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Slovenia slides down the bailout slope

Yesterday

The Fed is considering tougher capital requirements over worries that banks could be playing the [Basel III] system. Currently, the international agreement sees equity capital at only 3%. Basel brought that up significantly, but also gave the parties involved more room for… creative accounting. Give a bank a loophole. read FT

Moody’s downgraded Slovenia to junk with negative outlook (ouch), which is unfortunate, because the country was planning to auction off some debt. read FT
And now the pathway to an EU bailout: (read Bloomberg)

Rising loan losses resulting from a housing bust and a second recession in two years have left a hole of about 7.5 billion euros ($9.9 billion) at Slovenia-based lenders, investment bank Keefe Bruyette & Woods estimates. That’s a lot for a 35 billion-euro economy: A bank bailout would push government debt above 70 percent of economic output.

Apple issued $17bn in debt – the largest corporate debt offering ever – in six tranches to return money to shareholders and avoid repatriation taxes on overseas funds. read WSJ

In New York, the Empire State Building was lit up in FT-pink to celebrate the 125th anniversary of the newspaper.

This morning…
is quiet due to Labor Day in vast parts of the world.

Later on, we’ll get some data from the US, including the ADP employment report, ISM manufacturing data and the post-FOMC meeting statement from the Fed (ex Bernanke press conference). The ISM is expected to drop below 50, as it last did in November of last year and several months in 2009.

So long.

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Cypriot banks re-open, German unemployment higher

Yesterday…
word got out that UK banks Lloyds and Royal Bank of Scotland, both backed by tax money, needed to raise an additional £9bn in correspondence to capital requirements set by international banking regulators. The additional cash needs to be on the balance sheets (£3bn for Lloyds, £6bn for RBS) by the end of this year. read article

This morning…
Cyprus is making history by being the first EU country to impose restrictions on capital flows, “with limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques.” The withdrawal limit seems to be €300 per day, while transfers of more than €5,000 will require central bank approval. read article

German unemployment rose by 13,000 people, as opposed to an expected drop, while German 10-year bunds dropped to their lowest yield since early August 2012 (1.255%).

Meanwhile in Asia, the Bank of Japan has already exceeded its self-imposed limit on asset purchasing limit (well done) and South Korea cut its 2013 growth forecast from 3% to 2.3%.

Easter reading… – a list of people who are investigating JP Morgan, read article
– what extremely successful people were doing in their 20s, read article
– greatness of nations: India vs China, read article

Happy Easter, have a good one.

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Cyprus to exit the news

Over the weekend…

actually right before, Fitch but the UK on its watchlist for downgrades.

The United States Congress is working on reforming the taxability of debt and equity, changing the traditional debt-bias (i.e. tax-deductible interest payments) to an equity-bias. read article

The Basel Committee on Banking Supervision received at hat tip that there was a MASSIVE loophole in the Basel III regulation that imposes, among other things, higher capital standards on banks. What it doesn’t regulate, however, is the use of credit default swaps to handle riskier assets that count into those capital standards. Changes to be made. read article

Speaking of Basel – after Switzerland came under scrutiny (again) by facilitating tax avoidance, the US Department of Justice has now asked Lichtenstein to hand over documentation of American-held accounts. read article

Over night…

The Eurogroup of Finance Ministers approved troika-sponsored bailout plan for Cyprus, totalling €10bn. In short, bank deposits under €100,000 will be guaranteed, while larger deposits are facing a crazy haircut, possibly up to 40% (others say the cuts will be capped at 20%). After ten days closure, Cypriot banks re-open todayread article

And let’s not forget that besides all this, we’re still waiting on Italy.

Have a good week.

