We are in the process of updating the very revealing work we performed last year, identifying which banks were most likely to do the "Lehman Brothers" thing. I believe we were the only media source to predict the collapse of Lehman Brothers, CountryWide, WaMu, Bear Stearns, etc. months in advance - with each of these calls being precedent setting calls from both a profit and strategic preparation perspective. The thought process that went into the research and taking speculative positions behind said research against the crowd, resulted in an interesting experience -to say the least. Reference  the introductory paragraph from Is this the Breaking of the Bear? from January 27, 2008, two months before this banks collapse (I gave a similar diatribe for Lehman, several months before their collapse or even mere negative presence in the media as well):

Anybody who follows my blog knows that I am extremely bearish on the global macro environment, particularly risky and financial assets. As I see it, the Doctor(s) FrankenFinance are constantly percolating econo-alchemical brews such as that of the ongoing “Great Macro Experiment,” eliciting undulating waves of joy and elation from amateur speculators such as myself while simultaneously creating risk/reward traps that many a financial and real asset concern may never escape from. While discussing with my team how best to move forward to find a target of our “Macro Experiment” victim analysis in the financial sector, I was queried as to what to look for in creating the short list. Evaluating investment banks, like evaluating the monolines, is not necessarily a straightforward endeavor. No matter how you do it, someone is going to disagree. This is what makes what I do so appealing. All I have to answer to is performance. I just need a profitable result in order to be successful. No corporate politics or conflicts of interests to get in my way. In the end, absolute return is the ultimate criteria, and not whether it is accepted by the ivy league or academia, industry practitioners, sponsors, clients or whether or not XZY bank has been doing it differently for the last 25 years. Investing for your own account enforces a certain code of realism that, at times, may not be shared by others. So, I used that realism as my strength and my focal point to guide the creation of a short list, the ultimate target, and the valuation/risk analysis methodology. I simply said, in the REAL world where I would have to make some money from some REAL assets,throwing off REAL cash flows and REAL market transactions? Using this “Reggie REALity Engine” (so to speak) to power the analysis proved very enlightening. We found banks that counted spread guesstimates as assets. We found banks that could not afford to keep their best employees. We found too many banks that faced insolvency in the very near future. We found a lot. To keep this story short, let’s just say we used the engine to find that truth that nobody really wants to hear. That truth as marked to reality. This resulted in a short list of 2 firms. The first one is Bear Stearns, which we will delve into here. The second one is what I call, “The Riskiest Bank on the Street”, and the blog post and analysis will be out in a few days. Using a Sherlock Holmes style of forensic analysis, we have tried very hard not to leave anything out of our scope of analysis. In the case of Bear Stearns, it was not easy since very little info was available outside of the plain vanilla 10Q, 10K, etc. They also volunteered very little information. Much of this is investigative analysis and it would be much more detailed if we had access to the Bear Stearns inventory. We wrote to Bear Stearns’ investor relations department asking for more information on the company’s exposure to risky assets and their breakup. So far, no word back. No need to be concerned for my health, I’m not holding our breath…

Alas, as I stated earlier, it is that truth that no one wants to hear. So if you are one of those "no ones" that don't want to hear the truth, cover your ears, cause here we go...

Well, here we go again, but this time on a much, much larger level. In addition, the investment portion of the game has become much more complicated for now you don't just have to know what the disease is and who has it, but you have to be able to navigate the fact that our dear Fed Chairman has eliminated all inoculations against said disease (or put more aptly, poked holes in all of our condoms) by artificially suppressing volatility and rates and distorting normal price discovery through market mechanisms, see Did Bernanke Permanently Cripple the Butterfly That Is US Housing? The Answer Is More Obvious Than Many Want To Believe and as excerpted: 

... Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!!, Bernanke et. al. have snipped the chrysalis of the US markets and economy one too many times. He has interrupted the circle of life...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

 

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance. All four corners of the globe are currently “hobbling along on one leg”, under the pretense of a “global recovery”.

This brings us back full circle to today, where (despite the protestations of many in the sell side such as "Buy the Euro Banks Goldman" and those in the mainstream media who proclaim that risks are beimgn overblown, Europe's banking system is sitting on the nuclear version of a veritable powder keg that could very well make the Bear Stearns/Lehman days look like a veritable bull market. I plan on delivering an update to our European bank exposure analysis for subscribers:

Take note that this update will include several American banks and the risks they face from writing nearly all of the richly priced CDS purchased by said European banks. This is an interesting and complicated story because all of those IMF/EU bailouts, besides adding more debt to already debt laden countries, have considerably subordinated the claims of the stakeholders involved. The following was written over a year ago, and has proven to be quite prescient:

The year 2013, with a IMF-proclaimed debt ratio of a tad under 150%, is the time when Greece will have to refinance the debt to pay the IMF. However, since the current debt raised by Greece is at fairly high rates, new debt will only be available at much higher rates (as markets should price-in the risk of high debt rollover) unless there is some saving grace of a drastic plunge in world wide interest rates and a concomitant plunge in the risk profile of Greece. At a 150% debt ratio, historically low artificially suppressed global interest rates that have nowhere to go but higher and prospective junk ratings from the US rating agencies, we don’ t see this happening. Thus, the cost of borrowing for in 2013 is likely to be much higher in the market than the nearly five percent for the existing debt. Greece will either be unable to fund itself in the markets at all, and will have to convince the Euro Members and the IMF to extend the three-year lending facility just announced (reference What We Know About the Pan European Bailout Thus Far) or, it will get the debt refinanced at very high rates. In both cases the total debt as a percentage of GDP will continue to rise, and this is not a sustainable scenario over the longer-term. In addition, if it accept the EU/IMF package and there is an event of default or restructuring, the IMF will force a haircut upon the private and public debtors beyond what would have normally been the case. This essentially devalues the debt upon the involvement of the IMF, a scenario that we believe many sovereign bondholders (particularly Greek, Spanish and Irish) may not have taken into consideration. This also leaves the possibility of a significant need for many banks to revalue their sovereign debt – particularly Greek sovereign debt – holdings.

