Are you sitting comfortably? Too comfortably, perhaps?
Huw van Steenis isn’t. He’s come back from Davos with the feeling that while banks have got ahead of europe-wide stress tests by raising capital (€25bn, in fact, he calculates) he is far from relaxed about the consequences of the Asset Quality Review. Read more
OK, one country can print in its own currency, while the other can’t. There is also no suggestion of an intimate circle of support in the US by which banks and the government prop each other up (as that’s what the Federal Reserve is for).
But after the FT’s story that the ECB is poised to get tough on Sovereign Bond Risk, an interesting chart arrives from Huw Van Steenis and the Morgan Stanley banks team: Read more
A useful chart from Citi on Thursday morning (which you may click to enlarge), on the recent rise in bank holdings of sovereign debt. Read more
Reuters: SHARES IN MONTE PASCHI AGAIN SUSPENDED FROM TRADING AFTER FALLING 10.1 PCT
Market not keen on the announcement last night that the board will meet today to discuss non-specific “capital operations”. Read more
We don’t know exactly what next year’s Asset Quality Review will involve yet, but we are starting to get a picture of what investors think about the ECB’s forthcoming burrow through bank balance sheets.
In short, given that it might not be all over until the end 0f 2014, everyone is feeling pretty good about the banks right now, and that might explain a surge of appreciation for European stocks. Read more
Monte dei Paschi di Siena, Italy’s third largest, oldest, most loved and, ahem, only moderately state supported lender revealed its big survival plan on Monday.
More earnings, more capital, buy signals are bound to start flooding in this morning and… oh. Read more
The Italian government has not collapsed in a flurry of post-bunga bunga recrimination, at least not yet.
With the ECB standing ready, the debt markets are calm, and investors in the banks are feeling good about improvements in asset quality and the direction of earnings. Read more
World’s oldest bank puts out a late-night statement confirming “the presence of errors” in three structured transactions. Click for the full release… (it’s in Italian)
Italy’s March balance of payments data showed a big net outflow for investment
This was something picked up by Deutsche Bank’s Alan Ruskin (and us, here) as suggesting an accelerating outflow of foreign capital from Italy, now that the LTRO glow had worn off. It appeared to be happening, worryingly, at a rate that was not being offset by Italian repatriation of capital. Read more
In a land called Italia, where Savers saved, and Borrowers wanted to borrow from the Savers, there were some Banks.
The Banks took the savings from the Savers, and lent some of it to the Borrowers. And as long as the spread on the interest rate paid to the Savers was less than that paid by the Borrowers, all was well and peaceful in Italia. Read more
Hold the phone… something very interesting in the Spanish banks <=ECB=> Spanish sovereign nexus came up at the end of last week.
Suggesting that it’s in better shape than the Italian version of the nexus. Read more
Beyond Thursday’s back-up in Spanish bond yields — questions about Spain’s banks.
How could there not be when they’ve been buying so much sovereign debt since the LTRO. Ever since December’s record jump of €22.5bn in purchases in fact, as banks began washing LTRO cash through the domestic bond market. (Chart via Nomura) Read more
RTRS-ITALY MARKET WATCHDOG CONSOB CHECKING BLACKROCK STATEMENTS ON UNICREDIT STAKE-CONSOB SOURCES Read more
First, the Eurosystem has abolished the eligibility requirement (Sections 184.108.40.206 and 220.127.116.11) that debt instruments issued by credit institutions, other than covered bank bonds, are only eligible if they are admitted to trading on a regulated market. At the same time, the Eurosystem risk control measures for marketable assets (Section 6.4.2) have been amended. Specifically, the Eurosystem has reduced the limit for the use of unsecured debt instruments issued by a credit institution or by any other entity with which the credit institution has close links. Such assets may only be used as collateral to the extent that the value assigned does not exceed 5% of the total value of collateral submitted (instead of 10%, as previously stipulated). Read more
Italy’s banks increased sharply their use of ECB loans to more than €200bn last month, leaving the country accounting for almost a quarter of total liquidity supplied by the eurozone’s central bank, says the FT. The surge in borrowing from the ECB highlighted tensions in Italy’s financial system and indicated its banks had drawn heavily on an ECB pre-Christmas offer of unlimited three-year loans. ECB lending to Italian banks reached €210bn at the end of December, up from €153.2bn a month earlier and the highest on record.
