Tuesday, 06 July 2010 08:57

In the News Today July 6th, 2010

Relevant news clips...

CNBC reports Banks Too Big to Fail, Too Big to Bail Out: Roubini:

Europe  faces the quandary of being unable to afford to bail out banks that are still considered too big to fail, while the global economy is heading for a slowdown economist Nouriel Roubini told CNBC.

Governments are running out of ways to counter a "massive slowdown" or the risk of a double-dip recession, Roubini said.

"A year ago we had all these policy bullets," he said. "We could push down rates to zero, we had (quantitative easing), we could do a budget deficit of 10 percent of GDP (or) backstop the financial system."

"Banks at this point are too big to fail, but also too big to be bailed, especially in Europe where the sovereigns are in trouble and therefore the ability to backstop the financial system is not there," he said.

Roubini said he was unimpressed with the June US employment report, pointing out that the jobless rate fell because of a large number of discouraged workers leaving the labor force, and also noted recently weak data on manufacturing, retail sales and housing.

"Everything signals a slowdown of the US, a slowdown of Europe, a slowdown of Japan and a slowdown of China," he said.

BoomBustBloggers should be well positioned to take advantage of this development. Starting January of this year I made it clear that the EU was "Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sov

ereign Europe"

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns

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This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they’re domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with. I have identified Greek banks with adjusted leverage of nearly 90x whose assets are nearly 30% of the Greek GDP, and that is without factoring the inevitable run on the bank that they are probably experiencing. Throw in the hidden NPAs that I cannot discern from my desk in NY, and you have a bank that has problems, levered into a country that has even more problems.

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Texas Tar Balls Mean Oil Spill Has Spread to Entire Gulf:

More than two months after oil from BP's blown-out seafloor well first reached Louisiana, a bucket's worth of tar balls that washed onto a pair of Texas beaches means the crude has arrived in every Gulf state.

Oil is still on the move, but the fleet of skimmers tapped to clean the worst-hit areas of the Gulf of Mexico is not. A string of storms has made the water too choppy for the boats to operate for more than a week off Florida, Alabama and Mississippi, even though the gusher continues.

The number of tar balls discovered in Texas is tiny compared to what has coated beaches in other Gulf states. Still, it provoked the quick dispatch of cleaning crews and a vow that BP will pay for the trouble.

"Any Texas shores impacted by the Deepwater spill will be cleaned up quickly and BP will be picking up the tab," Texas Land Commissioner Jerry Patterson said in a news release.

The oil's arrival in Texas was predicted Friday by an analysis from the National Oceanic and Atmospheric Administration, which gave a 40 percent chance of crude reaching the area.

"It was just a matter of time that some of the oil would find its way to Texas," said Hans Graber, a marine physicist at the University of Miami and co-director of the Center for Southeastern Tropical Advanced Remote Sensing.

Also in Bloomberg: BP Appeals to Sovereign Funds for Support Against Bids and `Killing' BP's Leaking Macondo Oil Well Will Take Mud, Precision Pressure:

British oil company BP is seeking support from sovereign wealth funds in the Middle East and Asia to defend itself from any takeover bids while it deals with its massive U.S. oil spill, a senior UAE source said on Tuesday.

BP executives have held talks with a number of sovereign wealth funds (SWFs) including Abu Dhabi, Kuwait, Qatar and Singapore, the source told Reuters under condition of anonymity.

"BP is seeking a strategic partner so it doesn't get taken over by other major oil companies such as Exxon and Total," the source said. "It's BP that is approaching the sovereign wealth
funds not the other way round. They are the ones in need of a partner."

The Government of Singapore Investment Corp (GIC), one of two sovereign wealth funds in the nation, already owns around 0.7 percent stake in BP valued at $122 million, according to Thomson Reuters data.

As my readers may remember, I projected losses for BP in the anticipation of potential insolvency. Those numbers were quite conservative, and the pessimistic case projections are already proven too optimistic. I will plug in new numbers for BP if the situation warrants further analysis. See BoomBustBlog Bankruptcy Search: Focus on British Petroleum and Collateral Damage: an objective look at the prospects of BP’s potential insolvency.

I will attempt to post some meaty proprietary analysis around the following news stories later on today. Expect a full26 page (Pro/Institutional version, retail is condensed) HSBC forensic report and a strategic analysis of Google, plus a haircut analysis of Italy sovereign debt over the next 24 to 48 hours.

Last modified on Tuesday, 06 July 2010 09:01
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