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I have been sounding the alarm on the Spanish banking system since January of 2009, and the Italian banks since the first quarter of this year. Now, the MSM is starting to catch up. For those who have not been reading my recent European work, I offer you The Pan-European Sovereign Debt Crisis series, for all others - read on...
Eleven banks including Germany's Commerzbank and Italy's Banco Popolare will fail the European Union's stress tests, Alessandro Roccati, director at Macquarie Securities, told CNBC Wednesday.
"We identify a handful of banks which would need more capital in a base case stress scenario; these are: all Greek banks, Bankinter, Postbank, Banco Popolare, BCP, Commerzbank and Sabadell," a report from Macquarie Securities said.
If BoomBustBlog subscribers recall, we had a very similar (if not significantly more extensive) list in our 1st quarter warning of banks exposed to the sovereign debt crisis (click here to subscribe).
In anticipation of its renewed push into the ultra-mobile computing fray (what most other sites call the smarth phone market), Microsoft has decided to "prime the pump" to regenerate developer interest in its platform. I have started covering this in detail, see:
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
I recommend that my readers NOT underestimate Microsoft's ability to come from behind on this one. Out of the three competitors that I feel have the most potential - Apple, Google/Android, and Microsoft - Microsoft is the only company to have:
- A fully established and pedigreed cloud ecosystem for the enterprise (Google's Docs and Gmail apps are relatively new in comparison, and Apple has only burgeoning consumer offerings that have been recently launched).
- The most advanced audio/video client side interface with both streaming and subscription services, to be offered through the Zune interface of Windows Mobile 7. For those who haven't used it, the new Zune software/hardware combo puts iTunes to shame. Google doesn't have a comparable offering of note.
- The de facto standard Office productivity platform, which also happens to be very, very difficult to replicate and/or reverse engineer. It also happens to be, by far the most feature rich. One should expect enhanced compatibility between Windows Phone 7 devices and Office apps.
- A rich version of Office productivity apps that can run from the cloud (Office 2010, currently available for download).
- A steady stream of revenue derived from practically every smartphone sold. Just like MSFT makes money on every PC sold, it also gets a license fee for every smartphone that needs to interactive with Exchange server, which is practically every phone that needs to interact with a Fortune 500 mail server. This is a legacy benefit from being the de facto standard in the enterprise. Whose product do you thing works best with Exchange? Secret APIs?
- The only major mobile OS vendor who also owns one of the top top gaming platforms - the X-Box system. Expect rich, 3D/HD, cloud-based X-box gaming to come to a Windows Mobile 7 phone/table near you. Imagine X-Box Live (a killer app in its own right) with comparable graphics on a Windows Phone with a 4 or 5 inch super AMOLED screen.
For these reasons and more, Microsoft will be a force to reckon with. I'm not saying they will win the ultra-mobile computing wars, but it will be most unwise to count them out due to their bumbling and stumbling - all to be expected from a big company that has been on top for so long, getting fat and losing touch with its true customers due to an unfettered monopoly revenue and profit stream from its cash cow products.
The EU and the IMF have promised a combined $1 trillion dollar bailout to assist Greece and potentially other debt laden companies in financing their opertations. The goal was to produce American-style shock and awe. The problem is they failed to attach American-style propaganda to it, hence reality is showing through the crachs. CNBC reports Moody's Cuts Portugal Rating, and as a result ECB's Trichet Wants End of Rating Agencies Oligopoly.
Moody's slashed Portugal's credit rating by two notches to A1, citing a deterioration of the country's debt ratios and weak growth prospects.
Portugal's debt-to-GDP and debt-to-revenue ratios have risen rapidly in the past two years, Anthony Thomas, vice president and senior analyst in Moody's Sovereign Risk Group, said in a statement.
The euro [EUR=X 1.2573 -0.0012 (-0.1%)] fell after the announcement and the spread between Portuguese and German 10-year government bonds widened by 4 basis points to 290 points. "The bond markets response hasn't been dramatic," Martin van Vliet, euro-zone economist at ING Bank, told CNBC.com. The downgrade came a little before a Greek auction to sell 6-month T-bills, the first since a bailout package agreed by the European Union and the International Monetary Fund in May.
Most likely because everyone knows Portugal is messed up...
Greece sold 1.625 billion euros ($2.03 billion) of 6-month instruments at a yield of 4.65 percent, up from 4.55 percent in a similar auction on April 13, according to Reuters.
