Markets Live chat transcript for the chat ending at 20:16 on 26 Oct 2011. Participants in this chat were: Izabella Kaminska Joseph Cotterill, FT Cardiff Garcia John McDermott, FT
IK
Dziedobry
JC
….Hello
JC
And welcome to Technical Draft Statements Live
CG
Hello!
JC
FT Alphaville’s nightly wander around the Brussels negotiating tables
IK
Jak sie masz?
JC
Izzi, Cardiff, hi
JM
JC, Izzy was all excited to open in Polish
JM
Phil asks a good question
JM
phil5: What’s precipitated this guys, please?
IK
Dziedobry
JC
Damn, ruined it
CG
phil5, John wanted to talk about the Danish building permits
IK
Jak sie masz
JC
Yes, what are we doing here?
CG
but we’re switching to something happening in Brussels. That’s in Denmark, right?
IK
Nareszcie moj Polski jest potrzebny
JC
I’ve just got in from commute in London, so for once
JC
US guys are going to have to tell me what’s going on
JM
There’s something existential about all these questions
IK
(Enough with the polish – it’s really bad, shan’t upset the poles)
JM
But with everything going on we thought we’d do a ML to the close
JM
Dow Jones 11,841.94 +135.32 (1.16%)
JM
S&P 500 1,240.46 +11.41 (0.93%)
JM
So, despite there being more of us than there is of the rabble…
JM
What’s going on in Brussels?
JM
Can we break it down?
CG
yes please
CG
good idea
JC
So, having just got off the London commute…
JC
The full Berlusconi letter has leaked
CG
Lorcan notes that there “actually seems to be a policy” in the Italy letter
JM
Yes
JC
Is this the 15 page one where 14 of them are why Italy has done all this great stuff
JC
Or is it a new one. Let me check
JC
So that’s big development No. 1
JC
Big development No. 2 = we have some sort of detail on EFSF leverage
JC
“Big” is a relative term here
JM
“several fold”
JM
origami-style
JC
Wow, just catching up with the Berlusconi letter
CG
on bank recap, from Alex Barker in Brussels
JC
Welfare legislation has been amended repeatedly during the current legislative period, making the Italian pension system among the most sustainable in Europe and among the most able to absorb possible negative shocks. Bearing in mind the actual retirement age (windows), the old-age pension age is already higher than that of our principal European partners. The government is committed to achieving the required pension age of 67 years for all workers (men and women) by 2026. The requirements for obtaining an old-age pension have already been reviewed. These requirements will increase gradually, stabilising as from 2013.
JC
“Our pensions are better than yours”
JC
Sorry Cardiff – I cut in
CG
Is the European bank recapitalisation a done deal? Not if you ask the Germans and Spanish. A broad agreement on raising the capital bar for banks has been announced this evening. But some technical details — that make a big difference to some banks – have been left open.
CG
Berlin and Madrid are mounting a last-ditch bid to lower the bar by allowing a broader range of capital to be used as part of the “temporary buffer”. German and Spanish banks in particular will have a lot more work to do to reach the new, 9 per cent core tier one capital ratio if they are not allowed to count some hybrid forms of capital.
Berlin and Madrid are mounting a last-ditch bid to lower the bar by allowing a broader range of capital to be used as part of the “temporary buffer”. German and Spanish banks in particular will have a lot more work to do to reach the new, 9 per cent core tier one capital ratio if they are not allowed to count some hybrid forms of capital.
JC
Ah, interesting
JM
Ok, let’s do bank recap
JC
Yes
CG
Wait
CG
There’s more, on the shortfall being less than expected…
CG
This is reopening a highly-charged (and tremendously technical) debate that overshadowed the European Banking Authority stress tests last summer. After a long fight, the EBA overruled the Germans and Spanish and imposed a relatively narrow definition of capital that excluded so-called convertible debt.
This time around, there is a chance there will be a little more leeway. European officials insist that the capital criteria will largely match that used in the summer stress test. But even some small tweaks could make a big difference. Some banks’ core tier one capital would rise by 1 or 2 per cent, if the hybrid capital were accepted. Morgan Stanley reckon that, under this scenario, the capital shortfall could be as low as €50bn-€90bn.