As illustrated above, there is a higher probability for a Greek sovereign debt restructuring in 2013, which will definitely not hurt IMF (since it has a preferred right) but the Euro Members and other investors who will be holding the Greek debt.

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LGD: Loss Given Default... ~100%???

We're talking damn near complete wipeouts boys and girls. There are practicaly no entities holding this debt at par that are leveraged under 30x. The starting point in case of default for Greece is between roughly 48% to 52% of par. You've seen the math on BoomBustBlog many a time - Over A Year After Being Dismissed As Sensationalist For Questioning the ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What!
 

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Add forced subordination due to IMF and US imperialitic dictate, and discussion of recoveries may very well be moot. On that oh so cheery note, let's move on to the basis of the refresh of our European bank exposure note for subscribers, who have voted overwhelmingly to have us pursue this venue...
BoomBustBlog
I woild like to take this time to warn those who may have a waning interest in real estate due to the fundamentals defying act of REITs over the two years, that party is likely quite over if and once the Europeans blow up. The real long term risks still sitting on US, Asian and European bank balance sheet are still real asset based, and because it is so labor intensive to hide tons of bricks, dirt and mortar under pulp based ledger sheets using creative yet relatively meek accountants, these chickens are coming back home to roost to.
 

I will end this post with some graphs that show the bubblistic mentality of the German and French banks as they gorged on soon to be 2 for 1 sale sovereign debt at the height of the US induced credit and real asset bubble. You see, many outside of the Americas blame the US for instigating the last world wide crash (and admittedely rightfully so), but this time around the crash will be much bigger, and we all know whose fault it will be (hint: it doesn't rhyme with jaflerican). Remember, these supposedly risk free assets are being accumulated with somewhere between 30x to 72x leverage.

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In preparation for what will probably be a very, very valuable subscriber update, I will start off my next post on this topic with a public display of what we published this time last year regarding French and German banks. In passing, remember: 
  1. The US still has the right to singularly vote down a supermajority in the IMF, and it is the only single state to be able to do that.
  2. We see how well the EU has agreed on things in the past when time was of the essence.
  3. The EU voluntarily took subordinate positions to existing claimholders, that was the purpose of the bailout. The IMF has never inferred such.
  4. The Fed has opened up the swap lines in the past, and didn't do so for charitable reasons. Read my post on FICC risk and bank implosions on my blog. The Fed can't afford for Euro banks to start calling on those faux hedges. That's why the lines are open.
  5. Any haircut you get before adding on a trillion dollars of debt and the IMF standing in front of you for $120 billion is going to be less then the one you get afterwards

As always, may the BoomBust be wth you! Interested parties may feel free to follow me on twitter, email me directly, or register for/subscribe to BoomBustBlog.

Published in BoomBustBlog

I have decried the virtual collapse of the EU banking system beginning in 2009, and through 2010 and 2011. I have even delivered keynote speeches at EU banks on the very same topic...

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The points made in this video are, in my oh so not so humble opinion, incontrovertbe. As a matter of fact the farce, the political fame being played in the hold to maturity accounting arean is enough to spark both a bank run and a resulting banking collapse. I know my proclamations sounded rather bombastic when I first made them. They sounded sensationalist last year. Well, pray tell, how do they sound now?

UK banks abandon eurozone over Greek default fears

UK banks have pulled billions of pounds of funding from the eurozone as fears grow about the impact of a “Lehman-style” event connected to a Greek default.

 Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.

One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the eurozone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a

seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

 

Eurocalypse Cometh! Principal Haircuts, Serial Bailouts, ECB Insolvent! Disruptive Sound Of Dominoes In Background Going "Click, Clack"! BoomBustBloggers Instructed To Line Up Bearish Positions Again! 

If one were to even come close to marking the EU banks books to reality, market prices, or anything in between, the Lehman situation would look tame in compariosn!

As excerpted from the subscriber document: File Icon The Inevitability of Another Bank Crisis

 

It Should Be Obvious To Many That The Risk Of Defaulting Sovereign Bonds Can Spark A European Banking Crisis

For Those Who Failed To Heed My Warnings On Portugal, Visualize The Contagion That Causes European Bank Failure!!!

Is Another Banking Crisis Inevitable? 

Bloomberg reports that Goldman Sachs Turns Bullish on Europe Banks as Debt Risk Eases.The report goes on to state:

The U.S. bank that makes the most revenue from trading advised investors to take an “overweight” position on banks, raising its previous “neutral” recommendation, according to a group of equity strategists led Peter Oppenheimer. Investors should pay for the trade by lowering holdings of consumer shares, he wrote.

“For financials the narrowing of sovereign spreads in peripheral eurozone, which our economists expect to continue, is a clear positive,” London-based Oppenheimer wrote in the report dated Feb. 3. “Banks are one of the least expensive sectors in the market and the trade-off between their growth prospects and earnings in the next few years looks especially attractive.”

Unfortunately, the risks of this particular trade were not articulated, and I feel that the risks are material. Far be it for me to disagree with the "U.S. bank that makes the most revenue from trading", but they have been wrong before - many times before. Reference Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? or Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on this topic...

