Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, April 8, 2013
Troika squashes Greece attempt to merge National Bank and Eurobank - no TBTF Bank for Greece - note latest talks between Greece and Troika not going well ! Predictably Grek Banks were hammered by a massive sell off ..... Separately , Greece indicates Germany owes 162 Billion euros in war reparations to Greece ! Meanwhile , despite the happy talk - is the Eurozone collapsing in front of our eyes ? Post - Cyprus capital flight at a 2 trillion a year run rate ? Eurozone capital controls imminent ?
Cyprus central bank chief says final deposit loss for Bank of Cyprus to be announced in September, 37.5% cut on uninsured depositors to be carried out in next few days
Update details:
- CyBC reported that Bank of Cyprus' 'haircut' could be as much as 50% say insiders. An official announcement is expected later today.
Decision freezes merger procedure for the two lenders
National Bank of Greece and Eurobank Ergasias will stage their recapitalization separately, Bank of Greece announced late on Sunday, thereby freezing their merger procedure. All signs point to the two banks continuing autonomously.
The process and the timetable of the share capital increases of the two lenders as well as those of Alpha Bank and Piraeus will proceed as planned, BoG said.
It added that all four systemic banks will have to be recapitalized before the end of April.
It followed a Sunday evening meeting between the creditors' representativers in Athens and Finance Minister Yannis Stournaras at his ministry. They will hold a new meeting on Monday.
The creditors have been eager to avoid the creation of such big a group that would not be easy to find a strategic investor in the future.
Instead they have opted for the maintenance of a fourth pillar in the country's credit sector, with Eurobank already said to be the favorite to absorb state-owned Hellenic Postbank.
All four banks have already prepared for general meetings that will set in motion their share capital increases, the BoG noted in its statement, reminding that the increases will be covered by the Hellenic Financial Stability Fund (HFSF).
"The stability of the Greek banking system is fully secured, just as all deposits are fully secured according to the principles of the Greek bailout program," the BoG statement concluded.
Later on Sunday the boards of both National and Eurobank sent letters to the BoG admitting they are unable to cover by private means the 10-percent threshold needed in their share capital increases for them to retain their private status, which means that the HFSF is fully undertaking their recapitalization.
National has acquired 84 percent of Eurobank's shares, but after the recapitalization by the HFSF its stake will shrink to just 3 percent.
A future tie-up between National and Eurobank is not ruled out, Kathimerini understands, but this will be up to the HFSF to consider at a later date.
Bank shares plummet in wake of decision to call off National-Eurobank merger
The executive boards of Eurobank and National Bank are due to meet on Tuesday in the wake of the announcement that the lenders will not be merge but will be recapitalized separately.
The Bank of Greece’s statement regarding recapitalization prompted bank shares to plummet on the Athens Stock Exchange on Monday morning.
At 11.30 a.m., share prices in Eurobank and National Bank had fallen by 30 percent – the limit at which trading is temporarily suspended
Alpha Bank shares plummeted by 16.8 percent and Piraeus Bank dropped 22.5 percent.
The general index was down by 2.8 percent.
The Bank of Greece ended speculation about the lender’s immediate future on Sunday night by releasing a statement saying that National Bank and Eurobank would remain separate entities ahead of their recapitalization by the Hellenic Financial Stability Facility.
The lenders’ boards will meet on Tuesday to decide on how to proceed with an increase in share capital.
The recapitalization of Greek banks is due to be completed before the end of this month.
The Bank of Greece’s statement followed a Sunday evening meeting between the creditors' representatives and Finance Minister Yannis Stournaras in Athens. They are due to hold a new meeting on Monday.
The troika was skeptical about the National-Eurobank merger because of the size of the new lender that would have been created.
National has acquired 84 percent of Eurobank's shares, but after the recapitalization by the HFSF its stake will shrink to just 3 percent.
A future tie-up between National and Eurobank is not ruled out, Kathimerini understands, but this will be up to the HFSF to consider at a later date.
