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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

Go team Draghi

So we got ourselves a banking union. That is surprising for a number of reasons. First of all, the Eurogroup struck a deal. Secondly, the Eurogroup struck said deal before the deadline. Finally, Germany managed to add a clause that protects its Mittelstand. Oh no wait, the last one isn’t the least bit surprising.

A summary a la WSJ:

Ministers said the European Central Bank would start policing the most important and vulnerable banks in the euro zone and other countries that choose to join the new supervisory regime next year. Once it takes over, the ECB will be able to force banks to raise their capital buffers and even shut down unsafe lenders.

Once approved by the European Parliament, the show could kick off as early as March [let’s be realistic and say July]. The threshold for banks under supervision is €30bn of assets held, leaving Germany’s retail banking sector more or less untouched.

Unfortunately, the EU delegates involved were just as impressed with their own efficiency, so they decided to leave all other decisions be for now… until June. According to the FT, both budget negotiations and economic reform contracts, were completely taken off the agenda. The remaining time spent together will be used to play Secret Santa (guess who got Greece).

Moreover, Mario Draghi, soon to be puppeteer of Europe’s financial institutions was named the FT’s person of the year. Good for you, Mario. We know it hasn’t been easy. read article

In legal/regulatory/scandal news, the FSA, CFTC (US Commodities Futures Trading Commission) and the US Department of Justice are about to fine UBS more than $1bn for fixing libor ratesDealbreaker explains how such a humongous number (double of what Barlcays had to pay) comes together:

The fine-setters seem to have about four things to think about: 1) how much bad stuff did the bank do, 2) how much money did they make doing it, 3) how caught are they, and 4) how sorry are they now.

It calls for an investigation.

Co-head of Deutsche BankJuergen Fitschen, is under investigation for tax fraud committed in 2009. In his opinion, the reaction of German authorities, sending officers with machine guns to the Deutsche Bank headquarters in Frankfurt on Wednesday, was a bit much and he doesn’t intend to resign any time soon.

For the weekend, Japanese elections are on, with the opposition (the Liberal Democratic Party) led by Shinzo Abe expected to winread article

Weekend reading

– North Korea: playing with rockets, read article

– Felix Salmon on NYT Dealbook’s first conference this week and whether it was a success, read article

– Joris Luyendijk’s banking blog returns to blame fund managers, read article

– Alphaville is selling shirts (or ECB collateral) for charityread article

Have a good one.

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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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It’s a weird day when North Korea announces a tablet

I think I will refrain from telling you anything about the EU summit until tomorrow when the dust will have settled. Right now it might be too confusing and dramatic for any of us to handle, it looks like the final clash of the titans. Yesterday, Angela Merkel called short-term measures to depress Italian and Spanish borrowing costs “eyewash [mouthwash?] and fake solutions.” Again, tonight’s soccer match between Germany and Italy is politically loaded. A short summary to the starting positions of the four horsemen of the apocalypse, Merkel, Monti, Rajoy and Hollande, on MarketBeat this morning.

The Netherlands, who were sure they experienced a recession in Q1, revised their figures and guess what: no recession anywhere! The national bureau of statistics had been off by 0.5%, reporting negative growth of 0.2% in April. But au contraire, the Dutch economy had been growing by 0.3%. This is the most significant miscalculation the bureau has ever made. What is this, Greece? read article

After yesterday’s introduction of the ‘Brixit’, we might as well talk about a Gerxit. Yeah, that’s right, I mean Germany exiting the euro. Here’s the thought experiment as proposed by and economist and an investor. read article

On that note, a YouGov poll found that 28% of Germans would vote against the EU membership, if presented with the opportunity.

Otherwise, everybody and their mother is developing their own version of the iPad: Microsoft, Google, North Korea… wait what? Indeed, a North Korean tablet computer called Samjiyon, produced in China and unable to connect to the internet, is said to hit the market.

Barclays is having a bad day. After the rate manipulation scandal that was washed up on shore in the past days, which Barclays was fined £290m for, the banks’ shares slumped by more than 10% today.
Also in London: It is one of the two development projects in the City that are re-shaping the skyline of the Thames: The Shard (the other one is, or will be the Pinnacle on Bishopsgate). Here’s Felix Salmon [who is not in London] on why it is a metaphor for the cityread article

Finally, this is Warren Buffet singing along with Bon Jovi. Hands up whose belief in capitalism is not entirely restored!

So long.

