Posts Tagged ‘BNP Paribas’

Bankers Hail The New Basel III Regime

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 14.09.10 at 02:20

It’s been a great day for the financial industry. The announcement of the new rules on capital requirements by the Basel Committee Banking Supervision – also known as Basel III – was met with standing ovations from a number of industry representatives, Monday. The financials were also the major mover in today’s stock trading. Leading institutions like the US Federal Reserve, ECB, Goldman Sachs and Bank of America have all made statements, praising the new rules that will not be fully implemented until 2019.

“This action, in combination with the agreement reached at the July 26, sets the stage for key regulatory changes to strengthen the capital and liquidity of internationally active banking organizations in the United States and around the world.”

United States Federal Reserve Bank

Baudouin Prot BNP Paribas

CEO Baudouin Prot, BNP Paribas.

Today’s rally in financial stocks all over the world is most of all a relief rally. The result of the Swiss banking committee’s work with new requirements is precisely as the industry leaders expected. Not too strict, and with plenty of time to shore up the minimum of needed cash. But the best of all: We have now official, global laws that acknowledge the too-big-to-fail principal and makes sure they will be rescued if another crisis occur in the coming years.

Most of the big players in the financial sector gained between 3% and 6% in Monday’s stock trading.

Deutsche Postbank, however, fell almost 8% after Deutsche Bank AG offered between 24 euros and 25 euros a share to increase its stake in the lender. Deustche Bank, Germany’s largest lender, gained 1.7 percent after saying it would raise at least 9.8 billion euros ($12.6 billion) in its biggest-ever share sale to buy Postbank and meet the stricter capital rules.

The German banking association is also the only member of the Basel Committee who have made critical remarks on the new Basel III retirements.

See: Basel III And The Fawlty Towers

Rasmussen, Stiglitz, Stetter presents: BASEL III

A Significant Step

“The US federal banking agencies support the agreement reached at the September 12, 2010, meeting of the G-10 Governors and Heads of Supervision (GHOS). This action, in combination with the agreement reached at the July 26, 2010, meeting of GHOS, sets the stage for key regulatory changes to strengthen the capital and liquidity of internationally active banking organizations in the United States and around the world,” the FED write in a statement.

Chairman Ben Bernanke, US FED.


“The agreement represents a significant step forward in reducing the incidence and severity of future financial crises, providing for a more stable banking system that is less prone to excessive risk-taking, and better able to absorb losses while continuing to perform its essential function of providing credit to creditworthy households and businesses.”

“Today’s agreement represents a significant strengthening in prudential standards for large and internationally active banks,” Ben Bernanke & Co points out.


Full FED statement.

Positive Impact

Calculations done by Zero Hedge show that the the 3.5% minimum common equity ratio by 2013 means the leverage will be just under 30 times – or enough for every bank in the world to pull a Lehman, which blew itself up at roughly the same leverage.

(In comparison; US banks had a leverage of  “only” 20% before the crisis hit).

“All who think European banks will survive through 2019 with this type of leverage should look into investing in these great companies: New Century Financial, Countrywide, and IndyMac,” Tyler Durden at Zero Hedge comments.

But who cares about old trivial stuff like that?

Certainly not Bank of America:

“We think the numbers are in line with prior market expectations and the implementation period long enough and therefore not at all alarming. In fact, our initial read of the impact on banks is positive. Credit investors should look forward to a number of capital risings from European banks, as looks like is already happening. This should be very bullish for bank spreads, in our view,” BoA says in their happy greetings.

Here are some other highlights – taken completely out of context, of course:

“The Committee believes that large banks will require 2a significant amount of additional capital to meet these new requirements.” Oddly, they think that smaller banks already meet them. We’d not be sure that this is true, at least in Europe.”

“This looks quite bullish for us for calls of Tier 1’s, especially those after 2013. In the meantime, note that we have no concrete agreement on the new format of new bank capital instruments.”

“Note too that the government capital injections, even if they don’t meet the new format, are to be grandfathered to 2018, giving banks plenty of time to adjust.”

“We had thought that some kind of countercyclical buffer would have been built into provisioning (like in Spain) but it looks like its just being done via higher equity.”

“No change to the overall level of capital, but it’s hard to see anything other than a major de-emphasising of anything that isn’t common – as we were expected.”

Small Macro Risks

Also Goldman Sachs are pleased with Sunday’s Basel agreement, but perhaps a bit more uncertain about what the impact will be, if any.

CEO Lloyd Blankfein, Goldman Sachs.


“There are two crucial questions when trying to assess the macro-economic implications of the new regulatory environment for banks. 1) by how much will banks have to raise their capital on the back of these changes. 2) Will lending become more costly/rationed and what are the growth implications of this. Our banks team estimates that only 4 banks among the 47 European banks covered have a core tier 1 ratio of below 7% by 2012. While this looks reassuring, it is less straightforward, however, to assess what the figure for the whole banking sector – including the non-public parts of the banking sector – looks like. The head of the Dutch central bank Wellink is cited this morning as saying that banks would need “hundreds of billions” to meet new capital requirements, though the economy, according to Wellink, will not be impacted by this. It is not clear where these numbers are coming from and other ECB board members have not mentioned any figures when commenting on the new capital rules,” Goldman Sachs analyst Dirk Schumacher writes.

“Assuming that the banking sector as a whole would currently show a 4% ratio, as required under the old Basel II regime, the overall growth impact looks manageable.”

“Implementation will start in 2013 and will have to be finished by 2018. This should give banks sufficient time to adjust, arguing for an overall small macro impact of the new capital regime.”

