As the Fed begins its crucial two-day meeting, Harbinger O’Doom has been delivering his prognostications on the effect of a rise in interest rates. FT Opening Quote, with commentary by City editor Jonathan Guthrie, is your early Square Mile briefing. You can
Suppose we told you to think of a country in the euro area with chronically dysfunctional politics, anaemic productivity growth, excessive unit labour costs, and a staggeringly high — and rapidly rising — public debt burden. Oh, and most people retire before the age of 60. Perhaps you think of Italy or Greece. Then we tell you to think of a country in the euro area that, before 2008, grew faster than average for the bloc, had a huge increase in house prices, an uptick in domestic investment, banks engorging themselves with cheap debt, and a deterioration in its external balance. Maybe you think of Spain or Ireland.
Greece is due to make a payment of €3.2bn to the European Central Bank as part of the €86bn re-drawn bailout package agreed with eurozone finance ministers, which was approved the the German parliament on Wednesday. The Big Read China: Weakened foundations "Why did China decide last week to break the great taboo and devalue its currency when there was no apparent crisis? The answer is that China is already in the midst of its own creeping economic crisis and does not have enough tools to deal with it."
The Big Read Eurozone: The case against ‘cash for reform’"The eurozone establishment has largely internalised the idea that “cash for reform” is necessary to keep the euro together. The most direct challenge to it, from Greece’s Syriza party, was defeated when other countries — most notoriously Germany — made clear they would rather force Greece out of the euro than consider alternatives to offering refinancing in return for control over fiscal and reform policies." The Short View China’s gloom overshadows global outlook"A depressed outlook is being priced into everything from economically-sensitive cyclical stocks in developed countries to the bond market’s long-run inflation expectations and emerging market currencies."
Buyers and sellers of currency — people who transact in goods, services, and assets across borders — pushed down the yuan by a little less than 2 per cent on August 10. Rather than fight the move, the Chinese government uncharacteristically accepted this outcome, and opened morning trading on August 11 at a price that partly reflected the previous day’s decline. In other words, the People’s Bank of China decided that market forces should affect the exchange rate between the dollar and the yuan a little bit more than in the past. (At least for now.)
Banks’ exposure to mis-selling claims remain hard to measure, Hargreaves Lansdown has raided a spread-better for its new finance chief, and it looks like Good Housekeeping will not be taking over at The Economist. FT Opening Quote is is your early markets briefing from City Editor Jonathan Guthrie. You can sign up for the full e-mail here.
William Hill could do with more unlikely demolitions like Stuart Broad’s destruction of Australia yesterday in order to give its profits a serious lift. FT Opening Quote, with commentary by City editor Jonathan Guthrie, is your early Square Mile briefing. You can
The UK government’s stake sale in RBS may mark the end of its meddling in the bank’s affairs, JustEat has 57 per cent fatter profits. FT Opening Quote, with commentary by City editor Jonathan Guthrie, is your early Square Mile briefing. You can Asian marketsNikkei 225 down -27.75 (-0.14%) at 20,520Topix up +0.23 (+0.01%) at 1,660Hang Seng down -11.58 (-0.05%) at 24,400
Greek MPs pass reforms Athens this morning approved key reforms demanded by eurozone creditors as a condition for starting talks on a new EUR86bn bailout package. The vote by the 300-member parliament followed a marathon overnight session and threatens to split the ruling left-wing Syriza party, which said on Wednesday that its opposing factions could face a “possible divorce”. (FT) In the news
Alexis Tsipras, Greece’s prime minister, appears to be preparing the nation for a snap general election this autumn after carrying out a government reshuffle that removed dissident ministers from his leftist Syriza party. The changes mean that Mr Tsipras now controls a cabinet more loyal to him and more committed to his path of adopting economic reforms demanded by Greece’s eurozone creditors in return for a new rescue deal worth up to EUR86bn. Meanwhile Angela Merkel, the German chancellor, said that while discussions to ease debt repayment terms are an option if Athens complies with the conditions of a third bailout, Greece cannot receive a debt writedown as a member of the eurozone. A Grexit remains a strong possibility, writes the FT’s Wolfgang Münchau. (FT) In the news
Shareholders of Plus500, the London-listed but Israel based contract for difference broker, this week voted to approve its sale to PlayTech, the Isle of Man registered but London-listed gaming group controlled by Israeli billionaire Teddy Sagi. As Plus500 is incorporated in Israel it is not subject to the takeover code, so there is no merger document online. However the merger arbitrage team at Makor visited Herbet Smith Freehills to take a look at the document, and found there are some other consents needed:
It’s a nuance, but an important nuance. The IMF isn’t a creditor in the usual sense of the word. It’s a collateralised bilateral swap agent that exists to help countries balance international payment obligations so that they don’t have to start wars, grab resources or asset-strip trade partners when they abuse their trust. The clue comes in the ‘F’ of the IMF acronym, which of course stands for fund not force. But even that is a misdirection, since the fund is actually made up of capital commitment quotas, not pre-paid lump sums of capital. Pre-paying would be dumb, you see — a waste of perfectly good capital. What if there’s no crisis to allocate the funds to? That capital just goes to waste, unused.
Here is another very strange, and short, document. Click to read. It’s an update to the Greek debt sustainability analysis by IMF staff — yes one of those analyses again — which was originally published just before Greece’s July 5th referendum.