 

 

 

Banks NPAs to total loans

Source: IMF, Boombust research and analytics

 

Euro banks remain weak as compared to their US counterparts

 

Health of European banks is weaker when compared to US banks. European banks are highly leveraged compared to their US counterparts (11.1x versus 4.1x) and are undercapitalized with core capital ratio of 6.5x vs. 8.5x. Also, the profitability of European banks is lower with net interest margin of 1.2% compared with 3.3%. However, non-performing loans-to-total loans for European banks are slightly better off when compared to US with NPL/loans at 4.9% vs. 5.6%. Nonetheless, considering the backdrop of high exposure to sovereign debt in Euro peripheral countries, we could see substantial write-downs for Euro banks AFS and HTM portfolio, which would more than offsets the relative strength of loan portfolio.

 

EURO Stress Test Rebuffed, Again

 

The OECD working paper “The EU stress test and sovereign debt exposures” by Adrian Blundell-Wignall and Patrick Slovik rebuffs the EU stress test, as we have several times in the past. The argument in the white paper echoes BoomBustBlog view that accounting policies allows banks and financial institutions to mask their true economic health. An asset that has declined in value leads to economic loss irrespective of its classification as held-to-maturity or held-for-trading, but accounting policies allow banks to mark down only their trading portfolio to the current market value while leaving a large chunk of held-to-maturity at book value even if said asset loses 50% in value that would take years to recover, or the bank could be presented with the very distinct possibility that there may be no recovery of said value loss. The former event (of recovering back to book value) would mask the true economic picture at a given snap shot of time while the latter (no recovery) is more of time shifting distortion wherein current profits are inflated for future losses.

 

Coming back to the EU stress test, the paper contends that by focusing only on the trading book exposures, the EU stress test gave a rosy picture of banks true health.

 

•     Sovereign bond haircuts were applied only on the trading book holdings with implicit assumption that bonds held to maturity will receive 100 cents in the euro. This assumption severely understates the banks losses as 83% of banks investment portfolio is in banking books in form of held-to-maturity assets while only 17% of assets are held in trading portfolio. In case of sovereign default, the distinction between the banking book and the trading book simply disappears. By considering only a smaller component of banks investment books, EU stress tests have severely undermined the estimated write-downs on banks books and have given rosy picture about banks true health. The logic of said methodology is that with the EU/ECB/ EFSF SPV (basically, a giant new European CDO) backing, no sovereign state will be allowed to default.

 

•     Second, and more importantly, the market is not prepared to give a zero probability to debt restructurings beyond the period of the stress test and/or the period after which the role of the EFSF SPV comes to an end.

 

o   The assumption of no default over 2010-2012 appears reasonable given that the EFSF is made up of a €720bn lending facility (€220bn from the IMF; €60bn from the EU; and the SPV can build exposures for 3 years to the limit of €440bn for the 16 Euro area countries) which provides a guarantee of funding for any countries facing financing pressures, certainly for the next 3 years.

 

o   However, the concerns in the market beyond 2012 are: the longer-run fiscal sustainability problem; and the difficulty of achieving structural adjustments in labor and pension markets and ability to achieve a sustainable growth in a period of budget restraint. The fear is that this will not be resolved by the time the support packages run out, and hence the probability of restructuring may not be put at zero by portfolio managers. Angela Merkel has recently announced her willingness to spearhead several common nation reforms to put the EU block of nations on heterogeneous footing in regards to regulation, debt management etc. This will go a long way to solving the problem at hand, but will also put significant strain on several of the weaker nations, again exacerbating the probability for restructuring to bring said nations in line with their stronger counterparts.

 

Impact of bank’s banking books on haircuts

 

EU banking book sovereign exposures are about five times larger than trading book. The table below gives sovereign exposure of major European countries for both trading and banking book. The EU trading book has €335bn of exposure while banking book has €1.7t exposure towards sovereign defaults. EU stress test estimated total write-down’s of €26bn as it only considered banks trading portfolio. This equated to implied haircut of 7.9% on trading portfolio with losses equating to 2.4% of Tier 1 capital. However, if the same haircuts (7.9% weighted average haircut) are applied to banking book then the loss would amount to €153bn equating to 13.8% of Tier 1 capital.

 

 

We have also presented an alternative scenario since we believe that EU stress test had failed not only to include banks HTM books but also the loss estimates were highly optimistic, as has much of the economic and financial forecasting that has come from the EU. It is highly recommended that readers review Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for a detailed view of a long pattern of unrealistically optimistic forecasting. Here's and example...

 

 

 

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Revisions-R-US!

 

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In an alternative scenario, we have assumed weighted average haircut of 10% (exposure, haircut assumptions and writedowns for individual countries are presented in detail in the tables below) and have applied writedowns on both banking and trading books with the results available in the subscription document File Icon The Inevitability of Another Bank Crisis? Individual and more explicit haircut calculations are available for the following nations for professional and institutional subscribers:

 

 

Interested readers can follow me on twitter and review our latest European opinion and analysis

 

 

 

 

 

 

 

 

 

 

Published in BoomBustBlog

 Italy on the right track, IMF says: Wall Street Journal

  • Italy's economy continues to be based off of external demand, and that is important to maintain fiscal discipline (We may never hear Italy and fiscal discipline in the same sentence again)
  • IMF predicts that Italian unemployment rates will continue to rise, and that native banks will continue to see credit risk rise as loans are appearing to be less profitable.
italian_real_gdp.png
optmisitic_italy.jpg
As for listening to theIMF in regards to Italy's prospects throught this crisis, let's look at how accurate they have been since the crisis began, courtesy of "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!": For paid viewers and subscribers, reference our Italian Macro and Public Finance Research, which throws a much more realistic and unbiased light on things. 