Here’s a copy of the full commentary by Goldman Sachs.

No Problemo

In stores January 2011 (Limited Edition)

The US investment firm, Credit Sights, highlights that it is impossible to actually do any practical bank-by-bank analysis due to “the long lead-in period, lack of disclosure, and the remaining uncertainties over changes to certain risk weightings and allowable capital instruments, while new criteria are still being finalized.”

But that doesn’t stop the European bank analysts from analyzing themselves straight into a new golden bank area.

Here are some more happy thoughts, as collected by The Guardian:

Chris Weston at IG Markets: “Global banks will like the news that they have been given an extended period [to comply with the rules] and the fact that they’re not going to have to rush to raise capital.”

Gary Jenkins, analyst at Evolution Securities: “All other things being equal, an increase in capital for the banking sector is of course good news for bondholders and the combination of the new regulatory regime and the stress tests does seem to have restored some confidence in the sector as evidenced by the recent amounts of bond issuance.”

Financial analysts at Oriel Securities: “The final outcome on Basel III determined by regulators over the weekend looks positive for UK banks. UK banks at face value appear to comply well with the new guidelines.”

Eleonore Lamberty, analyst at ING Credit Research: “Currently, the majority of European banks will have no problem to meet the new requirements. For the handful of banks that would find it more difficult, the very lengthy implementation period ensures that any capital shortfalls can be addressed, possibly through retained earnings. The industry-wide expectation of significant capital-raising exercises has hereby become much less compelling.”

Joseph Dickerson at Execution Noble: “We believe that the market will be punitive to banks which don’t meet a core tier 1 ratio of 9.5% – 10% under new requirements by 2012. While this is somewhat arbitrary timing, our research has shown that the market is already applying a multiple discount to banks with weaker capital positions, and almost all of the banks in our coverage classify as “systemically important”.

And The Winners Are…. 

Andrew Lim, analyst at Matrix Corporate Capital, is even sure who’s going to be the winners and losers in the new capital regime.

(Quite obvious, really, since they are owned and controlled by their governments):

“Even without taking into account a phasing-in period, the large-cap commercial banks exceed the minimum common equity ratio (including conservation buffer) of 7% by 2012. We see this as a significant positive for the sector on a number of fronts,” Mr. Lim writes.

And continues:

This sets the stage for a capital return to shareholders, via special dividends and accretive buybacks.

Unlike the bank stress tests, we see the minimum capital ratios as reassuringly onerous.

For the first time, the capital strength of the sector can be compared on a like-for-like basis. We believe the market will appreciate the increased transparency that will come to the sector, which will lead to higher ratings for the banks (as was the case 30 to 40 years ago).

The return of excess capital might be limited by the implementation of a countercyclical buffer on top of the conservation buffer. The implementation of this is unclear at present. If applied in its most onerous form, we believe only the Nordic banks will have what could strictly be termed excess capital.

The Nordic banks (DnB NORD, Handelsbanken, and Nordea) are in the strongest relative position. We believe these banks will be in the best position to consider returning the most amount of capital to shareholders, and will be the earliest to do so as well.

Lloyds looks to us likely to have one of the strongest common equity ratios by 2012. It should be noted that this is due to its strong organic capital generation, combined with its plan to reduce RWA (ie shrink the balance sheet). Lloyds does not currently have a strong Basel III common equity ratio by our analysis (unlike the Nordic banks), so the market must have conviction that Lloyds’ management can deliver. Unlike the Nordic banks, Lloyds will not be in such a privileged position to return capital as early and must wait until it generates sufficient capital.

The Italian banks UniCredit and Intesa and Spain’s BBVA are in the weakest relative position, having common equity ratios which are just above 7%. We do not think they will seek to raise capital, since our analysis does not include the phasing-in period. However, they do not look like they will have excess capital by our analysis.

Santander, HSBC, Barclays and Standard Chartered appear by our analysis to be average compared to the peer group having common equity ratios of 8%-9%. These banks are comfortably above the minimum of 7%. They will be in a position to return some excess capital to shareholders in our opinion, but are not likely to do so as quickly (or as much) as for the Nordic banks.

Well, I’m not a financial analyst,  but I usually know who I’m talking about when I make my comments.

Unfortunately, it seems like Andrew Lim at Matrix Corporate Capital do not.

He mention DnB NORD as one of the best positioned Nordic banks.

But the fact is that DnB NORD is a Baltic zombie bank, owned (currently 51%) by the Norwegian bank DnB NOR.

Surely, just a little mix-up. Nothing to worry about. Everybody’s fine!

(At least until 2019..)

Related by the Econotwist:

Central Bankers Announces A Higher Form Of Capital Standards

Will Basel III Crush the Global Economy?

German Banks With More Than 200 Billion Euro In Faul Credits

European Banks Hunting For EUR 1,65 Trillion

Morgan Stanley: Governments WILL Default


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Euro Suddenly Drops For No Obvious Reason

In Financial Markets, International Econnomic Politics, National Economic Politics on 13.08.10 at 18:16

The European common currency is suddenly going down at an alarming pace, without any obvious reason. The euro is weakening fast against most major currencies. Here’s some market snapshots, taken a few minutes ago:




Here’s what’s being reported at the moment:

* The Wall Street Journal:

The euro hit a fresh three-week low as persistent concerns about slowing economic growth reduced demand for riskier assets.

The common currency at one point hit $1.2753, the lowest since July 22, with investors piling into the dollar and yen, perceived to be safe harbors in times of financial doubt. The euro also fell to a six-week low of £0.8181.

