Month: February 2014

The biggest problem facing European banks – one we highlighted most recently yesterday when we showed the latest 20% surge in Spanish Banco Popular Non-Performing Loans to a fresh record – and one we have been covering since 2010, which as of 2012 amounted to some $4.5 trillion that needs to be “remedied” – is the staggering amount of bad debt on the books of Europe’s numerous banks, the bulk of which especially in the periphery are cojoined with their sovereign host in an unbreakable bond which despite Europe’s theatrical attempts to sever, only keeps getting stronger.

But while, so far at least, the conventional “under the table” can-kicking European bailout mechanism involved a process whereby banks would issue bonds with a sovereign “guarantee”, then promptly repo them to the ECB at virtually no haircut as the Goldman alum-led central bank did everything in its power to keep injecting liquidity in an insolvent continental banking system (while everyone pretended to not realize what was going on as the “A-ha” moment of public epiphany would mean the emperor would suddenly have no clothes and the jig was up), this week things changed.

On Wednesday, Italy’s government voted final approval to a decree hiking the value of Bank of Italy’s share capital from €156K to €7.5 billion – something that had not been done since the 1930s. Of course, politicians determining the fictitious value of a central bank is one thing, as idiotic as it may be. However, what is truly preposterous is the covert bailout that accompanies the decree: a key part of the decision was setting a 3% ceiling on the stake that the bank’s shareholders can own in the central bank. This means, as Reuters reports, that Intessa and UniCredit, currently the central bank’s largest shareholders with stakes of 42 percent and 22 percent respectively – not to mention two of Italy’s most NPL-heavy banks – will have to sell the bulk of their central bank “equity” stakes. And who will they sell them to? Why the central bank itself, and in return they will pocket up to €3.5 billion ($4.7 billion) from the sale of their central bank holdings. Said otherwise, Italy took not only bizarro accounting, but also monetary financing of insolvent banks by the monetary authority, and thus Italy’s taxpayers, to the truly next level.

Some more details on this supremely grotesque, and certainly not last, bailout from Reuters:

The decree says the banks have three years to comply with the new rules.

 

Should Intesa Sanpaolo sell a 39 percent stake, it could cash in up to 2.3 billion euros before tax according to analysts’ calculations based on the new share capital of the Bank of Italy.

 

UniCredit could pocket a gross capital gain of around 1.15 billion euros from the disposal of its 19 percent stake in the central bank.

 

The only other lender with a stake in the central bank exceeding 3 percent is Carige which stands to reap a capital gain of 73 million euros if it sold part of its holding to comply with the decree.

And the cherry on top, confirming that Basel III is the biggest regulatory supervision joke conceived in Basel whose only purpose is to perpetuate a system of insolvent banks no matter the taxpayer cost, is that the capital gains from the sale would be used to boost the banks’ core capital.

For those asking – yes: Italy’s central bank just made sure Intessa and UniCredit pass Europe’s stress test with flying color courtesy of a direct $4.7 billion deposit.

Sadly, this most brazen bailout will only benefit the abovementioned two banks:  “The ownership limit will benefit only Intesa Sanpaolo and UniCredit,” said Fabrizio Bernardi, analyst at Fidentiis Equities. “It will not help, however, Monte dei Paschi di Siena and Banca Carige, which are desperate for capital,” he added. Monte dei Paschi has to raise 3 billion euros later this year to pay back state aid, while Carige needs to boost its capital by 800 million euros.

That’s ok, we are sure the MIT diaspora of brilliant bankers who rule the world (literally) will come up with some another ingenious plan to mask the epic insolvency of Monte Paschi in the 11th hour, kicking the can for another several months, until the next leg lower in the European depression forces Europe’s banks to get yet another bailout, and so on, until one day there are no more people left to fool.

Perhaps the piece de resistance is that not only is the central bank bailing out insolvent banks, but it is indirectly also funding the sovereign: the new law will also help public finances thanks to the taxation of the capital gain the banks will register.

Simply remarkable.

And it would have been even more unbelievable had nobody in Italy’s parliament figured out this was simply yet another taxpayer funded gift to Italy’s banks. Somebody, however, did. Guardian reports that late on Wednesday, MPs of Beppe Grillo’s M5S “stormed the government benches, put on symbolic gags and kept up a barrage of whistling after the speaker, Laura Boldrini, cut short the debate and ordered a vote on a complicated and intensely controversial measure to square Italy’s public accounts. One of Grillo’s followers said an MP from the governing majority had slapped her during the disorder. Opposition MPs claim that the measure would hand more than €7bn (£5.8bn) of taxpayers’ money to the banks.” Of course, what better way to fast-track yet another taxpayer bailout than to cut any debate short.

And this being Italy, where the phrase “political circus” is redundant, things just went uphill from here:

Members of the far-right opposition Brothers of Italy party showered chocolate coins on the government’s representatives in the chamber and unfurled an Italian flag. After the vote was taken, Boldrini’s party colleagues in the radical Left Ecology and Freedom (SEL) party broke into a chorus of the old partisan song Bella Ciao, prompting the M5S to respond with a rendition of the national anthem.

 

 

It is the first time since the foundation of the Italian republic after the second world war that a speaker has used the power to cut short a debate in this way. If she had not intervened, the decree at the centre of the dispute would have lapsed at midnight and Italian homeowners would have been landed with a bill for €2.2bn.

 

Enrico Letta’s left-right coalition government won the vote by 236 to 209.

 

The decree was the latest stage in the government’s tortuous efforts to fulfil an election pledge by Silvio Berlusconi to scrap an unpopular tax on first homes – and to do so without increasing Italy’s already vast, €2tn public debt. Part of the cost is being passed to banks. 