Subscribers should also review as the truth about Greece rolls through the banking system: File Icon Italian Banking Macro-Fundamental Discussion Note

The Pan-European Sovereign Debt Crisis, to date (free to all)

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
  6. The Beginning of the Endgame is Coming???
  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall 
  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 
  11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
  12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino
  13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
  14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
  15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
  16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
  17. Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks
  18. The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!
  19. How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight
  20. Grecian News and its Relevance to My Analysis
  21. A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis
  22. Greek Soap Opera Update: Back to the Bailout That Was Never Needed?

 Italy on the right track, IMF says: Wall Street Journal

  • Italy's economy continues to be based off of external demand, and that is important to maintain fiscal discipline (We may never hear Italy and fiscal discipline in the same sentence again)
  • IMF predicts that Italian unemployment rates will continue to rise, and that native banks will continue to see credit risk rise as loans are appearing to be less profitable.
italian_real_gdp.png
optmisitic_italy.jpg
As for listening to theIMF in regards to Italy's prospects throught this crisis, let's look at how accurate they have been since the crisis began, courtesy of "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!": For paid viewers and subscribers, reference our Italian Macro and Public Finance Research, which throws a much more realistic and unbiased light on things. 

Subscribers should also review as the truth about Greece rolls through the banking system: File Icon Italian Banking Macro-Fundamental Discussion Note

The Pan-European Sovereign Debt Crisis, to date (free to all)

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!
  6. The Beginning of the Endgame is Coming???
  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall 
  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 
  11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
  12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino
  13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis
  14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?
  15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!
  16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe
  17. Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks
  18. The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!
  19. How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight
  20. Grecian News and its Relevance to My Analysis
  21. A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis
  22. Greek Soap Opera Update: Back to the Bailout That Was Never Needed?

Of course, what would a weekend be without another installment in the Grecian soap opera: Greece Bailed Out.....Again: Bloomberg

  • European governments have offered up a $61 billion Greek rescue package, meanwhile (and of course), Greece has not asked for any sort of package, insisting it can pay its debts
  • Greece plans to offer €1.2 billion in 6 month and 1 year notes tomorrow (April 12th)
  • So, the EMU pledges aid that Greece does not want to accept right before a bond auction that would have otherwise failed, and Germany after months of demanding Greece be punished for its profligacy, has backed off and agreed to an emergency plan that offers aid at a significant DISCOUNT to the market rate. How does this pass the mainstream smell tests?
  • Here are some choice quotes from the story:
    • "The package “sends a clear message that nobody can play with our common currency and our common fate,” Greek Prime MinisterGeorge Papandreou told reporters in Larnaca, Cyprus." Actually, the package sends a clear message that moral hazard abounds over there in Euroland and their will be no market discipline for financial profligacy.
    • Germany “has lost the competition,” said Carsten Brzeski, an economist at ING Group in Brussels who used to work at the European Commission. “All that fuss and talk about not putting taxpayer money at risk has been made obsolete.”

      ... the European loans would be tied to Euribor and priced above rates charged by the IMF, a nod to German opposition to subsidizing a country that lived beyond its means. The EU will offer a mix of fixed- rate and floating rate loans. Tis not much of a nod since it substantially undercuts the market rates. Yes, its more than the IMF rates, but the IMF rates were closer to zero, not withstanding the fact that the IMF would cause them to contort the spending.

    • Greece last week raised its estimate of the 2009 deficit from 12.7 percent of gross domestic product to 12.9 percent, the highest in the euro’s history and more than four times the EU’s 3 percent limit.
    • While rules dictated by Germany in the 1990s foresee fines for countries that go over the limit, no penalty has ever been imposed. Germany also led the charge to loosen the rules in 2005 after three years of excessive deficits. Basically, the rules are a joke and there is no wonder why not even a single country in the EU has respected them.

      While all euro-region governments vowed to contribute, some would need parliamentary approval. Ireland, itself reeling from the financial crisis, would require “national legislation,” Finance Minister Brian Lenihan said in an e-mailed statement.Ireland is quite the interesting case in and of itself. Subscribers who have not done so are strongly recommended to carefully review the Ireland public finance review thatI will be posting later on. It's a doozy! It will be very interesting to see how a country such as Ireland who actually needs a bailout, will be bailing out another country that needs a bailout. For a sneek preview, see Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe and Reggie Middleton on the Irish Macro Outlook.


    image009.png

    Notice how Ireland is the nation with the second highest NPA to GDP ratio.

     

    eurodebt2.png

    Overall, in terms of total financing needed for 2010 (which includes 2010 bond maturities, short-term roll over debt and fiscal deficit), France and Germany top the list with € 377.5 billion and €341.6 billion, respectively while the total finance needed as percentage of GDP is expected to be highest for Belgium and Ireland at 26.3% and 22.4%, respectively.

    Now, to focus on the contagion effect of Ireland, specifically, let's borrow from our yet to be released foreign claims model in order to see who may be effected from the rush to pull capital out of extant positions to fill the leveraged NPA holes left by the banks...

     

    claims_against_uk.jpg

    Ireland has the largest claims against the UK as a percentage of the its respective GDP, the largest in the world. In the rush to raise cash to sell assets, expect some fire sales in the UK. For those who may be wondering how this may affect the UK, see our premium subscription report on the UK's public finances and prospects (recently updated to include the last round of government projections): UK Public Finances March 2010 UK Public Finances March 2010 2010-03-29 06:20:38615.90 Kb

     

     

     

    ireland_claims_against_piigs.jpg

    Ireland can also be expected to pull assets our of the ailing PIIGS group as well, since they are, bar none, the biggest lender to that group as a percentage of GDP. No wonder their banks are having problems.

    ireland_claims_against_cee.pngIreland also has the second highest claims (as percent of GDP) against the central and eastern European nations, who happen to be in a full blown depression. The withdrawal of assets, banking support and credit will exacerbate both Ireland's problems and that of these nations. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! to find that Ireland can exacerbate the problems of Austrian, Swedish and Belgian banks by pulling capital out of the CEE region, and yes, they are truly in a depression:

    • The Greek government has yet to request a European lifeline, confident that this year’s planned budget cut of 4 percentage points will stem speculation that it is heading for the euro region’s first-ever default. Fitch Ratings highlighted that risk by shaving Greece’s debt rating to BBB-, one level above junk, on April 9.