Alexis Tsipras, the Greek prime minister, returned to Athens on Monday facing a rebellion within his own government after he accepted the most intrusive programme ever mounted by the EU as the price for a new EUR86bn bailout to keep Greece in the eurozone. Mr Tsipras looks set to be forced to rely on opposition support to pass a swath of economic reform measures by a Wednesday deadline. The ruling Syriza party’s extremist Left Platform called it a humiliation of Greece – although the FT’s Gideon Rachman argues it actually marks acapitulation from Germany. The hard-fought agreement has fended off, at least for now, Greece’s exit from the single currency and the instability that could follow. (FT) In the news
Barclays have assessed the Greek banks which, prior to Monday’s “deal,” were in a precarious position. Since the crisis hit Greece more than five years ago, we estimate that Greek GDP has regressed to levels not seen since 1998 and is still falling. The impact of this has been dramatic on the banking system. The banks have lost nearly 25% of their deposit base since December 2014. Confidence has evaporated on the banking system, leading to the imposition of tight capital controls immediately after the call for a referendum by the Greek government on 26 June, as a fully-fledged bank run hit the banking system. Profitability and asset quality have also turned for the worst in 2015. Despite the super-capitalisation of Greek banks under the second programme, banks will in all likelihood now require further capital injections to deal with rising nonperforming assets
From the FT’s live story: Eurozone leaders have reached a compromise deal over a Greek rescue plan after an agreement thrashed out by Angela Merkel, François Hollande and Alexis Tsipras was unanimously backed by other leaders. At a press conference after the all-night talks the German chancellor said the deal was worth €86-87bn over three years. She added that trust with Greece “needed to be rebuilt.” Is it enough to keep Greece in?
The Greek government submitted its highly anticipated plan for an economic overhaul to bailout authorities on Thursday night. The submission is part of a request for a new three-year bailout that Prime Minister Alexis Tsipras must agree by the weekend, in order to avoid a collapse of the Greek banking sector that would probably see the country crash out of the eurozone. The submission opens a razor-thin 48-hour window in which Greek bailout monitoring institutions must evaluate the plan before it is turned over to eurozone finance ministers on Saturday. (FT) In the news
The Chinese market sell-off abated on Thursday morning, as Beijing rolled out further measures to boost liquidity and calm investor nerves following days of sharp share price falls. The banking regulator said it would allow lenders to ease margin requirements for some wealth management clients, and encouraged banks to offer financing to companies seeking to buy their own shares. The authorities had taken drastic action to try to prop up sinking stocks on Wednesday by banning listed company shareholders with big stakes from selling shares and using central bank money to bolster the market. The securities regulator banned listed company shareholders with stakes of 5 per cent or more from selling any shares for six months. The ban also applies to senior company executives and board members, regardless of the size of their stakes. (FT) In the news
At length. Because haven’t you heard? Germany is a hypocritical creditor. It won’t give Greece the debt relief which it received itself in the 1950s. Thomas Piketty said it. So it must be true:
Citi’s Willem Buiter-headed team of economists provides an interesting external solution for the Greek debt crisis in an opinion piece late on Monday: bail out Greek banks but not the Greek government. Remember, the problem for eurozone banks is part of their core capital is supposed to be made up of liquid instruments like government bonds, but in the case of Greece these bonds are as toxic as subprime securities and depreciating quickly. Even if the ECB continues accepting Greek bonds as collateral for Emergency Liquidity Assistance, the terms would no doubt involve much larger haircuts,bringing us back to a 2011 capital hole scenario very quickly. So, it actually makes more sense for Greek banks to start swapping government bonds into different types of assets.
Athens will be given a final chance to present a new reform plan to eurozone leaders on Tuesday night, despite a hardening attitude to Greece in many capitals after the rejection of previous bailout terms in the Sunday referendum. Meanwhile, Greek banks are to stay closed on Tuesday and Wednesday. However, eurozone officials said leaders were unlikely to agree to restart rescue talks to keep Greece in the currency union at the hastily convened summit in Brussels. The European Central Bank tightened the screw on Greek banks on Monday evening when it required them to stump up more assets in exchange for emergency loans. (FT) German Chancellor Angela Merkel, responding for the first time to the Greek referendum, has said time is running out. (Bloomberg) In the news
They say crises define movements and people. If that’s the case, purveyors of fintech payment solutions could soon be defined as those who stood ready to exploit a Greek national bankruptcy crisis for the benefit of “onboarding” users.
Here is an earnest, but very strange, document. Click to read. It’s a Greek debt sustainability analysis by IMF staff. Yes, one of those analyses. A preliminary one, but in many ways the DSA to end all DSAs.
Remember the Comprehensive Assessment? You know, the European Central Bank’s report in October 2014 that said three Greek banks were adequately capitalised to survive a stressed scenario thanks to their fundraising efforts earlier in the year, while the fourth was only off by five basis points? We ask because the ECB seems to have forgotten. Otherwise, we can’t think of why the euro area’s central bank is choking off Greek lenders and effectively forcing the Greek government to impose capital controls. (Immense thanks to Karl Whelan for making this point at our panel at Camp Alphaville.) To see the oddity, it helps to explain what central banks are for.
This belief — that an implicit official sector guarantee has quietly settled over every sovereign debt instrument issued by every geopolitically significant country on the planet — is a fallacy. The moral hazard implications of allowing this idea to prosper are staggering. More importantly, the official sector lacks the resources to make good on such an implicit guarantee, even if it wanted to do so. – Lee Buchheit, ‘Sovereign fragility’, 2014 Coming home to roost now though, isn’t it?
The Airports Commission’s support for a third runway at Heathrow this morning is only the cue for further dithering, Saga has bought the Bennetts biker insurance business and there’s some better news finally from Serco. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early City briefing. You can