Germany owes Greece 162bln euros in WWII reparations, report suggests
German magazine Der Spiegel has picked up on a report in Greece that a panel of experts examining whether Berlin owes Athens Second World War reparations has concluded that the Greek government should receive a total of 162 billion euros.
The German publication quotes a report in To Vima newspaper, which claims to have seen the figures in a report produced by the Finance Ministry committee assigned to investigate the matter.
Last week, Alternate Finance Minister Christos Staikouras refused to speak about the investigation, saying that its findings were secret.
To Vima reports that the experts found that Germany should pay Greece 108 billion euros for damage to infrastructure and 54 billion euros for a loan that the Nazi occupation forces obliged Greece to take in order to pay Berlin during the war.
The reparations are equivalent to about 80 percent of Greek gross domestic product.
Yannis Stournaras, the Greek finance minister, said the talks were 'very difficult'. Photograph: Giorgos Moutafis/Reuters
Almost three years after Greece narrowly avoided bankruptcy with its first bailout from the EU and IMF, the country's relations with its international creditors have taken an unexpected turn for the worst.
The Greek prime minister Antonis Samaras was forced to step in on Sunday after stalled negotiations became bogged down in acrimony when visiting inspectors resumed talks last week.
Indicative of the tensions, Athens's normally mild-mannered finance minister, Yiannis Stournaras, reportedly lashed out at mission chiefs from the EU, ECB and IMF during a heated exchange in his office on Thursday, telling them they could "take the keys" to the economy ministry if they continued to demand more austerity from a nation experiencing a sixth straight year of recession.
Emerging from the building, the economics professor uncharacteristically labelled the talks as "very difficult" and gave a taste of his own frustration. "The negotiations for the next loan tranches are still very difficult. I can assure you that things are not simple at all," he said.
After troika representatives abruptly cancelled a meeting with Stournaras late on Saturday, Samaras tried to smooth over the cracks. At stake are two slices of aid worth €8.8bn (£7.5bn) that have been put on hold because of the slow pace of structural reforms.
The first instalment, of €2.8bn, is contingent on the governing coalition agreeing to sack 25,000 civil servants by the end of the year and 150,000 by 2015. The demand has placed what is being called "intolerable pressure" on Samaras's already fragile administration, with his two junior leftwing partners openly opposing the measure at a time when unemployment is nearing a record 30%.
Highlighting the discord, the administrative reform minister, Antonis Manitakis, in charge of streamlining the bloated public sector and aligned with the small Democratic Left party, threatened to resign – a move that would dramatically undermine the government's unity.
Other sticking points, according to well-placed sources, include the recapitalisation of Greek banks – and a possible merger between the National Bank of Greece and Eurobank – and a highly contentious property tax levied through electricity bills the conservative-led coalition pledged to scrap when it assumed power last June.
Household incomes have fallen by as much as 50% since the debt crisis erupted in Athens more than three years ago. In an attempt to placate lenders and keep a restive population at bay, Samaras and his coalition partners proposed last week that the property levy be substantially reduced by broadening the tax base to include farmland and undeveloped real estate. Creditors, so far, have failed to react.
Greece faces two debt repayments, including €3.6bn in maturing treasury bills, this month and next. "Not reaching an agreement is not an option," said Pandelis Kapsis, a prominent political commentator and former government spokesman. "There may be a delay [in disbursement of rescue funds] but there is absolutely no way we can move ahead without an agreement," he told the Guardian.
"Even those who until recently had their doubts are today convinced that we can make it," he told an audience in Athens, insisting that with private sector hirings outpacing firings in March the country was at long last breaking the vicious cycle of recession.
The investment bank Morgan Stanley also predicted that Greece would achieve a primary surplus by the end of the year, saying it was now optimistic about the country.
Yesterday I posted a Smoke Signalson the subject of the oddly secret Corfu visit of American 6th fleet amphibian landing ship the USS Carter Hall (left) twice in the last ten days.
It now transpires that four days ago, the Greek government confirmed that Norwegian seismic surveys in the waters of the Ionian islands have shown that these areas are rich in oil and natural gas. The results were confirmed by the Ministry of Environment, Energy & Climate Change.