    • A combination of higher taxes, lower spending and salary cuts for public workers have prompted strikes and protests against Papandreou, a socialist elected in October on promises of raising wages.

    • greek_strikes.png
      • The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing “a very bold and ambitious program.”This is interesting since our analysis shows that the plan as Greece has announced it, just won't be able to cut the butter. Either the guys at the EU didn't read the plan, their spreadsheets need to be recalibrated, or they aren't being totally upfront. Then again, maybe I can be totally wrong and all of the EU/IMF/Greek government super rosy estimates illustrated below will turn out to be different this time around????
      Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year’s deficit. The debt agency plans to offer 1.2 billion euros of six- month and one-year notes tomorrow, in a test of investor confidence. So far, all of the recently issued bonds are totally undewater. Is this really a worthwhile investment?

      Greece is likely to need money by the end of April, said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc. Noting that the budget cuts threaten to cripple the economy, he said in a research note that “this thing is unlikely to go to bed anytime soon." "Cripple" the economy is right. They will throw themselves into a deeper depression, and it is doubtful that the cuts go anywhere near far enough, thus they will either have to cut deeper or face the fact that they will still be running an inappropriate deficit anyway.

    • These are the email addresses of the reporters that worked on this story (James G. Neuger in Brussels atThis email address is being protected from spambots. You need JavaScript enabled to view it.Jonathan Stearns in Brussels atThis email address is being protected from spambots. You need JavaScript enabled to view it.). I challenge anyone (including them or their sources) to demonstrate how Greece will be able to pull out of this, even with the EU subsidy that was just announced. This are just too bad. Subscribers can reference Greece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. while those that don't subscribe can simply review the anecdotal evidence I have gathered, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

    Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

    image005.png

    Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.png

    Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

    image013.png

    The EU/EC has proven to be no better, and if anything is arguably worse!

     

    image031.png

    Revisions-R-US!

    image044.png

    and the EU on goverment balance??? Way, way, way off.

    image040.png

    If the IMF was wrong, what in the world does that make the EC/EU?

    The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...

    greek_debt_forecast.png

    Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek  government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory...).

    Now, if the Greek government's macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality.... Just who the hell can you trust these days??? Never fear, Reggie's here. Download our "unbiased, non-captured, empirically driven" forecast of the REAL Greek economy - (subscribers only, click here to subscribeGreece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. Related banking research can be downloaded here:

    It really is a shame when you have to pay for the truth, isn't it? If you think you've witnessed an example of social unrest in Greece, you ain't seen nuthin' yet. Wait until the reality of these faked numbers start hitting home...
    greek_strikes.png

    The Pan-European Sovereign Debt Crisis, to date (free to all):

    1.     The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

    2.     What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

    3.     The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.

    4.     The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

    5.     The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

    6.     The Beginning of the Endgame is Coming???

    7.     I Think It's Confirmed, Greece Will Be the First Domino to Fall

    8.     Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

    9.     Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

    10.   "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!

    11.   Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

    12.   The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

    13.   As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

    14.   Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

    15.   Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

    16.   Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

    17.   Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

     

     

    The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

    How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

    Grecian News and its Relevance to My Analysis

    A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis

     

     

     

    Of course, what would a weekend be without another installment in the Grecian soap opera: Greece Bailed Out.....Again: Bloomberg

    • European governments have offered up a $61 billion Greek rescue package, meanwhile (and of course), Greece has not asked for any sort of package, insisting it can pay its debts
    • Greece plans to offer €1.2 billion in 6 month and 1 year notes tomorrow (April 12th)
    • So, the EMU pledges aid that Greece does not want to accept right before a bond auction that would have otherwise failed, and Germany after months of demanding Greece be punished for its profligacy, has backed off and agreed to an emergency plan that offers aid at a significant DISCOUNT to the market rate. How does this pass the mainstream smell tests?
  • Here are some choice quotes from the story:
    • "The package “sends a clear message that nobody can play with our common currency and our common fate,” Greek Prime MinisterGeorge Papandreou told reporters in Larnaca, Cyprus." Actually, the package sends a clear message that moral hazard abounds over there in Euroland and their will be no market discipline for financial profligacy.
    • Germany “has lost the competition,” said Carsten Brzeski, an economist at ING Group in Brussels who used to work at the European Commission. “All that fuss and talk about not putting taxpayer money at risk has been made obsolete.”

      ... the European loans would be tied to Euribor and priced above rates charged by the IMF, a nod to German opposition to subsidizing a country that lived beyond its means. The EU will offer a mix of fixed- rate and floating rate loans. Tis not much of a nod since it substantially undercuts the market rates. Yes, its more than the IMF rates, but the IMF rates were closer to zero, not withstanding the fact that the IMF would cause them to contort the spending.

    • Greece last week raised its estimate of the 2009 deficit from 12.7 percent of gross domestic product to 12.9 percent, the highest in the euro’s history and more than four times the EU’s 3 percent limit.
    • While rules dictated by Germany in the 1990s foresee fines for countries that go over the limit, no penalty has ever been imposed. Germany also led the charge to loosen the rules in 2005 after three years of excessive deficits. Basically, the rules are a joke and there is no wonder why not even a single country in the EU has respected them.