The moves were a continuation of the week’s flight from risk, driven by weak economic reports in the U.S., Asia and Europe, and declines in stock markets globally, said Amelia Bourdeau, senior G10 currency strategist at UBS in Stamford.

* Zero Hedge:

As you might have heard 9 mainly EU-newbies sent a letter to the EC demanding to change the current system of account deficit calculation. They argue their pension reforms should be accounted for in the calculation. The letter was obtained by dpa-afx. Could be a reason for the dropping Euro.

* The Irish Times:

The NTMA sold €500 million of six-month bills at an average yield of 2.458 per cent, against one of 1.367 per cent on July 22nd. Analysts fretted that Ireland, held up as a model for deep budget cuts early on, had little further room for maneuver. There was speculation the European Central Bank (ECB) had intervened to buy Irish bonds, which saw yields stabilize.

The spread over German benchmark bunds has widened by 51 basis points since Friday. Fresh concerns about Irish banking have put the bonds under pressure too.

* The

With austerity measures and an EU-IMF bail-out now in place, figures show that the Greek recession deepened in the second quarter as GDP shrank by 1.5 percent and unemployment rose to 12 percent.

The GDP contraction of 1.5 percent accelerated in the three months to June after shrinking by 0.8 percent in the first quarter, the Greek statistical office reported on Thursday (12 August). Economists had forecast just a 1 percent quarterly drop.

* The Financial Times:

The euro tumbled from a three-month high against the dollar this week as concerns over euro zone government debt resurfaced and fears over global growth boosted haven demand for the US currency.

A downgrade to the US Federal Reserve’s growth outlook after its policy meeting on Tuesday reignited concerns over the health of the debt markets in the export-orientated euro zone.

The divergence in the euro zone was further highlighted on Friday as second-quarter gross domestic product figures for the region showed robust growth of 2.2 per cent in Germany but a 1.5 per cent contraction in Greece, which remains firmly in recession, and only modest growth of 0.2 per cent in Spain and 0.4 per cent in Italy.

Ian Stannard, of BNP Paribas, said this divergence in performance would have severe negative consequences for the euro zone, with weak growth in the peripheral nations hampering their efforts to address fiscal imbalances.

“Markets are set to refocus on the woes of the euro zone,” he said. “The peripheral nations need stronger growth – not just German growth – to allow adjustments to take place. And for that they need a weaker euro.”


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USA Could Be Forced Into Another Trillion Dollar Bank Rescue

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 08.08.10 at 01:58

The U.S. economic recovery has lost so momentum that the Federal Reserve reportedly will be forced to return to “unconventional” monetary easing, which could result in a $1 trillion emergency rescue, as early as next week.

“The jobs report has most likely fueled a vigorous debate among FED officials on whether more easing is needed to bolster the recovery.”

Goldman Sachs, whose economists recently cut their forecasts for US economic growth in 2011, says  these measures could involve more asset purchases, such as Treasuries, or a more “ironclad” commitment to low short-term policy rates. If the FED committee decides on more asset purchases, the amount would be at least $1 trillion, Bloomberg reports.

Goldman expects the FED to announce that it will reinvest proceeds from the paydown of mortgage-backed securities in the bond market at next week’s policy meeting.

The Federal Reserve’s Open Markets Committee (FOMC) meets Tuesday.

FED Chairman Ben Bernanke has said the US central bank could take steps to further ease monetary policy if the recovery were to falter.

Meanwhile, Goldman economists says they still expect growth in real gross domestic product to average 1.5 percent at an annual rate in the second half of this year, MarketWatch writes.

US economic growth slowed to a 2,4% annual rate in the second quarter after expanding at a 3,7% pace in the first three months of this year.

Remarkable Changes

The latest Goldman analysis  follows some rather defensive statements from chairman Ben Bernanke lately, and a quite stunning article by the St. Louis FED chief, published last week.

See: Helicopter Ben; Cleared For Take Off

Now, the Goldman economists also see a more gradual pickup, but not until the end of next year.

The US GDP is likely to average 1.9 percent in 2011 compared with a previous forecast of 2.5 percent, largely due to Congressional resistance to extending fiscal stimulus, according to MarketWatch.

Friday, private employers added fewer workers to their payrolls in July than expected and hiring in June was much weaker than had been thought, a big blow to an already feeble economic recovery.

The jobs report has most likely fueled a vigorous debate among FED officials on whether more easing is needed to bolster the recovery and avoid a drop in consumer prices that could further sap the economy, writes.

“The labor market improvement has slowed to a glacial pace, consistent with third-quarter growth even slower than the second,” says Nigel Gault, chief US economist at IHS Global Insight, according to Reuters.

“It doesn’t look like a double-dip, but it looks like very weak growth.”

Reconsider, Reinvest, Re-Something!

Other analysts speculated the FED would steer away from lowering the interest rate it pays on bank reserves.

“I continue to believe that they will state they will reinvest the runoff from all of their present securities to insure that there is no passive tightening,” Brian Fabbri, chief North America economist at BNP Paribas says.

However, economist Paul Ashworth, of Capital Economics, believe the FOMC should shy away from further major policy stimulus, the UK Telegraph reports.

“FED officials would need to see evidence of a much more severe deceleration in economic growth before they would be willing to countenance any meaningful expansion of quantitative easing,” he says.

Letest from CNBC: Discussing the changes the FED needs to make in monetary policy, with Lyle Gramley, former FED governor president and William Ford, former Atlanta FED president:

Vodpod videos no longer available.


And here’s a copy of the Goldman analysis: “Climbing Aboard QE2 to Avoid a Double Dip?”

