With Merkel's third term taken care Sunday , on Monday ECB President Draghi just happens to note that he ready to whip out the LTRO Bazooka once again ! And coincidentally , all of the sudden the Troika is displeased with Greece again ( primary surplus doubts ) ! And funny how italian bank Monte Paschi just decided to bail in bondholders by halting 650 million in coupon payments ! And Iceland decided to drop deposit insurance over 100, 000 euros ..... One has to wonder what tomorrow will bring ?

http://globaleconomicanalysis.blogspot.com/2013/09/europe-hooked-on-easy-money-too-ecb.html

( Funny how this has come out the day after the German Election... )

Monday, September 23, 2013 12:21 PM

Europe Hooked on Easy Money Too: ECB President Draghi Threatens Another LTRO, Sings Praises of Excess Liquidity

ECB president Mario Draghi is in on the no-normalization act along with the Fed. Of course, a mere reduction in asset purchases by the Fed from $85 billion a month to $75 billion is not even a baby step towards normalization.

Anyway, it's liquidity full throttle in the Eurozone as well because Draghi Says ECB Will Offer More Long-Term Loans If Needed. 

 “We are ready to use any instrument, including another LTRO if needed, to maintain the short term money markets at the level that is warranted by our assessment of inflation in the medium term,” Draghi said in response to questions from lawmakers in the European Parliament in Brussels today.

Euro-area money-market rates rose to a level that Draghi described as “unwarranted” in July after the U.S. Federal Reserve signaled that it would begin to ease stimulus and signs emerged of a recovery in the 17-nation region. While those rates have since declined, excess liquidity in the financial system is approaching the 200 billion-euro ($270 billion) level the ECB has previously signaled as a lower limit.

In his opening remarks at the hearing, Draghi said while repayment of central bank credit is “certainly a sign of normalization, the resulting reduction in excess liquidity can reinforce upward pressures on term money market rates.”

As the buffer of excess cash held by the financial system falls, the rates that banks charge each other for liquidity can rise as they shoulder more risk.

In Praise of Excess Liquidity

LTRO stands for Long-Term-Refinance-Operation. Here is a simple, easy to understand explanation:  The ECB is willing to offer unlimited loans against questionable collateral, at excessively low interest rates, to any bank that wants them.

Draghi wants to build back up the "buffer of excess cash" by any means if interest rates do not go where he wants them to go.

Heaven forbid that any baby steps towards normalization reduce "excess liquidity" causing interest rates to rise, either in the US or Eurozone.

The largest global-coordinated financial gambit in history shows no real signs yet of slowing down.

Mike "Mish" Shedlock

Italy gets the bail in ball rolling again.....

http://www.zerohedge.com/news/2013-09-23/it-begins-monte-paschi-bails-bondholders-halts-650-million-coupon-payments

(  And funny this just got announced today as well ..... ) 

It Begins: Monte Paschi "Bails In" Bondholders, Halts $650 Million In Coupon Payments

Submitted by Tyler Durden on 09/23/2013 08:27 -0400

• Bloomberg News
 
• Bond
 
• European Central Bank
 
• Italy
• LTRO
 
• Monte Paschi
 
• Nationalization
 
• New Normal

inShare7

Recall that three weeks ago we warned that "Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization" although we left open the question of "who will get the haircut including senior bondholders and depositors.... given the small size of sub-debt in the capital structures." Today, as many expected on the day following the German elections, the dominos are finally starting to wobble, and as we predicted, Monte Paschi, Italy's oldest and according to many, most insolvent bank, quietly commenced a bondholder "bail in" after it said that it suspended interest payments on three hybrid notes following demands by European authorities that bondholders contribute to the restructuring of the bailed out Italian lender. Remember what Diesel-BOOM said about Cyprus - that it is a template? He wasn't joking.

As Bloomberg reports, Monte Paschi "said in a statement that it won’t pay interest on about 481 million euros ($650 million) of outstanding hybrid notes issued through MPS Capital Trust II and Antonveneta Capital Trusts I and II." Why these notes? Because hybrid bondholders have zero protections and zero recourse. "Under the terms of the undated notes, the Siena, Italy-based lender is allowed to suspend interest without defaulting and doesn’t have to make up the missed coupons when payments resume." Then again hybrids, to quote the Dutchman, are just the template for the balance of the bank's balance sheet.

Why is this happening now? Simple: the Merkel reelection is in the bag, and the EURUSD is too high (recall Adidas' laments from last week). Furthermore, if the ECB proceeds with another LTRO as many believe it will, it will force the EURUSD even higher, surging from even more unwanted liquidity. So what to do? Why stage a small, contained crisis of course. Such as a bail in by a major Italian bank. The good news for now is that depositors are untouched. Unfortunately, with depositor cash on the wrong end of the (un)secured liability continuum it is only a matter of time before those with uninsured deposits share some of the Cypriot pain. After all, in the brave New Normal insolvent world, "it is only fair."

