Opening Quotes – Going NAMA

Spain  is going (Irish style) NAMA.

And from our experience:

– It may crystalize the collective ‘hole’ in the banks balance sheets.

– It will require serious re-capitalization euros.

– It won’t revive the property market.

– The banks will carry on de-leveraging regardless of whatever promises are made.

– And – without fiscal adjustment – the ‘real’ economy will continue to contract – for years to come.

FT: ‘Span in talks over ‘bad bank’ scheme’

“Government officials insist that the government-sponsored scheme should not be called a bad bank, because it will not be a bank and participating lenders will be able to park assets in it only if they have set aside sufficient bad loan provisions, independently valued.

That raises the question of how it will help banks trying to raise provisions for other loans and strengthen their capital. One official said it would relieve banks of the burden of trying to sell homes and let them focus on their core business of providing credit to the private sector. Bank executives who favour the idea say it is better than a rescue for the banking system financed by the state or the EU.”

 http://www.ft.com/intl/cms/s/0/7906c8ec-921e-11e1-867e-00144feab49a.html#axzz1tVXZjqO5

Opening Quotes – All Too Familiar

http://www.bloomberg.com/news/2012-04-26/spain-cut-by-s-p-for-2nd-time-this-year-on-banks-economy.html

Inevitable.

“Spain’s budget trajectory will likely deteriorate against a background of economic contraction,” S&P wrote in the statement yesterday. “At the same time, we see an increasing likelihood that Spain’s government will need to provide further fiscal support to the banking sector. As a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further.”

But do the ‘markets’ care about ratings agencies?

Supposedly not.

 And meanwhile – we’re back in a world filled with familiar words of denial.

Spanish banks won’t need external aid, nor will Spain need a bailout from its European Union partners, Economy Minister Luis de Guindos said.

“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late yesterday. “We don’t need it.”

Opening Quotes – Slaves to Market Desires

Same old. Same old.

Old Greenspan rewrote the rules ….

But  – more than ever – Central Banks are slaves to the ‘markets’ desire.

Its no way to run an economy – but hey we already know that.

FT.com

” …… traders are reckoning on central bank bodyguards to protect them. The biggest is of course the US Federal Reserve, and the market is inferring from the Fed’s latest comments that it stands ready to provide muscle if required.”

Barclays Capital said in a note to clients: “Policy accommodation remains in place and will continue to support higher-beta risky assets”.

Opening Quotes: Losing faith all over again?

Euro-zone banks sliding – inevitably – towards next funding crisis.

The ECB is going to come under pressure to loosen ‘collateral’ requirements – may/may not …..

But ‘solvency’ not ‘liquidity’ is THE ISSUE.

“The first LTRO was powerful, the second was less powerful and a third one could be even less so as markets lose faith the measures will bring lasting change,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor. “The main benefit was to avoid a refinancing crisis in European banking, but the issue is the systemic nature of Spain and Italy and their government bond markets and how you stabilize that.”

http://www.bloomberg.com/news/2012-04-24/rising-italy-to-spain-yields-keep-banks-on-life-support.html

 

Opening Quotes: Job Done?

Austerity bites. Governments continue to fall.

And the ECB has ‘done its job.’

We’ll see.

Bundesbank President Jens Weidmann:

“We shouldn’t get so excited about bond yields rising for a limited period of time,” Weidmann said. “They also constitute an incentive to reform, to embark on consolidation.”

The ECB, which has pumped more than 1 trillion euros ($1.3 trillion) into the banking sector since December in a bid to avert a credit crunch, has “done its job,” Weidmann said. Weidmann added that governments must now press on with budget cuts and structural reforms to encourage economic growth.

“It’s important to get the message to governments, ‘this is your job now,’” Weidmann said.

http://www.bloomberg.com/news/2012-04-23/weidmann-says-bundesbank-is-preserving-euro-stability.html

 

Opening Quotes – Irony European style

FT: “Dutch Government falls after budget talks”

Ohhhhhhhhhhh – the irony? How about the reality.

 The fall of Mr Rutte’s government is ironic because the Dutch were among the most vociferous supporters of strict budget limits during negotiations over Europe-wide fiscal reforms at Brussels summits last year.