“Although it is a close call, we expect the FOMC to take a “baby step” in this direction at next week’s meeting by deciding to reinvest MBS paydowns in US Treasuries. Later measures would include a stronger commitment to keep rates low and/or asset purchases of at least $1 trillion, most likely also in Treasuries.”

Related by the Econotwist:

Mr. Rubin’s Still Rockin’ The House

Meredith Whitney: Even More Bearish On Housing And Financials

A European Revolution by December?

A Report To Make You Go “Hmmm…”

Will Basel III Crush the Global Economy?

Helicopter Ben; Cleared For Take Off

US Congress Question Morals of Monetary Policy

The Failure Of A Culture

EU: Trading Bailouts For Weapons

Jim Rogers Says CNBC Is A PR Agency

Fitch: Banks Need More Capital Than Stress Test Shows


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EU Bank Stress Test: Commentaries & Market Reactions

In Financial Markets, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 24.07.10 at 01:46

Here’s the first commentaries, analysis and market reactions on results of the European Bank Stress Test, revealed by the CEBS, ECB and the EU Commission Friday afternoon. 7 of the 91 banks failed the test. but most of them passed with flying colors.  As expected, wouldn’t you say?

“5 Spanish cajas, 1 German and 1 Greek banks are eliminated on their quest to marry the US taxpayer. 84 other banks will soon be the recipients of far more US taxpayer generosity. And with that the season finale of the farce comes to a close.”

Tyler Durden

The first reactions to the spectacular revealing of the Great European Stress Test are out. Bloggers and certain independent analysts are furious, calling the whole thing a farce and a fake, while politicians and bankers are nodding their heads in a more dimmed recognition of what they’ve known all the time: there’s nothing to worry about. And the euro is strengthening.

For all available details details on the stress test results, click here.

First stop is France, and country economics analyst Caroline Newhouse-Cohen at BNP Paribas. In BNP’s latest edition of their weekly analysis, “EcoWeek”, Newhouse-Cohen writes:

“In the euro zone, the Committee of European Banking Supervisors (CEBS1) released its report on stress tests on Friday 23 July. The tests are designed to measure the solidity and solvency of 91 European Union banks (75% of the banks in twenty EU countries2) in case of a new financial market shock. In an adverse scenario, it was assumed that GDP would contract 3% over two years relative to the European Commission’s baseline scenario for the EU (1% in 2010 and 1.7% in 2011). An additional sovereign shock on top of the adverse scenario was also considered (excluding those held in investment portfolios; not including restructuring or defaulting). Under the adverse scenario, aggregate losses would total €556bn in 2010 and 2011. Tier-1 capital would decline from 10.3% at end 2009 to 9.2% at end 2011, compared with a regulatory minimum of 4% and a stress-test threshold of 6%,” BNP Paribas points out.

And concludes: “As expected, the majority of euro zone banks passed the tests successfully. Only seven establishments would see their tier-1 capital ratios drop below 6% under the adverse scenario. These banks3 have already raised doubts for several weeks, and the respective regulatory authorities are likely to push them to make capital increases to pass above the minimum requirement. The rather positive outcome of this European initiative should help improve the fluidity of interbank transactions. It should also reassure the markets concerning the capacity of banks to finance the economy and to fund the economic recovery.”

Here’s a copy of the newly relished “EcoWeek” from BNP Paribas.

And the reassure us that everything’s fine, she adds an oversight of the market interest rates and foreign exchange rates over the last week:

Interest rates:



EU Calculates Cost Of Nuclear Holocaust At €0.69

Among the financial bloggers are the tone a quite different one.

“Instead of listening to the idiots on TV, we will instead keep a close eye out on LIBOR, Euribor and EONIA: these will present a far better picture of true state of affairs in Europe than any farce of a test ever could,” Tyler Durden at Zero Hedge wrote yesterday.

Today the popular blogger concludes:

“5 Spanish cajas, 1 German and 1 Greek banks are eliminated on their quest to marry the US taxpayer. 84 other banks will soon be the recipients of far more US taxpayer generosity. And with that the season finale of the farce comes to a close.”

And points out the following:

Also Europe finds that :

* Full GoM clean up will be around 2 bucks

* The cost of the Large Hadron Collider was reduced to a couple of dimes

* The US budget “deficit” is estimated to actually be a $100 quadrillion budget surplus

* Merrill’s expense tab at Hustler Club is only $19.95

* etc.

European Bank Investors Have Been Hoodwinked

Reggie Middleton at the BoomBustBlog writes in a comprehensive analysis of the European banking sector that European Bank Investors Have Been Hoodwinked and BamBoozled.

Reggie Middleton

Personally, I consider the European bank stress tests to be a farce; an attempt to Bamboozle, Hoodwink and Dis-inform any who would be naive enough to drink the Kool-Aid – not to dissimilar from the US bank stress tests (see You’ve Been Bamboozled, Hoodwinked and Lied To! Here’s the Proof). CNBC reports that “NO” default scenarios will be played out, which I find to be rather unrealistic since the reasons why the banks are enjoying restricted access to the capital markets is the fear of default! Think long and hard about this…

You are showing signs of HIV, and nobody wants to come near you, make love to you or lend long term to you due to the symptoms of this most unpleasant and deadly disease despite the many proclamations you have made to the contrary. You decide to set the record straight by visiting a prominent doctor to diagnose your issues and placate your associates. The doctor comes up with a prognosis, but simultaneously declares that:

* AIDS (the syndrome), and death have not and will not be considered because the doctor will not let any of his patients catch AIDS or die! Whaaatt!!!??? Does the doctor really have that much control over who catches diseases and who dies? [Analogous to refusing to even consider the potential for default on sovereign debt, as if no European country has ever defaulted before – many have, and many probably will in the future as well). This analogy actually serves us quite well for the ECB has very limited control over who gets sick and how the contagions (both financial and economic) are transmitted (see below).