This time around, there is a chance there will be a little more leeway. European officials insist that the capital criteria will largely match that used in the summer stress test. But even some small tweaks could make a big difference. Some banks’ core tier one capital would rise by 1 or 2 per cent, if the hybrid capital were accepted. Morgan Stanley reckon that, under this scenario, the capital shortfall could be as low as €50bn-€90bn.
JC
Ze silent participations (for the Germans)
JC
And for the Spanish… I think this is state preference shares (via FROB, the bank restructuring fund)
JC
As Lorcan notes, the silent participations are truly hybrid capital
JC
And trouble for Basel III anyway
JC
Of course, the draft statement text on bank recaps earlier, that was leaked
JC
Mentioned “highest quality capital”
JC
Which seemed to be Core Tier 1 Capital
JC
But “highest” could mean eg. common equity
IK
JC – so generally is this good or bad?
JC
This is why the technical stuff matters
IK
Markets seem to like it?
JC
Well
JC
I’d argue that sorting out the state pref shares dotted around EZ is a big plus
JC
But
JC
If you set a 9% target and take out a lot of their current capital
JM
More “breaking” news
JC
It could mean Spanish/German banks have to delever more
JM
Wednesday, October 26, 2011 3:38:16 PM RTRS – EU LEADERS MOVING TOWARDS A 100 BLN WRITEDOWN OF GREEK DEBT HELD BY THE PRIVATE SECTOR- EU SOURCE
JC
And German banks already have the biggest amount of RWAS to offload
JM
Wednesday, October 26, 2011 3:38:44 PM RTRS – EU LEADERS MOVING TOWARDS A HAIRCUT SUPERIOR TO 50 PCT FOR PRIVATE GREEK BONDHOLDERS- EU SOURCE
IK
And Sarko…
JM
Wednesday, October 26, 2011 3:39:12 PM RTRS – FRANCE’S SARKOZY AND GERMANY’S MERKEL READY TO MEET BANKERS IN BRUSSELS ON WEDNESDAY NIGHT- EU SOURCE
JM
Note “ready”
JM
No word on whether bankers are keen
JM
Wednesday, October 26, 2011 3:39:34 PM RTRS – SARKOZY TO TALK TO CHINESE PRESIDENT HU JINTAO ON THURSDAY ABOUT CHINESE PARTICIPATION TO NEW EFSF FUND- EU SOURCE
IK
that’s the clincher, no?
JC
Heh
IK
Chinese participation in a new EFSF fund..
JM
We’re saved!
JC
Well. hang on
JM
Uh-oh.
JM
More of those technical details…
JC
The Chinese buy EFSF bonds anyway
JC
If they *weren’t* taking part, it’d be worrying
IK
Yes but this way they would be obliged to
JM
True
JM
But perhaps he’s not just talking about the EFSF
IK
Chinese overlords.. indeed
JM
“Psst… Hu, got a few lovely banks here that need a bit of juice… wink, wink”
IK
wasn’t it always going to be that way?
JC
Ah, but EFSF lends to states, who then use money to capitalise
JC
EFSF issues bonds to cover loans (possibly short-term debt for these specific loans, I’ve heard)
IK
I like the way the poles pronounce EFSF btw
JC
Whether Chinese will take separate stakes in banks would be interesting
JM
(Btw if anyone wants their live chat with added CAPS LOCK, business insider is covering it live, too.)
JC
Considering the great Morgan Stanley adventure their SWF had in 2009
IK
(Efff ess eff ye)
CG
(TwincamRS, there’s just one American in this here chat, and only at the World Cup am I a fan of bad outcomes for Europe. Not zero sum and all that. Knock it off.)
JM
Ok, so we have
JM
US markets at intra-day highs
JM
On the back of
JM
1. A bank recap plan that still needs work
IK
@mojo i think the chinese have an interest in ensuring Europe doesn’t collapse.