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Why an EU policy success may do no good

Brussels is celebrating one of the rare agreements on European blanket policy, while the City of London is collectively banging its head against the wall. In a nutshell, the latest Basel III negotiations have led to this: more capital, more capital, more capital, and capping banker bonuses at 100% of salary (or at 200% with shareholder approval). Currently in draft form, the legislation is set to be implemented in January 2014. Enough time to find a place in Hong Kong. read article

Across the globe, Argentina is kind of blackmailing the American legal system. In November, three New York judges ruled that Argentina had to repay selected creditors a total of $1.3bn. Since then, the country has behaved like a child, fighting its creditors (and winning), bringing the case to the appeals court culminating in its attorney announcing that it was willing to default – again – on its government debt, if the ruling wasn’t reversed. It is unsure whether the final ruling can be issued before new repayments fall due. read article

Following Bernanke’s QE comments yesterday, Mario Draghi confirmed his commitment to the ECB pumping money into Europe. Meanwhile in Italy, Bersani and Berlusconi are looking into forming the mother of all coalition governments, says Finance Undersecretary Gianfranco Polillo. Apparently, the idea has been buzzing around the Italian press for days. Might be a rumor. All we know for certain is that Grillo is not going to make an effort to move towards Bersani whatsoever. read article

The aviation industry is swinging up an down in the meantime, with Iberia‘s restructuring causing its parent International Airlines Group a €997m pre-tax loss, while EADS is being celebrated as a “European success story” (that’s a thing?) by the Handelsblatt.

Otherwise, Europe got its own “fear” index called Ivi (implied volatility index), modelled on that of the US, measuring volatility in the Londoner FTSE 100 and Italy’s FTSE MIB indices, and the US is getting ready for the dramatic advent of the sequester spending cuts tomorrow.

So long.

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A new hope: lifting the debt ceiling a 76th time

It’s T-52 days until the United States may or may not bump its head on the debt ceiling, ‘may not’ being the more likely option. Since 1960, the US debt ceiling, the limit of how much it can borrow, has been lifted 75 times, last in August 2011. So why is this still front page news? Probably because of the drama it brings and the attention that it diverts from Spain and Italy. So let’s be appreciative and talk about it for a bit. Now more than ever, Republicans are opposed to any new tax increases. And now more than ever, Democrats think that not enough has been done. Hmm. Technically, the US hit the borrowing limit that’s currently at $16.4tn on 31 December, but some miracle accounting postponed the deadline to March. read article

Thanks to Gerard Depardieu, who is a Russian citizen now, Francois Hollande is apparently reconsidering his 75% tax. He’s busy arguing about gay marriage with the Catholic Church anyway. read article

And in Japan, businesses will profit from almost $5bn in various government stimuli, including lending schemes for technology R&D, low-interest loans for SMEs and support for acquisitions of foreign companies. read article

In a perfect example of lobbying, the banks have convinced the truly unbiased Basel Committee on Banking Supervision to lower their super strict post-global-blow-up liquidity requirements. Someone [Scott Talbott] has done their job right. Lower liquidity standards mean that the  requirements for what qualifies as a suitable high quality liquid asset has been loosened  When Basel III first came up, the assets allowed were cash, T-bills, medium to fantastic corporate debt. This list is a lot longer now. Additionally, the full implementation of the new rules has been delayed until 2019 (originally 2015), meaning that banks will only need to comply with 60% of the requirements by 2015. read article

News from the same category: in a last cleanup after the US mortgage crisis, 14 major banks agreed to a $10bn settlement deal for “flawed paperwork and botched loan modifications“. Money from the deal will be used as cash relief for Americans whose homes were subject to foreclosure during 2009 and 2010. read article

Meanwhile, Google Executive Chairman Eric Schmidt and Bill Richardson, Governor of New Mexico, are in North Korea. Although Schmidt said this wasn’t a work trip, not even his co-traveller believes that his motives are that pure. After all, don’t be evil doesn’t mean don’t do business. read article

So long.

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US to be world’s #1 oil producer; Japan back in recession

The International Energy Agency, IEA, has announced that the US will overtake Saudi Arabia in terms of annual oil production as early as 2017. Older reports had seen Saudi Arabia up on top until at least 2035. According to the report, US daily output will amount to 11.1 million barrels, while Saudi Arabia will only achieve 10.6 million barrels. On the same terms, the US will surpass Russia by 2015. By 2035, when the report estimates the US production to fall and the Saudi production to rise again, 90% of Middle Eastern energy exports will go to Asiaread article read report

