Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, February 22, 2013
Bank of England close to deal with the Bank of China for a three year currency swap arrangement - as the US tugs on China's cape , the UK is working with China to make the yuan more easily accessible ..... Italy Election looms this weekend as Beppe Grillo comes on strong - is he in second place behind Bersani ? Monti in fourth place behind Berlusconi ? LTRO repayments lag considerably - sign of more hidden bank stress ? 2013 GDP forecasts lowered for Europe by the European Commission....
Last week it emerged that former Popular Party (PP) treasurer Luis Bárcenas had been receiving fixed payments from the party until December 2012. It was a revelation that contradicted the PP’s original story that it had cut off all relations with the corruption-plagued figure back in 2009, when his name first emerged in connection with the Gürtel kickbacks-for-contracts scandal. Since then, the party has opted for total silence, even going so far as to suspend its regular Monday press conference.
Inside the party, however, it’s a different story. According to PP sources, tensions are running high and the moves of party members are being carefully watched. As such, the decision of PP secretary general María Dolores de Cospedal to file lawsuits against both Bárcenas and EL PAÍS, which recently published documents revealing an alleged slush fund run by the ex-treasurer, have raised the ire of many leaders in the party.
Despite the fact that De Cospedal is the highest-ranking PP representative after Prime Minister Mariano Rajoy, she filed the lawsuits on an individual basis, in a Toledo court. Practically all of the party’s leaders found out about the move on Monday, when Spanish daily El Mundo broke the story. The news was later confirmed in a press release.
What is still unclear is whether De Cospedal had the blessing of Rajoy to bring the legal action, or whether she even informed him of her plans to do so beforehand. A spokesperson for the secretary general said she would not be drawn into that debate, and as such would not explain whether she discussed the move with the prime minister.
Bárcenas’ employment status in the party continues to be a mystery
At the last meeting of the Executive Committee of the PP, in which Rajoy said he had never been paid under-the-table cash, the matter of a lawsuit against Bárcenas formed the central basis of the discussion. A number of regional party barons, among them former Madrid premier Esperanza Aguirre, called on the PP to go after the ex-treasurer in the courts. De Cospedal explained that the possibility was being considered. Rajoy said nothing on the issue.
Since then the PP has been dragging its feet. And while the party’s legal team was studying the possibility of a lawsuit, Cospedal decided to act on her own. Some of the party’s leaders believe this decision has left other members of the party in a bad position — specifically, those who are mentioned in Bárcenas’ alleged slush fund ledgers. They are thought to be planning to file their own lawsuits against the ex-treasurer, but they will do so in their own time, and not collectively, which would make it look as if they had been prompted into doing so by De Cospedal’s suit. The same sources believe the secretary general’s move even leaves Rajoy in a tight spot, given that he is the main figure alluded to in the ex-treasurer’s papers — he is the only figure to be mentioned from 1997 to 2008 in the accounting ledgers — and yet she has filed a lawsuit, while Rajoy has not.
Meanwhile, Bárcenas’ employment status in the party continues to be a mystery. No one has dared to clarify whether or not he was on the party’s payroll. The PP’s parliamentary spokesman has failed to shed any further light on the matter. Asked whether the PP lied about its contractual situation with Bárcenas, he replied: “These questions exceed my capacity as spokesman.” He did, however, express the “deep disappointment of all [in the PP]” over Bárcenas’ behavior, and admitted there were still “many unanswered questions,” in particular exactly where the 22 million euros he had stashed away in Swiss bank accounts ended up.
Anyone who wants to get an inside look at both the European banking system and the politicians in charge of fixing it need to only look at Spain’s Bankia.
Bankia was formed in December 2010 by merging seven totally bankrupt Spanish cajas (regional banks that were unregulated). The bank was heralded as a success story and an indication that European Governments could manage the risks in their banking systems.
Indeed, in 2011, Bankia even reported a profit of €41 million. And in April 2012, it was proposing paying a dividend. Then, in the span of two weeks, the bank revised its 2011 profit to a €3.3 billion LOSS, requested a formal bailout from Spain, and had to be nationalized.