Researchers found hydrocarbons in 30% of the samples in a marine area of 225,000 square kilometres.
So, um, that may explain the American marines being “told to get out and get a lay of the land and to get to know the culture”. And, er, the fact that the official online itinerary for USS Carter Hall made no mention of docking in Corfu.
This story is important to me in that it smacks of the ‘Great’ Powers dividing up what they increasingly see as a Vassal State…especially after the quasi-annexation of Cyprus two weeks ago. The first signs of this view of Greece are obvious in last year’s bailout deal.
No wonder Yannis Stournaras, the Greek finance minister, said last night the latest round of Troika talks were ‘difficult’. What Yannis should do is tell the Troika to go f**k their mothers. The Slog poses the observation - Eurozone close to collapse ...
Evidence of attempts at online news blackout grows
Lisbon’s constitutional court having blocked the country’s planned austerity programme, the euro project now faces a war for survival on myriad fronts: Portugal, Italy, bond market confidence, capital flight, and media coverage. It’s hard to see a way back for EMU now.
Portuguese Prime Minister Pedro Passos Coelho held an extraordinary cabinet meeting on Saturday following the Constitutional Court’s rejection of four out of nine of the budget’s austerity measures, which the government says are necessary to meet the terms of a eurozone and International Monetary Fund bailout. With opposition parties calling for the government to resign, Coelho was still locked in emergency talks with the country’s President in the early hours of Monday morning.
And despite rumours in Italy last Friday that its President would facilitate an emergency technocrat regime under Mario Monti, sources there are now insisting that there is no possibility of such a move.
Meanwhile, yet more evidence of capital flight is emerging from both media articles and Slog sources on the ground. “Capital flight was enough to devalue the Euro by a half percent per day last week until it stabilised at $1.28,” says one Slogger, “We think there was [European] central bank intervention by overt money printing on a massive scale.”
“Projected post-Cyprus eurozone capital flight is at a moving rate $2 trillion per year, or $200 billion per month” says another.
The Financial Times notes that demand for $100 bills has jumped ‘as nervous Europeans stuff them under the mattress, providing vivid proof that the world still loves the dollar, and confirming the benefit to the US of the currency’s status as a global reserve…The surge in demand for US cash suggests that the world is worried about future of the euro.’
But although Mario Draghi talked with a vague desperation last week of “thinking 360 degrees on the non-standard measures”, no capital controls have been imposed. My view remains that this was a fatal mistake. However, to ensure that no euro-doubters need be in any doubt at all, EU economic affairs commissioner Olli Rehn announced in a television interview last Saturday that The Cyprus Approach will be formalised via an EU directive.
Talking out of several orifices at once, Rehn asserted that ““Cyprus was a special case … but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down,” during an interview with Finland’s national broadcaster YLE. To clarify a little less still, he added “There is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits.”. He did not expand upon exactly what kind of ‘protection’ might be recognised by those tunnelling into the bank vaults.
But however one tries to put Olli’s statement into words, the European Commission is currently drafting a directive on bank safety which would incorporate the issue of investor liability in member states’ legislation. This is the now infamously euphemistic Open Bank Reconciliation (OBR) template within which, having already had all our tax monies to rescue them, investment bankers will now get our savings as well. Obligatory organ donations may well follow shortly.
There are already some bizarre signs of online media removing all material found offensive by the Looters: this extraordinary notice went up at the NBC site shortly after the post appeared yesterday:
With every modestly positive datapoint being desperately clung to, now that even Goldman's Hatzius has once more thrown in the economic towel after proclaiming an economic renaissance in late 2012 just like he did in late 2010 only to issue a mea culpa a few months later (and just as we predicted - post coming up shortly), the key prerogative is to ignore the elephant in the room. That, of course, is that the JPY 1 quadrillion bond market had to be halted for the second day in a row as the Japanese capital markets are fast becoming a very big and sad joke. The resulting flight to safety from Japanese investors, who sense that their own bond market is on the verge of breaking down completely, has managed to send French and Belgian bonds to record lows, the Spanish 2 Year to sub 2%, the German 6 month bill negative in the primary market, the US 10/30 year constantly bid and so on. The immediate result is that the bond-equity disconnect continues to diverge until one day we may get negative 10 Year rates coupled with an all time high stock market. Gotta love the fake New Normal market, in which the Japanese penny stock market was up another 2.8% to well over 13,000 even as the Shanghai Composite plumbs ever redder territory for 2013 on fears the birdflu contagion will hurt the already struggling economy even more.