      While all euro-region governments vowed to contribute, some would need parliamentary approval. Ireland, itself reeling from the financial crisis, would require “national legislation,” Finance Minister Brian Lenihan said in an e-mailed statement.Ireland is quite the interesting case in and of itself. Subscribers who have not done so are strongly recommended to carefully review the Ireland public finance review thatI will be posting later on. It's a doozy! It will be very interesting to see how a country such as Ireland who actually needs a bailout, will be bailing out another country that needs a bailout. For a sneek preview, see Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe and Reggie Middleton on the Irish Macro Outlook.


    image009.png

    Notice how Ireland is the nation with the second highest NPA to GDP ratio.

     

    eurodebt2.png

    Overall, in terms of total financing needed for 2010 (which includes 2010 bond maturities, short-term roll over debt and fiscal deficit), France and Germany top the list with € 377.5 billion and €341.6 billion, respectively while the total finance needed as percentage of GDP is expected to be highest for Belgium and Ireland at 26.3% and 22.4%, respectively.

    Now, to focus on the contagion effect of Ireland, specifically, let's borrow from our yet to be released foreign claims model in order to see who may be effected from the rush to pull capital out of extant positions to fill the leveraged NPA holes left by the banks...

     

    claims_against_uk.jpg

    Ireland has the largest claims against the UK as a percentage of the its respective GDP, the largest in the world. In the rush to raise cash to sell assets, expect some fire sales in the UK. For those who may be wondering how this may affect the UK, see our premium subscription report on the UK's public finances and prospects (recently updated to include the last round of government projections): UK Public Finances March 2010 UK Public Finances March 2010 2010-03-29 06:20:38615.90 Kb

     

     

     

    ireland_claims_against_piigs.jpg

    Ireland can also be expected to pull assets our of the ailing PIIGS group as well, since they are, bar none, the biggest lender to that group as a percentage of GDP. No wonder their banks are having problems.

    ireland_claims_against_cee.pngIreland also has the second highest claims (as percent of GDP) against the central and eastern European nations, who happen to be in a full blown depression. The withdrawal of assets, banking support and credit will exacerbate both Ireland's problems and that of these nations. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! to find that Ireland can exacerbate the problems of Austrian, Swedish and Belgian banks by pulling capital out of the CEE region, and yes, they are truly in a depression:

    • The Greek government has yet to request a European lifeline, confident that this year’s planned budget cut of 4 percentage points will stem speculation that it is heading for the euro region’s first-ever default. Fitch Ratings highlighted that risk by shaving Greece’s debt rating to BBB-, one level above junk, on April 9.

    • A combination of higher taxes, lower spending and salary cuts for public workers have prompted strikes and protests against Papandreou, a socialist elected in October on promises of raising wages.

    • greek_strikes.png
      • The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing “a very bold and ambitious program.”This is interesting since our analysis shows that the plan as Greece has announced it, just won't be able to cut the butter. Either the guys at the EU didn't read the plan, their spreadsheets need to be recalibrated, or they aren't being totally upfront. Then again, maybe I can be totally wrong and all of the EU/IMF/Greek government super rosy estimates illustrated below will turn out to be different this time around????
      Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year’s deficit. The debt agency plans to offer 1.2 billion euros of six- month and one-year notes tomorrow, in a test of investor confidence. So far, all of the recently issued bonds are totally undewater. Is this really a worthwhile investment?

      Greece is likely to need money by the end of April, said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc. Noting that the budget cuts threaten to cripple the economy, he said in a research note that “this thing is unlikely to go to bed anytime soon." "Cripple" the economy is right. They will throw themselves into a deeper depression, and it is doubtful that the cuts go anywhere near far enough, thus they will either have to cut deeper or face the fact that they will still be running an inappropriate deficit anyway.

    • These are the email addresses of the reporters that worked on this story (James G. Neuger in Brussels atThis email address is being protected from spambots. You need JavaScript enabled to view it.Jonathan Stearns in Brussels atThis email address is being protected from spambots. You need JavaScript enabled to view it.). I challenge anyone (including them or their sources) to demonstrate how Greece will be able to pull out of this, even with the EU subsidy that was just announced. This are just too bad. Subscribers can reference Greece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. while those that don't subscribe can simply review the anecdotal evidence I have gathered, see Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

    Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.

    image005.png

    Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic. image018.png

    Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...

    image013.png

    The EU/EC has proven to be no better, and if anything is arguably worse!

     

    image031.png

    Revisions-R-US!

    image044.png

    and the EU on goverment balance??? Way, way, way off.

    image040.png

    If the IMF was wrong, what in the world does that make the EC/EU?

    The EC forecasts have been just as bad, if not much, much worse in nearly all of the forecasting scenarios we presented. Hey, if you think tha's bad, try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!...

    greek_debt_forecast.png

    Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek  government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory...).

    Now, if the Greek government's macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality.... Just who the hell can you trust these days??? Never fear, Reggie's here. Download our "unbiased, non-captured, empirically driven" forecast of the REAL Greek economy - (subscribers only, click here to subscribeGreece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb. Related banking research can be downloaded here:

    It really is a shame when you have to pay for the truth, isn't it? If you think you've witnessed an example of social unrest in Greece, you ain't seen nuthin' yet. Wait until the reality of these faked numbers start hitting home...
    greek_strikes.png

    The Pan-European Sovereign Debt Crisis, to date (free to all):

    1.     The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

    2.     What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

    3.     The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.

    4.     The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

    5.     The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

    6.     The Beginning of the Endgame is Coming???

    7.     I Think It's Confirmed, Greece Will Be the First Domino to Fall

    8.     Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

    9.     Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

    10.   "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!

