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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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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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Italy at the polls; UK loses triple-A rating

Over the weekend, the UK lost its triple-A rating, with Moody’s downgrading the country to Aa1. The pound is weak and nobody is surprised. But Moody’s also cut the rating of the Bank of England, which is confusing, considering the outrageously unlikely event of a central bank default. In other words:

The question then is: what exactly does a rating mean for a sovereign which borrows in its own currency? Right now, it seems little bar political pain.

Responding to said political pain, George Osborne said he wouldn’t bow under pressure from the opposition and have Britain stick to the course of austerityread article
 
The first exit polls for the Italian election will be coming in at 2pm GMT today, when voting stations close. So far the election has seen topless feminists screaming for the end of Berlusconi’s rule over Italy (…), and a 55.2% voter turnout, 7.3% less than last year. read article
 
In Cyprus, Nicos Anastasiades’ center-right party has won the election with a 57.5% majority, leaving the country’s bailout to be finalized by the new government and the EU. Anastasiades, however, likes to think of himself as not just another sheep-like follower of the regime of international lenders, and wants to reach a deal that doesn’t include privatizations, which are believed to raise up to €2bn. read article 
 
Meanwhile in the US, only four days are left to steer the country away from the sequester. So far neither side of the table seems to a have an idea how, despite Obama’s begging for compromise. read article
 
In other news, the Deepwater Horizon trial begins today and Japan‘s Prime Minister Shinzo Abe is looking to nominate a new governor for the country’s central bank. So far, possible choices, which include the current President of the Asian Development Bank, are all pro-stimulusread article
 
Have a good week.

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Budget time in Europe; US DoJ investigates Moody’s and Fitch

It’s budget time again in the land they call Europe and the usual suspects pulled an all-nighter in Brussels yesterday, trying to come up with a convincing plan, covering 2014-2020. For the first time in its existence, the budget has actually been reduced. In some last minute action, yet another €12bn were slashed last night. With €960bn on paper now, €33bn less than the current budget measures and down from €1.047tn initially suggested, the plan has to be approved by all 27 EU member states. read article

Over in the US, the Department of Justice has looked [an inch] beyond the obvious and is now considering legal action against Moody’s. The matter at hand concerns defrauding investors. At this point, however, the investigation is in its infancy, as too many resources are devoted to the S&P case. According to WSJ, New York’s Attorney General Eric Schneiderman, sworn enemy of what’s left in the post-Lehman world, has also requested insights into Fitch‘s business.

In other news, China reported some positive trade data, with exports rising 25% and and imports rising 28.8% compared to next year, suggesting that the rest of the world has, in fact, not totally collapsed yet. Although…

Futures were delighted by the data, until someone pointed out that January 2013 had some five more working days than 2012 due to the calendar shift of the Chinese new year, and that adjusted for this effect exports were a far more modest 12.5% while imports rose only 3.4%. 

Following yesterday’s news from the European Central Bank, the FT has more details on the Irish debt deal, including the refinancing of €28bn of promissory notes. Meanwhile, Gavyn Davis gives a critical analysis of the ECB’s policy choices. The aftermath for Carney‘s parliamentary presentation can be found here.

And finally, Boeing is struggling with the “exploding battery fiasco”, seeing its orders collapse to only 2 from 150 a year ago this January. read article

Weekend reading:

– Michael Lewis‘ review of Greg Smith’s “Why I left Goldman Sachs“, read article

– Iceland‘s recovery, read article

– Too fast to fail, high-frequency trading and financial collapse read article

– Michael Bloombergmayor of London?, read article

Have a good one.

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