We’re All Peripheral Now

June 15, 2010, 11:33 AM GMT

By David Cottle

Whenever capital markets think they can at last settle down to concentrate on something else: mildly positive economic data, perhaps, or the crucifixion of BP, the euro-zone’s sovereign-debt hydra grows another head and lumbers back center stage.

Look at U.S. equity markets. They were doing OK on Monday until Moody’s announced its latest robust hack at Greece’s credit ratings. Such a move had been fairly well flagged but, even so, coming after Banco Bilbao Vizcaya Argentaria chairman Francisco Gonzalez gloomily said most Spanish companies and banks are suffering from a credit freeze, it was more than enough to send investors scurrying for the exits.



AFP/Getty Images
A car passes by the Bank for International Settlements on May 10, 2010 in Basel.
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Now they have the latest quarterly review from the Bank for International Settlements to chew over, too, and it’s unlikely to have them hurrying back into the fray.

As is its wont, the BIS has been looking at who in struggling, so-called ‘peripheral’ nations of the euro zone owes what to whom. And, surprise surprise, it tells us:

“Euro-area banks were particularly exposed to the residents of Greece, Ireland, Portugal and Spain, accounting for almost two thirds of all BIS reporting banks’ exposures to these countries.”

Within the euro area, French and German banks, apparently, have the largest exposures ($493 billion and $465 billion, respectively) while, without, banks headquartered in the United Kingdom had larger claims on Ireland ($230 billion) than banks based in any other country.

Just to pile mess on top of mess, Spanish banks were the ones with the highest level of exposure to the residents of Portugal ($110 billion).

These data are particularly interesting and well timed. Leaders in Europe’s relatively prudent ‘core’ are conducting their own heated internal debates over the extent to which the profligate periphery ought to be bailed out with their voters’ hard-earned funds and reputations. The idea of blank checks to Greece, Spain and all isn’t one that resonates much with the German people by all accounts; it’s hard to imagine the French are any more keen. Both have problems enough of their own, anyway, highlighted most recently by this morning’ s dismal ZEW sentiment survey out of Germany.

But, alas, the BIS’ numbers blur the over-used distinction between ‘periphery’ and ‘core’ almost to the point of invisibility. For the latter, it may well be a case of ‘bail out the debtors; the banks you save may be your own.’
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Source: http://blogs.wsj.com/source/2010/06/15/were-all-peripheral-now/
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E.U. Agrees to Publish Results of Stress Tests on Biggest Banks

By STEPHEN CASTLE and JACK EWING
Published: June 17, 2010

BRUSSELS — The European Union agreed Thursday to publish the results of stress tests imposed on major, cross-border banks, a move aimed at restoring confidence in the health of the bloc’s financial sector.

The move would be accompanied by a pledge to show flexibility in applying rules limiting government aid to companies, according to an agreement reached at a summit meeting of E.U. leaders in Brussels.

That would allow European governments to move to recapitalize any banks deemed to be in trouble — before the publication of the stress-test results.

Herman Van Rompuy, president of the European Council, confirmed the agreement, and said the stress test results would be published before the end of July.

“I think it’s good news,” said Nicolas Véron, an economist at Breugel, a research organization in Brussels. “Nations have come to the realization they couldn’t go on telling people everything was fine and giving no evidence.”

But the effect could be less reassuring than hoped. Mr. Van Rompuy said the agreement would apply “around 25” systemically important banks.

That means they would not shed light on the financial health of the hundreds of smaller savings or public-sector institutions which dominate the retail banking market in countries like Germany.

Those institutions, which fall under the jurisdiction of national authorities, are often fiercely opposed to attempts to force more disclosure. “Making stress tests public is counterproductive and could in certain cases lead to misperceptions in markets,” Karl-Heinz Boos, director of the Association of German Public Sector Banks, said in a statement.

Yet lingering doubts about their strength could even add to market pressures on some countries.

The draft text prepared by the European Commission president, José Manuel Barroso, called for publication of the test results on a “bank-by-bank basis” and pledged “sufficient flexibility” over E.U. state aid rules, to deal with any problems detected in a “timely manner.”