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Looking like an idiot, looking like George Osborne

The Eurogroup met in Brussels yesterday to discuss a proposed Capital Requirements Directive for European banksDenmark, whose banks are doing pretty poorly at the moment, suggested a compromise that would re-transfer responsibility for capital rules to member states. These European requirements would be on top of those prescribed by Basel III. But after much negotiation, there was one country, out of the 27 EU member states, which refused to sign the deal. Let’s think about who that might have been… a piece of legislation that taken power from Brussels and redistributes it to the nation states. Hmm. Germany? No. The UK, of all countries… George Osborne‘s prime reason for refusal was that the deal would have “look[ed] like and idiot. Poor man, he already does.

According to the WSJ

[…] Osborne had insisted on including new “macroprudential” regulatory instruments into the discussion on how much power member states should have in setting the rules for their respective financial sectors. Ironically, the government was unable to say what macroprudential powers it wants, as it says this is a matter for the new and independent Financial Policy Committee.

In FranceHollande and Sarkozy fought for the hearts of French voters on national television, calling each other liars and ‘unpleasant. Overall, the debate doesn’t seem to have done much damage to either candidate though, i.e. Hollande is still leading the polls. read article

Otherwise, today is World Press Freedom Day, the ECB is meeting in Barcelona to discuss policy and HSBC has a bit of money laundering scandal on its hands.

More on Occupy as the new labor movement here.

Finally, Felix Salmon dissects the FT’s subscription pricing policy, which, at least in the US, seems to depend on the browser you’re using… Overall, however, the FT is priced way above other business papers, making it the absolute 1%er paperread article

So long.

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Stimuli and mercantilism. That’s Europe for you.

There won’t be a news brief tomorrow, 13 March 2012.

After the Greek bond swap went through with less than 90% participation of private investors; those who didn’t want to play ball were forced into it by use of collective action clauses (CACs). In return, $3.2bn worth of credit default swaps were activated. Here is how that works.

So Greece avoided involuntary default and the evil investors got a taste of their own medicine (…), but as Felix Salmon wrote on Thursday,

This is important to remember: just because bondholders are taking a haircut, doesn’t mean this isn’t a bailout.

The EIB (European Investment Bank) is looking to give Greece another €1bn stimulus; the country is also entitled to another €20bn of structural funds from the EU, to be used for regional development until 2013read article and on to other matters, such as Spain, Portugal and Italy…

Meanwhile, Evangelos Venizelos, the current Greek minister of finance, who has the charisma of a potato, confirmed that he will run for the office of prime minister in the April elections for the socialist party PASOK. His main competitor, conservative Antonis Samaras, is currently ahead in the polls.

On another note, does anybody else think £1 is a lot of money for a cucumber from Tesco? What is the world coming to…!

Nicolas Sarkozy gave his re-election campaign a touch of old-school mercantilism over the weekend. He called for more trade barriers to boost domestic production and build France up again from the inside out. Arguably. Oh yeah, and he also wants to halve immigration influx. According to Reuters, Sarkozy has the worst popularity rating of all French presidents everread article

And finally, don’t hate the banker for his bonus, he’s just a herd animal (credit to Andrew Oswald of the University of Warwick). read article

So long.

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And why wouldn’t Serbia want to join the EU right now…

Herman von Rompuy, the by far funniest looking European politician, was elected for a second term as president of the European Council. Kind of surprising that there was any kind of election considering the person in question is Belgian… Anyway, he will be in office until 2014, but can not be re-elected thereafter. read article

In other EU news, Serbia was confirmed as a candidate member country and the fiscal pact will be signed today [by all except the UK and the Czech Republic].

Relevant for everybody who’s using Twitter: the micro-blogging service has sold the rights to mine its data to two research companies, so expect super tailored ads in the near future… read article

Otherwise, we’re all looking forward to the outcome of the Russian presidential elections on Sunday. It’s a breath-taking race between Vladimir Putin and… wait IS there another candidate? read article

The Economist examines why SME should stand for ‘small-and-medium-sized-enterprises-hopefully-soon-to-be-massive’read article

New York City blog Gothamist finally got approved as official press by the NYPD. That’s interesting because it took more than 90 months for the application to go through. In 2008, it was rejected on the grounds that blogging wasn’t considered journalism. It was only in the year after that a law suit forced the NYPD to give out press passes to bloggers. Pretty late to jump on that train… read article

Have a good weekend.

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Irrelevant info makes you stupid…

… ironically, news are kind of slow today.

The ifo indicator of German business climate rose on the back of strong(ish) domestic demand. At the same time, the eurozone is said to contract by 0.3% in 2012, as opposed to grow by 0.5% as previously expected. read article

In the Greek debt write-down business, RBS is taking a £1.1bn hit today, Commerzbank €700m and Credit Agricole €220m. Ouch. Commerzbank also came forward this morning saying that its profits halved (to €638m) in 2011. Double ouch.

