Death Star Economics



‘Sandy’ to cost $10-20bn in damages, Spain gets serious about bad bank

Wall Street‘s equities and fixed income markets remain closed today as well, leaving us with nothing but the news of Paul Krugman’s dead cat. The last time the stock exchange stayed shut for two days due to weather conditions was in 1888 Estimates say that Sandy could cost the US up to $55bn in damage repair. Catastrophe risk modeling company Eqecat forecasts damages to reach $10-20bn, with insured losses of $5-10bn.

Meanwhile, the Economist is looking at Sandy from the election angle, arguing that the storm could influence early voter turnout in favor of the Republicans, as Obama is more likely to rely on sporadic voters than Romney.

Disregarding the storm or state of catastrophe on America’s east coast, AMR, parent company of American Airlines, is planning to request $1.5bn in new bond financing in Bankruptcy Court. Except… the US Bankruptcy Court is in Manhattan and the scheduled hearing is unlikely to take place today. American Airlines filed for bankruptcy protection 11 months agoread article

In SpainGDP contracted yet another time in Q3, showing a decline of 0.3%. Overall, Spanish GDP is down 1.6% from 2011. But the Spanish government is preoccupied with setting up a bad bank, so bad, in fact, that it might be too big and bad to function. Spain’s rescue fund FROB said the new facility, called SAREB (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria), was still looking for investment support from the private sector. It will hold foreclosed assets bought at a discount of 63% and developer loans at a discount of 43%. Spain’s nationalized banks will contribute €45bn to SAREB. Fernando Restoy, chairman of FROB, said the bad bank will be profitable and have a lifespan of 15 years, yielding at least 14-15% ROE. Good pitch, but do you really want to commit to a long-term business plan in Europe’s periphery right now? Maybe not. read article

Otherwise, German unemployment was at 6.9% in October, the by far lowest rate in Europe, rising by 20,000 claims, and the Bank of Japan did as expected and added another JPY10tn to its asset purchasing program.

China also threw some money at its economyinjecting CNY395bn ($63bn) into its banking system to ease a tax-induced credit squeeze. Corporate income taxes for Q3 are due to be paid tomorrow. In the background, Nissan is dissing China‘s sluggish growth. It’s understandable, the conflict between Japan and China is ruining Nissan’s third quarter earnings; sales fell by 35% in September alone.

So long.


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One Response

  1. […] loans declined by around €80bn as well, as many underperforming ones have been poured into the ‘bad bank‘ the government set up in October, as a black hole for foreclosed assets and developer loans. From […]

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