So, after a $1 trillion dollar bailout announcement to drive down the costs of Greece's funding, they have to pay 10 basis points MORE than they did before the bailout! With friends like that, who needs enemies???
This is an excerpt from part two of a multi-part series on the companies vying for dominance during the 3rd major paradigm shift in personal and enterprise technology over the last 30 years. This one will be a biggie (not smalls) and promises to create an investment behemoth out of the winner and relegate the losers to relatively niche markets. This is saying a lot considering the size of the companies participating in the battle for the pole position. I created this series to provide a truly objective, truly informed, and truly analytical (from an empirical perspective) knowledge source on this very important intersection in personal computing and distributed media. This series will end with a full BoomBustBlog style forensic report on the company we feel has the most to gain from these wars from an investor's perspective. Those who are not familiar with my hard-edged, yet objective analytical work should reference past performance and media appearances for a quick background.
It is imperative that readers first review “There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All” before moving on so as to get a thorough background as to what is at stake, who the players are, and what mobile technologies are being released into the consumer and enterprise realm. This is a lengthy, meaty, objective and information packed post that was initially intended to go out to subscribers only (click here to subscribe to our research services). I welcome you to compare it to the research you find available from technology, financial and strategic advisory firms, including and particularly Goldman Sachs (click here to see what I mean, then return to this point to continue reading) and let me know whose analysis is more accurate, in depth and thorough (not to mention less expensive).
Despite an increasing proportionate share of licensing and other revenues, advertising will apparently continue to drive Google’s revenues in the medium-to-long term. The Company’s dominant share in the search engine market is expected to be maintained, with other competitors failing to gain the operative, technological and strategic influence to deter its pace of ad revenue growth. Of late, the Company has been initiating to broaden its revenue base as is evident from some of the recent and planned launches of newer products and services funded through revenues generated by its online ad programs
Google’s next major launches – Chrome web browser (production version), Google Chrome OS and Google TV – (expected by the end of 2010) are expected by analysts to fare much better than its Nexus One phone. However, uncertainties over consumer acceptance, pricing and technological edge of newer services offerings over competing products in the market are making it quite difficult to gauge the near-term financial impact of these launches. I would like to make it known that it appears nearly all of the financial analysts and many of the technology analysts fail to grasp the gist of Google’s phone strategy. The Nexus One was a proof of concept, proven in the market place by HTC’s Evo, which (one month after being released) is constantly sold out in nearly all retail outlets, Sprint stores, indirect retails stores, and the Sprint.com site itself. It is also the first phone that is widely accepted as not only being a credible threat to the IPhone but actually superior to the IPhone as well. It should not be lost on anyone that the IPhone is what has driven the stellar burst in Apple’s revenues, profits and mindshare over the last three years. To that end, the Nexus One, and more aptly the open sourced Android OS has proven to be a raging success.
Relevant news clips...
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
I wanted to share a series of negative news flow relating to the weakness in the core businesses of the investment banks owing to increased volatility in the capital markets over the last few months. This ebb from the sell side trails the opinion of BoomBustBlog research which forwarned of the same very early in the first quarter as well as last quarter of 2009l The news flow points out that the upcoming results of GS, MS and JPM might be disappointing or below expectations - as if we already didn't know this.
- According to some of the recent MSM articles, the recent surge in volatility has led to record low activity in the underwriting and M&A activity.
Global M&A value for the first half of 2010 grew 3% to $1.18 trillion, compared with $1.15 trillion a year earlier, according to Dealogic's figures. But while values were up against the year-earlier period, the $552.7 billion in value generated in the second quarter was down almost 7% compared with the first quarter of the year - WSJ.com.
Wall Street investment banks sold $1.36 trillion of stocks and bonds in the second quarter, down 33% from the second quarter of 2009 and the lowest quarterly total since the fourth quarter of 2008, according to Dealogic.
- Also, the capital markets volatility will have severe implications for the trading revenues of investment banks like GS and MS which derive substantial portions of their revenues from trading activities. Analysts have been downgrading earnings estimates for these banks and GS’s earnings have been particularly slashed since it generates nearly 60-70% of total revenues from trading.
Barclays Capital analyst, Roger Freeman, cut earnings estimates for Goldman Sachs Group (GS) and Morgan Stanley (MS) on June 23, 2010. Freeman slashed his second-quarter profit forecast for Goldman by nearly 64% to $1.95 a share from $5.35 a share. Freeman is expecting 40% lower trading revenues in FICC and equity segments in 2Q10 against 1Q10. His estimate for Morgan Stanley dropped 29% to 55 cents a share from 77 cents a share - WSJ.com.