    11.   Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

    12.   The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

    13.   As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

    14.   Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

    15.   Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

    16.   Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

    17.   Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

     

     

    The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

    How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

    Grecian News and its Relevance to My Analysis

    A Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation in the Post-Crisis

     

     

     

    Greece has been in the news a lot over the last 24 hours. Let's recap:

     Bloomberg: Greece May Find Lukewarm U.S. Reception for Its Bonds

    April 7 (Bloomberg) -- Greece may discover it’s no cheaper to sell bonds in the U.S. than in Europe as the government seeks to persuade investors it can plug the region’s biggest budget deficit.

    Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar bonds, 410 basis points more than benchmark German bunds and 330 basis points more than Treasuries, according to Paris-based Axa Investment Managers, which oversees about $669 billion. TCW Group Inc., which manages $115 billion in assets from Los Angeles, says Greece may have to offer a premium of as much as 400 basis points over Treasuries.

    Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. Greece is struggling to tackle a budget deficit that is equivalent to 12.7 percent of gross domestic product, more than four times the European Union’s 3 percent limit.

    Anybody present at these road shows should print out a copy of the post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! and"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!. Be sure to have the salespersons answer the hard questions posed in those pieces. Subscribers can feel free to whip out the subscription material and ask for explanations and clarifications - File Icon Greece Public Finances Projections. I am anxious to hear what would be said in response. At this point, I see a Greek effective default as a foregone conclusion.

    More on this topic: Euro, Greek Bonds Drop on Rescue Concern; Most U.S. Stocks Gain

    From CNBC: Greek Banks Hit by Money Moved Offshore: Report

    Greek banks are being hit by a wave of redemptions as rich citizens and companies look to move their money to big global banks or offshore as the country's debt crisis rages, the Telegraph newspaper reported on its website.

    The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

    The UK newspaper said late on Monday that big depositors have been clamoring to move their cash to international financial firms such as HSBC or France's Societe Generale, which operate large branches in the country.

    They are among those to have received several billion euros of new money, it said without specifying sources.

    ... More than 3 billion euros ($4.05 billion) of deposits held by Greek households and companies left the country in February, while in January about 5 billion euros of deposits were moved out, the Telegraph quoted figures from Bank of Greece as showing.

    Switzerland, the UK and Cyprus have been the largest recipients of the money, with the wealthiest Greeks looking to move their deposits to Swiss banks accounts to escape the more punitive tax measures many fear will be introduced in the wake of the country's economic crisis, the newspaper said.

    Subscribers should reference:

    From the Greek banking site, bankingnews.gr: [coarsely translated] Greek long bond investors - At 450 bps premium still will not lend to Greece - In 382 m.v.to spread  

     

    The alarm sounding clearly leading market players and officials of foreign banks saying that realizations from real money accounts ie real long-term investors that occurred yesterday is a clear warning that unless a reduction in the spread immediately and climb to 450 bp everyone unload bonds and then completely lost control. 
    Today logically must react and reduce the spread sparingly and if that does not happen then just completely lost control and even very briefly highlighted the www.bankingnews.gr the morning and indeed no reaction as the spread falls to 382 bps with selective purchases from JP Morgan.
    According to sources confirmed when the spread was at 300 basis points and estimated that it will move to the 400 bp 2 weeks earlier, indicating that 
    1) Apart from the special short yesterday sold many long-term investors. The short want to test whether an instrument of support from the EU and the IMF reach the boundaries of Greece, although they risk but the returns they achieve are less striking because of the huge amount of holding spreads. 
    But at least inspire concern that sell and long-term investors. 
    hit stop losses and mandatory sold their investment positions. 
    The crucial point is the 450 basis points if the spread up to where it will just completely lost control at bends. 
    The 450 bp activate all mechanisms for the realization of direct positions in Greek bonds. 
    2) The 450 bp are but a milestone in the bond market as more than just levels the state will not be able to borrow. 
    According to well informed sources have already reported cases of investors who have indicated that over 450 bp longer be interested in bonds bearing in mind that the 10-year yields for example have reached or will tend to reach 8%. 
    3) Today also when the spread slipped to 405 basis points late was the statement of Finance Minister, Mr Papaconstantinou that Greece has not requested any change in support mechanism from the EU and the IMF . 
    Some sources say that the statement was made at the last minute and while the market was closed to prevent far worse. 
    Please note that the mix of change in terms of device support, new scenarios and bankruptcy sales were short and long resulted in the spread be found by 405 basis points is to rise 65 basis points is a historical record.
     Please remain cognizant of the fact that a 400 basis point spread over treasuries is dead center in junk bond territory, with the likes of QVC Network, and the ilk!
     
    The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance. 

    Greece has been in the news a lot over the last 24 hours. Let's recap:

     Bloomberg: Greece May Find Lukewarm U.S. Reception for Its Bonds

    April 7 (Bloomberg) -- Greece may discover it’s no cheaper to sell bonds in the U.S. than in Europe as the government seeks to persuade investors it can plug the region’s biggest budget deficit.

    Investors may demand a yield of as much as 7.25 percent to buy Greek 10-year dollar bonds, 410 basis points more than benchmark German bunds and 330 basis points more than Treasuries, according to Paris-based Axa Investment Managers, which oversees about $669 billion. TCW Group Inc., which manages $115 billion in assets from Los Angeles, says Greece may have to offer a premium of as much as 400 basis points over Treasuries.

    Petros Christodoulou, director general of Greece’s Public Debt Management Agency, said March 31 the country planned a “roadshow” in the U.S. and maybe Asia to drum up investor demand for a sale of dollar-denominated bonds. The country may offer as much as $10 billion of the securities, the Wall Street Journal reported the same day. Greece is struggling to tackle a budget deficit that is equivalent to 12.7 percent of gross domestic product, more than four times the European Union’s 3 percent limit.