 

But the decree included provisions for an increase in the capital of Italy’s central bank – a move that will swell the balance sheets of the commercial banks that are shareholders in the Bank of Italy.

 

Since the central bank is to use its statutory reserves for the increase, the M5S argued that it amounted to a gift of more than €7bn to the banks.

And they were right. But that’s ok – at least everyone get’s to pretend for a few months longer that the system, which now needs ever more creative bailouts, is solvent.

via Zero Hedge http://ift.tt/1ijwRIL Tyler Durden

Google reported Thursday later afternoon and the early morning traders didn’t know what to make of the numbers – with the stock gyrating up and down. The following day, CNBC’s 2nd annual sitck draft stock picking contest ended. Guess what happened? For the impatient, I cna put the video here…

via Zero Hedge http://ift.tt/1nAmnrs Reggie Middleton

Google reported Thursday later afternoon and the early morning traders didn’t know what to make of the numbers – with the stock gyrating up and down. The following day, CNBC’s 2nd annual sitck draft stock picking contest ended. Guess what happened? For the impatient, I cna put the video here…

via Zero Hedge http://ift.tt/1nAmnrs Reggie Middleton

17 years ago, the first major Emerging Market crisis started in Thailand, leading to the Russian default and the collapse of LTCM ushering in the era of Too Big To Fail. This time, all the world needed for the second major EM crisis, was for Ben Bernanke to announce he is giving global central planning a break (because one can be certain the Untaper will be right back on the agenda as soon as the S&P enters a bear market). Ironically, Thailand has largely been insulated from the EM decimation, even through it is now in as bad a political shape as it ever was, and one day ahead of the February 2 general elections things are getting from bad to worse. AFP reports that explosions and heavy gunfire rattled Bangkok Saturday as pro- and anti-government protesters clashed on the eve of controversial Thai elections seen as unlikely to end a cycle of violence in the kingdom after months of opposition rallies.

So far the market has discounted the political tensions’ impact on the economy, but that may change soon, especially if tomorrow’s election fails to stabilize the unstable political situation. “Tensions are high in the capital ahead of snap elections on Sunday, which opposition demonstrators have vowed to block as they seek to prevent the likely re-election of Prime Minister Yingluck Shinawatra.”

Tensions reached a breaking point hours ago when bystanders, security personnel and journalists raced to take cover in a shopping mall after a masked gunman man began spraying bullets from an assault rifle during confrontations between government supporters and opposition demonstrators, according to an AFP reporter.

AFP reports from the ground:

At least six people were injured as a busy intersection in a northern suburb of the capital was turned into a battle zone with volleys of sustained gunfire ricocheting off buildings for over an hour in a daylight attack that sent shockwaves across the city.

 

Bangkok has been rocked by weeks of sometimes bloody political violence during rallies by a loose coalition opposed to Yingluck and the enduring influence of her brother Thaksin Shinawatra — a former premier ousted by the military in 2006.

 

Saturday’s clashes happened after demonstrators blocking ballot boxes from being delivered from the Lak Si district office — one of 50 in the capital — were confronted by a group of some 200 government supporters, some armed with sticks and metal bars. At least two explosions were heard in the area before the firing began.

 

“The clash point is the intersection, gun shots seemed to be fired from both sides,” said Sunai Phasuk, a senior researcher with New York-based Human Rights Watch, who was at the scene. He said a reporter was among the injured.

 

The firing started after talks between the rival groups broke down in the area, which is roughly split between Yingluck’s supporters and those backing the opposition protests, Sunai added.

 

“This is what we forecast for tomorrow. Tensions could flair up into violence very easily,” he told AFP, adding that protesters had been evacuated and tensions appeared to have calmed after nightfall. At least 10 people have been killed and hundreds injured in clashes, grenade attacks and drive-by shootings since the opposition rallies began three months ago.

 

The unrest is the latest round of political instability to hit Thailand since royalist generals ousted Thaksin seven years ago, unleashing a cycle of sporadically-violent street protests.

If there is any silver lining about the current cycle of violence is that so far it has not reached the proportions of the 2010 clashes when a military crackdown on pro-Thaksin Red Shirts demonstrating against the previous government left more than 90 people dead and nearly 1,900 injured.

The backdrop to the protests is a years-long political struggle pitting the kingdom’s royalist establishment — backed by the courts and the military — against Thaksin, a billionaire tycoon-turned-politician. The current protesters are mainly made up of Thaksin’s foes in the Bangkok middle classes and southerners, backed by factions in the elite.

 

They are demanding Yingluck’s elected government step down to make way for an unelected “people’s council” that would oversee loosely defined reforms to tackle corruption and alleged vote-buying.

 

“The government is corrupt. If we let the vote go on then they will come back, so we should not hold the election,” said opposition protester Sirames, who gave only one name, at the Lak Si office before the violence broke out.

 

Yingluck’s opponents say she is a puppet for her elder brother Thaksin Shinawatra, who lives in Dubai to avoid a prison term for graft. Around 130,000 police are set to protect 93,000 polling stations across the country on Sunday.

 

Yingluck is likely to win the poll, helped by strong support in Thaksin’s north and northeastern heartlands.

 

But uncertainty hangs over the results, with unrest threatening polling and several constituencies without a candidate. Authorities on Saturday said protesters were also blocking ballot boxes being delivered to polling stations across southern Thailand — the stronghold of the opposition Democrat Party.

While the probability of a deadly escalation tomorrow is slim – for now – the last thing the EMs need at this point is the flaring of risk at yet another key focal point, especially one that has so much deja vu emotional significance for market participants. We will keep an eye on Thailand over the next 24 hours and update as needed.

via Zero Hedge http://ift.tt/Lled7b Tyler Durden