* The patient will be assumed to operate between 96% and 57.8% efficiency. This is, of course, a problem if the patient truly is terminally ill, for his health should receive significantly more of a…. Well, a haircut.

* Only the patient’s mucous membranes and other very short-lived tissue will be considered for examination, for the patience plans on keeping other body parts for the long term, hence they should not be affected by fluctuations by any potential illness. Yes, I know this statement doesn’t make any damn sense, but then again neither does the ECB excluding hold to maturity and portfolio inventory from the stress tests either. It really doesn’t matter how long you plan on holding said items, if they are permanently impaired in value, then they are permanently impaired, Right???!!! I know, we won’t even consider a default scenario, but since countries do default.. If a default occurs, or more realistically a restructuring, then wouldn’t longer term inventory be impaired – Permanently???!!! In the post A Comparison of Our Greek Bond Restructuring Analysis to that of Argentina I demonstrated how much damage was done to the Argentinian bond holders after their restructuring. Too bad the Argentinian investors didn’t have the all-powerful ECB there to declare that restructuring and default are not part of the rules, hence not allowed. The following is the price of the bond that went under restructuring and was exchanged for the Par bond in 2005.

The BoomBustBlog adds the charts below:

“Price of the bond that went under restructuring and was exchanged for the Discount bond.”


“With this quick historical primer still fresh in our heads, let’s revisit our Greek, Spanish, and Italian banking analyses (the green sidebar to the right), many of which are trying to push the 400% mark in terms of returns if one purchased OTM options at the time of the research release. It may be worthwhile to review the Sovereign debt exposure of Insurers and Reinsurers as well. A quick glimpse at our calculated restructurings are in order as well…”

Read the full analysis here.

Faked, And Not Very Well

“The European stress test results are coming out as you read this – and they were not as good as Meg Ryan’s performance in the deli in “When Harry Met Sally,” Michael Shulman, editor of Michael Shulman’s Short Side Trader, writes:

Michael Shulman


“What will investors think? Right now, nothing — markets are wandering, A good many will think this through over the weekend and return to my thought — if you fake them, it means you cannot do real tests. Why? The banks are in such bad shape that many of them cannot let investors take a look at the books of too many banks, it will cause a run on all the banks. Another group will look more at the math and say wait a minute, any real problems with sovereign debt and that four billion is looking kind of small.”


“What do I think? I am using Occam’s Razor — I had to read the guy in my Medieval Philosophy course at Georgetown, part of my major – and that is, according to Wikipedia, “is the principle that “entities must not be multiplied beyond necessity” (entia non sunt multiplicanda praeter necessitatem). The popular interpretation of this principle is that the simplest explanation is usually the correct one.”

Read the article at Seeking Alpha.

Euro Gains On Test Results

The euro has gained nicely against most major currencies after the test results was published at 18:00pm (CET), as you can see in the charts below:





Remember the guy in the popular TV show from the 80’s – “The A-Team”?

The one who at the end of every episode fired up a big cigar and said: “I love it when a plan comes through!”

Related by the Econotwist:

EU Bank Stress Test: Here’s The Full Package

To Europe From Goldman Sachs On The Stress Test Eve

Financial Authorities See No Point In Stress Testing Norwegian Banks

All Nordic Banks Will Pass Stress Test, Nordea Says

European Bank Stress Tests Are Loosing Credibility

The EU Stress Test: Working The Media


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Euro: $1,22 – Panic In Brussels

In Financial Markets, International Econnomic Politics, National Economic Politics on 17.05.10 at 11:44

The euro declined to a four-year low against the dollar in early European trading Monday, and is currently hanging around $1,23. The pressure is still downwards, as the European Central Bank declines to comment on rumors that it has already tried to intervene the forex market but failed.  A sense of panic is emerging in Frankfurt and Brussels as the E.U. leaders strategy seem to backfire on every level.

“The financial markets are in the worst situation since World War Two, and possibly even since World War One.”

Jean-Claude Trichet

At 5:37am (CET) Monday morning the euro dropped to 1,22428 against the dollar – the lowest level since March 2006. Traders are now paying the highest price in more than seven years for so-called currency swaps to insure against the euro weakening.

The increasing price for protection against further declines shows the European Union’s $1 trillion in loan funds to keep members from default has, so far, have failed to persuade investors that nations will get deficits under control.

At the same time, traders say the European Central Bank and President Jean-Claude Trichet have lost credibility by shifting policies on government bond purchases that are part of the plan, according to Bloomberg News.

“The road ahead is still shaky for the euro,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, says.

“The stress within the European banking system is elevated. ECB credibility has been hurt.”

UBS AG says the euro may depreciate to below $1.15.

BNP Paribas SA sees parity with the dollar by March, saying the currency’s outlook “remains bleak.”

“The euro is doomed,” Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut, says.

“The strains among the partners are becoming clear and it’s becoming harder to see global growth not being threatened by this.”

Panic In Brussels

The euro zone‘s finance ministers will discuss the parlous state of their beleaguered economies at a meeting in Brussels on Monday, after the bloc’s recently agreed trillion-dollar support package failed to prevent the euro’s slide.

This week’s meetings come amid a climate of continued uncertainty.