What’s striking about this sequence of events is that throughout it, Spain’s Prime Minister Mariano Rajoy was claiming that Spain’s banks were in great shape. Indeed, on May 28 2012, (after Bankia had already requested a €19 billion bailout, the single largest bailout in Spanish history), Rajoy stated , "there will be no rescue of the Spanish banking sector."
Bear in mind, Spain itself was just days away from requesting outside aid from the EU.
The timeline says it all:
May 9th: Bankia requests €4.5 billion loan, Spanish Government states that the bank is “solvent.”
May 21st: Spain meets Bankia’s request for loan and takes a 45% stake in the bank thereby instigating a partial nationalization.
May 23rd: Bankia’s bailout needs grows to €11 billion/ Rajoy retorts to France’s Hollande, "Hollande does not know the state of Spanish banks."
May 24th: Bankia’s bailout needs grow to €15 billion
May 25th: Bankia’s bailout needs are now €19 billion (2011 profits revised to €4 billion loss)… the Spanish Bailout Fund has just €5 billion in cash.
May 28th: Rajoy comments, "there will be no rescue of the Spanish banking sector."
Weekend of June 8-10th: Rajoy texts to his finance minister: “Aguanta, we are the fourth European power. Spain is not Uganda… If they want to force the rescue of Spain, they need to start getting ready €500 billion and another €750 billion for Italy, which will have to be rescued afterwards.”/ Spain informally asks for €100 billion bailout/ EU Finance Ministers OK the bailout.
Sunday June 10th: Rajoy states that the bailout is a “victory” before commenting, "This year is going to be a bad one: Growth is going to be negative by 1.7 percent, and also unemployment is going to increase."
Thus, in just one month’s time, Spain implements the largest bank nationalization in its history and requests €100 billion from the EU to recapitalize its banks. And yet, throughout this time, Spanish politicians maintain that Spain’s banking system is “solvent” or in great shape… right up until they get the €100 billion at which point the truth comes out: “This year is going to be a bad one.”
Also note that Rajoy sealed the deal and which he proclaimed a “triumph” (along with the above statement about 2012 being a bad year) before hopping a plane to watch Spain’s soccer team play Poland.
Fast forward to December 2012, and Bankia is again in the news, this time with Spain revealing that despite receiving the largest bailout in Spanish history, the bank still had a NEGATIVE value.
Bankia’s shareholders have received a nasty new year’s surprise. They may lose most of their investments or even all of them says the Spanish bank rescue fund in its latest report.
According to FROB, the Fund for Orderly Bank Restructuring, Bankia has a negative value of 4.2 billion euros, and its parent group BFA is 10.4 bn in the red.
Valuation is key in the recapitalisation of Spain’s banking system, weighed down by massive bad loans accumulated in a property bubble that burst in 2008. Bankia/BFA is set to receive 18 bn euros of European aid, and become the country’s biggest bailout recipient.
Europe’s banks are in far far worse shape than anyone publicly admits
The political class in Europe has no idea how to solve this mess
No one has quantified the bank’s actual losses or their capital needs
Everyone is lying about just about everything related to Europe’s financial system
You could honestly end the story here and know everything you need to about Europe. But then you’d be missing out on Bankia’s newest achievement: setting the record for corporate losses in Spanish history.
Nationalised Spanish lender Bankia is expected to reveal a €19bn loss next week, the largest in the country’s corporate history.
On Thursday Bankia will report full-year earnings, including a €12.6bn provision taken at the end of last year. The writedown is a result of the lender moving assets into Spain’s “bad bank” at heavy discounts.
Bankia, which is seen as a symbol of Spain’s financial woes, was created through the merger of seven smaller savings banks before being listed on Madrid’s stock exchange. When the company failed, hundreds of thousands of people who had been sold shares saw their savings wiped out. The collapse forced Spain to ask Europe for a bailout for its banking sector, which has meant the lender is subject to tight controls.
It’s a little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.
So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever (see the above article for proof).
This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything.
And this in a nutshell is Europe’s financial system today: a totally insolvent sewer of garbage debt, run by corrupt career politicians who have no clue how to fix it or their economies… and which results in a big fat ZERO for those who are nuts enough to invest in it.
