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Portugal is this week’s Cyprus

Over the weekend…the collective attention was brought back to Portugal, where the country’s highest court ruled that spending cuts in public sector salaries as well as state pensions were unconstitutional. Sounds like a bit like something Greece would do. Needless to say those cuts weren’t just for fun and games, but indeed to keep Portugal out of the EU’s dog house and on track for its €78bn bailout package.

Luxembourg‘s Finance Minister Luc Frieden said that the country would stop opposing the sharing of banking data within the EU, going along with the trend of increasing transparency in [former?] tax havens. read article

This morning…
there is the weakening JPY reacting to Tokyo’s new harder better faster stronger QE measures that will increase monthly asset purchases to JPY7.5tn. In fact, then yen hasn’t been this weak since May 2009. read article

While Japan’s 2% inflation target until 2015 seems a bit fishy to some [most recently China], following the above, Christine Lagarde of the IMF is a big fan. According to her, it will improve global demand, and the inertial upswing in the US economy was proof enough of that. read article

As for the rest of the week, the Fed’s Open Market Committee is meeting on Wednesday, continuing the discussion regarding when and how America’s money tap can be turned off. Otherwise, there will be industrial and trade data from China and various European countries, as well as a review of bailout programs in Portugal and Ireland. in other words, Portugal is this week’s Cyprus.

Have a good week.

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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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China curbs growth targets in light of social issues

There won’t be an update tomorrow, Wednesday March 6th.

News from China, where outgoing Prime Minister Wen Jiabao presented the country’s economic targets for 2013, including an unchanged GDP target of 7.5%, a lowered inflation target of 3.5% (down from 4%) and a budget deficit of RMB1.2tn, or 2% of GDPDefense spending will be boosted by 10.7%, a smaller increase than in any year since 1990. But the departing Premier also said that China’s growth model was unsustainable and on top of that paired with a whole array of social issues, like the income gap, increasing pollution and a real estate bubbleread article

Also in China, the SEC has been allowed to subpoena Deloitte’s China unit over accounting fraud at Chinese companies operating in the US. After initial co-operation between the American and Chinese securities regulators failed, this is a big step in terms of cross-border fraud investigations. read article

In other regulatory news, an undisclosed group of banks in the City of London have received a hat tip from law firm Shearman & Sterling that it was possible to fight the EU’s banker bonus cap [proposal] in courtread article 

Until then, enter George Osborne.

Otherwise, Apple’s stock fell to a new 52-week low yesterday, dragging the company’s market cap down below $400bn for the first time in over a year. 

So long.

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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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Italian elections – Berlusconi with a vengeance

Italy is left in limbo without a conclusive election result, probably another round of elections looming, preceded by an embarrassing attempt by [presumably] Pier Luigi Bersani to form a coalition, and a full re-appearance of Silvio Berlusconi on the political stage (in the Senate). But despite the obvious screw-up that this election seems to be, there are clear winners and losers: Mario Monti, in the rational corner, plays the role of the latter. Beppe Grillo, anti-euro comedian in the ridiculous corner, came out heading the largest single party in the country’s lower house. Winner. Inconclusive is only one way of putting it, although I guess we can gather that the Italian people generally have an issue with austerity measures. Let the name-calling begin. read article

Just in: Bersani will hold a press conference at 5pm CET in Rome.

Summarizing some reactions:

Notably, the European markets display alarming symptoms of contagion: Italian elections drove up yields in Spain, Portugal, Greece and Ireland, and pulled down yields in Germany, France, the Netherlands, Austria and Finland.

Meanwhile, everything Italian that can be bought or rather sold is about to be subject to a short-selling ban. Elsewhere, US stocks fell the most since November of last year, with the volatility index at its 2013 record high.

But there are a couple of other things quietly happening in the background. The Japanese government will sell a third of its 50+% stake in Japan Tobacco, the third largest tobacco company and formerly a Japanese monopoly. The sale comes as part of policies to reduce stakes in state-backed companies to raise funds for this economic recovery that’s taking so long. read article

Over in the Netherlands, Rabobank, commonly clean slate poster-child bank, one of the safest institutions and bailout-free, is looking at a $440m+ in fines for involvement in the Libor rate rigging scandal. The fine could come as early as May. read article

Back in New York at Moody’s, it seems like lessons have been learned since 2008. The rating agency announced that any mortgage-backed securities can’t receive top ratings any longer. Aa is the new Aaa. Other agencies are expected to follow suit. read article

So long.

