent of its total loan book, the bank said. Of those, 1.2 billion euros are in its ailing Romanian business, where almost one in three loans is delinquent.
Raiffeisen Zentralbank Oesterreich AG, which owns 0.9 percent in Volksbanken, may take over the international leasing unit, RZB Chairman Walter Rothensteiner has said. Volksbanken’s Malta unit is also due to be sold.
http://online.wsj.com/article/BT-CO-20130319-702391.html
Spanish Banks' Bad Loans Ratio Up in January - Bank of Spain
By Christopher Bjork
MADRID--The Bank of Spain said Tuesday that bad loans held by the country's banks rose in January from December, as more debtors failed to keep up with their debt payments amid a drawn-out economic recession.
The increase, to 10.8% of outstanding loans from 10.4% in December, followed a sharp monthly drop in December when several nationalized lenders transferred lower-quality credit portfolios to the so-called "bad bank" that started operations that month. These loans were removed from the central bank's balance sheet in December. In November, before their removal, Spain's bad loans ratio reached an all-time high of 11.4%.
Non-performing loans rose to 170.69 billion euros ($223.16 billion), up from EUR167.69 billion in December, data from the central bank showed.
The transfer of loans to the bad bank also led to a sharp drop in the amount of outstanding loans in the system. Total loans shrank 10.5% on the year in January, to EUR1.584 trillion. Lending is shrinking also because an economic crisis has cut demand for credit.
Spanish banks, reeling from the bursting of a massive housing bubble, have transferred around EUR60 billion worth of impaired assets to the bad bank. This was created as part of a deal to receive about EUR40 billion worth of European Union aid for the country's troubled banking sector.
Until November, bad loans had risen for 20 months in a row, due to soaring defaults by home builders and fast-rising unemployment. The government last year had to step in and recapitalize several troubled lenders that reported record losses.
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