But thank god, someone is thinking out of the box here, Felix Salmon’s solution to the Greece problemCANADAread article

Harvard Business Review’s Daily Stat says that irrelevant information makes you disfunctionalread article

And FT Alphaville discusses social mobility and poverty and the reform of British state schools. Bottom line: if poor students perform badly across the board, then it’s not a problem of school management, but of social mobility. read article

Finally, in remembrance of Pancake Tuesdaythis chart.

So long.

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Fixing Greece with superglue

So it happened. Greece is getting its second bailout package, but really, the problem isn’t solved. The IMF more or less immediately said there would need to be a third round of funding; plus, the April elections that could tip the austerity policies that were agreed upon are still lurking in the background.

Private bond holders have to take deeper cuts than agreed on before: instead of 50% (70% net present value), there will be a nominal value loss of 53.5%. Overall, the Greek debt will be cut to 120.5% of GDP by 2020, about 44% less than what it is now.

Even the ECB let go of the idea of profiting from Greek bonds and will pass on profits to European national central banks, which in turn will pass them on the Greece.

While it seems that Germany just wants to get it all over with, the Netherlands is really sceptical of the whole situation and would rather see permanent EU fiscal management in Greece. read article

Find the official statement of the Eurogroup here, and what Felix Salmon thinks (including a chart) here.

Sometime last night, a confidential report prepared by the troika (IMF, ECB, EU Commission) became public (not so confidential now, is it..). It shows that Greece will need another bailout, that it might never overcome its debt burden and that Greek banks will need up to €50bn in recapitalization funds, as opposed to the €30bn that were proposed. Find the report here.

The case against working long hours [maybe the French got it right all along…]: it might make you stupid. read article

Finally, the Onion says The Economist will stop printing for a month to let readers catch up… oh how I wish that was true… read article

So long.

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The ECB is a wizard

EU officials have extended the judgment day deadline, i.e. the deadline to strike a deal. for Greece to 15 February. Reuters had estimated a six-week administration period between agreeing on a deal and 20 March, when the next pile of debt matures. In the latter case, a solution would have had to be found this Thursday.

Otherwise, Greek protesters burned a German flagAngela Merkel pretended not to care and said she wouldn’t force Greece to exit. Dutch PM Mark Rutte, however, didn’t hold back and said the EU could live without Greece, so there you have it.

Also, the European Central Bank showed how it could make $11bn of Greek debt disappear “just like that”. With the debt swap dance in the next round, but I will let Felix Salmon explain it [in very clear words]:

The details are sketchy, but to a first approximation, it seems to work like this: the ECB has €50 billion of Greek bonds, which it bought for €39 billion. It will sell those bonds to the EFSF for €39 billion, which in turn will “return the bonds to Greece”, whatever that means. Greece, in turn, “will then agree to repay the EFSF” — which may or may not mean issuing new bonds to be held by the EFSF. Since Greece will now have €39 billion of debt rather than €50 billion, that’s an €11 billion savings. read article

Alphaville voices some more concerns, also regarding the role of national European central banks, which are unlikely to buy into this game.

Meanwhile, it might be time to worry about Iceland and its debt again read article

Planet Money on the somewhat recursive nature of literature on the financial crisis: economist Andrew Lo sat down to bring a stop to the books written on the books written on the books written on the financial crisis 08/09. read article

And more in terms of financial writing: I was pointed to this article in Economist yesterday, rightly mocking poor headlines (oh wait, was that meant for me?) read article

So long.

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Of procrastination and the 1%

Rumor has it, Greece might not blow up in our faces (yeah, right…). Olli Rehn, European Economic and Monetary Affairs Commissioner, said that a deal is close. “If not today then over the weekend.” So now this is aboutprocrastination… read article

Meanwhile, SocGen economist James Nixon is running around declaring a eurozone credit crunch, after ECB loans to the private sector came in at 1.1% less than estimated. read article

Arianna Huffington and Felix Salmon advocate moving the World Economic Forum to Greece (“Maybe an island…”), while sitting in what looks like the storage closet of a board game-fanatic. watch video

Salmon also has an idea why Davos delegates don’t care about the Occupy “movements” (and yes, I’m still putting that in quotation marks, because if we talk about inchoate things, Occupy X is pretty high up on my list). read article

Stratford, primarily known to me because it’s not in zone 1, will shortly become the hub of athletic excellence when the 2012 Olympics come to London. This is what the shopping list for Occupy Stratford and its 16,000 ripped attendeeslooks like: read article

Why loving Apple and hating Goldman Sachs is an example of inconsistent preferencesread article

And finally, in case you have been educated in economics and biology, a chart showing why the 1% end up becoming investment bankersview chart (read full article)

Have a good weekend.

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