Meanwhile, Dutch analysts said the inability of even the prosperous, deficit-averse Netherlands to generate voter support for Europe-directed budget cuts called the sustainability of the EU fiscal pact into question.

“Enforcing [the pact] would always be difficult. Punishing countries is a naive concept,” said Arnoud Boot, a professor of finance at the University of Amsterdam.

Mr Boot said fiscal harmonisation would be possible once the European economy returns to normal growth, but that trying to execute it in times of crisis causes “undue pain, which would lead to too much opposition to EU enforcement”.

Opening Quotes: Time’s a Changing?

FT: “Investors rebuke Citi board over pay’

Vikram Pandit: the greediest man on Wall Street?

Certainly the most shameless.

Shareholders – finally –  question his ‘incentives.’

http://www.ft.com/intl/cms/s/0/5af21ccc-88ae-11e1-9b8d-00144feab49a.html#axzz1sC0a9qGf

 “The golden rule of say on pay is to demonstrate that rewards are being earned for performance. In the banking system it’s also important to understand the risk management framework for those rewards. Citi failed that test,” said Anne Simpson, head of corporate governance for the California Public Employee’s Retirement System, which voted against the pay arrangements.

Mr Pandit received a total of $15m last year, comprising $1.7m in salary, a cash bonus of $5.3m, deferred stock of $4m and deferred cash of $4m. He is in line to receive millions more in a performance plan which has been criticised for including profit targets that are too lax.

Mike Mayo, analyst at brokerage CLSA, said Citi had a decade-long record of poor stock price performance and high executive pay.

“The level of the hurdle [for the bonus scheme to pay out] is ludicrous. This is part of the mosaic that leads me to feel that Citigroup is not a company that can be fully trusted because the management incentives, their pay cheque, is not well enough aligned with the value creation,” he said. “The only question is why it took shareholders so long.” 

 

 

Opening Quotes – Its All About Germany

Easter’s been and gone.

Merkel is Merkel.

Politics is domestic first.

“It’s partly about still being able to shape our own future,” Merkel said late yesterday at a rally in the city of Muenster in North Rhine-Westphalia. Countries in Europe that have run up debt “are so tightly in the hands of the financial markets that they can’t make independent decisions anymore. We have to watch out that high interest rates on our debt don’t lead to the point where we can’t decide and shape anything anymore” in Germany.

http://www.bloomberg.com/news/2012-04-16/merkel-offers-spain-no-respite-as-debt-cuts-seen-key-to-yields.html

Opening Quotes – 21st Century France

FT: ‘Juppe promises French hard line in EU’

Or should that read: ‘If re-elected Sarkozy promises to close his eyes and pretend the big bad world doesn’t exist.’

France is turning in on itself.

And protectionist – self interested – politics on the rise throughout Europe.

‘Immigration and France’s loss of manufacturing competitiveness have become key issues in the presidential election, which is due to be held over two rounds on April 22 and May 6. The effects of globalisation have caused deep disquiet in France and inspired protectionist calls from both the left and the right.

Mr Juppé said it was also not acceptable for the EU to open its markets to countries which did not allow free access to European companies in return – especially in the area of public contracts which the EU has largely opened. “We have a divergence with our British friends who see Europe as a big free trade area,” he said. “That is not our vision. We must introduce into free trade the notion of reciprocity.”

Mr Juppé said that while France continued to support the free movement of people within the Schengen area, the EU needed to clamp down on external frontiers: “We want the external borders of Schengen to be controlled which is not the case at the moment. The Greek-Turkish frontier is a sieve, for example.”’

Afternoon Delight: Chinese Consumption?

Martin Wolf (FT):

“China has done a far better job of eliminating its huge current account and trade surpluses than I expected. The principal domestic cause of this shift has, however, been a surge in investment to still dizzier heights, assisted by appreciations in the real exchange rate. But that makes the domestic adjustment now required even bigger than before the crisis. If the external surplus is to remain a constant share of GDP, while the rate of economic growth slows, an extraordinary turnaround in relative rates of growth of consumption and investment is essential. To put it bluntly, the growth dynamic of the past 15 years must be reversed. Is that feasible? Perhaps. But it requires a huge expansion in consumption relative to investment. Will that happen, while the economy continues to grow? Nobody knows.”

Huge challenges.

Which I believe the West poorly understands.