In effect, that would mean the European Commission waiving its strict rules on state aid, which are meant to guarantee a level playing field for companies across the 27-nation single market.

The text also made it clear that any bank recapitalization would be undertaken by national governments and not as part of a broader E.U. safety net for countries already struggling to deal with their massive debt.

The Europeans were hoping to go to a Group of 20 meeting in Toronto next week with a clear position on the transparency of stress test results.

Stress tests are designed to estimate the potential losses financial institutions could be facing under adverse circumstances, and therefore to prompt corrective action if appropriate.

The debate on publication of results resumed this week when Spain, which faces a lack of market confidence, promised to publish the results of its stress tests in a bid to calm investor worries. Germany indicated it, too, was in favor of more transparency.

But Mr. Boos at the Association of German Public Sector Banks said that stress tests could only be made public with permission of the banks, which none have given. The association represents banks accounting for about a quarter of the German market, including the state-owned Landesbanks which in several cases have already required multi-billion euro bailouts because of investments in securities tied to the U.S. subprime market and other toxic assets.

Mr. Véron predicted that evaluations of the large banks, along with plans by Spanish authorities to disclose results of their tests of domestic banks, will force other countries to follow suit and disclose the financial state of smaller institutions. “Once you have a benchmark for the first 25 banks, then this will have trigger effects,” he said.

One big risk is that some banks will prove to be weaker than has been publicly known, or even insolvent once forced to do a frank evaluation of their financial state. “It could be there will be some delicate moments in the process,” Mr. Véron said. “But it’s much better than the stonewalling we have had.”

French and German banks are the most exposed to debt from Spain, Greece, Portugal and Ireland, according to a report released Monday. French banks had lent $493 billion to businesses, households and governments in the four countries by the end of 2009 while German banks had lent $465 billion, according to the report by the Bank for International Settlements, an institution based in Basel, Switzerland, that acts as a clearing house for the world’s central banks.


Jack Ewing reported from Frankfurt.
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Source: http://www.nytimes.com/2010/06/18/business/global/18stress.html?src=busln
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Spain to Use $30 Billion "Fund for Orderly Bank Restructuring"

Thursday, June 17, 2010

Spain to Use $30 Billion "Fund for Orderly Bank Restructuring"; Spain's Borrowing Costs Rise; Is an EU or IMF Bailout of Spain in the Works?


Inquiring minds are wondering if an EU or IMF orchestrated bailout of Spain is in the works. Spain denies it, but rumors of secret talks are running rampant.

Please consider Spanish debt wilts amid €250bn rescue plan confusion


European debt markets remain under high stress on persistent reports that Spain is in secret talks with EU officials and the International Monetary Fund for a support package of up to €250bn (£208bn), the largest rescue in history.

The spreads on 10-year Spanish bonds jumped to a post-EMU high of 224 basis points above German Bunds as traders brace for a crucial auction by Madrid on Thursday. The relentless rise in bond yields replicates the pattern seen in Greece at the onset of crisis. Spain must raise €25bn of debt in a cluster of auctions in July.

"We're in a dangerous and stressful situation," said Gary Jenkins, a credit expert at Evolution Securities. "Spain is a big enough borrower to wipe out the EU's rescue fund."

Elena Salgado, Spain's finance minister, reacted angrily to a report in the Spanish daily El Economista claiming that the support plans are well advanced.

"It has been denied by the Spanish government, by the European Commission, and by the IMF. How much more can we deny it?" she said.

The story refuses to die, however. Three German newspapers have run similar stories over recent days, citing German sources. The markets are convinced that some form of contingency planning is underway.

"In our view there is absolutely no doubt that a backstop facility for Spain will be put in place should stress in the system remain," said Silvio Peruzzo, an economist at RBS,
Concern Over Spanish Bank Stress Tests

Bloomberg reports Yen Gains, Euro Weakens on Concern Europe Crisis to Slow Growth

The euro weakened against most major currencies after Spain’s central bank said yesterday it planned to publish the results of stress tests carried out on lenders to counter speculation it needs international aid. Last month the EU announced a 750 billion-euro ($920 billion) rescue mechanism to stem contagion from Greece as the risk premiums on Spanish and Portuguese bonds surged.