It is one thing if a natural disaster destroys a country’s growth prospects, it is another if it just happens. Japan’s Q3 GDP fell more than expectedslumping 3.5% instead of the expected 3.4% on an annualized basis. Back in recession, this is the worst performance of Japanese GDP since the 2011 earthquake and mostly attributed to poor export performance and declining consumer spending. The former, of course, is related to the crisis between Japan and ChinaChina’s exports, on the other hand, rose in October, adding to the positive trade balance. This could be Japan’s fifth recession over the past 15 years. read article

In post-election America, where corporate profits have hit lowest levels since 2009, and the politicized fiscal cliff issue is looming [and wasn’t there going to be a food crisis coming as well?], banks have been victorious. After a lot of back and forth, Wall Street’s lobbyists in Washington succeeded in postponing the implementation date of Basel III – indefinitely. The regulation that prescribes higher capital requirements was meant to come into action on January 1, 2013, but now the timeframe was deemed inappropriateJamie Dimon is dancing. To him, Basel III was “un-American” to begin with. In Germany, Basel III will indeed come into effect on New Year’s Day. The German Finance Ministry expects the US to phase Basel III into law over the course of 2013.

Greece beat budget targets for the first ten months of 2012! Now, that’s quite some news. The State Budget deficit totalled €12.3bn, instead of €13.6bn as targeted. Except.. well… this doesn’t include money spent (or lost) by government-owned enterprises. The full report the troika demands prior to the payment of the next bailout tranche, is also still in the making, while the €5bn debt repayment due date comes closer. Officials in Brussels have already announced that we shouldn’t hold our breath for a solution in today’s Eurogroup meetingIn sum:

…the endless Greek “will it be bailed out, won’t it” saga, which today enters yet another irrelevant phase with the latest Eurogroup summit where nothing is expected to be resolved (everyone is still waiting for the Troika report). The final outcome will likely be the much delayed funding of the €31.5bn tranche, but only after Germany pretends to kick and scream loudly and obstinantely, only to comply behind the scenes. After all remember: the Greek “bailout” is really just a bailout of Deutsche Bank.

I guess it is fair to say that some have finally and ultimately become disenchanted with the Greek crisis and will only use it to channel frustration over the rest of the ailing world economy. Fair enough, I’ve been doing that for months.

So long.

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Election prep and Darwinian finance

With the US presidential election on the agenda for next week Tuesday, this weekend is used by all news outlets of the world and really anybody with a n opinion (thanks, internet…) to publish op-eds on said matter. So here we go.

– The Economist endorsed Obama as indirectly as possible (of course they did), read article

– The Washington Post’s Wonkbook looks at campaign expenditure, concluding that this election is the most expensive on record, read article

– Pimco’s Bill Gross is disgruntled about America and rewrites the Pledge of Allegianceread article

– The FT’s data blog looks at the importance of economic issues in the election read article

– Mayor Bloomberg, who is not member of any party, also endorsed Obama, saying that “Hurricane Sandy had reshaped his thinking, read article

Today’s US employment figures show that 3.57 million people are currently out of work in America as opposed to 4.11 million last year. Yet, the unemployment rate increased from September, amounting to 7.9%, exceeding the rate of January 2009. Estimates had seen 125,000 jobs added; the number was beaten by 46,000 new employees. read article

Commerzbank, Dexia and Lloyds TSB were removed from the list of G-SIFIs (global systemically important financial institutions) or G-SIBs (global systemically important banks) or “the world’s most dangerous banks” like the German FT calls it, due to diminishing “global systemic importance”. Ouch. That’s a weird insult, but an insult nontheless. After all, having the “evil” stipped off of them by a couple fo Swiss regulators, pushes them towards irrelevance, if you will. CitigroupDeutsche BankHSBC and JP Morgan are the four giants at the top of the list, required to hold an additional 2.5% in common equity to meet requirements set out by risk-management regulation Basel III. The general requirement amounts to 7% equity holdings as a percentage of risk-weighed assets. read article

The other big topic this week is the supposed end of investment banking as an industry/career/ethos. Triggered by UBS’ mass firing and essential termination of its fixed income unit on Tuesday, this a welcomed turn of events for those who either supported Occupy [insert location], or critically observed the developments in more stable housing. The WSJ bemoaned the death of fixed income, while the Economist compared core competencies. Gillian Tett wrote about a paper that examines the fluctuations in financial services as a career destination, and Harvard Business School announced that more of its graduates were now heading into consulting rather than investment banking. Because that’s what a world in shambles really need… more fucking consultants.