Bank of America analyst, Guy Moszkowski, also slashed earnings estimates for GS and MS. He revised GS’ 2Q10 earnings estimates to $1.76 per share, 51% lower than the previous estimate of $3.57. The new estimates reflect a 45% decline in equity trading revenue and 40% drop in fixed-income trading revenue compared with the first quarter. MS’s 2Q10 EPS estimate was cut 35%, to 58 cents a share from 89 cents. The estimate on JPMorgan Chase & Co. was trimmed to 70 cents a share from 77 cents, and Citigroup Inc. was lowered to 2 cents a share from 4 cents - Businessweek.
I would also like to add that the recent volatility and market decline has also impacted the AUM of asset managers and there has been downward price revision by analysts. The assets under management of BEN declined 5% (m-o-m) in May, 2010 and the June figures are not yet out. Consequently, the target price estimates have been lowered by many analysts. In June, FBR Capital lowered its target for BEN to $105 from $118 and Barclays capital lowered its target for BEN to $125 from $133. Analyst at Goldman Sachs have also made significant downward revisions in this sector.
Now, the news flow in light of applied BoomBustBlog research:
The Asset Manager Trade is Printing Money Almost as Fast as Ben Bernanke
Who says only Americans are trying to delever?
Even with exposure to foreign events and insolvent counterparties at the top of every financial institution’s worry list for the rest of 2010, the microeconomic picture for debtors in the UK remains mediocre. Americans were not the only ransacked with debt during the past decade, as Brits watched their securitized debt levels rise to incredible rates. The Bank of England makes a point to state that without record low interest rates, defaults would be another issue for banks to look out for (interpreted: the Democratic People’s Republic of Korea will win the World Cup before the central bankers at the BoE even consider raising interest rates). Soon after, they state that it would be easier to raise rates in times of robust growth than the uncertainty of current conditions, which is absolutely novel.
- A majority of UK households have a large amount of equity in their home value
- Unsecured mortgages made up 2/3 of write offs since 2007, and even as they have stagnated, credit card write offs have increased to record highs
- The beginnings of a potential CRE resurgence in the UK have been limited to prime properties, with higher yield projects being shunned
- Even as prices are rising, they are still a third below 2007 peaks (and still probably overpriced if it is anything like the US CRE market)
- If tighter credit conditions prevent voluntary restructuring, CRE prices will fall further on corporate liquidations and forced foreclosures
CNBC runs as a headline the usual contradictory nonsense that we come to expect from certain heads of state. It would be funny if it didn't portend such dire consequences. The Spanish banks, just last week, were declared to be some of the healthiest in Europe (spoken with my fingers crossed behind my back, wry smile and spittle dripping from the side of my mouth). Of course, Banco Santadar and BBVA shares rocketed on the news that they are no longer insolvent and that the Spanish housing market pauses no threat.
Europe mostly flat (Greece up 2.3 percent), euro behaving, U.S. futures were calm ahead of the quadruple witching expiration. Spanish bank Banco Santander is up 1 percent on several pieces of news:
1) a spokesman for Spain's Prime Minister remarked that the Spanish bank performed strongly during the recent stress tests, saying the bank had "one of the best" results. The Committee of European Banking Supervisors is expected to provide details of the results in the coming weeks.they have the best ranking so far in a European bank stress tests, according to a Spanish government source; not clear when the full results of those tests will be published.
2) the bank also confirmed they have made an offer for 318 British branches of Royal Bank of Scotland.
They already have a strong presence in the UK. Santander's vice-chairman caused a small stir yesterday when he said they were talking with M&T Bank, based in Buffalo, NY, about possibly merging its U.S. operations with them.
But all of a sudden the banks in Spain get pissed off when the ECB declares it no longer wants to play the Pan-European subprime lender role: Spanish Banks Rage at End of ECB Offer
Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a 442 billion euros ($542 billion) funding program this week, accusing the central bank of “absurd” behavior in not renewing the scheme. On Thursday, the clock runs out on the ECB financing program – the largest amount ever lent in a single liquidity operation by the central bank – under the terms of the one-year special liquidity facility launched last summer. One senior bank executive said: “Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It’s absurd.”