World Bank President Robert Zoellick said yesterday there are “challenges” ahead in Europe even if the rescue packages put together by authorities have “bought time.”

EU leaders will meet in Brussels to discuss the region’s economies and the so-called stability and growth pact. The Bank of Spain plans to make the findings of its stress tests public to provide markets with full knowledge of the state of the country’s banking system, Miguel Angel Fernandez Ordonez, the central bank governor, said yesterday in a speech.

“Investors continue to express concerns over Spain, especially whether the government can commit enough funds to ring-fence the banking sector,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. The euro is likely to weaken to $1.15 in three months, he said.
RBS Sticks With IMF Bailout Idea After Spain's Denial

RBS Analysts Say Spain Rescue Credit Line From IMF Still Likely.
Some form of credit support for Spain from the European Commission and International Monetary Fund is still likely, even after a report of such a plan was denied yesterday, Royal Bank of Scotland analysts said.

Such a plan may become necessary as the government faces around 25 billion euros in bond redemptions in the next month, and those may not be easily refinanced given how bond yields have risen, they wrote. RBS said Spain could receive an IMF Flexible Credit Line similar to those received by Poland, Mexico and Colombia.
Spain Borrowing Costs Rise at Auction of 10-Year Debt

Tick, Tock. Bloomberg reports Spain Borrowing Costs Rise at Auction of 10-Year Debt
Spain paid an average yield of 4.864 percent at an auction of 10-year debt, compared with a rate of 4.045 percent at an auction on May 20, the Bank of Spain said today.
That is a rather hefty increase in rates. Spain will be in trouble if that continues for several months.

Spain to Use $30 Billion "Fund for Orderly Bank Restructuring"

Inquiring minds are reading Spain may use 30 billion euros for bank restructuring

Spain may use as much as 30 billion euros of its Fund for Orderly Bank Restructuring (FROB) to cover the financing needs of its banks, the Economy Minister Elena Salgado said on Thursday. The FROB, created to help the banking sector, can issue up to 99 billion euros to aid credit institutions.

"(The fund) will be more than sufficient for all of banks' needs," Salgado said during a television interview.

"It's going to be much less than (90 billion euros). These figures have to come from the Bank of Spain, but I would estimate, with total certainty, that it will be less than one third."
$30 billion may buy some time for a while.

However, odds are very good that Spain will need a bailout from the EU, IMF, or both. Then what?

Eventually Greece and Spain are likely to default and Italy is waiting in the wings.

Good luck with that.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com/

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Secretive Bilderberg Club ready for protests

From The Times June 3, 2010

Secretive Bilderberg Club ready for protests

(Sergio Perez/Reuters)
Spanish prime mininster Jose Luis Rodriguez Zapatero is expected to open this year's meeting of the Bilderberg club, near Barcelona


Graham Keeley, Barcelona


Splash! Could that be the sound of Lord Mandelson hitting one of the Dolce hotel’s four pools? Or Robert Zoellick of the World Bank? Paul Volcker of the US Economic Recovery Advisory Board? Or merely the euro taking another dive?

That is the thing about the Bilderberg group’s top secret meetings: you never know quite what is going on behind the police checkpoints.

Across the world, secretaries to the rich and the powerful have blocked out the next three days in their bosses’ calendars for their annual gathering, this time at the Dolce in Sitges, one of Spain’s most exclusive resorts.

Normally, every minute of their working lives is accounted for but, each year, a couple of hundred of the world’s financial elite and the more business-friendly members of the political class disappear from view; supposedly to save the planet from the dangers of parochialism, the nationalist genie.

It is all terribly confidential — breathe a word about it and you’re out of the club — but the Bilderberg watcher Daniel Estulin claims to have a copy of the agenda. The big question this time around is whether the euro will survive. “They are afraid that the countries in trouble will leave and the euro will fall apart,” said Mr Estulin. “The biggest nightmare is if EU members return to nationally orientated policies.”

