Those with the patience to pore over balance of payments data occasionally get rewarded with surprising nuggets of insight.
As a case in point, a new note from Deutsche Bank points us to the mysteries contained in the “net errors and omissions” category. In theory, mistakes that occur each quarter should cancel each other out. In many places, however, summing up these flows up over time produces distinctly non-random patterns — what Deutsche Bank calls “dark matter”. Read more
These are some mountains in Carinthia, Austria. Bucolic.
That, meanwhile, is the logo of Hypo Alpe Adria, a regional lender rescued by the Austrian government in 2009, and which has now sprung another, €800m black hole… and it is just possible that the name is going to be as memorable as Amagerbanken or SNS Reaal for European banks’ bondholders. Potentially it may be a less than bucolic precedent for sovereign debt, too. Read more
Update — apologies for a rather disorganised (and long) post… but we’ve finally gained information from all seven eurozone central banks who’ll accept additional credit claims under the ECB’s new rules…
Lend to an Italian small business for five years, take the loan to the Bank of Italy for ECB three-year funding… get this kind of haircut: Read more
Once upon a time foreign ownership of domestic banking sectors was deemed a “rating strength” in central and eastern Europe.
Before the financial crisis, foreign banks had demonstrated their willingness and ability to support their subsidiaries, according to Fitch associate director Michele Napolitano. But those days are now long gone. Read more
Possibly the first bank earnings release in history to tout a complete retreat from the CDS market… though we suppose it would be Erste.
From their Q3 results: Read more
Austria’s Erste Group Bank warned on Monday it would make a net loss this year of up to 800m euros ($1 billion) and not pay a dividend after taking hits on its foreign currency loans in Hungary and euro zone sovereign debt, Reuters reported. The bank’s shares were down more than 14 per cent at 17.75 euros. The losses at the Eastern European-focused lender resulted from the marking down of exposure to the sovereign debt of struggling euro zone countries and big writedowns in Hungary and Romania on foreign exchange-related loans. The bank also changed the way it handles credite default swaps. Erste Bank said the volatility in financial markets would see it delay the repaying of 1.2bn euros in non-voting capital which it got from Austria during the global banking crisis for at least a year and skip a 2011 dividend. The steps should not trigger demand for more capital at group level. Due to a “continued strong underlying operating profitability” its core tier 1 capital solvency ratio was set to end 2011 at 9.2 percent of assets, the same level as a year before.
From an offering circular for Greece’s May 2012 floating rate note:
Greek borrowing costs jumped to euro-era highs after a European Central Bank council member said that a short-term “selective default” by Greece might not have “major negative consequences”, the FT reports. The comments by Ewald Nowotny, Austria’s central bank governor, sparked a jump in two-year Greek borrowing costs of nearly 5 percentage points to 39.24 per cent at one point, one of the biggest daily leaps since the country joined the single currency. The Austrian central bank later clarified Mr Nowotny’s remarks, saying he was fully in agreement with the position of Jean-Claude Trichet, ECB president, who has warned that any default by Greece would result in its bonds not being accepted by the ECB as collateral. This helped the Greek bond market regain some of the losses, with two-year yields easing back to 39.02 per cent, up 4.55 percentage points on the day. Greek two-year bond yields have risen by about 12 percentage points since the start of July because of uncertainty over a second bail-out for the country. Meanwhile in Spain, borrowing costs also surged as the country sold €3.79bn ($5.4bn) of 12-month bonds at an average yield of 3.702 per cent, significantly higher than the 2.695 per cent paid last month.
If you thought illiquid European sovereign markets weren’t enough of a problem — time now to familiarise yourselves with the latest trading quagmire to hit Europe.
On Wednesday, the European Union was forced to suspend transfers of its carbon units, known as European Union Allowances (EUAs), after it transpired that yet more contracts had been stolen from national registry accounts. The Czech Republic’s, in this case. Read more
Given the number of diverse conventions in eurozone debt issuance, FT Alphaville wonders to what degree processes will have to be consolidated before any such thing as a eurozone bond can be considered. Marc Ostwald of Monument Securities, meanwhile, performs the invaluable service of explaining at length that you can’t really look at a set of auctions across the eurozone and conclude everything is improving (nor equally, that everything is going to pot). For now, you still have to look for national context. Read more
An EFSM crowding out effect? Not necessarily in Spanish or Portuguese bonds.
Europe sold the first (€5bn) tranche of its Ireland-bailout bond on Wednesday. The Commission will pay 2.59 per cent interest on the debt, according to the European Commission press release, which means Ireland’s interest rate will be 5.51 per cent, or the EU’s cost of borrowing plus a margin of 2.925 per cent. Read more
Belgium has six months. The rest of the eurozone core has a problem.