JC
(Chinese exports to Europe 5.5% of GDP)
JM
2. Oragami EFSF
JC
(IIRC)
JM
3. + potential new Chinese involvement
JM
4. Greek haircut numbers that are still too low
IK
Also, if the Chinese don’t float the yuan, EFSF 2 bonds could be considered a good proxy…
JM
5. A love letter from Berlusconi to himself, via Brussels
8:47PM
JM
Anything else?
JC
The thing I don’t get about China, just to stay on this issue
JC
Is that they will invest in EFSF bonds
CG
It’s all about the new home sales figure, John
JC
Or the senior notes etc. of whatever EFSF-lite SPV they cook up
JM
(6. Possible new IMF involvement)
JC
For “exposure” to Italian bonds
IK
JC – but the Chinese have loadsamoney…which means lots of money to waste.
JC
But they are not buying Italian bonds outright
IK
Ah, i see what you mean…
JC
So they are not outright exposed to losses – France etc. via EFSF provide them with first-loss protection (on the SPV), explicit guarantee on the EFSF bonds
CG
(Gold up today again, to 1720-ish. Brent down 1.46%, WTI down 2.63%)
JC
So true Izzi, China as pots of money
JC
But French etc. don’t
IK
The chinese have always sought to diversify, ever since GSE paper became worthless.. EFSF is an alternative GSE type structure…
JC
to actually insure/guarantee these losses
CG
Bryce, I’m judging you for judging me
IK
GSEs only needed an implied guarantee to attract the Chinese.
JC
What Athelstan just said on the right about equity provision, basically.
JC
Yeah. But look what happened to GSEs
JM
The implied guarantee of the EFSF > implied guarantee of the GSEs
IK
exactly.. what’s not to like!
IK
Worst case scenario = you own Europe.
JM
Market heading back down
JM
Last 10 minutes
JM
Told you it was worthwhile doing a ML session
CG
Markets Live curse is back
CG
or is it only supposed to work the other way?
IK
Last 10 minutes is imbalance time.. you shouldn’t read too much into it.
CG
late-day ETF-driven vol, Izzy?
JM
Also makes sense politically to fund the EFSF (pleases Ger, Fra) rather than just buying Ita bonds
IK
Just buying Italian bonds would look lke favouritism
JC
Guys, I have to run
JM
Cool. Shall we do a bit from the Berlusconi letter?
JC
If they unveil a 100% Greek bondholder haircut
IK
JC – me too.
JC
Or the ECB actually takes a haircut, on something
IK
I am already in trouble for ditching a dinner
JC
Or they blast Berlusconi into space
JC
I’ll be back
JM
Sure Rajat Gupta has the answer somewhere
CG
Gnight guys
IK
Yes bye…. it was a pleasure
IK
Or dobranoc
JM
Right, Cardiff
JM
Brussels news live
CG
Though you’re leaving John and me in the perilous position of having to talk about Europe from thousands from miles away
JM
From New York
CG
IT’S WEDNESDAY NIGHT!
JM
Let’s take a quick look
JM
At the B letter
JM
And play the game
JM
How did he arrive at this
JM
In conclusion, in 2010 Italy had, along with Germany, the most virtuous behavior largely in terms of net debt relative to GDP.
JM
All true Silvio, all true
JM
But this is 2011
CG
“virtuous behavior” according to Berlusconi takes on a different meaning
JM
And you’re still here
CG
btw Euro holding steady 1.3901
JM
Here are some of the changes proposed in the letter
JM
a. Bill (already approved at first reading in the House) on the modification of the electorate and stand for election to the National Parliament in order to ensure greater youth participation in political life.
b. Two bills (before Parliament) for a comprehensive reform of the organization’s top political institutions, with particular reference to the significant reduction in the number of parliamentarians, the abolition of the provinces, the reform in a federal state, the greater efficiency of decision-making mechanisms and the strengthening of the role of the executive and the majority.
On the second front on market discipline and rigor of public finance, is expected to:
a. A bill (for which approval is in progress in these days at the Chamber of Deputies) reform of the articles of the constitution relating to freedom of economic initiative and the protection of competition, and the reform of public administration in relation to the enhancement of ‘efficiency and excellence.
b. A bill on the introduction of the balanced budget constraint on the model already adopted in other European jurisdictions.