Election-unrelated weekend reading:

– Greece finds Medea: what happens when you talk about tax evasionread article

 Sandy and climate change on the cover of Businessweek, read article

– Felix Salmon‘s take on the above, read article

– Leaving China and going … where? read article

Have a good one.

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Indicators point down, ECB discovers liberal tendencies

 

 

Back in the office from the long weekend, the week starts mixed (bad news + no news).

Spain confirmed its Q2 recession with 0.4% negative growth, Japan is seeing its economy deteriorate further and the German Ifo business climate index fell for the fourth time in a row, with expectations as low as ever.

And otherwise, well, there’s not that much going on. I assume this to be the final strides of the calm before the storm of people returning to their offices after the summer.

Apple has won a major battle against Samsung, forcing a ban on eight Samsung mobile devices that are already on the market in addition to a £1.05bn payment in damages for patent violations. Yes that’s right, Samsung-user, you may hate Apple, but it’s still the same technology you got. Not similar, THE SAME. The case is not over though, an injunction hearing will follow on 20 September. read article

In the background, RyanAir is seeking regulatory approval for its take-over bid for Aer Lingus in their mission to make the air travel to Ireland the most painful experience possible. The approval has to come from the European Commission, which will start an investigation into RyanAir’s intentions tomorrow. The June bid would value the deal at almost €700m, which Aer Lingus shareholders find ridiculous or at least not enough. read article

Meanwhile, the European Central Bank is counteracting is innate need as a European authority to support [over-] regulation and has spoken out AGAINST the strict Basel III regulation. These rules set out by the Basel committee on banking supervision concern, among other things, the liquidity coverage ratio of banks. That is, in less fancy words, how much money is to be put aside for all investments made, because you never know, the world economy might blow up. Right. That happened. So even people sceptical of regulation like myself can kind of see the point that the Basel III accords are trying to make. But the ECB, in its desperate effort to keep Europe together, is now speaking out against them, due to their impact on lending. Bizarrely enough, the Bank of France agrees (?).  read article

Also, it’s one of those weeks where we’re awaiting US GDP data again (preliminary annualized GDP growth), leaving us just about 24 hours to speculate about the markets’ reaction, Bernanke’s reaction and the impact on the presidential election.

So long.

 

 

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Why continental policy doesn’t work. Again.

Mario Draghi of the ECB doesn’t want to cap the cheap money flowing through Europe’s veins. This comes much to thedislike of Germany’s central bank, which has been traditionally scared of inflation for more or less a century now. Germany’s growth forecast for 2012 is at a whopping 0.6%, while more or less everyone else will re-enter/stay in a recession. Once again, simple policy-making is saving the dayNotSpanish government bonds are going through the roof again, because Draghi didn’t seem to have paid enough attention to the severity of the country’s issues. (Mariano Rajoy, Spain’s prime minister, had made some worrisome statements shortly before Draghi’s press conference.) read article

All the new financial regulation doesn’t really seem to have done what it’s meant to do: the EBA (European Banking Authority) said that more than half of Europe’s biggest banks need to raise some serious money to comply with the core capital requirements demanded by Basel III. Right now, about €242bn are missing. Basel III is raising the obligatory tier-1 capital to 7% of banks’ assets. read artilce

Greece is bracing itself to be under-represented at the London Olympics due to budget cuts. The country that invented the whole charade will only be able to send 75 athletes to London in July, only a sixth of the 2004 participants (but to be fair, that was IN Greece), and less than half of the Beijing contestants. read article

Thankfully, Antonis Samaras, next Greek PM, has figured out a solution. In a campaigning, sorry, opinion piece in theWall Street Journal, which starts much like an epic history lesson, he explains why Greece is not a lost causeread article

Finally, you’ve possibly come across it already, Google is turning the present into the future with augmented reality glasses. Say what you want, it sure is more efficient than waiting for your mobile internet to load because you’re in far-away-land with poor 3G coverage… read article

More from the future: humanoid robots. (If I value one skill in robots, it’s climbing ladders…)

Happy Easter!

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