To wit:

“In the new world we’re in, bondholders pick up the tab when they can be forced to,” said John Raymond, an analyst at CreditSights Inc. in London. “State aid rules impose losses where possible.”

European Union Competition Commissioner Joaquin Almunia told reporters on Sept. 7 the bank should receive final approval for its restructuring plan within two months. The lender, which received a 4.1 billion-euro bailout, submitted a revised plan that more than doubles the amount of new capital it intends to raise to 2.5 billion euros as it seeks to repay the aid.

Almunia recommended that “cash outflows from the beneficiary to hybrid capital holders and subordinated debt holders be prevented to the maximum extent possible,” in a letter sent to Italian Finance Minister Fabrizio Saccomanni dated July 16 and seen by Bloomberg News.

More importantly, this is just the start:

Monte Paschi’s 108 million euros of undated, non-cumulative trust preferred stock issued through Antonveneta Capital Trust II fell 5 cents on the euro to 41 cents, according to Bloomberg bond prices. That’s the lowest price since April 23, data compiled by Bloomberg show.

While the bank is halting payments on the bonds that make up its Tier 1 capital, the most-junior layer of debt capital instruments, it also has the equivalent of about 2.6 billion euros of more-senior Upper Tier 2 debt in three issues in euros and pounds.

While Monte Paschi is making payments on these notes, it isn’t clear that it will be able to go on doing so, said Raymond.

Expect an update from the bank on Wednesday when it will hold a conference call. 

Investors may be betting the bank will buy back the debt “at or slightly below current trading levels,” according to Eva Olsson, an analyst at Mitsubishi UFJ Securities in London. Individual investors in Italy hold many of the bonds and have been an important source of funds for banks in recent years, she said.

"Monte likely will have to raise capital next year and we view any capital raising exercise in the market as challenging,” Olsson wrote.

Indeed, and best of luck. As for how "bailed in" capital figures in terms of a bank's equity buffer/Tier 1 capital





Iceland turns  cold to large depositors.....

http://www.zerohedge.com/news/2013-09-23/iceland-borrows-european-template-removes-large-deposit-guarantees


( Again , funny this has come out today... ) 

Iceland Borrows European "Template" - Removes Large Deposit Guarantees

Submitted by Tyler Durden on 09/23/2013 12:28 -0400

• Creditors
 
• European Union
 
• Iceland

inShare1

Following the crisis in October 2008, Iceland's government declared all deposits in domestic financial institutions were 'blanket' guaranteed - an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing to restrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an 'emergency' measure as a positive, it is of course sadly reminiscent of the European Union "template" to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls - which have restricted the outflows of around $8 billion.

The government will remove its blanket guarantee for large depositors...

Bill on deposit will be tabled in the winter. There will be a deposit equivalent to one hundred thousand euros guaranteed. Later on it is to withdraw from the 2008 statement of all deposits in domestic financial institutions were fully secured.

The bill is currently in the process of Finance, but the basis is very similar to the bill presented to Parliament in November 2010 but was not passed. These changes are in line with the European Directive on deposit-guarantee schemes, where individual deposits up to a hundred thousand are secured.

The Government wants its haircuts...

Iceland Prime Minister Sigmundur David Gunnlaugsson said creditors in the nation’s failed banks are the main obstacle to lifting capital controls as he stepped back from promises to provide a full-fledged plan by this month.

...

Offshore creditors representing about $8 billion have been trapped by the controls since Iceland tried to seal off its markets from capital flight almost five years ago.Gunnlaugsson has previously said he wants writedowns from creditors holding about $3.8 billion in claims denominated in kronur to help take pressure off the currency once controls are phased out. He declined today to give an amount.

...

“The government isn’t entering into negotiations with creditors,”Gunnlaugsson said. “The government will wait.”

...

It’s “apparent to anyone who looks at the situation that some leeway must be created in order for us to lift the capital controls,”he said. “Obviously, if all these funds would leave the economy directly, that would not make it possible for us to lift the capital controls.”

Greece fire.....


http://hotair.com/archives/2013/09/23/greece-back-in-the-middle-of-european-fiscal-drama-with-a-third-bailout/

Greece back in the middle of European fiscal drama with a third bailout

POSTED AT 4:01 PM ON SEPTEMBER 23, 2013 BY ERIKA JOHNSEN

 

The election is won for German Prime Minister Angela Merkel, which means that bailout-weary Germany — the country that happens to have financed the lion’s share of 240 billion euros in the aid pledged to Greece over the past several years — is going to stay strong on imposing austerity measures for the smaller country that finance ministers insist is doing somewhat better while still beleaguered with deep-seated fiscal and economic problems. The fact that yet another bailout has been in the cards for Greece, even if it is only a dozen billion euros or so, was a touchy subject in the run-up to the German election, but now the negotiations are back in gear. Via the WSJ:

Greece began talks with international inspectors on Sunday that will set the stage for a third multibillion-euro bailout of the country, even as senior officials in Athens pointed to signs of a recovery after years of deep recession. …

While the negotiations represent the latest round in the regular quarterly inspection visits that have accompanied Greece’s almost four-year-long debt crisis—and will decide on whether to unlock the country’s next aid tranche of €1 billion ($1.35 billion)—new budget and growth data also show Greece may be turning a corner. …

At issue is whether Greece will have to take additional budget cuts to close a possible €2 billion-€4 billion budget hole next year—according to unofficial estimates—and a forecast €2.5 billion-€4 billion fiscal gap in 2015-16.