As for the good news, there wasn't much. German Industrial Production beat estimates handily even as the general economy and stock market continues to deteriorate, printing at 0.5%, on expectations of +0.3%. This however came at the price of a downward revision in the prior month, which was revised from 0.0% to -0.6%. Alternatively, the EURUSD which dropped to an overnight low of 1.2970 before beginning its overnight levitation coinciding with Europe open, has been doing everything in its power to ignore the fact that Portugal, as BNP summarized it, is rapidly moving toward a second bailout in the aftermath of this Friday's much discussed constitutional court decision, and subsequent announcement that public workers may be paid in Treasury bills instead of cash. The Portugal-German spread has blown out as a result, but so far the damage has been contained and the EURUSD is ramping to overnight highs, oblivious in its certainty that the Portuguese "lack of cash" haircut will not be a template, nor a blueprint, and is a very, very special situation.
Macro newsflow out of the US will be light this week, however all eyes will be on yet another quarter of weak corporate data, with Alcoa as usual kicking off earnings season after the close. Markets will be sure to ignore weak cash flow data as well, just as they have been great at largely ignoring the rapid deterioration in the macro data in the month as well.
Deutsche summarizes the other main events
Alcoa’s Q1 earnings this evening marks the start of the US reporting season and provides the latest pulse-check on the momentum of growth after what was a generally disappointing week for US data last week. We’ll get a bit more colour on the US growth picture at the back end of the week with jobless claims (Thurs), retail sales and consumer sentiment survey (Friday). Unless we get a run of stronger data soon the market is going to increasingly wonder whether the latest soft patch in US data is only weather or sequester-related or actually a repeat of the weaker mid-year seasonals we’ve seen over the last three years.
Portugal topped the weekend headlines after the country’s constitutional court rejected a number of austerity measures in the 2013 budget late on Friday. The measures in question included a cut in state pensions and public sector wages, which apparently breach a constitutional requirement that the burden of fiscal policy be fairly distributed and not discriminate between state and private sector workers (Financial Times). Over the weekend, the Portuguese government said that the impact of the decision will be offset by finding additional spending cuts, which the European Commission welcomed overnight as the ‘the best way to restore sustainable economic growth and to improve employment opportunities in Portugal”. The European Commission’s statement added that continued implementation of the country’s programme is a precondition for a decision on the lengthening of the maturities of the financial assistance. Portuguese bonds have underperformed in recent weeks and currently trade at their highest yields of the year at around 6.25%. Indeed, the spread between Portuguese and Spanish 10yr bonds yields reached 156bp on Friday, or more than double the lows in January when the spread was just 70bp.
Turning to Asia and we’ve had some pretty interesting moves to start the week. The Abe-trade continues to pay dividends with the Nikkei up another 2.4% overnight bringing total gains since the BoJ’s announcement last Thursday to 6.2% (+8.4% from the intra-day low prior to the announcement). Meanwhile the yen is 1% lower overnight to trade at around 98.60 as we type, the weakest level against the greenback since 1H 2009. After selling off 9bp on Friday, 10yr JGB yields are back down 2bp to 0.51% overnight. In terms of the news flow, Japan’s current account rebounded to a surplus for February (JPY637bn not seasonally adjusted vs JPY457bn expected), its first surplus in four months helped by the recent fall in the yen. Domestic newswires are reporting that the BoJ will begin with 1trn worth of JGB purchases next week targeting maturities of between 5 to 10 years (Nikkei).