Initially hailed for its sheer size, senior European officials have since admitted that last week’s support package will buy little more than temporary relief for the zone’s struggling governments.

The rescue plan “has only bought time, nothing more,” the European Central Bank’s chief economist, Juergen Stark, told German daily Frankfurter Allgemeine Zeitung on Saturday.

German Chancellor Angela Merkel echoed the remarks, saying reform of the euro zone economies and better oversight were the only long-term solutions.

“We’ve done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual euro zone countries,” she told an annual meeting of the German Federation of Trade Unions, according to the

Adding; “If we simply ignore this problem we won’t be able to calm down this situation.”

Probably The Worst Crisis Ever

European Central Bank President Jean-Claude Trichet denied the euro is under speculative attack despite its steep fall, and called instead for a “quantum leap” in monitoring to ensure government budgets are kept under control

Germany’s Der Spiegel magazine quoted Trichet on Saturday as saying that Europe needed profound changes to prevent and punish misconduct by euro zone states in their economic policies.

Trichet said financial markets were in their worst situation since World War Two and possibly even since World War One.

Monday Market Snap Shots

As the euro desperately is trying to stay afloat, most European stocks are bouncing back after last weeks drop.

The price of oil and gold declines.

Here’s some market snap shots at noon, Central European Time:


The rising On-balance Volume Indicator shows increasing trades being made.




The Euro Is Going Down; Now Trading Below $ 1,24 (Update)

The Safest Bet During Uncertain Markets

Killing My CDS Softly

Breeding New Watchdogs

Banks Protesters Storm Irish Parliament

ECB Announces Bailout Program

Europe Is Cracking Up

Norway’s Central Bank Ready To Help E.U.

Bailout Euphoria Is Evaporating

Scandinavian Reactions To E.U. Measures: “We Are Not Safe”

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European Banks Loaded With Greek Debt

In Financial Markets, International Econnomic Politics, National Economic Politics on 06.05.10 at 17:22

BNP, Commerzbank, HSBC, SocGen, Natixis, BNP, CA, AXA, ING and Rabobank all identified as banks with massive Greek repo exposure. The next question is; will writedowns on these now illiquid and  –  as the Greek bond market is effectively shut down for a second day running – untradeable positions be taken?

“Or will Europe follow the U.S. in pretending tens of billions in valuation gaps will be filled by “Hopium?”

Zero Hedge

“As shown by the recent downgrade of Greek banks as a result of sovereign weakness, the potential contagion of sovereign risks to banking systems could spread to other countries such as Portugal, Spain, Italy as well as Ireland and the UK,” Moody’s Investors Service says in a new Special Comment.

Overall, Moody’s notes that each of these countries’ banking systems faces different challenges of different magnitudes, but warns that contagion risk could dilute these differences and impose very real, common threats on all of them.

This Special Comment assesses the contagion risk for those systems where the transmission mechanism primarily stems from the market concerns about the sovereign credit profile, but where, prior to this pressure, the banking systems had been less affected by asset price bubbles or exposure to structured financial products. These are the banking systems of Greece, Portugal, and to some extent Italy. Despite facing a fundamentally different situation compared with Greece, Portugal is now under heightened investor scrutiny, resulting in this week’s review for possible downgrade on the ratings of all Portuguese banks.

A key factor determining whether contagion risk continues in this case will be the market’s view of the likely success or otherwise of the recently agreed IMF and European Union support package for Greece.

Italy is another country where the banking system had been relatively robust so far, but where the major risk to its banking system could also be challenged by contagion risk should the market pressures on the sovereign increase.

The Special Comment then explores those banking systems that have weakened from within, often due to excessive loan growth (mostly Spain and Ireland and to a lesser extent the UK); contagion could potentially also spread to these banking systems where sovereign creditworthiness has been impacted by developments within the banking system.

Moody’s new report, the first of a two-part series, is based on a presentation that Moody’s senior analysts made to investors in various European cities throughout April 2010.

The second and forthcoming part of this series, which will be published shortly, will assess the exposures and capital implications for major European banking systems to the four (most) vulnerable countries, the rating agency writes.

French Toast

According to the French finacial industry is the one with the heaviest exposure to Greek debt.

Banking News writes:

At the time of accepting the Greek toxic bonds repo agreements some banks such as Commerzbank and HSBC had entered into repo with Greek banks from 1.5 to 2 billion each. These banks have sought various ways to get rid of the Greek bonds, but the repo does not break easily.

From foreign banks big exposure to toxic Greek bonds – say toxic as these CDS spread and toxic only be described – are BNP Paribas 5 billion multi-repo in Greek banks.

The Commerzbank 3.1 billion in repo to a large Greek bank.

The HSBC 2 billion in bonds through repo Greek by a Greek major bank.

The Societe Generale 3 billion

The Natixis to 830 million.

The BNP Paribas said it would retain the Greek bonds over the next 2-3 years (5 billion) and borrowings of Greek (3 billion euros)

The Credit Agricole 500 mn euros Zurich Finance 400 mn dollars, AXA 500 mn euros.

The French banks and insurance companies have the greatest exposure to toxic Greek bonds.

Positive support of the Greek debt and Dutch banks hold funds with 12 billion. The Greek bond ING holds 3 billion and Rabobank 300 million.

I guess there’s more to come…


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Norsk Hydro To Take Over Vale S.A's Aluminium Businesses

In Financial Markets, International Econnomic Politics, National Economic Politics on 02.05.10 at 23:58

Norsk Hydro ASA has signed an agreement to take over Vale S.A’s aluminium businesses to form a resource-rich and fully integrated aluminium company, securing Hydro’s bauxite supplies in a 100-year perspective, the Norwegian company announced Sunday.