The size of that gap will also determine the size of a third Greek bailout to help cover Greece’s debt payments and other financing shortfalls between July 2014—when European loans to the country run out—and mid-2016, when the IMF’s contribution to the bailout winds up.

Sadly, the encouraging “signs of recovery” to which Athens officials are pointing is that the economy is only supposed to contract by 3.8 percent this year, less than the previously forecast 4.2 percent, as well as the possibility for the government to post a small budget surplus — and that’s the “good news.” Oof.

Greece still faces a financing shortfall over the next few years (hence the supposed call for a third bailout), however, and meanwhile, there are further budget cuts in the works that Greece still needs to make:

While the country’s lenders are on firmer footing after getting capital from euro-area and International Monetary Fund bailout funds, they still need to reduce the non-performing loans that have tripled to 29 percent of the total in three years and threaten their new-found solvency.

One obstacle is a five-year ban on foreclosures that prevented thousands of Greeks from losing their homes after the economy went into free-fall. The government is now considering a plan to ease the restrictions by the end of this year to satisfy its creditors’ demands. Finance Minister Yannis Stournaras said last month that banks face serious problems if they’re not allowed to repossess and auction homes of people who don’t pay their mortgages.

“At the moment, even people who can afford to pay the mortgages do not,” National Bank of Greece SA Deputy Chief Executive Petros Christodoulou said in a Bloomberg Television interview on Sept. 6. “When the new law is passed and officially foreclosures are allowed over a certain benchmark, we will see that the credit ethos will return.”

While removing the artificial market mechanism would be part of an effective strategy to help Greece gain a better fiscal and economic in the long term, it’s still going to mean even more materially painful shocks for Greece in the near-term as they struggle beneath the highest unemployment rate in the eurozone at 27 percent — and the situation is replete with signs of growing unrest as the country continues to reap the consequences of the the many years of deeply profligate spending they sowed.

and.....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_23/09/2013_519900


( Troika has bit their tongues for months on Greece - now they can speak at last ! ) 

Troika skeptical on primary surplus The troika has doubts about Greek projections for a primary surplus this year and next and has begun the process of discussing with Athens the contents of the 2014 budget, which Greece’s lenders believe contains several areas that need closer inspection. High-ranking Finance Ministry sources said that while the representatives of the European Commission, European Central Bank and International Monetary Fund agree that Greece will produce a primary surplus at the end of the year, they think it will be minimal. The troika is also skeptical about Greek projections for a primary surplus of 1.5 percent of GDP at the end of next year. It is thought that one of the reasons Greece’s lenders are downplaying the possibility of Athens producing a sizable surplus is that they are alarmed by the debate in Greece about how this amount will be allocated and whether social spending could be increased. With regard to the 2014 budget, the troika still has doubts about the effectiveness, in terms of revenue raising, of the unified property tax. Next year will be the first time the levy, which combines several property taxes into one, is applied. Troika officials are paying particular attention to the state of Greece’s tax administration, which will be key to whether the government can hit its revenue targets. Any lack of convergence with the revenue goals agreed with the troika would make further fiscal measures necessary. Greece’s Finance Ministry also informed the troika that the government would not meet its target of paying off this year all of the 8 billion euros in arrears that it had amassed.

ekathimerini.com , Monday September 23, 2013 (22:47) Ministry asks troika for extension to second phase of civil service mobility scheme Administrative Reform Minister Kyriakos Mitsotakis on Tuesday asked visiting troika mission chiefs for an extension for the 12,500 civil servants that Greece has pledged to put into a mobility scheme until the end of the year. Troika chiefs did not immediately respond to the request, according to sources, who said that a new meeting between Mitsotakis and the troika envoys has been scheduled for Friday. The sources described the atmosphere in the talks on Tuesday as very good, noting that the foreign inspectors acknowledged the efforts and results by the government to sign of on the first stage of the mobility scheme. Greece has pledged to put 12,500 employees into the scheme, which involves staff being put on reduced pay ahead of their transfer or dismissal, by the end of September. Around 1,000 demonstrators gathered outside the ministry's central Athens offices on Tuesday to protest the reform. ekathimerini.com , Tuesday September 24, 2013 (14:23)