Another top director said: “The ECB’s policy is that they don’t want to provide maturity of more than three months. But they have to adapt.” Banks across the euro zone, but in Spain in particular, have found it hard in recent weeks to secure liquid funding in the commercial markets, with inter-bank funding virtually non-existent. The 442 billion euro ECB facility, which charges interest at a rate of 1 percent, is not set to be renewed, something that banks in Spain and elsewhere in Europe say ignores current commercial realities. A special offer of six-day liquidity will tide banks over until the following week’s regular offer of seven-day funds. On Wednesday, the ECB will also be offering unlimited three month liquidity, and further offers of three-month liquidity will keep banks going until at least the end of the year. “The system is just not working,” agrees Simon Samuels, banks analyst at Barclays Capital in London. “We’re approaching the third year of liquidity support and still the market cannot survive unaided.”
BarCap estimates that at least 150 billion euros of the ECB funding that is maturing will not be rolled over into shorter-term three-month schemes, forcing banks to shrink their own lending. Spain’s banks have been among the hardest hit by the faltering confidence in the euro zone economies in recent months following problems with the country’s smaller savings banks, or cajas. The bigger commercial banks, led by Santander and BBVA, feel unfairly tarred.
Yeah, right. "Unfairly Tarred"!!! I've been warning about the Spanish Banks since January or 2009. Now that the chickens have come home to roost, they are screaming "unfairly tarred"??? How about (chicken roosting) feathered and tarred!
As We Have Warned, the Fissures Are Widening in the Spanish Banking System Monday, May 24th, 2010
I have made our position on Spain clear through a complete forensic review of the state’s finances for subscribers: Spain public finances projections_033010. An excerpt from this subscription document (subscribers, reference page 2) shows the euphoric, yet highly unrealistic optimism upon which Spain has built its fiscal austerity projections.
From CNBC.com: Europe Double-Dip May Bring Correction: Roubini
Economic woes in Europe could spread to the U.S. and lead to a further correction in stock prices, Nouriel Roubini, chairman of Roubini Global Economics, told CNBC on Monday.
Hey, but wasn't I saying that since January of this year??!! Remember back February when the media and the sell side analysts said the Greek problems were soon to be solved and this definitely was not a "European" problem but rather a localized one?
BoomBustBlog, February 7, 2010: The Coming Pan-European Sovereign Debt Crisis – introduces the crisis and identified it as a pan-European problem, not a in localized one.
Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns
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.
Bloomberg has as a headline today: Stress Tests on European Banks Must Assess Sovereign Risks, EU Draft Shows. Duhhh! As if we should really ignore the biggest threat to the solvency of the the European banking system in a so-called "stress test". What is this, Geithner "lite"? Reference How Greece Killed Its Banks! to see exactly how much damage those who wish to ignore sovereign risks are trying to hide...
With the cult-like adherence to Everything Apple, cultivated by the viral marketing engine that is Apple, it is very, very difficult to get objective comparisons and reviews of practically anything in a product category that Apple is present in. Yes, even the stalwart geeky tech site's have bitten the Apple, so to speak. Cnet, Wired, etc. are so Apple biased as to be borderline embarrassing. I know they report on what (and how whatever) brings the page views, but come on fellas!!! BoomBustblog thrives because it tells the truth in the financial and economic space, not matter how unpopular or controversial. Is it time to open up a BoomBustBlog, Technology edition????
What this abject bias does, despite irritating the hell out of those of us who are not plugged into the Matrix, is mask the exciting technical revolution that is occurring due to the intense competition borne from the weakening of the Wintel hegemony, the advent of a slew of new technologies across the telecomm, media, semiconductor and software industries and the new business models cropping up as the world finally embraces the World Wide Web as an actual permanent and primary platform for basic business, social and economic transactions.
This post will surmise the qualitative aspects of the companies and products listed below. I will follow up with full forensic analyses of not only the companies, but the business model and market share potential of each, as well as a thorough valuation scenario analysis. One of these companies will probably take over portable computing, and I think it will pay to hitch onto the right one. The next Microsoft is in the making. Hey, Microsoft may even be the next Microsoft. Don't sleep on them, although it does appear that they have been asleep themselves. We won't know until the Windows Mobile 7 OS is released. I recommend all who are interested in this tech, media or investments send the link to this article around the web, for it is one of the few (if not the only) truly unbiased reviews of the products that compete with Apple in the ultra portable and handheld space.
An Overview of the New Windows to the Web
From the top left hand corner, clockwise: The Amazon Kindle 2, Asus EEE PC, Apple IPad, Archos 5 Internet tablet, HTC Touch Pro2, Apple Itouch 3rd Generation, Archos 9 Internet Tablet, Sony Vaio. The paper under the Apple product is a testament to the viral marketing ability of Apple. My son did not want his ITouch to touch the floor!!!