“This transforming and value-creating combination takes Hydro to a new league in the global aluminium industry.”

Svein Richard Brandtzæg

“The combination will considerably strengthen Hydro’s position in bauxite mining and alumina refining, which, along with energy, are the most important input factors in aluminium production. The high quality and efficient cost base of the contributed assets will also significantly improve Hydro’s financial position,” the Norwegian company says in a statement issued Sunday afternoon.

After an engagement period of 40 years, they’re finally tying the knot – about time, some might say.

In summary, this is the marriage contract:

* Hydro has entered into an agreement to combine the majority of Vale’s bauxite, alumina and aluminium assets with Hydro’s existing business

* The transaction transforms Hydro into a fully integrated global aluminium company securing the company’s bauxite supplies in 100-year perspective

* Vale will receive a total consideration comprising USD 1.1 billion in cash and new Hydro shares equivalent to 22 percent ownership of its outstanding shares.

* As of April 30 and considering assumed net debt, this equates to a total consideration of USD 4.9 billion

* Following the transaction, Hydro will have a long position in bauxite and alumina, the key input factors for aluminium production in addition to energy

* To partly finance the transaction, support the company’s investment grade rating and capacity to implement future projects, Hydro intends to launch a fully underwritten rights issue of NOK 10 billion (approximately USD 1.75 billion).

The transaction

The transaction will provide Hydro with high-quality assets in Brazil, comprising full control and ownership of Paragominas, one of the largest bauxite mines in the world, 91 percent ownership in the world’s largest alumina refinery

Alunorte, 51 percent ownership in the Albras aluminium plant and 81 percent ownership in the CAP alumina refinery project.

“The combination will considerably strengthen Hydro’s position in bauxite mining and alumina refining, which, along with energy, are the most important input factors in aluminium production. The high quality and efficient cost base of the contributed assets will also significantly improve Hydro’s financial position.”

Vale will at closing of the transaction contribute 60 percent in Paragominas, 57 percent in Alunorte, 51 percent in Albras and 61 percent in the CAP alumina refinery project in return for a consideration comprising USD 1.1 billion of cash and 22 percent of Hydro’s outstanding share capital at that time. Hydro will also assume USD 0.7 billion of net debt within the contributed businesses as of December 31, 2009.

Prior to the combination, Hydro already has 34 percent ownership in Alunorte and 20 percent ownership in CAP.

Hydro has the right to take over the remaining 40 percent stake in Paragominas in two installments, in 2013 and 2015 respectively, against a cash payment of USD 0.2 billion for each installment.

In total, around 3,600 Vale employees will become part of Hydro as a result of the transaction, representing significant addition of competence, expertise and skills within bauxite, alumina and aluminium operations.

Vale, the world’s second-largest metals and mining company, will receive 22 percent ownership in Hydro as part of the combination, extending the close to 40 years partnership between the two companies from their current joint ownership in the Alunorte alumina refinery, the MRN bauxite mine and the CAP alumina refinery project.

The transaction also comprises additional bauxite licenses, a volume off-take agreement for Vale’s 40 percent stake in the MRN bauxite mine, in which Hydro holds 5 percent ownership, and an alumina sales contract portfolio.

The rights issue and the private placement towards Vale are subject to approval by Hydro’s general meeting of shareholders. The transaction with Vale also needs the consent of joint-venture partners in Vale assets, as well as regulatory approvals.

Hydro considers the regulatory risks attached to the combination to be limited.

The closing of the transaction with Vale is expected in fourth quarter 2010.

According to the agreement, Vale cannot increase its ownership in Hydro beyond the 22 percent contributed as part of the transaction, will retain its shares in Hydro for at least two years after the transaction closes and following the two-year period not sell shares constituting more than 10 percent of Hydro’s issued shares to any single buyer or group.

Vale will have one representative on Hydro’s Board of Directors, subject to approval by Hydro’s governing bodies prior to closing of the transaction.

Hydro has hedged the majority of the net aluminium price exposure in the contributed assets until the end of 2011, amounting to 670,000 tonnes with an expected average price of about USD 2,400 per tonne for the entire period.

A Transforming Value-Creating Combination

“This transforming and value-creating combination takes Hydro to a new league in the global aluminium industry. The deal will secure Hydro equity bauxite and alumina ownership and significantly improve our competitive position, making us more financially robust and well-positioned for growth,” Hydro’s President and CEO Svein Richard Brandtzæg says.

“Vale is highly recognized for its strong social and environmental track record and its commitment to transform mineral resources into sustainable development. Hydro will continue to build on these high standards,”he adds-

Rights Issue

Hydro’s largest shareholder, the Norwegian state, represented by the Ministry of Trade and Industry, owns 43.8 percent of the issued shares and is supportive of the transaction and the rights issue.

The Ministry of Trade and Industry will put forward a parliamentary proposition to participate for its pro rata share of the rights issue, which is expected to be obtained by mid-June 2010.

The Government Pension Fund Norway (Folketrygdfondet), owner of 5.9 percent of the issued shares, is supportive of the combination and the rights issue, and has entered into an agreement to underwrite and subscribe for its pro rata share of the rights issue.

The remaining share of the rights issue is underwritten by Citi, DnB NOR Markets and BNP Paribas, subject to customary terms and conditions.

The subscription price in the rights issue will be set shortly before the extraordinary general meeting. The subscription period will commence shortly following the extraordinary general meeting, with the rights issue targeted for completion in July 2010.