Be warned. There are many many more Bankias coming to light in the coming months. So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding, potentially taking down the financial system with them. Think I'm joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.
Just in case anyone is confused about how fixed Europe is, insolvent Spanish TBTF megabank, which F'ed last year and had to be bailed out by the government, will post earnings (and in this case we use the term very loosely) next week at which time it will report the biggest corporate loss in Spanish history. FromTelegraph: "On Thursday Bankia will report full-year earnings, including a €12.6bn provision taken at the end of last year. The writedown is a result of the lender moving assets into Spain’s “bad bank” at heavy discounts. Bankia, which is seen as a symbol of Spain’s financial woes, was created through the merger of seven smaller savings banks before being listed on Madrid’s stock exchange. When the company failed, hundreds of thousands of people who had been sold shares saw their savings wiped out. The collapse forced Spain to ask Europe for a bailout for its banking sector, which has meant the lender is subject to tight controls. Bankia is trying to sell its 12pc stake in International Consolidated Airlines Group, the parent company of British Airways, which is valued at about £510m, and 5.3pc of the power company Iberdrola, which is worth about €1.24bn."
Yeah, yeah, we know, we know - the truth is if you exclude the fact that the bank is insolvent, that its balance sheet is upside down, that its assets are worthless, that the Spanish housing market is a total disaster, that the Spanish youth unemployment rate is 60%, that Spanish bonds would be yield not 5% but 500% ex the ECB's implicit open-ended support, that the recent spike in the EUR means an end to the Spanish "export" miracle, that the industrial sector has effectively shut down, and that government is merely a kickback-accepting front for various financial interests, and all that other "stuff", the bank would post a massive beat to non-GAAP earnings.
Bank of England governor Sir Mervyn King meets his Chinese counterpart Zhou Xiaochuan in Beijing
The Bank of England is close to signing a deal with the People's Bank ofChina that should help the City of London become a trading hub for the world's fastest growing currency, the yuan.
The UK central bank expects to sign a three-year currency swap arrangement "shortly", which would allow it to supply yuan in exchange for other currencies if there were a sudden shortage in the London market.
The yuan is not fully convertible, meaning there are rules and regulations making the process of conversion more cumbersome. That can hinder trade as investors are nervous that there will not be enough yuan available if needed urgently for a deal.
David Bloom of HSBC said: "In a currency which is not fully convertible, this offers a pool of liquidity to draw on if needed. That always gives you a comfort as an investor."
With this deal, Britain will become the first major developed economy to install a currency swap line with China, which should help London become a global trading centre for the yuan. The City is already the world's biggest foreign exchange and bond trading centre and the chancellor, George Osborne, has been driving a campaign for Britain to win more yuan business.
The Bank of England says the main motive for the swap is financial stability, so it will be able to lend yuan to UK financial institutions if funding from other banks dries up.
The Bank of England governor, Sir Mervyn King, who is currently on a visit to Beijing, said: "In the unlikely event that a generalised shortage of offshore yuan liquidity emerges, the bank will have the capability to provide yuan liquidity to eligible institutions in the UK."
China, meanwhile, sees the swap as a tool to finance trade and direct investment between the two countries. Bloom says: "They are opening up their country for investment. What you don't want is to invest in a country and find out you've got a shortage of the currency you're looking for."
The yuan is one of the most important currencies in the world for trading goods and services, but its use is still limited in the much bigger global trade of shares and other financial instruments.
China is keen to support greater use of the yuan internationally but wants to maintain control over capital flows, to avoid a situation where investors fall out of love with the currency and sell it, with a destabilising impact on the economy. As a result, it is opening up its currency markets slowly and in a regulated way, with swaps of this kind. Bloom said: "They are not going for a 'big bang' approach, they are evolving the currency. This isn't the wild west, this is the controlled east."
John Hooper: Beppe Grillo's popularity is scaring Bersani, and bad for Monti
Back to Italy, and there are reports that Beppe Grillo's radical Five Star movement is polling in second place, ahead of the Berlusconi-Northern League alliance.