That would certainly explain why the keynote address is being given by José Luis Rodríguez Zapatero, the Spanish Prime Minister. The Piigs — Portugal, the Republic of Ireland, Italy, Greece and Spain — are of concern to the Bilderbergers. After all, the club was set up in 1954 by a Polish exile, Joseph Retinger, to create a European bulwark against the spread of communism. It provided the germ of the European idea; Franco-German reconciliation, the entry of West Germany into Nato, the Maastricht treaty — all were cooked up in annual fireside chats.

Now, according to Mr Estulin’s information, the Bilderbergers are nervous that the erosion of the euro could nudge the world back into recession while public services cuts could trigger unrest and radicalise the political climate.

Plenty to talk about at the Dolce, then. The Bilderberg protesters, sure that they can smell a good oldfashioned capitalist conspiracy, will be holding fringe meetings in the town. The hunt will be on to find a chambermaid ready to ransack hotel litter bins for evidence that evil work is afoot. It has been easier to get nuggets of information out of Bilderberg since hotel staff started to read Dan Brown and talk about the illuminati.

Could it be, though, that the Bilderbergers are simply having fun, away from their spouses, on their annual jamboree? The secret of Bilderberg could be that there is no secret. Certainly, the hotel offers plenty of distractions for stressed CEOs: qi-gong courses, excellent fish, fine wines and bicycle tours.

Henry Kissinger, 87, the former US Secretary of State, and David Rockefeller, 95, the former chairman of the Chase Manhattan Bank, are the elder statesmen of Bilderberg — but the leaked invitation list reveals that the gathering is made up primarily of elderly white gents.

Remember Richard Perle, 68, George Bush’s erstwhile Prince of Darkness? He could perhaps form a Prince of Darkness sub-group with Lord Mandelson. Paul Wolfowitz, 66, formerly of the World Bank? Mario Monti, 67, EU commissioner for the single market between 1995 and 1999?

Only the possible attendance of George Osborne, 39, the British Chancellor, will reassure hotel staff that they are not dealing with a Saga Holidays tour. Other members of this clandestine coven include Queen Sofia of Spain and Queen Beatrix of Holland. No doubt their views will be sought on the Swedish royal wedding later this month. Is it right, for example, that a young princess should marry her personal trainer? Fortunately, the Dolce has a team of personal trainers on hand ready to chip into the debate.

Last year Bilderberg held its meeting at the Nafsika Astir Palace hotel in Greece and apparently failed to spot how close their host country was to melting down. Watch out, Spain!

The weather forecast is for three days of sunshine — time for the Bilderbergers to slink out of the shadows.

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Source: http://www.timesonline.co.uk/tol/news/world/europe/article7142478.ece

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Stocks slump on European woes

The Dow plunges more than 300 points. Greece's parliament votes for the EU-IMF bailout despite intense protests. Moody's warns that the economic crisis could weigh on European banks. Europe's central bank keeps rates on hold.

Posted by Elizabeth Strott and Charley Blaine on Thursday, May 6, 2010 9:14 AM
Updated at 2:41 p.m. ET


Stocks were suffering their worst one-day decline since February 2010, despite a vote by Greece's parliament to pass the 110 billion euro ($146 billion) European Union-International Monetary Fund bailout package.

Worries that the package won't prevent the crisis from spreading to Portugal and Spain overshadowed any optimism from the vote.


Also adding to the day's stress were weaker-than-expected April sales reports from retailers.


At 2:37 p.m. ET, the Dow Jones Industrial Average ($INDU) was down 324 points, or 3%, to 10,544. That's the biggest point loss since Feb. 10, 2009.


The Nasdaq Composite Index ($COMPX) had lost 90 points, or 3.5%, to 2,311, and the Standard & Poor's 500 Index ($INX) had shed 39 points, or 3.4%, to 1,126.

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Source: .http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches.aspx?post=1751806&_blg=1,1751806