At closing of the combination and following the rights issue, a private placement to Vale of 22 percent of Hydro’s outstanding shares will result in the Norwegian state’s ownership in the company being reduced from 43.8 percent to approximately 34.5 percent.

Here’s a copy of the full presentation.

Related by the Econotwist:

Hydro Trash Estimates


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På markedets skyggeside

In Financial Markets, International Econnomic Politics on 17.05.09 at 13:51

På markedets skyggeside

Denne uken lanserte USAs finansminister planer for kontroll med det uregulerte markedet for derivater. Samtidig er de største bankene i verden i ferd med å bygge opp et nytt marked der gigantiske transaksjoner foregår anonymt med minimalt offentlig innsyn og kontroll.

De kaller det “dark pools”, og fungerer på mange måter som de tradisjonelle børsene. Forskjellen er at handelen foregår anonymt og ingen vet hvor store beløp det handles for.

Disse pengebingene er ikke nye. Det har eksistert i over 10 år, og det finnes mange forskjellige typer. De store bankene som Citigroup, BNP Paribas og UBS har sine egne “dark pools” hvor de foretar verdipapirhandel utenfor det tradisjonelle markedet, de store meglerhusene som Goldman Sachs og Morgan Stanley har sine, noen eies av forskjellige konsortium og i tillegg finnes det uavhengige elektroniske handelsplattformer som for eksempel NYFIX, Liquidnet og Pipeline.

De mørke markedene har til nå vært en av finansmarkedets best bevarte hemmeligheter.

Det antas at over 25 prosent av den globale aksjehandelen foregår gjennom dark pools. Beregninger viser at andelen vil øke til nærmere 40 prosent innen 2011.

Morgan Stanley opplyser at de i øyeblikket omsetter 100 millioner aksjer per dag. For tiden er det om lag 30 tilsvarende dark pools i virksomhet, det betyr at handelen på disse elektroniske plattformene tilsvarer mer enn halvparten av den gjennomsnittlige omsetningen på Wall Street.


Men ingen vet med sikkerhet hvor mye penger dette markedet skjuler.

I utgangspunktet er dark pools opprettet for å kunne utføre større transaksjoner uten å påvirke det offentlige markedet

Dersom en investor ønsker å kjøpe en stor aksjepost i et selskap på en av de tradisjonelle børsene vil det som regel føre til spekulasjoner og betydelige bevegelser i aksjekursen. Investoren må betale mer per aksje.

Dessuten har flere børser bergrensinger på hvor store ordrer som kan utføres, og man er nødt til å dele opp kjøpet, eller salget, i mindre biter. Noe som medfører flere transaksjonsgebyr og høyere kostnader.

Det unngår man når man handler i en dark pool.

Alle opplysninger blir forsøkt hemmeligholdt. Riktignok krever myndighetene i enkelte land at transaksjonene rapporteres, men rapporteringen blir automatisk forsinket så lenge som mulig for å hindre at markedet for øvrig påvirkes.

Det stilles ingen kurser. De avtales partene imellom, anonymt gjennom sine bank- og meglerforbindelser.

Det opplyses ikke om størrelser eller beløper.

Effekten disse transaksjonene har på det ordinære markedet er uklar.

Men når mer og mer likviditet forsvinner ut i mørket, blir det vanskeligere og vanskeligere for aktørene i det åpne markedet å vurdere hva som er riktig pris på en aksje, eller annet verdipapir.

Blir større

Antall nye alternative handelsplasser har økt kraftig de siste årene som følge av utviklingen av internettet.

De elektroniske børsene lokker med billigere transaksjonskostnader, hurtigere og mer effektiv handel.

Det har fått flere av de store tradisjonelle børsene som NYSE, Nasdaq og London Stock Exchange til å opprette sine egne dark pools.

Forrige fredag opplyste verdens tre største meglerhus; Goldman Sachs, Morgan Stanley og UBS at de kobler sine dark pools sammen slik at investorene får tilgang til disse markedene både i Europa og USA.

Onsdag denne uken la USAs finansminister Timothy Geithner frem planer for regulering og kontroll med det uregulerte markedet for derivater. Det vil si; sammensatte finansielle produkter, opsjoner futures, warrents, etc.

Et marked som har fått mye av skylden for finanskrisen som har oppstått.

Kan skape ny krise

Ifølge Geithner vil det bli foreslått rapporteringsplikt for alle typer derivater. I tillegg skal alle handler godkjennes av et clearing house a la den norske verdipapirsentralen.

Derfor strømmer nå hedgefond og andre aktører i derivatmarkedet til de mørke markedene i cyberspace hvor de kan fortsette sin avanserte handel uten at noen holder øye med dem eller stiller krav til sikkerhet, osv.

De største dark pools i øyeblikket eies og kontrolleres av de største bankene (som for øvrig er de største aktørene i derivatmarkedet) og de har interne kontrollrutiner som burde gjøre handelen trygg for både kjøper og selger.

Men utviklingen går fort, og måten disse handelsplassene fungerer på innbyr til misbruk og markedsmanipulasjon.

Og hva vil skje hvis en aktør i en dark pool plutselig dumper 100 millioner aksjer i det åpne markedet uten forvarsel?

Risikoen forbundet med dark pools er minst like stor som i et uregulert derivatmarked, og det er litt underlig at verken politikere eller representanter for tilsynsmyndighetene nevner dem med ett eneste ord.

Dette styrker heller ikke tilliten til markedet, noe som er avgjørende for å få vårt økonomiske system til å fungere igjen.

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