UniCredit stock still turning into pink mist after that cash call:
Italy’s Unicredit said it plans to sell new shares for 43 per cent less than Tuesday’s closing price, excluding the value of rights, in a €7.5 bn-euro offer to strengthen its capital position, Bloomberg reports. UniCredit will sell the shares at 1.943 euros each, offering two for every one held. UniCredit shares were suspended after falling the most in two months in Milan trading. The stock has declined 26 per cent since the lender announced the offering on November 14. The Wall Street Journal says Uncredit has launched the rights offer because it needs to meet tough new European capital requirements and that the terms signal how expensive it could be for other lenders to follow suit in current market conditions. Collectively Italian banks have to raise around €14bn in fresh capital to meet regulatory requirements, according to the WSJ. Unicredit’s steep discount weighed on the shares of other Italian banks Wednesday morning. Banca Monte dei Paschi di Siena shares were down 2.4 per cent, while the shares of Intesa Sanpaolo, which raised €5bn in new equity last year fell by 3.5 per cent.
Readers may remember how Portuguese banks resorted to government guarantees on existing bank bonds to make them more appealing for use as collateral at ECB funding operations back in May this year.
The government guarantees essentially reduced the haircuts that would be charged — making it much more cost effective to use the ECB facilities, while respecting the central bank’s graduated haircut policy. It was a type of collateral transformation, if you will. Bank bonds would receive the same treatment as sovereign debt. Read more
It’s baaack! The prospect of eurozone banks buying more sovereign debt to take advantage of new cheap one-year ECB liquidity, that is.
You’ll have heard that the ECB will offer not one but two one-year Long-term refinancing operations to banks before the end of 2011, following October’s meeting. Read more
Worries about European banks’ US dollar funding have been growing lately, even though the latest Fed data show foreign banks still have huge piles of cash on an aggregate basis.
But that’s just one part of the funding story. Another concerns our old friends, the money market funds. Fitch Ratings on Monday published its latest monthly report on US MMF exposure to European banks. Read more
Seen on the Bank of Italy’s balance sheet — a marked jump in Italian bank borrowings from ECB liquidity operations in July:
Because some day you might want a detailed breakdown of how Europe’s banks are accounting for their Greek, Spanish — and even Italian — bonds, here’s a helpful table from Deutsche Bank.
It comes from Mohit Kumar and Abhishek Singhania, who’ve crunched the stress test data: Read more
Lighting up the list of Europe’s biggest fallers at pixel time — banks:
We know that Italian bond yields reached record highs last week.
But did you know that the country made some CDS history too? Read more
Europe’s biggest fallers by the end of Monday’s trading — and notice a similarity with the moves in Spanish and Italian sovereign debt?
A stress test theme in the biggest fallers in Europe at pixel time:
From Moody’s Analytics — an epic (European) week, as expressed through CDS spreads:
Asian stocks dropped amid renewed fears of debt contagion in Europe with the Australian market failing to get a lift from a surge in Macarthur Coal in response to a takeover bid, the FT reports. The MSCI Asia Pacific index was down 1.7 per cent as banks fell across the board on concerns over the negative impact of Europe’s worsening debt crisis on their earnings. HSBC Holdings, Europe’s biggest lender by market value, lost 1.8 per cent in Hong Kong, while Mitsubishi UFJ Financial Group, Japan’s largest publicly traded bank, fell 2.7 per cent. Commonwealth Bank of Australia, the nation’s largest lender by market value, declined 1.1 percent in Sydney.Woori Financial Group slid 2.2 per cent in Seoul. Also in the FT, Italy and Spain both saw their borrowing costs soar by record amounts on Monday.
Earlier on Monday — Italy’s financial regulator hits the shorts:
Europe’s biggest fallers at pixel time (via Reuters). Notice a trend?