    Anybody present at these road shows should print out a copy of the post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! and"Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!. Be sure to have the salespersons answer the hard questions posed in those pieces. Subscribers can feel free to whip out the subscription material and ask for explanations and clarifications - File Icon Greece Public Finances Projections. I am anxious to hear what would be said in response. At this point, I see a Greek effective default as a foregone conclusion.

    More on this topic: Euro, Greek Bonds Drop on Rescue Concern; Most U.S. Stocks Gain

    From CNBC: Greek Banks Hit by Money Moved Offshore: Report

    Greek banks are being hit by a wave of redemptions as rich citizens and companies look to move their money to big global banks or offshore as the country's debt crisis rages, the Telegraph newspaper reported on its website.

    The report appeared to contradict recent data from the European Central Bank and comments to Reuters by analysts and Greek banking sources, who said there was no clear evidence of a major, extended deposit outflow from Greek banks.

    The UK newspaper said late on Monday that big depositors have been clamoring to move their cash to international financial firms such as HSBC or France's Societe Generale, which operate large branches in the country.

    They are among those to have received several billion euros of new money, it said without specifying sources.

    ... More than 3 billion euros ($4.05 billion) of deposits held by Greek households and companies left the country in February, while in January about 5 billion euros of deposits were moved out, the Telegraph quoted figures from Bank of Greece as showing.

    Switzerland, the UK and Cyprus have been the largest recipients of the money, with the wealthiest Greeks looking to move their deposits to Swiss banks accounts to escape the more punitive tax measures many fear will be introduced in the wake of the country's economic crisis, the newspaper said.

    Subscribers should reference:

    From the Greek banking site, bankingnews.gr: [coarsely translated] Greek long bond investors - At 450 bps premium still will not lend to Greece - In 382 m.v.to spread  

     

    The alarm sounding clearly leading market players and officials of foreign banks saying that realizations from real money accounts ie real long-term investors that occurred yesterday is a clear warning that unless a reduction in the spread immediately and climb to 450 bp everyone unload bonds and then completely lost control. 
    Today logically must react and reduce the spread sparingly and if that does not happen then just completely lost control and even very briefly highlighted the www.bankingnews.gr the morning and indeed no reaction as the spread falls to 382 bps with selective purchases from JP Morgan.
    According to sources confirmed when the spread was at 300 basis points and estimated that it will move to the 400 bp 2 weeks earlier, indicating that 
    1) Apart from the special short yesterday sold many long-term investors. The short want to test whether an instrument of support from the EU and the IMF reach the boundaries of Greece, although they risk but the returns they achieve are less striking because of the huge amount of holding spreads. 
    But at least inspire concern that sell and long-term investors. 
    hit stop losses and mandatory sold their investment positions. 
    The crucial point is the 450 basis points if the spread up to where it will just completely lost control at bends. 
    The 450 bp activate all mechanisms for the realization of direct positions in Greek bonds. 
    2) The 450 bp are but a milestone in the bond market as more than just levels the state will not be able to borrow. 
    According to well informed sources have already reported cases of investors who have indicated that over 450 bp longer be interested in bonds bearing in mind that the 10-year yields for example have reached or will tend to reach 8%. 
    3) Today also when the spread slipped to 405 basis points late was the statement of Finance Minister, Mr Papaconstantinou that Greece has not requested any change in support mechanism from the EU and the IMF . 
    Some sources say that the statement was made at the last minute and while the market was closed to prevent far worse. 
    Please note that the mix of change in terms of device support, new scenarios and bankruptcy sales were short and long resulted in the spread be found by 405 basis points is to rise 65 basis points is a historical record.
     Please remain cognizant of the fact that a 400 basis point spread over treasuries is dead center in junk bond territory, with the likes of QVC Network, and the ilk!
     
    The insane asylum has issued a statement. G-Pap has seen that his country would be Friendo'ed if Greece does not agree to austerity (which was part of the original agreement but whatever) and so has issued the following statement: "Responding to questions by journalists regarding actions taken by Greece to change the recent EU summit aid mechanism, the Greek Finance Minister clarified that there has not been any action on behalf of our country to change the terms of the recent EU Summit agreement." In the meantime rich Greeks have likely moved pretty much all their domestic deposits to some other Goldman Sachs controlled provenance. 

    Sunday, 04 April 2010 19:00

    Easter Weekend News Update

    Canadian Dollar Too Strong? Bloomberg.com:

    • Minority opposition in Canadian Parliament is growing over strengthening Loonie
    • Leaders fear fallout in exports from CAD nearly at parity with USD
    • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

    Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

    Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

    • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
    • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
    • Ukraine has needed assistance to make good with about 20 lenders

    We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

    Sunday, 04 April 2010 19:00

    Easter Weekend News Update

    Canadian Dollar Too Strong? Bloomberg.com:

    • Minority opposition in Canadian Parliament is growing over strengthening Loonie
    • Leaders fear fallout in exports from CAD nearly at parity with USD
    • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)

    Relevant BoomBustBlog content (we gave you an explicit warning of this in early January): China's Most Expensive Export: Price Inflation

    Ukraine is dangerously close to the brink http://www.bloomberg.com/apps/news?pid=20601095&sid=aNw4Q7ntlMqc

    • Ukraine is about to use up the remainder of a $16.4 billion IMF loan
    • Premier Mykola Arazov has applied for another loan to "reform the economy" (what the hell did they do with the first $16.4 billion?)
    • Ukraine has needed assistance to make good with about 20 lenders

    We have went through this in exquisite detail, both in the public sections of the blog and particularly in the subscriber-only content. See The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious! Professional and institutional subscribers should carefully reference "Banks Exposed to CEE & SEE" while all paying subscribers should review the "Greek Banking Industry Tear Sheet".

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