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EU strikes deal on budget rules; Japan continues to confuse

In an effort to mask eurobonds as something less repulsive to German chancellor Angela Merkel, the EU has set up a working group to do a feasibility study for a European debt redemption fund. This is part of a deal on budget rules, which includes the Commission’s insight into national budget proposals before those are voted on in national parliaments. read article 

Meanwhile in China, the PBOC withdrew CNY30bn ($4.81bn) from the banking system to ease inflationary pressures that had flared up following the continuous influx of fresh cash into the economy to reduce borrowing costs. read article

News out of Japan continue to surround monetary policy, with PM Abe saying the governing laws of the Bank of Japancould be conditional to changes if the 2% inflation target isn’t reached. Abe also said that buying foreign bonds existed as an option to exercise monetary policy if BOJ results should disappoint. This was disputed by Finance Minister Taro Aso today, who said Japan had no intentions to buy foreign bonds through a designated BOJ fund. It’s always nice to see consensus in an administration.

In other news, the German ZEW survey exceeded expectations by a ridiculous extent, rising to 48.2. The last time the survey reached that level of confidence was April 2010 (right before Greece started to disintegrate). Now it’s just a matter of time until expectations will probably adjust to the real world. read article

Finally, BP has admitted not to have reached a settlement ahead of the Deepwater Horizon trial, more or less because the company is convinced that the total fines would be much lower than the $20bn that have been estimated by some in the run-up for the court case. read article

So long. 

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Dell brings buyouts back; Obama fails to strike deal

It’s a very AmUrica-centric news day, so let’s start with…

TWENTY-FOUR point four billion dollars. That’s what it will cost founder Michael Dell (who currently holds 14% of the firm) and Silver Lake Partners to buy the computer business. That makes Dell the largest leveraged buyout since 2007. read article 

Microsoft, which counts Dell as one of its largest clients, provided a $2bn loanBut according to WSJ:

Despite its participation, Microsoft isn’t getting board seats or operational control. What it is getting, apparently, is a wink and a nod that Dell won’t start shipping equipment running Android, for instance… The danger there is that, by limiting its technology options, Microsoft’s involvement ultimately damages Dell’s long-term prospects.

In other deal news, US media company Liberty Global is going to buy Virgin Media for £10bnread article

Also in the US, we’re more or less back to the old spiel: after Obama proposed a teeny-tiny cuts/tax package to delay the sequester (automatic spending cuts on 1 March), Republicans rejected the idea out of tradition. The whole thing just looked too much like additional tax increases to them. If all else fails, the sequester will slash $85bn from federal spending until February 2014 – not exactly a health fix for the US economy. read article

The US Department of Justice has added a price tag to the S&P mis-rating case: the mortgage securities in question, which received inappropriate ratings between 2004 and 2007, caused losses of more than $5bn. The awkward side to it: the lawsuit has brought to light that S&P analysts danced around to “Burning Down the House” and said they would “rate every deal. It could be structured by cows and we would rate it.” So far, it is unknown whether S&P employees are just really big fans of the Talking Heads. read article

Otherwise, Europe is waiting for Godot the ECB‘s and Bank of England’s meetings tomorrow and RBS was fined $325m by the CFTC in relation to the Libor scandal, while Silvio Berlusconi is winning ground against Italy’s Democratic Party in the polls. read article

So long.

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Sue the banks (check), sue the auditors (check), sue the rating agencies (pending)

We’ve done the banks and the auditors, now it’s time to turn to other services providers in the sector: the rating agencies. The US Department of Justice is suing Standard&Poor’s (McGraw-Hill) over mortgage-bond ratings between September 2004 and October 2007. According to the filings, the ratings agency understated the riskiness of the assets sold. According to Bloomberg:

The company bent rating models to suit its business needs to the extent that one CDO analyst commented that loosening the measure of default risk for a certain security in 2006 “resulted in a loophole in S&P’s rating model big enough to drive a Mack truck through,” the U.S. said.

