December, 2011
European banks ‘need tons of money’, says GMO
In a note released on Tuesday, GMO, the global asset management firm headed by Jeremy Grantham, writes that ”European banks need tons of money” to correct capital shortfalls. This much, we know.
But the five scenarios used by Richard P.
Euro rout
Brutal:
The wires are pinning the drop on this:
RTRS-EURO FALLS AFTER SOURCES SAY MERKEL REJECTS RAISING UPPER LIMITS OF FUNDING FOR ESM BAILOUT MECHANISM
RTRS-EURO FALLS TO WEAKEST LEVEL SINCE MID-JANUARY VERSUS DOLLAR
RTRS-EURO EXTENDS LOSSES VERSUS DOLLAR,
Credit derivatives are getting younger these days
A year ago, Nicholas Vause of the Bank of International Settlements wrote about “Counterparty risk and contract volumes in the credit default swap market” and pointed out the relative increase in shorter maturity contracts.
Meet the credit derivative “end-users”
It’s a well understood fact that credit derivatives markets are primarily dealer-to-dealer. We do, however, hear that there are clients, or “end-users”, hiding somewhere. The Bank of International Settlements’ Quarterly Review,
The IMF as the ECB’s unsecured borrower of last resort
News that the Bundesbank is fast approaching a zero domestic asset balance-sheet situation from a eurozone Target2 payment perspective has caused a bit of a stir in the financial commentariat space.
Critics suggest it’s largely unimportant,
“Why the teacher is in such difficulties?”
Just in case anyone was thinking of dusting off the idea that China might bailout Europe, here’s a repeat of its demands: conferral of “market economy” status (for WTO purposes) and an “ironclad” guarantee that they’ll be paid back.
Super senior moments at RBS
It’s the middle of 2007. Executives at RBS are joining the dots about how even super senior tranches of CDOs offer scant protection in the face of a tsunami of subprime defaults.
A structure which would become commonly understood by many,
Markets Live transcript 13 Dec 2011
Markets Live chat transcript for the chat ending at 12:18 on 13 Dec 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT NHHola Rabble NHwelcome to Markets Live
Presenting a record UK pension shortfall
The Bank of England’s financial repression and the eurozone debt crisis continue to take their toll on the UK’s private pension funds.
Lowlights from the latest Pension Protection Fund report:
M&G’s Bond Vigilantes reckon that’s a record.
The UK’s inflation myth
Told ya.
From Reuters…
RTRS-UK NOV CPI 0.2 PCT MM, 4.8 PCT YY (FORECAST 4.8 PCT YY)
RTRS-UK NOV RPI 0.2 PCT MM, 5.2 PCT YY (FORECAST 5.1 PCT YY)
RTRS-UK NOV RPIX 0.2 PCT MM, 5.3 PCT YY (FORECAST 5.2 PCT YY)
RTRS-UK NOV CPI ALL GOODS 5.1 PCT YY,
ECB reserves related to margin calls
Since everyone is worried about how the ECB is protecting itself on all the rubbish collateral it’s picked up over the course of the crisis, here for everyone’s benefit is a picture of how the ECB’s deposits related to margin calls have shaped up over the last few years (in millions of euros):
Water, water everywhere…
… nor any drop to drink.
RTRS-ECB SAYS 8.953 BLN EUROS BORROWED USING OVERNIGHT LOAN FACILITY, 346.357 BLN EUROS DEPOSITED
(Graphics via Scotty Barber – Reuters)
Related link:
Further reading
Elsewhere on Tuesday,
- The company that upstaged Goldman Sachs.
- Richard Koo and the deflationary spiral.
- Anatomy of a solvency/liquidity spiral.
- Has the god particle been found?
- Italians work harder than Germans.
Pink picks
Comment, analysis and more from Tuesday’s FT,
Gideon Rachman: The summit will prove a footnote
With a debt crisis threatening to cause sovereign defaults, bank runs and the implosion of the European financial system,
Snap news
Breaking pre-market news on Tuesday,
- Whitbread warns of slowing sales growth at Premier Inn and Costa Coffee — statement.
- E.ON lowers upper end of profit guidance — statement.
- Desire Petroleum and Rockhopper Exploration discover oil in Falklands appraisal well — statement.
Further further reading
For the commute home,
- More on European deleveraging, via Bloomberg.
- Central banks fire the second barrel of QE.
- The Citigroup Surprise Economic Index is… surprising economists.
- On the European economy and US exports.
Sino-Forest admits default
Is it all over for Sino-Forest?
The timber firm can’t even keep its own deadlines, never mind those of bondholders.
Sino’s third quarter results were due on Thursday, along with a $10m interest payment on convertible notes.
“Financial repression” part II: a critique
So, “financial repression” is everywhere — or is it? In Part 1, we gave you a recap of the concept from a recent BIS paper.
At the back of the paper are critiques from Ignazio Visco and from Alan M.
“Financial repression” part I: a recap
“Financial repression” was common in the four decades after the second world war and is essential to understanding policymakers’ responses to current credit problems in the US, Europe and China.
These are the conclusions of a BIS working paper by Carmen M.
How dealers may have exacerbated the funding crisis
Another interesting snippet from the BIS quarterly review regarding the role played in the recent funding crisis by the deteriorating operational capacity of broker dealers:
As the market values of euro area sovereign and bank debts fell and became more volatile,
Make your own (collateralised) gold standard
We know the gold bug/Austrian case.
When the United States broke away from the gold standard in the 1970s it allowed for unchecked credit creation, beyond what could realistically be supported by economic growth.
Don’t forget the advisers
Alternative title: The bull that got away.
Everyone else has got it in the neck for the failure of RBS, so it’s only right that we remember those who masterminded the disastrous acquisition of ABN Amro.
Whose PSI is it anyway?
As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines… Or, to put it more bluntly, our first approach to PSI,
The Sarko and Corzine trade
The following raised some eyebrows in the FT newsroom on Friday.
Via Reuters:
French President Nicolas Sarkozy said the ECB’s increased provision of funds meant governments in countries like Italy and Spain could look to their countries’ banks to buy their bonds.
BIStimates of the over-the-counter derivatives market
Depending on which way you want to look at it, over-the-counter derivatives either increased or decreased in size, as of mid-2011.
That’s according to Bank for International Settlements statistics that were released back in mid-November.
Regulating 2000s RBS… with 2010s rules
…we don’t like carrying more capital than we need to. You’ve heard me before on the subject of building up war chests and carrying; that’s not the way we would wish to operate at all.
– Fred the Shred on an investor conference call,
Sovereign downgrades and the eurozone
As S&P decides whether to downgrade Germany and the five other triple-A members of the eurozone, RBS considers who would be hardest hit by the move other than President Sarkozy and his re-election hopes.
Fines all round?
From the new-fangled EU fiscal compact declaration:
5. The rules governing the Excessive Deficit Procedure (Article 126 of the TFEU) will be reinforced for euro area Member States. As soon as a Member State is recognised to be in breach of the 3% ceiling by the Commission,
Markets Live transcript 12 Dec 2011
Markets Live chat transcript for the chat ending at 12:35 on 12 Dec 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT NHHola NHrabble NHwelcome to another week of Markets Live
What the FOMC will (merely) discuss tomorrow
We’ll wait to see if Fedwire has any updates to his article from last week, but right now it seems likely that no major policy decisions will come out of tomorrow’s one-day meeting of the FOMC.
As our colleague Robin Harding points out,