In China, losses are being seen in Chinese equities (Shanghai Composite -0.7%, Hang Seng -0.1%), led by weakness in transportation, hotel and other tourism related stocks after news that the number of bird flu cases has increased to 21 over the weekend. So far, the reported cases appear to be limited to the city of Shanghai and adjacent cities. Chinese airline stocks were down 5-10% on Friday. Unsurprisingly, healthcare stocks are the only industry sector to trade higher on the Shanghai Composite this morning. Elsewhere on the back of ongoing tension in the Korean peninsula, the Korean won is 0.6% weaker against the dollar, mirroring a similar loss on the KOSPI. Over the weekend, the North Korean authorities said that they cannot guarantee the diplomatic missions in Pyongyang from April 10th onwards. With the late Kim Il-Sung’s birthday (North Korea’s founder and grandfather of the current leader) coming up on April 15th we can probably expect more rhetoric from the North Koreans over the coming week.
Briefly returning to Friday’s session and the aftermath of the US payrolls report. We’re sure that you’ve seen the numbers by now, but to put it into context the +88k headline print for March was the worst outturn since June 2012, and the fourth worst since the beginning of 2011. Against expectations of 190k, the miss of 102k was the largest since December 2009, where in the midst of the Global Financial Crisis, the US economy shed 220k jobs against expectations of zero change. In other details of the report, labour force participation fell to 63.3%, the lowest level since 1979. Perhaps the only silver lining was the significant upward revisions (+61k) to the prior two months of data.
In terms of the market reaction, S&P500 futures sold off 11 points on the back of the data, but the S&P500 (-0.4%) itself managed to close only marginally lower after clawing back most of the opening losses throughout the day. Friday marked the 12th consecutive alternating up/down day for the S&P500.
European equities were already trading in the red at that point, with the payrolls number helping the DAX, CAC and IBEX close near the day’s lows of - 2.0%, -1.7% and -0.6% respectively.
In that context, credit markets outperformed on Friday with the European iTraxx, Crossover and the IG20 all managing to finish the day around 1-3bp tighter. Global government bond yields continued to trade lower on Friday, led by the 10yr UST yield which sank to an intra-day low of 1.67% before finishing at 1.71%, the lowest level since mid-December. Indeed, across the globe the more aggressive than expected easing by the BoJ and disappointing US data are adding headwinds to the view of stronger growth and higher core rates.
Indeed, the renewed bid for duration saw 30yr UST yields hit a year-to-date low of 2.87% while France’s 10-yr yield fell to 1.72%, the lowest ever. 10yr bund yields reached the lowest since July 2012. In other weekend developments, the UK managed to avoid a downgrade from S&P of its AAA rating for the time being but the rating agency kept its outlook on negative after warning of the risks to growth and hence government debt. S&P said its views the government as remaining committed to implementing its fiscal program and that it has the ability and willingness to rapidly respond to economic challenges. The news came after equity markets had shut in London, although it did help sterling close 0.2% higher against the euro on Friday.
Looking more closely at this week’s docket, Wednesday’s March FOMC minutes will be closely scrutinised in light of the debate over the timing of QE tapering – DB’s Joe LaVorgna warns that the minutes may be slightly dated following the disappointing week of data just passed. With that in mind, the week’s list of Fed speakers may provide a better real-time gauge of the FOMC’s current thinking. The list of speakers includes Bernanke who will be delivering the keynote address at an Atlanta Fed conference today, and who will also speak again on Friday. At least nine other FOMC members will be speaking on various days this week.
Elsewhere, we have a number of other important growth/macro data points this week. China provides it latest update on inflation tomorrow followed by trade numbers on Wednesday. Key data releases include in Europe include industrial production numbers from the Euroarea and the UK in the first half of the week and German/UK/French trade reports on Tuesday. In Europe, the two day Eurogroup/ECOFIN meeting starts on Friday - on the agenda is a review of the Portuguese and Irish programs. JPMorgan and Wells Fargo round out the first week of earnings season on Friday.
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