HBOS - 7.5%
BARC - 5.8%
LLOYDS - 5.5%
RBS - 4.5%
STAN - 4.5%
The ECB has boosted the haircut on its emergency funding facility. The rumour that it would was doing the rounds yesterday.
It’s perhaps the first big signal that the central bank cash-flow spigot is being turned off. From the ECB (emphasis ours):
As can be seen from the table, assets in new liquidity category V (former liquidity category IV) will be subject to a haircut of 12% regardless of their residual maturity and coupon structure. This corresponds to the level of haircuts that was previously assigned to assets in this liquidity category with a fixed coupon and a residual maturity of over ten years. Furthermore, assets in this liquidity category that are given a theoretical value (in accordance with Section 6.5 of the “General Documentation”) will be subject to an additional valuation haircut. This haircut will be applied directly to the theoretical value of the asset in the form of a valuation markdown of 5%, which corresponds to an additional haircut of 4.4%.
CDS markets meanwhile, are rocketing. The cost of protecting European bank debt is at its highest since early April. We’re in a Bear Stearns market.
The outlook for for Wall Street? Also grim. Lehman, for one, was rumoured to be a favourite user of the Frankfurt cash exchange ECB. LEH is off 6 per cent.
And from Bill Gross at Pimco today:
This rarely observed systematic debt liquidation is what confronts the US and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami. Central bankers, of course, adopting the cloak and demeanour of firefighters or perhaps lifeguards, have been hard at work over the past 12 months to contain the damage. And the private market, in its attempt to anticipate a bear market bottom and snap up “bargains,” has been constructive as well. Over $400 billion in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for “they are all underwater.” We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments.