Our European editor John Hooper provides this punchy analysis of the general election campaign:
Pier Luigi Bersani this morning switched his attack to Beppe Grillo, and got personal. One of Grillo’s vulnerabilities as a paladin of the people is the considerable wealth he has amassed – a product of his successful career as a comedian.
“I’m the son of a mechanic, not a billionaire”, said Bersani.
His remark added substance to a report in Corriere della Sera this morning that Bersani’s aides are now thoroughly alarmed by Grillo’s progress in the final stages of the campaign.
Without quite saying so (because Italian publications are banned from carrying poll results in the last two weeks before the vote), Corriere indicated clearly that surveys conducted for the Democratic party showed Grillo’s Five Star Movement (M5S) overtaking Silvio Berlusconi’s Freedom People (PdL) movement to regain the second placeit held for a while early last summer.
Now, if you look here, you will see the rather more heavily disguised results of a poll carried out by a firm that has consistently favoured Berlusconi. It does not show Grillo in second place, but it does show him on 19%, which is a huge leap – of about six per cent – since the polling ban came into effect.
That is bad enough for Bersani's PD. But just as worryingly, there is mounting evidence from the same un-publishable polls that the alliance flung together by the outgoing prime minister, Mario Monti, is fading rapidly. That makes psephological sense.
If Monti and his pals were to take only 10% of the vote, say, we might well get either a hung parliament or a centre-left that could only pass legislation with more help than Monti can offer. Even if the radical left-wing alliance headed by a state prosecutor, Antonio Ingroia, can muster enough votes for a seat or two, that is going to mean going cap in hand to Grillo.
LTRO repayments are lower than expected
The European Central Bank has just spooked the markets by reporting that fewer banks than expected have taken the chance to repay ultra-cheap loans handed to them just over a year ago.
The ECB reported that 356 banks will hand back a total of €61.1bn of Long Term Refinancing Operation (LTRO) funding, sharply lower than the €130bn analysts had expected.
Submitted by Phoenix Capital Research on 02/22/2013 12:14 -0500
Submitted by Tyler Durden on 02/22/2013 08:45 -0500
Just in case anyone is confused about how fixed Europe is, insolvent Spanish TBTF megabank, which F'ed last year and had to be bailed out by the government, will post earnings (and in this case we use the term very loosely) next week at which time it will report the biggest corporate loss in Spanish history. FromTelegraph: "On Thursday Bankia will report full-year earnings, including a €12.6bn provision taken at the end of last year. The writedown is a result of the lender moving assets into Spain’s “bad bank” at heavy discounts. Bankia, which is seen as a symbol of Spain’s financial woes, was created through the merger of seven smaller savings banks before being listed on Madrid’s stock exchange. When the company failed, hundreds of thousands of people who had been sold shares saw their savings wiped out. The collapse forced Spain to ask Europe for a bailout for its banking sector, which has meant the lender is subject to tight controls. Bankia is trying to sell its 12pc stake in International Consolidated Airlines Group, the parent company of British Airways, which is valued at about £510m, and 5.3pc of the power company Iberdrola, which is worth about €1.24bn."
Just in case anyone is confused about how fixed Europe is, insolvent Spanish TBTF megabank, which F'ed last year and had to be bailed out by the government, will post earnings (and in this case we use the term very loosely) next week at which time it will report the biggest corporate loss in Spanish history. FromTelegraph: "On Thursday Bankia will report full-year earnings, including a €12.6bn provision taken at the end of last year. The writedown is a result of the lender moving assets into Spain’s “bad bank” at heavy discounts. Bankia, which is seen as a symbol of Spain’s financial woes, was created through the merger of seven smaller savings banks before being listed on Madrid’s stock exchange. When the company failed, hundreds of thousands of people who had been sold shares saw their savings wiped out. The collapse forced Spain to ask Europe for a bailout for its banking sector, which has meant the lender is subject to tight controls. Bankia is trying to sell its 12pc stake in International Consolidated Airlines Group, the parent company of British Airways, which is valued at about £510m, and 5.3pc of the power company Iberdrola, which is worth about €1.24bn."
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