Shares in the publishing company fell the most since 1987 in response to the lawsuit. In November 2012, S&P was found guilty for misrating CPDOs (constant proportion debt obligations). The other big rating agencies, Moody’s and Fitch, which presumably did the exact same thing at the exact same time, have been left alone so farread article

Across the pond, Barclays bill for mis-selling products has increased to more than £3.4bn. Today, the bank announced to add £425m to the pool used for redress on mis-sold interest rate hedges, as well as adding another £600m to the indemnities pool for mis-sold payment protection insurance. read article

From ZeroHegde:

In the meantime, the political scandal scene in both Italy and Spain is unchanged, and getting worse, especially with Rajoy summarizing it all with this absolute pearl according to El Pais: Rajoy Says “It’s All Untrue, Except Some of It. No seriously, he said that.

In other news, the banking union turns out to be job creation machine: The ECB, which is meeting on Thursday, will have to hire up to 2,000 people to fully exercise its responsibilities as the watchdog of the banking union. Over in China, the People’s Bank of China injected RMB450bn ($72bn) into the country’s money markets as part of a short-term liquidity fix before the Chinese New Year holiday. 

So long.

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Jobs Friday and Barclays latest disaster

Before 1.30pm (8.30am EST):

After Wednesday’s announcement of the shrinking US economy, today’s jobs report gained in importance. Forecasted is a flat unemployment rate at 7.8% with a 11,000 more jobs added than in December (166,000). As according to MarketBeat:

To get the rally back on track, the jobs figures might not only have to beat expectations, but beat them handily. […] On top of that the January jobs report, in particular, is typically difficult to read. The government updates its population estimates at the beginning of every year, which in the past has caused big movements in the survey figures compared to the December data.

After 1.30pm (830am EST):

Ouch. This didn’t work out at all, did it now… With jobs only up slightly from 155,000 to 157,000, the unemployment rate rose to 7.9%. But not all is bad, in hindsight both November and December were better months for the job market. read article

If there was a part of you hoping that an end would be in sight for this ubiquitous bailout hangover from the financial crisis, I’ve got bad news for you. Allegedly, Barclays lend money to the Qatari government, the go-to investor for all of London, to invest in the bank and avoid a bailout by the British government. Improper disclosure and dubious fees could deem this deal illegal. read article
 
In the background, Barclays CEO Antony Jenkins refused his 2012 bonus.

Otherwise, there’s not a whole lot going on. UK manufacturing picked up, as did consolidated eurozone manufacturing, and the Dutch government will fund a €14bn bailout of SNS Reaal, the countries fourth largest bank. 

Weekend reading:

– things economists worry about, by likelihood and impact, see graphic

– in defense of Europe’s financial transaction taxread article

– the life and death of moneyread article

– Berlusconi and Mussolini, read article

– advertising and the Super Bowl, 2013 edition, read article

– the banking blog on complianceread article

Have a good one.

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US economy shrinks, RIM revives as BlackBerry

So that was quite the surprise. The US economy shrank 0.1% last quarter, while expectations had averaged on 1% growth. This is the first contraction of the economy in three years. To blame are, in part, a decline in business inventories, the fiscal cliff and government spending cuts, including the largest cut in defense spending since the Vietnam war. Employment data released tomorrow, could shed more light on whether the US is actually slowing down. read article

Elsewhere, in China, local government are also feeling the impact of the global economy. Frantic to meet their tax targets, North-Eastern cities demand taxes two years in advance from local steel mills. Now that’s sustainable. While China produces almost half of global steel supplies, the mills’ profits slumped 98% last year. read article

In happier news, RIM has managed to use the defibrillator on itself, officially rebranding to BlackBerry (BBRY) and introducing a new phone… with a touchscreen. Like they don’t know that the keyboard is the best feature. Shares fell 12%. Either way, the company has bought some time until private equity firms will start circling over its Canadian headquarters again. Winning in the category of most puns in single headline: the FT with “Rimless BlackBerry hopes to regain touch.” read article

Deutsche Bank reported losses worth €2.6bn in Q4 2012, mostly related to legal matters and writedowns. €1bn alone was allocated to legal costs arising from the Libor scandal. Over in London, BarclaysRBSLloyds and HSBC have to pay a total of £5bn in compensation after mis-selling interest-rate derivatives to SMEs. read article

Otherwise, Bundesbank president Jens Weidmann called for a more conservative approach to bailouts in Europe, in order to protect wealthier economies from throwing themselves in the deep end out of misunderstood solidarity, and Greek retail sales fell almost 17% in November, indicated that, no, the crisis is indeed not over.

So long.

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