JM
Greater “greater youth participation in political life”
JM
No comment
CG
none needed, really
JM
Pensions
JM
Thanks to the locking mechanism of the retirement age to life expectancy introduced in 2010 (Art. 12 paras 12-bis and 12-b, DL 78/2010, as amended by Art. 18 paragraph 4 of Decree 98/2011), the Italian government expected to master the requirement for retirement will be at least 67 years for men and women in 2026.
JM
(Already revised)
CG
apparently raising the retirement age was the most controversial of the measures, source of Italian infighting
CG
sorry to hear, Athelstan. Look on the bright side: if you were a blogger, you’d never any money to lose to begin with
JM
Italy is an old country with old voters
JM
More fiscal rules
JM
In short, if the delegation was not exercised by 30 September 2012 or the new tax and benefit provisions are not able to guarantee a sufficient positive impact on the deficit (at least 4 billion in 2012, 16 billion and 20 billion in 2013 from 2014), there will be an automatic reduction of the fiscal benefits, however, guarantee the achievement of savings targets. Conversely, when the delegation is exercised within the period and the new arrangements will ensure the effects of savings at least equal to those provided, so there will not be the automatic cutting of the facilities.
JM
Some privatisations
JM
Sorry was talking to The Verdict
JM
About Gupta
JM
Privatisations
JM
By November 30, 2011, the Government will establish a plan of divestiture of public assets and improvements that include at least 5 billion a year in revenue over the next three years. By agreement with the State-Regions, local authorities will have to define with the utmost urgency a program of privatization of companies controlled by them. The proceeds will be used to reduce debt or make local investment projects.
CG
over/under for Lorcan
CG
I’d say midnight GMT, will take the over
JM
Another hour
JM
BREAKING
JM
Via the Telegraph
JM
‘s Ben Brogan
JM
Stand by for a story explaining allegations that Jeremy Clarkson had an affair with his 1st wife while married to his 2nd…
JM
Oops. Wrong chat.
CG
here’s something amusing demonstrating how the media works
CG
RTRS – FOREX-Euro slips vs dollar after draft euro zone statement
CG
then
CG
RTRS – GLOBAL MARKETS-Stocks rally on euro rescue plan
CG
and just like that, we missed the close by 7 minutes
JC
On that note, I’m back for a bit
CG
S&P at 1242, if anyone cares
JM
Clarkson news?
JM
Thought that would get you back in.
CG
still married to his second
CG
last time i checked, which was your IM above
JC
It was the Clarkson news that brought me back, yes.
JM
Let’s move on
JM
We could wait for the press conference
JM
Or talk about Greece CDS
CG
or go have a drink and come back
JC
We’ll be waiting until early morning Europe time, I reckon
JM
Tom Braithwaite is looking over my shoulder
JM
Wondering what this is all about
JM
I’m starting to do the same
CG
he doesn’t look anything like bio picture
JM
Nope
CG
(in his bio picture he looks quite dashing)
JM
Let’s call it a night
CG
ahem
CG
yeah, let’s go
JM
amen?
JC
Sure
JC
I really don’t want to go into Greece CDS again
JM
Wait
CG
9:11pm LorcanRK: Jesus, It is starting http://video.consi…cket=775-988-10351
JC
….and I have a mac, so can’t watch it anyway
JM
@labantall — or a Stalin speech
JM
Here’s Dave Cameron
JM
PM: “Good progress” made at EU informal meeting bit.ly/uHgSml
JM
On that note…
JM
(“informal”!)
CG
I’m gonna spare Lorcan the zapper this time, but I’m keeping it aimed at his sensitive bits
JM
(Imagine Churchill telling Cabinet, “I’m just back from the informal Yalta gathering”)
JM
Anyway
CG
maybe he forgot his tie and wanted to justify it after the fact
JM
Thanks for participating in this
JM
Informal Markets Live
JC
Thanks all
CG
hasta la pasta — I think that’s how Berlusconi closed his letter
JM
Bye!
CG
Gnight!