Standard & Poor’s didn’t shift the Belgian sovereign’s AA+ rating from a stable to a negative outlook on Tuesday for the usual reasons you might expect with, say, Spain or Ireland. There, contingent banking liabilities loom large, for instance. Read more
If anyone was hoping Tuesday’s Austria-Greek kerfuffle was a slip of the tongue by finance minister Josef Pröll — it seems not. On Wednesday there are multiple reports that payment of Austria’s next tranche of Greek aid will be delayed until January.
To give a flavour of the Greek bailout’s new-found Danube risk — a spike in Greece five-year CDS to 950 basis points on Tuesday. Chart courtesy of Markit:
Tuesday is a big day for European markets, in case you hadn’t noticed.
And not just because eurozone finance ministers are meeting in Brussels this afternoon to talk all-things-Irish. Elsewhere in the currency union — both Spain and Greece had bond auctions earlier this morning. And the latter has also just experienced a little bailout slip-up. Read more
Spanish banks’ reliance on funding from the European Central Bank surged to a record in July.
The country’s banks combined use of ECB facilities like the MRO and LTRO rose by €3.5bn to €140bn last month. That’s a much smaller increase than in previous months (€40bn in June and €15bn in May) but it still means they account for some 23 per cent of total ECB funding, according to calculations by RBS, up from 16 per cent in June, and a long-term average of around 8 per cent. Read more
Hungary, look what you’ve kicked off.
JP Morgan published its analysis of which major European banks are exposed to the eastern European nation earlier this Tuesday. And BNP Paribas’ Ivan Zubo and Olivia Frieser have just followed suit with a rundown of country-by-country exposure to Hungary. Read more
Hungary may be frantically trying to backpedal its way out of the eyebrow-raising, and market-moving, comments made by some of its politicians and spokespeople last week.
But that hasn’t stopped JP Morgan from publishing a table of which European banks are most exposed to the country. Fittingly from an Austro-Hungarian historical perspective, and unsurprisingly given what we learned in last-year’s eastern Europe scare, Austrian banks appear at the top of the list: Read more
Some potentially positive news for Greek banks, for once, and some possible embarrassment for financial blog Zero Hedge on Wednesday.
Harvinder Sian, head of European rates at RBS, is taking the excitable blog to task for its Tuesday story about Greek nationals pulling money out of local banks. Read more
It looks like Austria has one more thing to worry about: The Basel banking reforms.
Part of the Committee’s proposals to `purify’ common equity Tier 1 capital for banks involves excluding minority interests from the regulatory measure. This is not a good thing for many banks — but there seems to be a particular consensus forming that this is an especially `not good thing’ for Austria’s banks. Read more
One of the ironies of Greece and now Austria, simultaneously becoming the new sovereign sickmen of Europe, is that this year the two were some of the biggest issuers of government debt.
Per this (dated) note from Deutsche Bank: Read more
There’s been something of a major bailout in Austria on Monday morning. Hypo Group Alpe Adria, the struggling Austrian lender part-owned by Germany’s Bavarian state, has been nationalised.
For those unfamiliar with the story, Hypo Group announced in November that it was set to make an annual loss of “significantly more than €1bn ($1.5bn)” this year due to loan losses and writedowns across its investment portfolios. Read more
Did the events of last week in Dubai really send jitters through emerging markets?
Here’s something to ponder in the emerging vs developed market debate — an issue aptly summed up in Deutsche Bank’s 2010 outlook on Wednesday. On Thursday, Fitch Solutions has provided an update of its sovereign CDS liquidity indices — and they show that liquidity in CDS for developed markets surpassed that of emerging markets in the last week of November: Read more
Apparently they are not always obvious, as the below press release, from Moody’s, demonstrates.
And spotting hybrids is an important issue right now given that the European Commission is determined to impose the concept of burden-sharing on bondholders — forcing them to share some of the pain involved in state bank bailouts. That means, in practice, forcing banks to not make discretionary coupon payments or dividends, or early redemption, on some of their hybrid bonds — a la Lloyds. Read more
As has been duly noted by analysts, newspapers and commentators in the last few weeks — the dollar is emerging as the world’s new favourite ‘carry-trade’ currency. (Although, some have suggested it should really be the Great British Kroner.)
With that in mind, we’ve noticed a large number of non-traditional denominations of bond issues coming to market across the world. Read more
Breaking pre-market news on Tuesday,
- Court orders Federal Reserve to disclose emergency loan details — Bloomberg. Read more